08-11 0~

NEW ISSUE-BOOK-ENTRY ONLY RATINGS: Standard & Poor's: "AA"

(See "MISCELLANEOUS- Rating" herein)

Subject to compliance by the City with certain covenants. in the opinion of Quint &Thimmig LLP, San Francisco, California, Special Counsel, under presenr law. interest with respect to the Certificates is excludable from gross income of the owners thereof for federal income tax purposes and is not includt!d as an item of tax preference in computing the federal alternative minimum tax for individuals and corporations, hut such interest is taken infO ,'lccowll in computing an adjustment used in determining the federal alternative minimum tax for certain corporations. In the further opinion ofSpecial Counsel, such interest is exemptji-om California personal income taxes. See "LEGAL MATTERS-Tax Matters" herein for a more complete discussion.

Dated: Date of Delivery

$27,675,000 CERTIFICATES OF PARTICIPATION

(2008 Refinancing Project) Evidencing Direct, Undivided Fractional Interests of the Owners

Thereof in Lease Payments to be Made by the CITY OF FREMONT

(Alameda County, California) As the Rental for Certain Property Pursuant to a Lease Agreement with the

FREMONT PUBLIC FINANCING AUTHORITY

~--Fremont Due: August 1, as shown on the inside cover hereof

The Certificates afParticipation (2008 Refinancing Project) (the "Certificates") will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"). DTC will act as securities depository of the Certificates. Upon receipt of payments of principal and interest with respect to the Certificates, DTC is obligated to in tum remit such principal and interest to the DTC Participants (as herein defi11ed) for subsequent disbursement to purchasers of the Certificates, as described herein. Individual purchases of interests in the Certificates will be made in book·entry form only, in the denomination of$5,000 or any integral multiple thereof. Principal and interest with respect to the Certificates ;ue payable directly to DTC by The Bank of New York Mellon Trust Company, N.A., San Francisco, California, as Trustee, from lease paymeots ("Lease Payments") to be made by the City of Fremont (the "City"), as described herein. Interest due with respect to the Certificates is payable scmi·annually on each February I and August I, commencing February 1, 2009. Principal due with respect to the Certificates at maturity is payable on the dates set forth on the inside cover hereof. The Certificates are subject to optional and extraordinary redemption prior to maturity as described herein. See "THE CERTIHCATES- Redemption', herein.

The obligation of the City to make Lease Payments docs not constitute an obligation of the City to levy or pledge any fonn of taxation or for which the City has levied or p\edged any fonnoftaxation. The obligation of the City to make Lease Payments is in consideration of the right of the City to the continued use and possession of certain leased property described herein. In the event of failure of such use and possession, such obligation may be abated in whole or in part as described herein. NEITHER THE CERTIFICATES NOR THE OBLIGATION OF THE CITY TO MAKE LEASE PAYMENTS CONSTITUTES A DEBTm· THE CITY, THE AUTHORITY, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION.

The following firm, serving as financial advisor, has structured this issue

@KNN ppblf~ tiiUMt~

.0. o;,;.;.., uf J'"""' rlniN•ioaallll=l

The maturity schedule for the Certificates appears on the inside cover hereof.

Pursuant to the teems of a public sale on September 16, 2008, the Certificates were awarded to Morgan Stanley & Co., ]ncorporated. The Certificates arc offered when, as and if delivered and received by the Underwriter subject to approval by Quint & Thimmig LLP, San Francisco, California, Special Counsel. It is anticipated that the Certificates will be available in New York, New York, through the facilities ofDTC, on or about September 30, 2008

THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR QUICK REFERENCE ONLY. IT IS NOT A SUMMARY OF TillS ISSUE. INVESTORS MUST READ THIS ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION.

September 16, 2008

();!

9 N

f-u 0 0 :;:)-u Q(.

Maturity (August l}

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

'"'

MATURITY SCHEDULE (Base CUSIP l'Oo.: 357122-) '''

Principal Interest CUSIP Maturity Principal Interest CUSIP Amount Rate Yield Suffix (August I} Amount Rate Yield Suffix

$400,000 3.00% 1.80% JP6 2020 $715,000 4.25% 4.30% KA 7 490,000 3.00 2.00 JQ 4 2021 745,000 4.50 4.50 KB 5 505,000 3.00 2.50 JR 2 2022 780,000 4.50 4.60 KC 3 520,000 4.00 2.90 JS 0 2023 815,000 4.75 4.75 KD I 545,000 4.00 3.10 JT 8 2024 850,000 4.75 4.80 KE9 565,000 4.00 3.25 JUS 2025 895,000 4.90 4.90 KF6 585,000 4.00 3.50 JV 3 2026 935,000 5.00 5.00 KG4 610,000 4.00 3.75 JWI 2027 985,000 5.00 5.00 KH2 635,000 4.00 3.85 JX 9 2028 1,030,000 5.00 5.00 KJ 8 660,000 4.00 3.95 JY 7 2029 1,085,000 5.00 5.00 KK5 685,000 4.00 4.15 JZ 4 2030 I, 140,000 5.00 5.00 KL 3

$5,160,000 5.200% Term Certificates due August 1, 2034, Yield 5.200%; CUSIP Suffix: KM I $6,340,000 5.300% Term Certificates due August I, 2038, Yield 5.300%; CUSIP Suffix: KN 9

Copyright 2008, American Bankers Association. CUSJP data herein is provided by Standard & Poor's CUS!P Service Bureau, a division of The McGraw-Hill Compar,ies, inc. This Daltl is no! intended Jo create a do/abase and do{'s no/ serve in any wa;• as a sub.l"/ilu!efor Jhe CUSJP Service. CUSJP numbers are provided for convenience of reference only. Neith('r the City nor the Underwriter takes any responsibility for the accuracy of such numbers.

No dealer, broker, salesperson or other person has been authorized by the City of Fremont (the "City'') to give any information or to make any representations other than those contained herein and, if given or made, such other information or representation must not he relied upon as having been authorized by the City. This Official Statement does not constitute an offer to sell or the solicitation of any offer to buy nor shall there be any sale of the Certificates by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale.

This Official Statement is no/to he construed as a contract with the purchasers of the Certificates. Statements contained in this Ojjiciul Statement which involve estimates, forecasts or mailers of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as a representation <if facts.

The information set forth herein has been obtained from either the books and records of the City or from sources which are believed to be reliable. The information and expression of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Authority, the City, or the Bank since the date hereof This Official Statement is submitted in connection with the sale oft he Certificates referred to herein and may not be reproduced or used, in whole or in part, for any other purpose.

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

THE CERTIFICATES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, lN RELIANCE UPON THE EXEMPTlON CONTAlNED IN SECTlON 3(a)(2) OF SUCH ACT. THE TRUST AGREEMENTS HAVE NOT BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, IN RELlANCE UPON AN EXEMPTION CONTAlNED lN SUCH ACT.

Bill Harrison Vice Mayor

Bob Wieckowski Council Member

Fred Diaz City Manager

Harriet V. Commons Finance Director

CITY OF FREMONT

CITY COUNCIL

Bob Wasserman Mayor

CITY STAFF

Harvey E. Levine City Attorney

PROFESSIONAL SERVICES

SPECIAL COUNSEL

Quint & Thimmig LLP San Francisco, California

FINANCIAL ADVISOR

KNN Public Finance A Division of Zions First National Bank

Oakland, California

TRUSTEE

Steve Cho Council Member

Anu Nalarajan Council Member

Melissa Stevenson Dile Deputy City Manager

Dawn Abrahamson City Clerk

The Bank of New York Mellon Trust Company, N. A. San Francisco, California

TABLE OF CONTENTS

INTRODUCTION ............................................................................. I General ............................................................................... 1 The City .............................................................................. 2 Purpose of the Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Authority to Execute and Deliver the Certificates .............................................. 2 Sources of Payment of the Certificates ....................................................... 2 Reserve Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Limited Liability ........................................................................ 3 Description of the Certificates ............................................................. 3 Tax Matters ............................................................................ 3 Professionals Involved in the Offering ....................................................... 3 Offering and Delivery of the Certificates ..................................................... 3 Certificate Owner's Risks ................................................................. 4 Other Information ....................................................................... 4

THE CERTIFICATES .......................................................................... 5 Authority for Execution and Delivery of the Certificates ......................................... 5 Purpose of the Certificates ................................................................ 5 Estimated Sources and Uses of Funds ....................................................... 6 Property ............................................................................... 6 General Description of the Certificates ....................................................... 7 Security and Sources of Payment for the Certificates ............................................ 7 Reserve Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Insurance .............................................................................. 8 Lease Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Book-Entry Only System ................................................................ 12 Discontinuation of Book-Entry System; Payment to Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Security for the Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Abatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Remedies Against the City . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 No Acceleration Upon Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 City Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I 7 No Liability by the Authority to the Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 State Law Limitations on Appropriations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Tax Exemption of the Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Secondary Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

THE AUTHORITY ........................................................................... 18

CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING CITY REVENUE AND APPROPRIATIONS ..................................... 18 Article XllJA - Limit on Property Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Article XlliB - Appropriations Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Articles XlllC and XIIID- Right to Vote on Taxes, Assessments, Fees and Charges .................. 20 Future Initiatives ....................................................................... 21

GENERAL CITY FINANCIAL INFORMATION ................................................... 21 County Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Assessed Valuation ..................................................................... 21 State-Assessed Utility Property ........................................................... 22 Tax Levies, Collections and Delinquencies .................................................. 22

Teeter Plan ........................................................................... 23 Other Taxes ........................................................................... 23 Franchises ............................................................................ 23 Motor Vehicle License Fee ............................................................... 23 Triple Flip ............................................................................ 24 State Budget .......................................................................... 24

THE CITY .................................................................................. 25 Introduction ........................................................................... 25 Labor Relations ........................................................................ 26 Retirement Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Other Post Employment Benefits .......................................................... 26 Appropriations Limit ................................................................... 27 Assessed Valuation ..................................................................... 27 Tax Levies, Collections and Delinquencies .................................................. 28 Tax Rates ....................................................................... : .... 28 Largest Taxpayers ...................................................................... 29 Redevelopment Agency of the City of Fremont ............................................... 30 Budget Process ........................................................................ 30 Comparative Statements of Revenues, Expenditures and Fund Balance ............................ 31 Financial and Accounting Information ...................................................... 32 Short Term Obligations .................................................................. 32 Long Term Obligations .................................................................. 32 Statement of Direct and Overlapping Debt ................................................... 35 Self-Insurance Program .................................................................. 36 City Investment Policy and Portfolio ....................................................... 37 Community Economic Profile ............................................................ 38

LEGAL MATTERS ........................................................................... 41 Tax Matters ........................................................................... 41 Certain Legal Matters ................................................................... 43 Absence of Litigation ................................................................... 43

MISCELLANEOUS .......................................................................... 43 Rating ............................................................................... 43 Underwriting .......................................................................... 43 Continuing Disclosure .................................................................. 43 Financial Advisor ...................................................................... 44 Availability of Documents ............................................................... 44 Additional Information .................................................................. 44

APPENDIX A: Summary of Principal Legal Documents ............................................ A-1 APPENDIX B: Independent Auditors' Report, Management's Discussion and Analysis, and Basic

Financial Statements For The Year Ended June 30, 2007 .................................. B-1 APPENDIX C: Form of Final Opinion of Special Counsel .......................................... C-1 APPENDIX I): Form of Continuing Disclosure Certificate .......................................... D-1

OFFICIAL STATEMENT

$27,675,000 CERTIFICATES OF PARTICIPATION

(2008 Refinancing Project) Evidencing Direct, Undivided Fractional Interests of the Owners

Thereof in Lease Payments to be Made by the CITY OF FREMONT

(Alameda County, California) As the Rental for Certain Property Pursuant to a Lease Agreement with the

FREMONT PUBLIC FINANCING AUTHORITY

INTRODUCTION

This Introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page and appendices hereto, and the documents summarized or described herein. A full review should he made of the entire Official Statement. The offering of the Certificates to potential investors is made only by means of the entire Official Statement. Capitalized terms used, hut not otherwise defined, herein, shall have the meanings ascribed thereto in "APPENDIX A -SUMMARY OF PRINCIPAL LEGAL DOCUMENTS- Definitions."

General

The purpose of this Official Statement, which includes the cover page, table of contents and appendices hereto (the "Official Statement"), is to provide certain information concerning the sale, execution and delivery of the City ofFrernont (Alameda County, California) Certificates of Participation (2008 Refinancing Project) in the aggregate principal amount of $27,675,000 (the "Certificates") representing the direct, undivided fractional interest of the owners thereof (the "Owners") in lease payments (the "Lease Payments") to be made by the City of Fremont, California (the "City"), as lessee, to the Fremont Public Financing Authority (the "Authority"), as lessor, pursuant to a Lease Agreement, dated as of September I, 2008 (the "Lease Agreement").

Pursuant to a Site and Facility Lease, dated as of September I, 2008 (the "Site Lease"), between the City, as lessor, and the Authority, as lessee, the City will lease to the Authority a number of City facilities used for governmental purposes; the land and buildings and other improvements thereon for these facilities together are the "Property"; see also "THE CERTIFICATES- Property" herein. Pursuant to the Lease Agreement, the Authority will lease the Property back to the City. The Authority will assign and transfer substantially all of its rights under the Lease Agreement, including its rights (a) to receive and collect Lease Payments, (b) to receive and collect the proceeds of any insurance maintained under the Lease Agreement and (c) to exercise such rights and remedies conferred on the Authority pursuant to the Lease Agreement as may be necessary or convenient to enforce payment of the Lease Payments and any other amounts required, to The Bank of New York Mellon Trust Company, N. A. (the "Trustee"), pursuant to an Assignment Agreement, dated as of September I, 2008 (the "Assignment Agreement"), by and between the Authority and Trustee. Pursuant to a Trust Agreement dated as of September I, 2008 (the "Trust Agreement"), by and among the City, the Authority and the Trustee, the Trustee will execute and deliver the Certificates and, in accordance with the provisions of the Trust Agreement, administer all rights assigned by the Authority pursuant to the Assignment Agreement for the benefit of the Owners.

. ' . '· ' .. , ·,'

..

The City

The City is located in southeast Alameda County (the "County") approximately 40 miles southeast of San Francisco. The City was incorporated in 1956, and has a population of approximately 213,512. See "THE CITY" and "ECONOMIC PROFILE" herein.

Purpose of the Certificates

'lt., The Lease Agreement and the Certificates are being executed and delivered for the purposes of financing: (a) 0' prepayment and redemption of the City's Variable Rate Demand Certificates of Participation (1990 Building and

~· Equipment Acquisition Financing Project), executed and delivered on April 12, 1990 in the aggregate amount of \~'}--$8,200,000 (the "1990 Certificates"); (b) prepayment and redemption of the City's Variable Rate Demand Certificates of

~\'\ Participation ( 1991 Fire Stations Financing Project) executed and delivered on October 24, 1991 in the aggregate amount ~'{ of$5, 100,000 (the "1991 Certificates"); (c) prepayment and redemption of the City's Variable Rate Demand Certificates

.o" ofParticipation (2003 Refinancing Project) executed and delivered on July 8, 2003 in the aggregate amount of$21 ,930,000 ~;,'ll (the "2003 Certificates"; the 1990 Certificates, 1991 Certificates and the 2003 Certificates together are the "Prior

Certificates"); (d) funding of a reserve fund for the Certificates (the "Reserve Fund"); and (e) the costs of executing and delivering the Certificates. See "THE CERTIFICATES- Purpose of the Certificates" and"- the Project" herein.

Authority to Execute and Deliver the Certificates

The Certificates are being executed and delivered pursuant to the Trust Agreement, respective authorizing resolutions of the City and the Authority and applicable law (see the "THE CERTIFICATES -Authority to Execute and Deliver the Certificates" herein).

Sources of Payment of the Certificates

In general, the City is required to pay to the Trustee specified Lease Payments for use of the Property, which amounts are intended to be sufficient, in both time and aggregate amount, to pay, when due, the principal and interest with respect to the Certificates. In addition, the City has agreed to pay Additional Payments, consisting of all costs and expenses incuned by the City and the Authority in complying with the provisions of the Trust Agreement, or otherwise arising from the financing, including without limitation all Delivery Costs (to the extent not paid from amounts on deposit in the Delivery Costs Fund), compensation, reimbursable expenses and fees due to the Trustee, all costs and expenses of auditors, engineers, counsel and accountants and any amounts required to be rebated to the federal government. In the Lease Agreement, the City has covenanted that as long as the Property is available for its use, it will take such action as may be necessary to include all Lease Payments and Additional Payments in its annual budgets and to make the necessary annual appropriations therefor. The amount of Lease Payments which the City is obligated to pay under the Lease Agreement may be adjusted or abated during any period in which there is substantial interference with the City's use and possession of the Property. Such adjustment or abatement will end if the replacement or restoration to use of the Property is substantially completed. See "THE CERTIFICATES- Sources of·Payment of the Certificates" and "RISK FACTORS­Abatement" herein.

Reserve Fund

The Trust Agreement provides for the establishment of the Reserve Fund in an amount equal to the maximum annual fiscal year Lease Payments; provided, however, that if the Certificates are partially refunded, such amount shall be reduced to an amount equal to the maximum annual fiscal year Lease Payments relating to the Certificates not so refunded (the "Reserve Requirement"). The Reserve Fund is to be funded from proceeds of the sale of the Certificates or cash deposited by the City or, in lieu thereof, by providing a surety bond in the amount required thereunder in favor of the Trustee (a "Surety Bond").

2

In the event ofinsufficient funds in the Lease Payment Fund from which to make principal and/or interest payments to the Owners of the Certificates as due on an Interest Payment Date, the Trustee will draw first on the Surety Bond or Reserve Fund, to the extent available therefrom, to obtain sufficient funds to pay principal and/or interest as due to the Owners of the Certificates.

Limited Liability

The obligation of the City to make Lease Payments does not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation, or for which the City has levied or pledged any form of taxation. Neither the Certificates nor the obligation of the City to make the Lease Payments constitutes an indebtedness within the meaning of any constitutional or statutory debt limitation or restriction or a pledge of the faith and credit of the City, the Authority or the State of California (the "State"), or any of its political subdivisions.

Description of the Certificates

The Certificates will be executed and delivered as fully-registered current interest Certificates without coupons in denominations of $5,000 principal amount each, or any integral multiple thereof, and will be registered initially in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"). DTC will act as securities depository for the Certificates. See "THE CERTIFICATES- Form, Denomination and Payment; Book­Entry System" and "-Discontinuation of Book-Entry System; Payment to Beneficial Owners" herein.

The Certificates will be dated the date of delivery thereof. Interest with respect to Certificates is payable semiannually on each February I and August I, commencing February I, 2009. Interest payable February I, 2009 is from the date of delivery of the Certificates. Principal with respect to the Certificates is payable on August I in each year due, as set forth on the inside cover page hereof. Certificates maturing on or before August I, 2017 are not subject to optional redemption; Certificates maturing on or after August I, 2018 are subject to optional redemption prior io maturity on and after August 17, 2017 as described herein (see "THE CERTIFICATES--- Redemption" herein.

Tax Matters

Assuming compliance with certain covenants and provisions of the Internal Revenue Code of 1986, in the opinion of Special Counsel, interest represented by the Certificates will not be includable in gross income for federal income tax purposes although it may be includable in the calculation for certain taxes. Also in the opinion of Special Counsel, interest with respect to the Certificates will be exempt from State of California personal income taxes. See "LEGAL MATTERS -Tax Matters" herein.

Professionals Involved in the Offering

KNN Public Finance, A Division of Zions First National Bank, Oakland, California, is the financial advisor with respect to the Certificates (the "Financial Advisor"). All proceedings in connection with the execution and delivery of the Certificates are subject to the approval of Quint & Thimmig LLP, San Francisco, California, Special Counsel to the City (the "Special Counsel"). The Financial Advisor, Special Counsel and the Trustee will receive compensation from the City contingent upon the sale and delivery of the Certificates.

Offering and Delivery of the Certificates

The Certificates are offered when, as and if executed and delivered, and accepted by the Underwriter, subject to approval by Special Counsel. It is anticipated that the Certificates in book-entry form will be available for delivery through the facilities of DTC in New York, New York on or about September 30, 2008

3

Certilicate Owner's nisks

Prospective investors should review this Official Statement and the appendices hereto in their entirety and should consider certain risk factors associated with the purchase of the Certificates, which have been summarized in the section herein entitled "RISK FACTORS."

Other Information

This Official Statement speaks only as of its date, and the information contained herein is subject to change. Copies of documents referred to herein and information concerning the Certificates are available for inspection at the Finance Department, City of Fremont, 3300 Capitol Avenue, Building B, California 94538, telephone: (51 0) 494-4610. The City may impose a charge for copying, mailing and handling. See also "MISCELLANEOUS - Continuing Disclosure" herein.

END OF INTRODUCTION

4

THE CERTIFICATES

Authority for Execution and Delivery of the Certificates

The Certificates are being executed and delivered pursuant to the Trust Agreement, respective authorizing resolutions of the City and the Authority adopted on September 2, 2008, and applicable law.

Purpose of the Certificates

The Lease Agreement and the Certificates are being executed and delivered for the purposes of financing the costs of refunding and defeasing the outstanding Prior Certificates and the costs of executing and delivering the Certificates.

A portion of the proceeds of the Certificates equal to the outstanding principal with respect to the 1990 Certificates, together with cash from the City in an amount at least equal to the interest accrued from July I, 2008 through October I, 2008 with respect to the 1990 Certificates, upon delivery of the Certificates, pursuant to the Trust Agreement, will be transferred by the Trustee to U. S. Bank National Association as trustee for the 1990 Certificates (the "1990 Trustee"). A portion of the proceeds of the Certificates equal to the outstanding principal with respect to the 2003 Certificates, together with cash from the City in an amount at least equal to the interest accrued from July I, 2008 through October I, 2008 with respect to the 2003 Certificates, upon delivery of the Certificates, pursuant to the Trust Agreement, will be retained by the Trustee, acting as trustee for the 2003 Certificates (the "2003 Trustee"). The 1990 Trustee and 2003 Trustee, pursuant to respective irrevocable instructions made to each by the City prior to delivery of the Certificates, are instructed to redeem in full (without premium) on October I, 2008, respectively, the 1990 Certificates and 2003 Certificates, including the respective interest accrued thereon through October I, 2008.

A portion of the proceeds of the Certificates equal to the outstanding principal with respect to the 1991 Certificates, together with cash from the City in an amount at least equal to the interest accrued from August I, 2008 through November I, 2008 (the" 1991 Redemption Date") with respect to the 1991 Certificates, upon delivery of the Certificates, pursuant to the Trust Agreement, will be transferred by the Trustee to Union Bank of California, N. A. as trustee for the 1991 Certificates (the" 1991 Trustee"), and deposited and held by the 1991 Trustee in an escrow fund (the "Escrow Fund") established pursuant to an Escrow Agreement by and between the City and the 1991 Trustee, dated as of September 30, 2008 (the "Escrow Agreement"). Pursuant to the Escrow Agreement, the 1991 Trustee will invest the Escrow Fund in non­callable direct obligations of the United States of America such that the maturing principal thereof and the interest thereon will be sufficient to redeem in full the principal amount of the 1991 Certificates on the 1991 Redemption Date, plus accrued interest on the 1991 Certificates through the 1991 Redemption Date.

Pursuant to respective redemption requests made to each by the City, the 1990 Trustee, 1991 Trustee and 2003 Trustee are instructed to give timely conditional notice of redemption (conditioned upon execution and delivery of the Certificates), respectively, to the owners of the 1990 Certificates, 1991 Certificates and 2003 Certificates. As of the date of execution and delivery of the Certificates there will be $3,450,000 in 1990 Certificates outstanding, $3,400,000 in 1991 Certificates outstanding and $18,530,000 in 2003 Certificates outstanding.

A portion of the proceeds of the Certificates will be deposited in the Reserve Fund in the amount of the Reserve Fund Requirement, and a portion of the Certificates will be deposited in the Delivery Costs Fund.

5

Estimlltcd Sources and Uses of Funds

The sources and uses of the proceeds of the Certificates are estimated to be applied as shown below:

Sources:

Par Amount of the Certificates

Net Premium Less Underwriter's Discount

Deposits by the City tal

Total

Uses: Redemption of the 1990 Certificates 1' 1

Redemption of the 2003 Certificates 1' 1

Deposit to the 1991 Escrow Fund l<l

Deposit to the Reserve Fund Deposit to Delivery Costs Fund

Total

ESTIMATED SOURCES AND USES

$27,675,000.00

96,979.70

(378,64 L32)

371 041.45

$27 764 379.83

$3,467,344.26 18,838,83333 3,444,863.86 I ,801,945.00

211 393.38 $27 764 379.83

l•l Estimate of the total amount to be detennined on September 25,2008 and deposited by the City on September 26,2008 with the respective trustees for the Prior Certificates through their respective Redemption Dates.

ibl Includes fees of Special Counsel, Financial Advisor, Verification Agent and trustees and costs of printing, rating agency and all other costs of delivery of the Certificates.

(l) Amounts to be revised on September 25, 2008 to retlcct actual interest rates on the Prior Certificates, to the extent then known, and otherwise assumed to be 12%. Any change will be rctlectcd in the amounts of the deposits for accrued interest made by the City on September 26,2008 to the respective trustees for the Prior Certificates.

Source: City of Fremont.

Property

lnitially, the Property under the Lease Agreement will be comprised of:

Fire Station No.5. Fire Station No.5, completed in 1991, is located at 55 Haekamore Lane in the City, on a 0.75 acre site. It is an existing facility in operation with the City's Fire Department. Fire Station No.5 is a 6,100 square foot steel and wood frame facility with a two bay garage for fire apparatus, sleeping quarters that can also be converted into a community meeting room, offices, shop, dining room, living room and kitchen and support equipment for a maximum often firefighters. It has a stucco exterior and a light weight Mission-tile roof The facility is designed as an essential service facility to operate before, during and after a major earthquake with minimal repairs. A seismic retrofit was completed in 2006 to improve the building performance. The facility has an emergency power generator and is equipped to dispense diesel fuel. There is a long-term lease on the site for a cell phone tower.

Fire Station No. 10. Fire Station No. 10, completed in 1991, is located at 5001 Deep Creek Road, south ofPaseo Padre Parkway in the northern part of the City, on a one acre site. It is an existing facility in operation with the City's Fire Department. Fire Station No. 10 is a 6, I 00 square foot steel and wood frame facility with a two bay garage for lire apparatus, sleeping quarters that can also be converted into a community meeting room, offices, shop, dining room, living room and kitchen and support equipment for a maximum of ten firefighters. It has a stucco exterior and a light weight Mission-tile roof. The facility is designed as an essential service facility to operate before, during and after a major earthquake with minimal repairs. A seismic retrofit was completed in 2006 to improve the building performance. The facility has an emergency power generator and is equipped to dispense diesel fuel.

Also on the Fire Station No. 10 site is a 2,446 square-foot single story pre-fabricated metal building with a 250 square-foot mezzanine and four garage bays used by the City for storage and maintenance.

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Development Services Center. The 61,548 square foot building, completed in 1982, is located at 39550 Liberty Street (and 3235 Kearney Street) in the City on a 3.43 acre site. It is a two-story concretc-tiltup office building, with a brick veneer and black glass exterior and features a central landscaped atrium. The building houses the City's Permit Center, Engineering, Transportation, Planning, Building Inspection, Plan Check, Information Technology/GIS Management Group, Housing, Redevelopment Agency and Environmental Services. It has seven conference rooms on the I st floor and six conference rooms on the 2nd floor. A lighting retrofit using third generation energy efficient lighting and ballasts brings energy consumption to 0.29 watts/square foot which is below the current Title 24 code allowance of0.90 watts/square foot. A diesel generator provides emergency standby power to the location. The location also in on a fiberoptic backbone connecting the City's traffic signals and providing data servers for the City. The facility had a seismic retrofit in 2008 to strengthen roof-wall ties.

Sometime prior to December I, 2008, the City expects it will have executed and delivered its Variable Rate Demand Certificates of Participation (2008 Refinancing and Capital Projects) (the "2008 Variable Rate Certificates"). Within six months after delivery of the 2008 Variable Rate Certificates, Fire Station No. 5, Fire Station No. I 0 and the Development Services Center will be terminated from the liens of the Lease Agreement and the Site Lease, and substituted thereunder with the:

Maintenance Center. The Maintenance Center, completed in 2005, is located on a 13.99 acre site at 42551 Osgood Road in the City. It has 75,410 square feet of building space and 7,030 square feet of materials storage space. Its facilities provide for controlled storage of materials, administrative headquarters and shops for building, fleet, park and right-of-way landscape, street and storm drainage maintenance operations for the City.

The City's estimated value of the land and replacement value of the facilities of the Maintenance Center exceeds the combined values of Fire Station No. 5, Fire Station No. I 0 and the Development Services Center.

General Description of the Certificates

The Certificates will be executed and delivered in the aggregate principal amount of$27,675,000.0and will be dated the date of delivery thereof. Interest with respect to the Certificates will be payable semiannually on each February I and August I, commencing February I, 2009 (the "Interest Payment Dates"), and will mature on August I in each of the designated years and in the principal amounts shown on the inside cover page hereof.

The Certificates are executed and delivered in fully registered form and, when delivered, will be registered in the name of Cede & Co. as nominee of The Depository Trust Company ("DTC"), New York, New York. DTC will act as securities depository for the Certificates. Purchases will be made in book-entry form only, in the principal amount of $5,000 each or any integral multiple thereof. Principal, premium, if any, and interest due with respect to the Certificates at maturity or upon redemption, will be paid by the Trustee to DTC, which will in return remit such payments to the DTC Participants (as defined herein) for subsequent disbursement to the beneficial owners of the Certificates as described herein. See "THE CERTIFICATES- Book-Entry System."

Security and Sources of Payment for the Certificates

Each Certificate represents a direct, undivided fractional interest in the Lease Payments to be made by the City to the Authority under the Lease Agreement. The Authority, pursuant to the Assignment Agreement, will assign its rights and remedies under the Lease Agreement to the Trustee for the benefit of the Owners, including its right to receive Lease Payments thereunder. Principal and interest due with respect to the Certificates will be made from the Lease Payments payable by the City for the use and possession of the Property, insurance net proceeds pertaining to the Property to the extent that such net proceeds are not used for repair or replacement, rental interruption insurance proceeds, if any, amounts deposited in the Lease Payment Fund established under the Trust Agreement, interest or other income derived from the investment of the funds and accounts held by the Trustee for the City pursuant to the Trust Agreement, or in certain instances from the Reserve Fund established under the Trust Agreement.

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The City has covenanted under the Lease Agreement to make Lease Payments for the use and possession of the Property and, as long as the Property is available for its use, to take such action each year as may be necessary to include all payments in its annual budget and annually to appropriate an amount necessary to make such Lease Payments.

The amounts payable to the Trustee by the City are to be used to make the payments of principal and interest due with respect to the Certificates. Under California law, even though the Lease Agreement becomes effective as of the date of the Certificates, the obligation of the City to make Lease Payments (other than to the extent that funds to make Lease Payments are available in the Lease Payment Fund, Reserve Fund) may be abated in whole in or part if the City does not have full use and possession of the Property.

The obligation of the City to make Lease Payments does not constitute an obligation oft he City to levy or pledge any form of taxation. Neither the Certificates nor the obligation of the City to make Lease Payments constitutes an indebtedness within the meaning of any constitutional or statutory debt limitation or restriction or a pledge of the faith and credit of the City, the Authority, or the State or any of its political subdivisions.

Reserve Fund

The Trust Agreement provides that a Reserve Fund be funded in an amount equal to the Reserve Requirement from proceeds of the sale of the Certificates or cash deposited by the City or, in lieu thereof, by providing a surety bond in the amount required thereunder in favor of the Trustee (a "Surety Bond"). In the event of insufficient funds in the Lease Payment Fund from which to make principal and/or interest payments to the Owners as due on an Interest Payment Date, the Trustee will draw first on the Surety Bond or Reserve Fund, to the extent available therefrom, to obtain sufficient funds to pay principal and/or interest as due to the Owners. Initially, the Reserve Fund will be funded from proceeds of the Certificates.

Insurance

Pursuant to the Lease Agreement the City will obtain a California Land Title Association title insurance policy insuring the City's leasehold estate in the Property in an amount not less than the aggregate original principal amount of the Certificates, subject only to Permitted Encumbrances (as defined in the Lease Agreement). In addition, the City is obligated to obtain a standard comprehensive general public liability and fire and extended coverage property damage insurance policy or policies, and to maintain rental interruption or use and occupancy insurance against loss of Lease Agreement rental income due to any of the covered property damage hazards. The rental interruption or use and occupancy insurance shall be in an amount not less than the maximum annual Lease Payment due and payable during a twenty-four (24) month period. See "APPENDIX A- SUMMARY OF PRINCIPAL LEGAL DOCUMENTS- The Lease Agreement- Insurance."

The net proceeds of property damage insurance or condemnation award will be deposited in the Insurance and Condemnation Fund established pursuant to the Trust Agreement and held by the Trustee. The Lease Agreement requires the City to apply the net proceeds of any insurance award either to replace or repair the Property or to redeem Certificates if certain certifications with respect to the adequacy of the net proceeds to make repairs, and the timing thereof, cannot be made. The amount of Lease Payments will be subject to abatement and Lease Payments due under the Lease Agreement may be reduced during any period in which material damage or destruction to all or part of the Property substantially interferes with the City's use and possession thereof. See "RISK FACTORS- Abatement" herein.

If the City determines that an eminent domain proceeding has not materially affected the City's interest in the Property or the ability of the City to meet any of its financial obligations under the Lease Agreement, then the net proceeds of the condemnation award are to be used to repair and replace or rehabilitate the Property, and/or deposited into the Lease Payment Fund to make Lease Payments, as determined by the City.

If the City has determined that such eminent domain proceedings have materially affected the interest of the City in the Property or the ability of the City to meet any of its financial obligations under the Lease Agreement, or all of the Property shall have been taken in such eminent domain proceedings, then the Trustee shall transfer the net proceeds of the

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condemnation award to the Lease Payment Fund for redemption of the Lease Payments pursuant to the Lease Agreement and applied to the corresponding redemption of Certificates on a redemption date.

Lease Payments

The Lease Payments are required to be made by the City under the Lease Agreement on the fifteenth day next preceding each Interest Payment Date (the "Lease Payment Dates") for use and possession of the Property for the annual period commencing on the day immediately following each Interest Payment Date and extending to and including the next succeeding Interest Payment Date (a "Rental Period"); except that the first Rental Period shall commence on the date of the initial delivery of the Certificates and extend to and include February I, 2009. In order to provide for the payment of Lease Payments when due, the City will transfer Lease Payments to the Trustee on or prior to January 15 and July 15 of each year, commencing January I 5, 2009 for deposit in the Lease Payment Fund.

The Lease Agreement requires that the Lease Payments be deposited in the Lease Payment Fund maintained by the Trustee under the Trust Agreement. On each Interest Payment Date, the Trustee will withdraw from the Lease Payment Fund the aggregate amount of Lease Payments and will apply such amounts to make principal and interest payments with respect to the Certificates, sufficient to meet the following annual lease payment schedule:

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LEASE PAYMENT SCHEDULE

Fiscal Year Ending Total June 30, Principal Interest Lease Pa:z:ments

2009 $443,362.49 $443,362.49 2010 $400,000.00 I ,313,095.00 1,713,095.00 2011 490,000.00 1,299,745.00 1,789,745.00 2012 505,000.00 1,284,820.00 1,789,820.00 2013 520,000.00 I ,266,845.00 1,786,845.00 2014 545,000.00 I ,245,545.00 I ,790,545.00 2015 565,000.00 I ,223,345.00 1,788,345.00 2016 585,000.00 I ,200,345.00 1,785,345.00 2017 610,000.00 I, 176,445.00 1,786,445.00 2018 635,000.00 I, 151,545.00 I, 786,545.00 2019 660,000.00 I, 125,645.00 1,785,645.00 2020 685,000.00 1,098,745.00 1,783,745.00 2021 715,000.00 I ,069,851.25 I ,784,851.25 2022 745,000.00 1,037,895.00 1,782,895.00 2023 780,000.00 I ,003,582.50 1,783,582.50 2024 815,000.00 966,676.25 1,781,676.25 2025 850,000.00 927,132.50 1,777,132.50 2026 895,000.00 885,017.50 1,780,017.50 2027 935,000.00 839,715.00 1,774,715.00 2028 985,000.00 791,715.00 1,776,715.00 2029 I ,030,000.00 741,340.00 1,771,340.00 2030 I ,085,000.00 688,465.00 1,773,465.00 2031 I, 140,000.00 632,840.00 I, 772,840.00 2032 I, 195,000.00 573,270.00 1,768,270.00 2033 I ,255,000.00 509,570.00 1,764,570.00 2034 I ,320,000.00 442,620.00 1,762,620.00 2035 I ,390,000.00 372,160.00 I ,762,160.00 2036 I ,465,000.00 297,197.50 1,762,197.50 2037 1,540,000.00 217,565.00 1,757,565.00 2038 I ,625,000.00 133,692.50 1,758,692.50 2039 1710000.00 45 315.00 I 755 315.00

Total $27,675,000.00 $26 005 102.49 $53 680 I 02.49

Redemption

Optional Redemption. The Certificates maturing on or before August I, 2017, are not subject to optional redemption. Certificates maturing on and after August I, 2018, are subject to redemption prior to their respective stated maturity dates, at the option of the City, from the proceeds of optional prepayments of Payments made by the City pursuant to the Lease Agreement, in whole or in part, on any date on or after August I, 20 I 7, at the optional redemption prices set forth below. lfless than all of the Certificates are called for redemption, such Certificates shall be redeemed in inverse order of maturities or as otherwise directed by the City, and if less than all of the Certificates of any given maturity are called for redemption, the portions of such Certificates of a given maturity to be redeemed shall be determined by lot

Redemption Date

August I, 2017 through July 31, 2018 August I, 2018 and thereafter

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Redemption Price

101% 100

Mandatory Sinking Fund Redemption. The $5,160,000 5.20% Term Certificates maturing on August I, 2034 shall be subject to redemption prior to their stated maturity, in part by lot, from mandatory sinking fund payments in the following amounts and on the following dates, at the principal amount thereof on the date fixed for redemption, without premtum:

Redemption Date

August I, 2031 August I, 2032 August I, 2033 August I, 2034

Principal Amount

$1,195,000.00 I ,255,000.00 I ,320,000.00 I ,390,000.00

The $6,340,000 5.30% Term Certificates maturing on August!, 2038 shall be subject to redemption prior to their stated maturity, in part by lot, from mandatory sinking fund payments in the following amounts and on the following dates, at the principal amount thereof on the date fixed for redemption, without premium:

Redemption Date

August I, 2035 August I, 2036 August I, 203 7 August I, 2038

Principal Amount

$1,465,000.00 I ,540,000.00 I ,625,000.00 I ,710,000.00

The principal amount of each mandatory sinking fund payment of any maturity shall be reduced proportionately by the amount of any Certificates of that maturity optionally redeemed prior to the mandatory sinking fund payment date.

Prepayment From Net Proceeds of Insurance or Condemnation. The Certificates are subject to mandatory redemption in whole on any date or in part on any Interest Payment Date from the Net Proceeds of an insurance award or eminent domain proceedings to the extent credited towards the prepayment of the Lease Payments by the City pursuant to the Lease Agreement, at a redemption price equal to the principal amount thereof to be redeemed, together with accrued interest to the date fixed for redemption, without premium. See "APPENDIX A -Summary of Principal Legal Documents" herein.

General Prepayment Provisions. In the event the City gives notice to the Trustee of its intention to redeem, but fails to deposit with the Trustee on or prior to the redemption date an amount equal to the redemption price, the City shall be obligated to continue to pay Lease Payments as if no such notice were given and no redemption of the applicable Certificates shall occur.

Whenever less than all Outstanding Certificates are called for redemption, the Trustee will select Certificates for redemption among maturities in any manner as directed by the City, and in the absence of such direction, pro rata among maturities, and by lot within a maturity. For the purposes of such selection, Certificates will be deemed to be composed of $5,000 portions, and any such portion may be separately redeemed.

Official notice of any redemption shall be given by the Trustee on behalf of the City by mailing a copy of an official redemption notice by registered or certified mail at least 30 days and not more than 60 days prior to the date fixed for redemption to the Owner of the Certificate or Certificates to be redeemed at the address shown on the Certificate Register or at such other address as is furnished in writing by such Owner to the Trustee. All official notices of redemption shall be dated and shall state: (a) the date, (b) the Trustee's name and address, (c) the date of issue, (d) the redemption date and redemption price, and (e) if less than all of the then Outstanding Certificates are to be called for redemption, shall identify the Certificates called for redemption and require that such Certificates be surrendered on the redemption date at the Office of the Trustee for redemption at said redemption price. Such notice shall further state that on the redemption date there shall become due and payable, the principal and premium, if any, represented by each Certificate together with accrued interest represented thereby to said date, and that from and after such date interest represented thereby shall cease to accrue and be payable.

II

Notice having been given as aforesaid, and the moneys for the redemption, including interest to the applicable redemption date, having been made by the City, the portion of the Certificates to be redeemed shall become due and payable on said redemption date, and, upon presentation and surrender of such Certificates at the office or offices specified in said notice, said Certificates shall be paid at the unpaid principal amount and premium, if any, with respect thereto, plus any unpaid and accrued interest to said redemption date. If, on said redemption date, moneys for the redemption of the Certificates to be redeemed, together with interest to said redemption date, shall be held by the Trustee so as to be available therefor on such redemption date, and, if notice of redemption thereof shall have been given as aforesaid, then, from and after said redemption date, interest with respect to such portion of the Certificates to be redeemed shall cease to accrue and become payable.

Upon surrender of any Certificate redeemed in part only, the Trustee shall execute, and deliver to the Owner thereof, a new Certificate or Certificates in an amount equal in aggregate principal amount to the unredeemed portion of the Certificate surrendered and of the same interest rate and the same principal payment date.

Book-Entry Only System

The information in this section concerning DTC and DTC 's book-entry system has been furnished by DTC for use in disclosure documents, and the City takes no responsibility for the accuracy or completeness thereof The City cannot and does not give any assurances that DTC will distribute to Direct Participants, or that Direct Participants or Indirect Participants will distribute to the Beneficial Owners, payments of principal of interest, and premium, if any, on the Certificates paid or any redemption or other notices or that they will do so on a timely basis or will serve and act in the manner described in this Official Statement. Neither the City, the Insurer nor the Trustee are responsible or liable for the failure of DTC or any Direct or Indirect Participant to make any payments or give any notice to a Ben~ficial Owner or any error or delay relating thereto. Accordingly, no representations can be made concerning these matters and neither the Direct nor Indirect Participants nor the Beneficial Owners should rely on the following information with respect to such matters but should instead confirm the same with DTC or the DTC Participants, as the case may be.

DTC will act as securities depository for the Certificates. The Certificates will be executed and delivered 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 executed and delivered for each maturity of the Certificates, in the aggregate principal amount of such maturity, and will be deposited with DTC.

DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17 A ofthe Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 85 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.

Purchases of Certificates under the DTC system must be made by or through Direct Participants, which will receive a credit for the Certificates on DTC's records. The ownership interest of each actual purchaser in each Certificate

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("Beneficial Owner") is in tum to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written continnation 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 Certificates are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf ofBeneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Certificates, except in the event that use of the book-entry system for the Certificates is discontinued.

To facilitate subsequent transfers, all Certificates deposited by Direct Participants with DTC are registered in the name ofDTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative ofDTC. The deposit of Certificates 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 Certificates; DTC's records reflect only the identity of the Direct Participants to whose accounts such Certificates 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 Certificates may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Certificates, such as redemptions, tenders, defaults, and proposed amendments to the security documents. For example, Beneficial Owners of Certificates may wish to ascertain that the nominee holding the Certificates 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 Certificates within an issue are being redeemed, DTC's practice is to detennine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Certificates unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Certificates are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Redemption proceeds, distributions, and dividend payments on the Certificates will be made to Cede & Co., or such other nominee as may be requested by an authorized representative ofDTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from 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 fonn or registered in "street name," and will be the responsibility of such Participant and not of DTC (nor its nominee), the Trustee or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

A Beneficial Owner shall give notice to elect to have its Certificates purchased or tendered, through its Participant, to the Tender Agent, and shall effect delivery of such Certificates by causing the Direct Participant to transfer the Participant's interest in the Certificates, on DTC's records, to the Tender Agent. The requirement for physical delivery of Certificates in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Certificates are transferred by Direct Participants on DTC's records and followed by a book-entry credit of tendered Certificates to the Tender Agent's DTC account.

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DTC may discontinue providing its services as depository with respect to the Certificates at any time by giving reasonable notice to City or Trustee. Under such circumstances, in the event that a successor depository is not obtained, Certificates are required to be printed and delivered.

The City may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Certificates will be printed and delivered.

Discontinuation of Book-Entry System; Payment to Owners

The following provisions governing the payment, transfer and exchange of the Certificates apply to holders of the Certificates. As long as the DTC book-entry ;ystem described above is in effect, Cede & Co., or such other nominee of DTC, but not the Beneficial Owners, are holders of the Certificates. Only in the event that Certificates are printed and delivered to the Beneficial Owners do these provisions then apply directly to Beneficial Owners as holders of the Certificates.

Principal of the Certificates and any premium upon the redemption thereof prior to the maturity will be payable upon presentation and surrender of the Certificates at the principal corporate trust office of the Trustee, or such other location as the Trustee may specify. Interest shall be paid by check to the owner of any Certificate at the address of such owner shown on the registration books of the Trustee, or at such other address the owner of the Certificate has filed with the Trustee for such purpose on or before the Record Date. Owners of not less than $1,000,000 in principal amount of Certificates may, by written request received by the Trustee not later than the Record Date immediately preceding any Interest Payment Date, have interest payments made on the date due by wire transfer to an account maintained in the United States of America in immediately available funds.

Any Certificate may be exchanged for Certificates of any authorized denominations of the same maturity and interest rate upon presentation and surrender at the principal corporate trust office of the Trustee, together with a request for exchange signed by the registered owner or by a person legally empowered to do so in a form satisfactory to the Trustee. A Certificate may be transferred only on the Certificate registration books upon presentation and surrender of the Certificate at the principal corporate trust office of the Trustee together with an assignment executed by the registered owner or by a person legally empowered to do so in a form satisfactory to the Trustee. Upon exchange or transfer, the designated District official shall execute, and the Trustee shall authenticate and deliver a new Certificate or Certificates of any authorized denomination or denominations requested by the registered owner or by a person legally empowered to do so, equal in the aggregate to the unmatured principal amount of the Certificate surrendered and bearing interest at the same rate and maturing on the same date.

The Trustee will not be required to exchange or transfer any Certificate during the period from the close of business on the applicable Record Date next preceding any Interest Payment Date or redemption date, to and including such Interest Payment Date or redemption date.

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RISK FACTORS

The following factors, which represent certain risk factors that have been identified at this time, should be considered along with all other information in this Official Statement by potential investors in evaluating the Certificates. However, they do not purport to be an exhaustive listing of risks and other considerations which may be relevant to an investment in the Certificates. In addition, the order in which the jiJI/owingfactors are presented is not intended to reflect the relative importance of any such risks. There can be no assurance made that other risk factors will not become evident at any future time.

Security for the Certificates

General. The obligation of the City to make Lease Payments does not constitute an obligation ofthe City to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. The obligation of the City to make Lease Payments does not constitute a debt or indebtedness of the City, the Authority, the State or any of its political subdivisions, within the meaning of any constitutional or statutory debt limitation or restriction. The obligation of the City to make Lease Payments is in consideration of the right of the City to the continued use and possession of the Property. In the event of failure of such use and possession, the obligations of the City may be abated in whole or in part as described herein.

Although the Lease Agreement does not create a pledge, lien or encumbrance upon the funds of the City, the City is obligated under its Lease Agreement to pay the Lease Payments from any source oflegally available funds and the City has covenanted in its Lease Agreement that, for so long as the Property is available for its use, it will make the necessary annual appropriations within its budget for its Lease Payments.

See "THE CERTIFICATES- Security and Sources of Payment for the Certificates" herein.

Available General Revenue. The City is liable and may become additionally liable on other obligations payable from general revenues, some of which may have a priority over the Lease Payments. To the extent that additional obligations are incurred by the City, the funds available to make Lease Payments may be decreased. Certain taxes, assessments, fees and charges presently imposed by the City could be subject to the voter approval requirements of Article XIIIC and Article XIIID of the State constitution. Based upon the outcome of an election by the voters, or future changes in Article XIIIC and Article XIIID or their interpretation by the courts, such fees, charges, assessments and taxes might no longer be permitted to be imposed, or may be reduced or eliminated and new taxes, assessments fees and charges may not be approved. Property tax revenue can be adversely affected by reduction of assessed values by appeal or economic downturn and sales and other taxes also can be reduced by economic downturn or loss of significant taxpayers. To the extent that City tax revenue from any source is reduced or eliminated, the funds available to make Lease Payments may be decreased. See also "CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING CITY REVENUE AND APPROPRIA TJONS", "GENERAL CITY FINANCIAL INFORMATION" and "THE CITY" herein.

Abatement

Use and Possession of the Property. Lease Payments are paid by the City for and in consideration of the right of beneficial use and occupancy of the Property. If, for any reason, there is substantial interference with the use and possession of all or part of the Property, the City's obligation to make Lease Payments from its funds will be abated. See "APPENDIX A- SUMMARY OF PRINCIPAL LEGAL DOCUMENTS- The Lease Agreement- Lease Payments; Abatement". Abatement of Lease Payments is not an event of default under the Trust Agreement, the Lease Agreement or the Certificates and will not permit the Trustee to take any action or avail itself of any remedy against the City. The City will not have an obligation to make Lease Payments with respect to the Property other than from the proceeds of the Certificates or the proceeds of any rental interruption insurance until such substantial interference with the use and possession of the Property, or a portion thereof, has been remedied.

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Damage or Destruction. If damage or destruction to the Property results in abatement or adjustment of Lease Payments and the resulting Lease Payments, together with moneys in the Lease Payment Fund (and in the event of damage or destruction, together with rental interruption insurance proceeds, if any), are insufficient to make all payments of principal and interest due with respect to the Certificates during the period that the Property is being replaced, repaired or reconstructed, then such payments of principal and interest may not be made in full and no remedy is available to the Trustee or the Owners under the Lease Agreement or Trust Agreement for nonpayment under such circumstances.

Absence of Earthquake and Flood Insurance. The obligation to make Lease Payments may be adversely affected if the Property or any improvements thereon are damaged or destroyed by natural hazard such as earthquake or flood. The City, however, is not obligated under the Lease Agreement to procure and maintain, or cause to be maintained, earthquake or flood insurance on the Property. The City, however, is obligated under the Lease Agreement to maintain other types of insurance. See "APPENDIX A- SUMMARY OF PRINCIPAL LEGAL DOCUMENTS- THE LEASE AGREEMENT."

In the event of damage or destruction to the Property caused by perils for which the City is not required to provide insurance under the Lease Agreement, such as earthquake or flood, the City will not be obligated to repair, replace or reconstruct the Property, though the City may choose to do so.

Earthquake Risk. There are known active geological faults along the east side of San Francisco Bay, including within the City. All have the potential to become the locus of seismic events. The State, by statute, requires each city and county to adopt a comprehensive, long-term general plan for the physical development of the city or county. The general plan is required to contain, among other things, a safety element for the protection ofthe community from any unreasonable risks associated with the effects of various natural hazards. The safety element must include mapping of known seismic and other geologic hazards. However, knowing of the existence and location of a seismic fault does not mean that there are not others not known nor prevent earthquakes destructive to property from occurring. While the buildings on the Property are generally built or have been retrofitted to exceed State building codes at the time in respect to seismic risk, it still remains that a destructive earthquake could occur in the City and to the Property in particular. So far this has not happened, and the City has never suffered serious earthquake damage to the Property or any of its other property.

Eminent Domain. If all of the Property is permanently taken under the power of eminent domain or sold to a government threatening to exercise the power of eminent domain, the term of the Lease Agreement will cease with respect to the Property as of the day possession will be so taken. If less than all of the Property is permanently taken, or if all of the Property or any part thereof will be taken temporarily under the power of eminent domain, (a) the Lease Agreement will continue in full force and effect and will not be terminated by virtue of such taking and the parties have waived the benefit of any law to the contrary, and (b) there will be a partial abatement of Lease Payments in an amount to be agreed upon by the City and the Authority such that the resulting Lease Payments for the Property represent fair consideration for the use and occupancy of the remaining usable portion of the Property.

Remedies Against the City

Failure by the City to pay Lease Payments or other payments required to be made under the Lease Agreement or failure to observe and perform its other covenants and agreements under the Lease Agreement for a period of thirty days (or greater period as described in "APPENDIX A- SUMMARY OF PRINCIPAL LEGAL DOCUMENTS- THE LEASE AGREEMENT- Events of Default") after written notice of such failure and request that it be remedied has been given to the City by the Authority, or the Trustee, as the assignee of the Authority, constitute events of default under the Lease Agreement and pennits the Trustee to pursue remedies at law or in equity to enforce such covenants and agreements.

The enforcement of any remedies provided in the Lease Agreement and Trust Agreement could prove both expensive and time consuming. Although the Lease Agreement and the Trust Agreement provide that the Trustee may take possession of the Property and lease it if there is a default by the City, and the Lease Agreement provides that the Trustee may have such rights of access to the Property as may be necessary to exercise any remedies, portions of the Property may not be easily recoverable and even if recovered, could be of little value to others. Furthermore, it is not certain whether a court would permit the exercise of the remedies of repossession and leasing of the Property.

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No Acceleration Upon Default

If the City defaults on its obligations to make Lease Payments, the Trustee may have limited ability to re-let the Property so as to preserve the tax exempt nature of the interest component of the Lease Payments and the Certificates. In the event of a default, there is no available remedy of acceleration of the total Lease Payments due over the term of the Lease Agreement. The City will only be liable for Lease Payments on an annual basis, and the Trustee would be required to seek a separate judgment in each fiscal year for that fiscal year's Lease Payments.

City Bankruptcy

In addition to the limitation on remedies contained in the Trust Agreement, the rights and remedies provided in the Trust Agreement and the Lease Agreement may be limited by and are subject to the provisions of federal bankruptcy laws, as now or hereafter enacted, and to other laws or equitable principles that may affect the enforcement of creditors' rights.

Under Chapter 9 of the Bankruptcy Code (Title II, United States Code), which governs the bankruptcy proceedings for public agencies, there are no involuntary petitions in bankruptcy. I fthe City were to file a petition under Chapter 9 of the Bankruptcy Code, the Owners, the Trustee and the Authority could be prohibited from taking any steps to enforce their rights under the Lease Agreement, and from taking any steps to collect amounts due from the City under the Lease Agreement.

If a Bankruptcy Court were to determine that the Lease Agreement is a lease for the purposes of the Bankruptcy Code, the City would have the right to reject (i.e., terminate) the Lease Agreement. If the City elects to reject the Lease Agreement, the Property could be re-let for the benefit of the Owners, but there can be no assurance that the Property can be re-let for an amount sufficient to pay the Certificates or that such re-letting will not adversely affect the exclusion of any interest component of rental payments from federal or state income taxation. In addition the Bankruptcy Code severely limits any claim for damages suffered as a result of rejection of a lease.

No Liability by the Authority to the Owners

The Authority shall not have any obligation or liability to the Owners with respect to the payment when due of the Lease Payments by the City, or with respect to the performance by the City of other agreements and covenants required to be performed by it contained in the Lease Agreement or the Trust Agreement, or with respect to the performance by the Trustee of any right or obligation required to be performed by it contained in the Trust Agreement.

State Law Limitations on Appropriations

Article XlllB of the California Constitution limits the amount that local governments can appropriate annually. The City's ability to make Lease Payments may be affected if the City should reach its appropriations limit. The City does not anticipate reaching said limit in the foreseeable future. See "CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING CITY REVENUES AND APPROPRIATIONS" herein.

Tax Exemption of the Certificates

The City has covenanted in the Lease Agreement that it shall not use or permit the use of any proceeds of the Certificates or any funds of the Authority or the City, directly or indirectly, in any manner, and shall not take or omit to take any action that would cause the interest component of the Lease Payments to be included in the gross income of the Owners for federal income tax purposes. In the event the City fails to comply with the foregoing tax covenant, the interest component of the Certificates may be includable in the gross income of the Owners thereof for federal tax purposes. In such event, such Owners will be entitled to bring a damages action against the City. See "LEGAL MATTERS -Tax Matters" herein.

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Secondary Market

There can be no guarantee that there will be a secondary market forthe Certificates or, if a secondary market exists, that any Certificates can be sold for any particular price. Prices of securities for which a market is being made will depend upon then-prevailing circumstances. Such prices could be substantially different from the original purchase price.

No assurance can be given that the market price for the Certificates will not be affected by the introduction or enactment of any future legislation (including without limitation amendments to the Internal Revenue Code), or changes in interpretation of the Internal Revenue Code, or any action of the Internal Revenue Service, including but not limited to the publication of proposed or final regulations, the issuance of rulings, the selection of the Certificates for audit examination, or the course or result of any Internal Revenue Service audit or examination of the Certificates or obligations that present similar tax issues as the Certificates.

No assurance can be given that the rating initially assigned to the Certificates by a rating agency will not be downgraded, or thatthe rating criteria or views of a rating agency will not change, some time in the future, with a resulting decline in the secondary market price of the Certificates. See "MISCELLANEOUS- Rating" herein.

THE AUTHORITY

The Authority is a joint exercise of powers authority created by and between the City and the Redevelopment Agency of the City of Fremont (the "Agency") for the purpose of facilitating the financing of projects by the City or the Agency. The Authority is empowered to act as lessor under the Lease Agreement in this financing.

CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING CITY REVENUE AND APPROPRIATIONS

Article XIIIA -Limit on Property Tax

Article XIII A of the Constitution of the State limits the amount of ad valorem taxes on real property to l% of"full cash value" of the property as determined by the county assessor. Article XliiA 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," subject to exemptions in certain circumstances of property transfer or reconstruction. The "full cash value" is subject to annual adjustment to reflect increases, not to exceed 2% for any year, or decreases in the consumer price index or comparable local data, or to retlect reductions in property value caused by damage, destruction or other factors.

Article XIII A requires a vote of two-thirds of those voting in an election in a city, county, special district or other public agency to impose special taxes. Article XliiA exempts from the I% tax limitation any taxes above that level required to pay debt service (a) on any indebtedness approved by the voters prior to July l, 1978, and (b) on any bonded indebtedness approved by two-thirds of the votes cast by the voters for the acquisition or improvement of real property on or after July I, 1978. In addition, Article XliiA requires the approval of two-thirds of all members of the State Legislature to change any State taxes for the purpose of increasing tax revenues, and prohibits the State Legislature from imposing any new ad valorem, sales or transaction taxes on real property.

Legislation has been enacted and amended a number of times since 1978 to implement Article XIII A. Under current law, local agencies are no longer permitted to levy directly any property tax (except to pay voter-approved indebtedness). The I% property tax is automatically levied by the county and distributed according to a formula among taxing agencies. The formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to 1979.

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That portion of annual property tax revenues generated by increases in assessed valuations within each tax rate area within a county, subject to redevelopment agency, if any, claims on tax increment and subject to changes in organization, if any, of affected jurisdictions, is allocated to each jurisdiction within the tax rate area in the same proportion that the total property tax revenue from the tax rate area for the prior year was allocated to such jurisdictions.

All taxable property is shown at "full cash value" on the tax rolls. The tax rate is expressed as $1 per $100 of taxable value.

Article XIIIB -Appropriations Limit

Article XIIIB of the State Constitution, as amended by Propositions 98 and Ill, limits the annual appropriations of the State and of any city, county, school district, authority or other political subdivision of the State, to the level of appropriations of the particular governmental entity for the prior fiscal year, as adjusted for changes in the cost of living and in population, for transfers in the financial responsibility for providing services, and for certain declared emergencies.

For fiscal years beginning on or after July I, 1990, the appropriations limit of each government entity shall be the appropriations limit for the 1986/87 fiscal year adjusted for the changes made from that fiscal year pursuant to the provisions of Article XIIIB, as amended.

The appropriations of an entity of local government subject to Article Xll!B limitations include the proceeds of taxes levied by or for that entity and the proceeds of certain State subventions to that entity. "Proceeds of taxes" include, but are not limited to, all tax revenues and the proceeds to the entity from (a) regulatory licenses, user charges and user fees (but only to the extent that these proceeds exceed the reasonable costs in providing the regulation, product or service), and (b) the investment of tax revenues.

Appropriations subject to limitation do not include (a) refunds of taxes, (b) appropriations for debt service on indebtedness existing or legally authorized as of January I, 1979 or bonded indebtedness thereafter approved according to law by vote of the electors voting in an election for such purpose, (c) appropriations required to comply with certain mandates of the courts or the federal government, (d) appropriations of certain special districts, (e) appropriations for all qualified capital outlay projects as defined by the legislature, (f) appropriations derived from certain fuel and vehicle taxes, and (g) appropriations derived from certain taxes on tobacco products.

The appropriations limit is tested over consecutive two-year periods. Any excess of the aggregate "proceeds of taxes" received by a local agency over such two-year period abov~ the combined appropriations limits for those two years is to be returned to taxpayers by reductions in tax rates or fee schedules over the subsequent two years.

Article XlllB also requires that fifty percent of all revenues received by the State in a fiscal year and in the fiscal year immediately following it in excess of the amount permitted to be appropriated during that fiscal year and the fiscal year immediately following it shall be transferred and allocated to the State School Fund pursuant to Section 8.5 of Article XVI of the State Constitution.

Article XlllB permits any government entity to change the appropriations limit by vote of the electorate in conformity with statutory and constitutional voting requirements, but any such voter-approved change can only be effective for a maximum of four years.

The City does not anticipate exceeding its appropriation limit. See "GENERAL CITY FINANCIAL INFORMATION -Appropriations Limit" herein.

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Articles XIIIC and XI liD- Right to Vote on Taxes, Assessments, Fees and Charges

Articles XIIIC and XIIID of the State Constitution contain a number of provisions affecting the ability of local governments, including cities, counties, school districts and special districts with taxing power, to levy and collect both existing and future taxes, assessments, fees and charges. Among other things, Article XIIIC establishes that every tax is either a "general tax" (imposed for general governmental purposes) or a "special tax" (imposed for specific purposes); prohibits special purpose government agencies such as school districts from levying general taxes; and prohibits any local government from imposing, extending or increasing any special tax beyond its maximum authorized rate without a two­thirds vote. Article XIIIC also provides that no tax may be assessed on property other than ad valorem property taxes imposed in accordance with Articles XIII and X IliA of the State Constitution and special taxes approved by a two-thirds vote under Article X lilA, Section 4.

Article XIIID requires that, before any "fee or charge" (defined as "any levy other than an ad valorem tax, a special tax or an assessment, imposed by a local government upon a parcel or upon a person merely as an incident of property ownership, including user fees or charges for a property related service") may be imposed or increased, written notice must be given to the record owner of each parcel of land affected by such fee or charge. The local government must then hold a hearing upon the proposed imposition or increase, and if written protests against the proposal are presented by a majority of the owners of the identified parcels, the local government may not impose or increase the fee or charge. Moreover, except for fees or charges for sewer, water and refuse collection services, no fee or charge may be imposed or increased without majority approval by the property owners subject to the fee or charge or, at the option of the local government, two-thirds voter approval by the electorate residing in the affected area.

In addition to the above, Article XI liD includes additional substantive requirements governing all fees and charges, including existing fees and charges that are not proposed to increase. Such requirements include the following: (a) revenues derived from the fee or charge may not exceed the funds required to provide the service for which the fee or charge was imposed; (b) revenues derived from the fee or charge may not be used for any purpose other than that for which the fee or charge was imposed; (c) the amount of a fee or charge imposed upon any parcel or person may not exceed the proportional cost of the service attributable to the parcel; (d) no fee or charge may be imposed for a service unless that service is actually used by, or is immediately available to, the owner of the property in question; and (e) no fee or charge may be imposed for general governmental services where the service is available to the public at large in substantially the same manner as it is to property owners.

Under Article XIIIC, Section 3, the initiative power available under the State Constitution is expressly extended to matters of local taxes, assessments, fees and charges. This extension of the initiative power is not limited to taxes imposed on or after November 6, I 996, the effective date of Articles XIIIC and XIIID, and could result in retroactive repeal or reduction in any existing taxes, assessments, fees, and charges, subject to overriding federal constitutional principles relating to the impairments of contracts. However, on July I, 1997, a bill was signed into law enacting Government Code Section 5854, which states:

Section 3 of Article Xl!IC of the California Constitution, as adopted at the November 5, 1996 general election, shall not be construed to mean that any owner or beneficial owner of a municipal security, purchased before or ajier that date, assumes the risk of, or in any way consents to, any action by initiative measure that constitutes an impairment of contractual rights protection by Section 10 of Article 1 of the United States Constitution.

No court has yet considered the relationship between Government Code Section 5854 and Article XlliC.

Based on its analysis, the City has concluded that its present revenue sources are either in compliance with or not impacted by Articles XIIIC and XIIID.

The foregoing discussion of Articles XIIIC and XIIID should not be considered an exhaustive or authoritative treatment of the issues. Certain provisions of Articles XIIIC and XIIID may be examined by the courts for their constitutionality under both State and federal constitutional law. The City is not able to predict the outcome of any such examination. The City does not expect to be in a position to control the consideration or disposition of these issues and cannot predict the timing or outcome of any judicial or legislative activity in this regard.

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Future Initiatives

Articles XIIIA, XIIIB, XIIIC and XIIID were each adopted as measures that qualified for the ballot pursuant to the State's initiative process. From time to time other initiative measures could be adopted, further affecting city revenues or ability to expend revenues.

GENERAL CITY FINANCIAL INFORMATION

County Services

In California, taxing agencies within each county, including cities, use the services of that county for the assessment of property values and collection of property taxes. All property taxes and assessments on property due all taxing agencies in each county generally are included on the same unified tax bill from the county to property owners twice each year, based on the same county administered tax rolls. Property tax revenue is apportioned by each county according to purpose and taxing agency as prescribed by State law to that county and all cities, school districts, special districts and other agencies within that county with property tax levies.

Assessed Valuation

All property is assessed using full cash value as defined by Article XIIIA of the California Constitution (the "Constitution"). State law exempts from taxation $7,000 of the full cash value of an owner-occupied dwelling, provided that the owner files for such exemption. This exemption does not result in any loss of tax revenue to local agencies, since the State reimburses local agencies for the value of taxes on exempted property. State law also provides exemptions from ad valorem property taxation for certain classes of property based on ownership or use, such as churches, colleges, non­profit hospitals and charitable institutions; the State does not reimburse local agencies for any tax not levied due to these exemptions. State and federal government property also is not taxed.

For assessment and collection purposes, property is classified as either "secured" or "unsecured" and is listed accordingly on separate parts of the assessment roll. The "secured roll" is that part ofthe assessment roll containing State­assessed property and other property having a tax lien which is sufficient, in the opinion of the assessor, to secure payment of the taxes. Unsecured property comprises all other taxable property. Unsecured property is assessed on the "unsecured roll." Every tax levied by a county that becomes a lien on secured property has priority over all present and future private liens arising pursuant to State law on the secured property, regardless of the time of the creation of the other liens. A tax levied on unsecured property does not become a lien against the taxed unsecured property, but may become a lien on other property owned by the taxpayer. Valuation of secured property and a statutory tax lien is established as of January I prior to the tax year (the tax year is the July I -June 30 fiscal year of the State) of the related tax levy, and the secured and unsecured tax rolls are certified on or before July 1 of the tax year by the County Assessor. New property and improvements are assessed and added to "supplemental" rolls during the year acquired or improvements are completed, and taxed at the secured or unsecured rate then in effect, as the case may be, for the remaining portion of that year. The next year and thereafter such assets are assessed on the regular tax rolls.

Future growth in assessed valuation allowed under Article XIII A is allocated on the basis of "situs" among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and school districts will share the growth of"base" revenues from the tax rate area. Each year's growth allocation becomes part of each agency's allocation in the following year.

See "CITY INFORMATION" herein for a history of assessed valuation and a list of the largest secured tax payers for the current tax year within the City.

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State-Assessed Utility Property

The Constitution provides that the State Board of Equalization (the "SBE") rather than counties assess certain property owned or used by regulated utilities. Such property is grouped and assessed by the SBE as "going concern" operating units, which may cross local tax jurisdiction boundaries, rather than as individual parcels of real or personal property separately assessed. Such utility property is known as "unitary property." The SBE assesses property at "fair market value," determined by various methods and formulae depending on the nature of the property, except that certain railroad property is assessed at a specified percentage of the fair market value determined by the SBE, in conformity with federal law. The SBE assesses values as of January I prior to the tax year of the related tax levy. Property tax on SSE­assessed property is then levied and collected by each county in the same manner as county assessed property, but at special county-wide tax rates, and distributed to each taxing agency within that county, subject to certain adjustments, according to the approximate percentage allocated to each taxing agency in the prior year.

Recent changes in the California electric utility industry structure and in the way in which components of that industry are regulated and owned, including the sale of electric generation assets to largely unregulated, non-utility companies, have caused some property that had been assessed by the SBE to be assessed locally instead. A change in property status from assessment by the SBE to assessment locally or the reverse may result in a change in property tax revenue received by local agencies and an adjustment in any ad valorem tax rates and debt capacity for local agency bonds.

Tax Levies, Collections and Delinquencies

Property tax rates are set by the first business day of September of the tax year of the related tax levy. The secured property tax is payable in two equal installments due November I and February I, and payments become delinquent if not postmarked or paid by end of business day on December I 0 and April I 0, respectively. Taxes on unsecured property (personal property and leasehold interests) are levied at the preceding fiscal year's secured tax rate and have a due date set by each county effective no earlier than July I and no later than July 31 of each year. Taxes on unsecured property become delinquent if not postmarked or paid by end of business day on August 31, or if added to the unsecured roll after July 31, become delinquent at the end of the month succeeding the month of enrollment.

A I 0% penalty attaches to any delinquent payment for secured roll taxes. ln addition, property on the secured roll for which taxes are delinquent becomes tax-defaulted. Such property may thereafter be redeemed by payment of the delinquent taxes and the 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 subject to auction sale by the County Tax-Collector.

In the case of unsecured property taxes, a 10% penalty attaches to delinquent taxes on property on the unsecured roll, and after the last day of the second month after the I 0% penalty attaches, an additional penalty of I .5% per month begins to accrue, and a lien is recorded against the assessee. The taxing authority may collect delinquent unsecured personal property taxes by: (a) a civil action against the taxpayer; (b) filing a certificate of delinquency in the office of the County Clerk specifYing certain facts in order to obtain a judgment lien on specific property of the taxpayer; and (c) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the assessee.

Supplemental roll taxes are due on the date mailed. If the tax bill is mailed within the months of July through October, the first installment shall become delinquent at 5 p.m., or the end of the business day, whichever is later, on December I 0 of the same year and the second installment shall become delinquent at 5 p.m., or the end of the business day, whichever is later, on April I 0 of the next year; if the bill is mailed within the months ofNovember through June, the first installment shall become delinquent at 5 p.m., or the end of the business day, whichever is later, on the last day of the month following the month in which the bill is mailed and the second installment shall become delinquent at 5 p.m., or the end of the business day, whichever is later, on the last day of the fourth calendar month following the date the first installment is delinquent. A 10% penalty attaches to any delinquent payment for supplemental roll taxes.

All tax due dates and delinquency dates become the next business day if they fall on a day that is not a business day.

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Teeter Plan

The Alternative Method of Distribution of Tax Levies and Collections and ofT ax Sale Proceeds (the "Teeter Plan") has been adopted by 53 of the 58 counties, including Alameda County, as provided for in Section 470 I et seq. of the State Revenue and Taxation Code. Under the Teeter Plan, each participating local agency, including cities, levying property taxes in a county receives the amount of uncollected taxes credited to its fund, in the same manner as if the amount credited had been collected. In return, the county receives and retains delinquent payments, penalties and interest as collected, that would have been due the local agency. However, although a local agency receives the total levy for its property taxes without regard to actual collections, to the extent of a reserve established and held by its county for this purpose, the basic legal liability for property tax deficiencies at all times remains with the local agency. The Teeter Plan is to remain in effect unless the county board of supervisors orders its discontinuance or unless, prior to the commencement of any fiscal year of the county, the board of supervisors receives a petition for its discontinuance from two-thirds oft he participating revenue districts in the county. The board of supervisors may, after holding a public hearing on the matter, discontinue the procedures under the Teeter Plan with respect to any tax levying agency in its county. See "THE CITY- Tax Levies, Collections and Delinquencies" herein.

The City has elected not to participate in the County Teeter Plan. That means that the City suffers any delinquencies but gains all penalty and interest amounts when such delinquencies are collected.

Other Taxes

Cities in California are authorized to levy and collect other taxes for deposit in the general fund in addition to property taxes. Among these other taxes are: Sales and Use Tax, Construction Tax, Business License Tax, Transient Occupancy Tax, Real Property Transfer Tax, and other miscellaneous taxes. For the City, the most significant of these taxes are the following:

Sales and Use Tax. The sales tax is imposed on retail sales of tangible personal property. A similar use tax is imposed on purchases out-of-state and delivered for use in California. Since the passage of the Bradley-Burns Act in 1955, the State has collected, along with its own sales taxes, a uniform I% sales and use tax for allocation to cities and counties based on a point-of-sale formula. The passage of Proposition 172 in 1993 permanently extended an additional 0.5% sales tax dedicated to local public safety. As of July I, 2004, 0.25% from the I% Bradley-Bums tax rate has been diverted to the State for payment of the State's Economic Recovery Bonds for as long as these Bonds remain outstanding (see "Triple Flip" below), resulting in a combined sales and use tax rate of 1.25% allocated to cities and counties. Sales and use tax receipts to the City are deposited in the City's general fund.

Business License Tax. The Business License Tax is a type of excise tax imposed on businesses for the privilege of conducting business within the City. Major businesses exempted from the tax are banks and insurance companies. In the majority of cases the City's tax is based on gross receipts.

Transient Occupancy Tax. Sometimes referred to as a hotel tax, this tax is imposed on occupants for the privilege of occupying rooms in hotels, motels, inns and other taxed properties.

Franchises

Several State statutes provide cities with the authority to impose fees on privately-owned utility companies and other businesses for the privilege of using city right-of-way. The City collects franchise fees rrom gas and electric utilities, cable television and garbage franchises.

Motor Vehicle License Fee

The Motor Vehicle License Fee ("VLF") is a tax in lieu of any ad valorem property tax on vehicles and is administered by the State Department of Motor Vehicles. Revenues generated by the VLF are constitutionally required

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to be apportioned to local governments (Article XI, Section 15 (a)) for use for their general fund purposes. These revenues arc statutorily split between counties and cities. Rather than assessing the value of each individual vehicle and imposing a I% property tax, as is done with real property, the State uniformly applies a 0.65% tax on each vehicle based on its purchase price adjusted by a depreciation schedule. Prior to 2004/05, this VLF rate was 2%, and any difference between 2% and any lower rate actually levied on vehicles was made up to cities and counties from State general funds. With the change in rate to 0.65% in fiscal year 2004/05, the State ended such "VLF backfill" to cities and counties and replaced it with a like amount of property taxes. Subsequent to the fiscal year 2004/05 base year, each city's property tax in lieu of VLF increases annually in proportion to the growth in gross assessed valuation in that jurisdiction.

Triple Flip

As part of the State's budget efforts and pledge ofrcvenues from a 0.25% sales and use tax for payment of its Economic Recovery Bonds, authorized in the amount of$15 billion by State voters on March 2, 2004, the State adopted a complex set of revenue allocations and offsets known as the "triple flip." To offset the reduction in revenue to local agencies from allocating 0.25% from the I% Bradley-Bums sales and use tax rate for local agencies to payment of the Economic Recovery Bonds, the State in return is diverting a portion of the property tax revenue previously allocated to the Education Revenue Augmentation Fund in each county ("ERAF"; ERAF monies are allocated to the funding of school districts) to each such local agency in the same dollar amount lost, minus the amount that the State determines such local agencies are to contribute to relieving the State's budget. The State determined that for two years only, 2004/05 and 2005/06, cities, counties and special districts other than school districts in aggregate would contribute $350 million each year, and redevelopment agencies in aggregate would contribute $250 million each year, in property tax revenue, for a total relief to the State of $1.3 billion for the two years. There have been no similar "contributions" required since. The reduction in ERAF funding of school districts, to the extent necessary to meet State revenue limit funding requirements for school districts, was offset by the State dollar for dollar by increasing apportionments to school districts from State general funds.

State Budget

The State budget approval process begins with the release to the State legislature by January I 0 of the Governor's proposed budget for the following fiscal year. State fiscal years begin July I. In May, the Governor submits a revision of the proposed budget that reflects updated estimates of revenues and expenditures. After a series of public hearings and other steps in the legislative process, the budget must be approved by two-thirds vote in each house of the State legislature and submitted to the Governor. The Governor may reduce or eliminate any appropriation through the line-item veto. Although the budget is required by the Constitution to be approved no later than June 15, it often has not been approved until later.

The 2007/08 Budget

On January 10,2007, the proposed Governor's 2007/08 Budget was released, on May 14,2007 the May Budget Revision was released and on August 24, 2007 the 2007/08 Budget Act was enacted (together, the "2007 /08 Budget"). The 2007/08 Budget for the State general fund for 2006/07 projects prior year resources available of$1 0.454 billion, revenue and transfers-in of$95.541 billion, for a total of$! 05.995 billion in resources; and for 2007/08 projects prior year resources available of $4.339 billion, revenue and transfers-in of $101.239 billion, for a total of $105.578 billion in resources. General fund expenditures are projected to be $101.656 billion for 2006/07 and $102.258 for 2007/08, with general fund ending balances of$4.339 billion and $3.320 billion, respectively, projected for these years.

The 2007/08 Budget reported Proposition 98 funding of K-12 education and college districts, including local property tax revenue, of$53.3 billion for 2005/06 and projected $55.4 billion for 2006/07 and $57.1 billion for 2007/08. Of these amounts, the State general fund provided $39.7 billion in 2005/06, $40.781 billion in 2006/07 and $41.492 billion in 2007 /08; the difference from total Proposition 98 K -12 and college district funding was funded from local property tax revenue projected for each school district. Funding of K-12 education pursuant to Proposition 98 "guarantees" is the largest single area of annual State expense.

24

The 2008/09 Budget

On January I 0, 2008, the proposed Governor's Budget for 2008/2009 was released and on May 14, 2008 the May Budget Revision was released (together, the "2008/09 Budget"), a balanced budget designed to address an otherwise anticipated State budget shortfall of $24.3 billion. What finally will be enacted is unknown. Further, a significant portion of the balancing of revenues and expenditures in the 2008/09 Budget depends on various measures in addition to the 2008/09 Budget adoption that also are not yet in State law.

The 2008/09 Budget for the State general fund for 2007/08 projects prior year resources available of$4.096 billion, revenue and transfers-in of$1 01.190 billion, for a total of$! 05.286 billion in resources; and for 2008/09 projects prior year resources available of $1.743 billion, revenue and transfers-in of $102.987 billion, for a total of $104.730 billion in resources. General fund expenditures are projected to be $103.543 billion for 2007/08 and $101.836 for 2008/09, with general fund ending balances of$1.743 billion and $2.894 billion, respectively. These budget projections in part rely on timding proposals that need approval by the State legislature and/or California voters. l fsuch approval is not obtained and alternate funding is not implemented, the State budget will reflect significant shortfall.

The 2008/09 Budget reports Proposition 98 funding ofK-12 and community college education, including local property tax revenue, of $55.2 billion for 2006/07 and projects $56.6 billion for 2007/08 and $56.8 billion for 2008/09. Of these amounts, the State general fund provides $41.4 billion in 2006/07, $41.8 billion in 2007/08 and $41.4 billion in 2008/09; the difference from total Proposition 98 funding is funded from local property tax revenue projected for each school district.

While in a sense State budgets do not focus on city finances, the State has often made changes over the years in its efforts to balance its budgets that affect the allocation of property taxes and sales tax in ways that noticeably affect the revenues, expenditures and economic growth of cities. An example is discussed under "Triple Flip" previously. It cannot be predicted what actions will be taken in the future by the State to respond to its own requirements and changes in economic conditions.

THE CITY

Introduction

The City is a general law city which was incorporated in 1956. It comprises approximately 90 square miles located on the east side of the San Francisco Bay in southwestern Alameda County (the "County"), approximately 40 miles southeast of the City of San Francisco and 15 miles north of the City of San Jose, and borders Santa Clara County to the south.

The City operates under a council-manager form of government, whereby policies of the City Council are administered by a City Manager, who is appointed by the Council.

The City is largely a suburban area which has experienced substantial growth during recent decades. Much of the growth has been fueled by the demand for housing due to the economic growth ofboth the City and the San Francisco Bay area. Many of the residents commute north into San Francisco and Oakland to work, or to the San Jose area to the south. There has been increased industrial and commercial development in the City in recent years. The City has become home to a part of the high concentration of high technology and computer firms centered around San Jose known as "Silicon Valley," and the successful pioneering venture between General Motors and Toyota, the New United Motors Manufacturing Inc. (NUMMI). The City has room and infrastructure for further industrial and commercial development.

The City is served by a major transportation network, including two interstate freeways (Interstates 680 and 880) which border its industrial zones. The major passenger rail system is the Bay Area Rapid Transit (BART) system, a high speed light rail system that serves San Francisco and parts of Alameda and Contra Costa Counties. In October 1998, service began on the Altamont Commuter Express (ACE), a Stockton-to-San Jose commuter train with several East Bay stops, including the Centerville Amtrak Station in Fremont. Airports which serve the Fremont area include Oakland, San

25

Jose and San Francisco International Airports, along with several smaller airports in Alameda County. The area is also served by a number of local bus lines, truck carriers, major railroads and deep water ports in Oakland and San Francisco.

Labor Relations

There are approximately 909 full and part-time employees of the City, represented by formal labor organizations as shown in the table below.

Employee Organization

Battalion Chiefs Fremont Association of Management Employees Fremont Association of City Employees, S.E.LU. Local 1021 Professional Engineers & Technicians Association Operating Engineers Local3 International Association of firefighters Local 1689 Fremont Police Association Teamsters Not represented

Source: City of Fremont.

Retirement Programs

CITY OF FREMONT Labor Relations

Number of Employees

6 108 242

28 125 135 185 59

...1l 909

Contract Exniration Date

June 30, 2009 June 30, 2009 June 30, 2009 June 30, 2009 June 30, 2009 June 30, 2009 June 30, 2009 June 30, 2009

All permanent employees of the City are covered under the California Public Employees Retirement System ("Ca!PERS"), a defined benefit plan. Pension costs are funded by biweekly contributions from the City and covered employees. Contributions by the City during 2007/08 were $18,459,110 and in 2008/09 are estimated to be $18,440,701.

Other Post Employment Benefits

In addition to providing retirement benefits through CaiPERS, the City provides post-employment health care benefits, in accordance with bargaining unit agreements, to qualified retired employees. Retirees must make an election within 90 days following the date of separation from City employment to be eligible for the benefits. At June 30,2007, 540 employees were eligible to receive these benefits, which amounts to City reimbursement of all or part of the retirees' medical insurance premium payments. The reimbursement amount, which is subject to continuing negotiation and varies according to bargaining unit, is paid monthly to the retiree upon the retiree's proof of coverage and attestation to premium payment. The benefit generally ceases upon the death of the retiree. Expenditures for post-retirement benefits are recognized on a pay-as-you-go basis. Total expenditures for premium reimbursement in the years ended June 30, 2006 and June 30,2007, were $1,403,412 and $1,530,512; respectively.

Bartel and Associates has delivered to the City an actuarial study, dated September 8, 2006, concluding that, as of June 30, 2006, the amount of actuarial accrued liability for the City's post-employment health care benefits is approximately $44.9 million, based on a variety of assumptions that are subject to change. According to the study, if the City had begun fully funding this actuarial accrued liability as of June 30, 2006, the annual required contribution of 2006/07 would have been approximately $4.1 million instead of the actual $1.5 million payment, a difference of approximately $1.6 million. While the City's audited financial statements will be required (under GASB 45) to calculate actuarial accrued liability and certain other related data for post-employment benefits as a matter of financial reporting in the future, there is no requirement that the City change actual funding from its present pay-as-you-go basis to an annual required contribution basis. Retiree medical is the only post employment benefit offered to the City's employees which

26

is subject to the accounting and reporting requirements ofGASB 45.

Appropriations Limit

The following table shows the City of Fremont's appropriation limit and estimated appropriations subject to limitation for the fiscal years 2007/08 and 2008/09.

Appropriations Limit

CITY OF FREMONT Appropriations Limit and

Appropriations Subject to Limitation

Appropriations Subject to Limitation $438,540,443

147,175,000

Source: City of Fremont.

Assessed Valuation

The following table represents a five-year history of gross assessed valuation in the City:

2004/05 2005106 2006/07 2007108 2008109

Local Secured

$24,886,543,578 26,405,944,703 28,464,267,505 30,480,386,621 32,521,734,445

Source: California Municipal Statistics, Inc.

CITY OF FREMONT Assessed Valuations

$15,347,150 14,682,823 12,653,517 3,270,756

900

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Unsecured

$1 ,893,085,D20 2,019,603,590 2,017,870,805 2,063,840,824 2,206,480,224

2008/09

$468,141,923 147,015,000

$26,794,975,748 28,440,231 '116 30,494,791,827 32,54 7,498,20 I 34,728,215,569

Tax Levies, Collections and Delinquencies

The secured tax charges and year-end delinquencies for five years are reflected on the following table:

CITY OF FREMONT Secured Tax Charge and Delinquencies

Secured Amount Delinquent Percent Delinquent Year Tax Charge1a~ as of June 30 as of June 30

2002/03 $27,363,767 $782,540 2.86% 2003/04 28,659,701 807,549 2.82 2004/05 31,628,220 696,417 2.20 2005/06 34,268,016 855,016 2.50 2006/07 37,204,207 I ,467,408 3.94

lal City General Fund apportionment of the 1% County·wide tax collected by the County within the City.

Source: California Municipal Statistics, Inc.

Tax Rates

The following table lists typical property tax rates for all overlapping governments in the City (rates are for Tax Rate Area 12-013, representing 20.68% of the City's total assessed valuation in 2007/08) for five years:

CITY OF FREMONT TRA 12-013 Property Tax Rates

Year Q!y Countv-wide School Districts S~ecial Districts Total

2003/04 0.00292% 1.0000% 0.0742% 0.0106% 1.0877% 2004/05 0.00230 1.0000 0.0761 0.0092 1.0876 2005/06 0.00792 1.0000 0.0626 0.0154 1.0859 2006/07 0.00440 1.0000 0.0520 0.0246 1.0810 2007/08 0.00420 1.0000 0.0610 0.0402 1.1054

Source: Alameda County Auditor·Controller's Office.

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Largest Taxpayers

The twenty largest secured taxpayers in the City as shown on the 2007/08 tax roll and their assessed valuations within the City arc shown below.

CITY OF FREMONT Twenty Largest Secured Property Taxpayers

Property Owner

New United Motors Manufacturing, Inc. Catellus Development Corporation John T. Arrill<:~ga & RichardT. Peery Trust Arden wood Corporate Park Associates SCILPI Calwest Industrial Properties Fremont Retail Partners LP ERP Operating LP & EQR EJO Finance SSR Western Multifamily LLC ASN Fremont LLC Se\co Service Corporation Presidio LLC BRE Properties Inc. BREFMCFLLC Security Capital Industrial Trust WL Homes LLC MC EPT Apartments LLC 34551 Ardenwood LLC KB Home South Bay Inc. Lakha Properties Fremont CA LLC

lal 2007/08 Local Secured Assessed Valuation: $30,480,386,621.

Source: California Municipal Statistics, Inc.

Heavy Industrial Light Industrial Light Industrial Light Industrial Light Industrial Light Industrial

Shopping Center Apartments Apartments Apartments

Light Industrial Apartments Apartments Apartments

Light Industrial Apartments Apartments

Light Industrial Residential Development

Shopping Center

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2007/08 Assessed Valuation

$ 969,229,722 506,814,460 186,815,146 167,581,496 142,422,532 142,236,515 131,849,178

80,124,048 80,051,162 78,180,595 77,530,813 70,509,868 70,427,947 70,356,073 63,267,688 63,000,000 62,714,891 60,497,681 60,000,052 46916 Ill

$3,130,525,978

Percent ofTotaJ!•I

3.18% 1.66 0.61 0.55 0.47 0.47 0.43 0.26 0.26 0.26 0.25 0.23 0.23 0.23 0.21 0.21 0.21 0.20 0.20 0.15

10.27%

Redevelopment Agency of the City of Fremont

The California Community Redevelopment Law authorizes city or county redevelopment agencies to issue bonds payable from the allocation of tax revenues resulting from increases in full cash value of properties within designated project areas. In effect, local taxing authorities other than the redevelopment agency realize tax revenues only on the "frozen" tax base. The following table shows Redevelopment Agency of The City of Fremont (the "Redevelopment Agency") full cash value increments and tax allocations for five years.

Fiscal Year

2003/04 2004/05 2005/06 2006/07 2007/08

REDEVELOPMENT AGENCY OF THE CITY OF FREMONT Full Cash Value Increments and Tax Allocations (a)

Full Cash Value lncrcment<bl Total Tax Allocations1<l

$2,661,561,403 2,658.762,518 2,829,201,727 3,026,558,214 3,320,627,879

$27,440,400 27,126,771 29,485,530 31,694,552 36,966,391

1"1 Aggregate of the Centerville, Industrial, Irvington and Niles Project Areas, the four project areas that comprise the Merged Project Area of the Redevelopment Agency, net of County administrative fees and other adjustments.

ibl Vu\1 cash value for all redevelopment projects above the "frozen" base year valuation. Data is before homeowners and other, if any, exemptions. 1"1 Actual tax revenues collected and paid to the Redevelopment Agency, including housing set aside amounts. Docs not include Supplemental Roll assessed value

or tax increment.

Source: City of Fremont.

Budget Process

The fiscal year of the City begins on the first day of July and ends on the thirtieth day of June of the following year. Normally, the City Manager submits to the City Council the proposed budget prior to the beginning of each fiscal year. After reviewing and making such revisions as it deems advisable, the Council determines the time for the holding of a public hearing thereon and causes a notice to be published. Copies of the proposed budget are available for inspection by the public in the office of the City Clerk prior to the hearing. At the conclusion of the public hearing, the City Council further considers the proposed budget and makes any revision thereof that it deems advisable. On or before June 30 it adopts the budget with revisions, if any, by the affirmative vote of at least a majority of the total members of the Council. For 2008/09, the budget was adopted on June 10,2008.

From the effective date of the budget, the amounts stated as recommended expenditures become appropriated to the various departments and programs. The City Manager may transfer appropriations between departments or programs within any fund. Any revisions or transfers that alter the total appropriations of any fund must be approved by the City Council. General fund and certain special revenue funds appropriations lapse at the end of the fiscal year to the extent that they have not been expended or lawfully encumbered. At a public meeting after the adoption of the budget, the Council may amend or supplement the budget by motion adopted by the affirmative vote of at least three members of the five­member Council.

In 2002/03 a new $6.2 million "Budget Uncertainty Reserve" was designated within the City's General Fund. In the 2003/04 budget this reserve was made permanent, and its scope increased to cover risks associated with short-term revenue shortfalls, State budget reductions and unavoidable cost increases. As of July I, 2008 the balance of this reserve was $11.176 million.

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Comparative Statements of Revenues, Expenditures and Fund Balance

The table on the next page reflects the City's general fund revenues, expenditures and fund balances for fiscal years 2004/05 through 2008/09. For 2008/09 the City is changing its accounting in respect to maintenance. Instead of general fund money being transferred out to another fund and then spent on maintenance, maintenance expenditures will henceforth be made straight from the general fund.

CITY OF FREMONT General Fund

Revenues, Expenditures and Fund Balance 2004/05 through 2008/09

REVENUES: Property Tax Sales Tax Motor Vehicle In Lieu Intergovernmental Business Tax Other Taxes Franchises Charges for Services Investment Earnings Other TOTAL REVENUE

EXPENDITURES Current: General Government Police Services Fire Services Maintenance tel

Human Services Community Development and Environmental Services Capital Outlay Debt Service- Interest and Fiscal Charges TOTAL EXPENDITURES

OTHER FINANCING SOURCES (USES): Operating Transfers In Operating Transfers Out TOTAL OTHER FINANCING SOURCES (USES)

EXCESS OF REVENUES AND OTHER FINANCING SOURCES OVER (UNDER) EXPENDITURES AND OTHER F\NANCING USES

FUND BALANCE, JULY I

FUND BALANCE, JUNE 30

FUND BALANCE, JUNE 30, LESS AMOUNTS DESIGNATED FOR PROGRAM INVESTMENT AND CATASTROPHIC CONTINGENCIES

tal City's Audited Financial Statements. (b) As of July 24, 2008.

2004/051"1 2005/061"1

$34,035,805 $51,307,083 30,619,014 32,276,785

4,623,173 2,041,387 12,035,759 756,886 6,092,081 6,771,199 3,802,272 4,290,480 7,546,775 7,666,471 7,611,792 7,872,064 1,893,133 2,217,982

181 654 103 358 I 08,441,458 115,303,695

10,757,407 11,012,979 42,637,268 45,251,515 24,876,078 26,062,451

0 0 2,610,663 2,861,395

575,596 579,522 68,746 212,782

603 950 I 295 472 82,129,708 87,276,116

6,590,582 7,226,380 (33, 109, I 05) (31 ,961 ,992) (26,518,523) (24,735,612)

(206,773) 3,291,967

36,948,893 36,742,120

$36 742 120 $40 034 087

$19,488,120 $21,913,877

Estimated Projected 2006/071b1 2007/081b1 2008/091b)

$56,431,767 $59,511,000 $62,045,000 34,190,785 35,885,000 37,460,000

1,220,418 1,100,000 1,106,000 1,473,151 800,000 812,000 6,738,310 7,500,000 7,337,000 4,390,096 4,506,000 4,955,000 7,902,406 8,000,000 8,362,000 8,366,094 8,649,000 9,223,000 2,425,311 2,396,000 2,408,000

92 116 200 000 355 000 123,230,454 128,547,000 134,063,000

12,094,439 13,957,000 14,554,000 48,898,743 53,073,000 56,061,000 27,297,342 30,563,000 32,447,000

0 0 21,563,000 3,088,878 3,564,000 3,789,000

630,638 693,000 746,000 112,655 0 0 496 309 0 790 000

92,619,004 101,850,000 129,950,000

7,450,191 7,436,000 6,618,000 (35,962,034) (40,900,000) (16,464,000) (28,511,843) (33,464,000) (9,846,000)

2,099,607 (6,767,000) (5,733,000)

40,034,087 42,133,694 35,366,694

$42,133 694 $35 366 694 $29 633 694

$24,013,484 $14,005,284 $7 671 694

l<l Equivalent non-general fund maintenance expenditures in 2004/05, 2005/06, 2006/07 and 2007/08 were $18,379,476, $19,662,930, $21,616,258 and $22,558,821, respectively.

Source: City of Fremont

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Financial and Accounting Information

The City uses funds and account groups to report on its financial position and the results of its operations. The City's outside auditors are Caporicci & Larson LLP. Recent audited financial statements of the City are posted on the City's website ( www.fremont.gov) or may be obtained at the offices of the Finance Department, City of Fremont, 3300 Capitol Avenue, Building B, California 94538, telephone: (510) 494-4610. The City may impose a charge for copying, mailing and handling.

Short Term Obligations

On October I, 2007, the City issued $19,720,000 2007 Tax and Revenue Anticipation Notes due September 30, 2008, for general fund purposes, payable from general fund revenues attributable to fiscal year 2007/08. Sufficient funds to pay principal and interest when due have been set aside for that purpose by the City. The City expects to issue $28,000,000 2008 Tax and Revenue Anticipation Notes due September 29,2009, on September 30, 2008, for general fund purposes, payable from general fund revenues attributable to fiscal year 2008/09.

Long Term Obligations

General Ohligat ion Bonds

On November 5, 2002, by in excess of two-thirds of the votes cast, City voters authorized $51,000,000 in general obligation bonds to be issued to fund seismic and other improvements to various City fire stations (the "Authorization"). On July 17,2003, the City issued $10,000,000 General Obligation Bonds, Election of2002, Series A, the first series of bonds under the Authorization, of which $9,220,000 are outstanding as of June 30, 2008. On April 14, 2005, the City issued $25,000,000 General Obligation Bonds, Election of 2002, Series B, the second series of bonds under the Authorization. Debt service on general obligation bonds is paid from a dedicated ad valorem tax levy on taxable property within the City, collected by the County for the City on the regular County property tax bill.

Source:

Remaining general obligation bond future debt service by fiscal year as of June 30, 2008 is as follows:

Year

2008/09 2009110 2010111 2011112 2012/13

2013114-2017118 2018119-2022/23 2023/24-2027/28 2028/29-2032/33

2033/34-2034/35 Total:-;:

City of Fremont.

FREMONT PUBLIC FINANCING AUTHORITY Remaining General Obligation Bond Debt Service by Fiscal Year

As of June 30, 2008

Principal Interest

$ 220,000.00 $ I ,536,352.50 740,000.00 1,511,677.50 780,000.00 1,477,152.50 820,000.00 I ,445,877.50 860,000.00 1,417,492.50

4,950,000.00 6,568,763.17 6,020,000.00 5,448,501.90 7,450,000.00 3,933,637.50 9,290,000.00 1,932,375.02

3 090 000.00 156 250.00 $34.220.000.00 $25,428,080.09

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Total

$ 1,756,352.50 2,251,677.50 2,257,152.50 2,265,877.50 2,277,492.50

11,518,763.17 11,468,501.90 11,383,637.50 11,222,375.02

3 246 250.00 $59,648,080.09

Certificates of Participation and Revenue Bonds no~ •~ cl~ 4t •b /o/1/

In addition)o the Certificates, the City proposes to execute and deliver its Variable Rate Demand Certificates of Participation(2008 Refinancing and Capital Projects) in the approximate amount of$48,600,000 on or before November I, 2008, in order to refund it's outstanding Variable Rate Demand Certificates of Participation (2002 Maintenance Center and Fire Station No. II Financing Project) and fund various new capital projects.

Below is a summary of long-term certificates of participation and revenue bonds of the City as of June 30, 2008. These certificates of participation and revenue bonds represent financing lease and revenue bond obligations payable from the general funds of the City, though the City in two instances entirely funds such payments from revenues specific to the projects financed (see footnotes to table, below).

FREMONT PUBLIC FINANCING AUTHORITY Certificates of Participation and Revenue Bond Obligations of the City of Fremont

As of June 30, 2008

Variable Rate Demand Certificates of Participation (1990 Building and Equipment Acquisition Financing Project)<-> Variable Rate Demand Certificates of Participmion (1991 Fire Stations Financing Project) <•l Variable Rate Demand Certificates of Participation ( 1998 Family Resource Center Financing Project) <bl

Certificates of Participation ( 1998 Police Facility Refinancing Project) Tri-City Waste Facilities Authority, City of Fremont Refunding Bonds, Series 1998 <cl Variable Rate Demand Certificates of Participation (200 I Capital Improvement Financing Project) Variable Rate Demand Certificates of Participation {200 I B 011ice Building and Fire Equipment Project) Variable Rate Demand Certificates of Participation (2002 Maintenance Center and fire Station No. II Financing Project) <dl Variable Rate Demand Certificates of Participation (2003 Refinancing Project) 1• 1

Total

<alTo be prepaid upon delivery of the Certificates. ibl Sclf·supporting from Family Resource Center tenant sublease payments. lcJ Se]f.supporting from City garbage collection fees. <dlTo be prepaid upon delivery of the City's proposed Variable Rate Demand Certificates of Participation (2008 Refinancing and Capital Projects).

Source: City of Fremont.

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Amounts Outstanding

June 30. 2008

$3,850,000 3,600.000

10,560,000 15,935.000 2,530.000

31.345.000 8,380.000

33,365,000 19405 000

$128 970 000

The future fiscal year annual certificates of participation lease payments (variable rate demand certificates of participation leases witli'a we'ekly interest"rate.reset are included, with interest rates estimated) and revenue bond debt service, excluding self-supporting obligations, existing as of June 30, 2008 are estimated as follows:

Source: City of Fremont.

FREMONT PUBLIC FINANCING AUTHORITY Certificat(!s of Participation and Revenue Bond Obligations of the City of Fremont

Estimated Annual Lease and Debt Service Payments As of June 30, 2008

2008/09 2009/10 2010/11 2011112 2012113

Thereafter Total principal and interest

Less interest Total principal

Lease and Debt Service Payments

$9,347,950 9,279,708 9,239,321 9,231,381 9,188,494

112 727 286 159,014,140 (43,134,140)

$115,880,000

Tax Allocation Bonds

Tax allocation bonds are payable solely from property tax increment received by the Redevelopment Agency from four project areas established within the City pursuant to State redevelopment law, and are not obligations of the City. Members of the City Council sit as the governing board of the Redevelopment Agency, and certain City employees function as Redevelopment Agency staff. From time to time the City has advanced various funds to the Redevelopment Agency. The Redevelopment Agency issued $50,000,000 of tax allocation bonds on August 9, 2000, payable from non­housing tax increment, and issued $18,045,000 of tax allocation bonds on June 5, 2003, payable from housing set-aside tax increment. On June 3, 2004, the Redevelopment Agency issued $41,425,000 oftax allocation bonds, payable from non­housing tax increment, the proceeds of which were used to refund and defease those outstanding tax allocation bonds issued on August 9, 2000, maturing on or after September I, 2005. As of June 30,2008,$29,940,000 of tax allocation bonds payable from non-housing tax increment were outstanding, and $11,825,000 of tax allocation bonds payable from housing set-aside tax increment were outstanding. On September I, 2008, those tax allocation bonds payable from housing set-aside tax increment maturing on September I, 2012, in the sum of$2,560,000, will be redeemed in their entirety.

Special Assessment District Bonds

Special assessment district bonds have been issued under various public improvement acts of the State and are secured by liens against properties within the respective special assessment district deemed to have benefitted by the improvements for which the bonds were issued. The City Council sits as the governing body for its special assessment districts and the City acts as an agent in collecting the assessments from the property owners, forwarding the collections to bond holders, and initiating foreclosure proceedings when necessary. These bonds are limited obligations of the City payable solely from annual assessments, specific reserves and the proceeds from property foreclosures with respect to the issuing special assessment district. Aggregate special assessment district bonded indebtedness as of June 30, 2008, was approximately $30,025,000.

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Special Tax Bonds

Community Facilities District I, established by the City pursuant to the Marks-Roos Community Facilities Act of 1982, As Amended, issued $30,000,000 in Special Tax Bonds on June 27, 200 I, and $38,000,000 Special Tax Bonds, Series 2005, on July 21,2005. These bonds are payable solely from a special tax levied on property within Community Facilities District I, and are not an obligation of the City.

Statement of Direct and Overlapping Debt

Set forth below is a direct and overlapping debt report (the "Debt Report") prepared by California Municipal Statistics, Inc., and dated September l, 2008. The Debt Report is included for general information purposes only. The City has not reviewed the Debt Report for completeness or accuracy and makes no representations in connection therewith. Any inquiries concerning the scope and methodology of procedures carried out to compile the information presented should be directed to California Municipal Statistics, Inc., Oakland, California.

The Debt Report generally includes long term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the City in whole or in part. Such long term obligations generally are not payable from revenues of the City (except as indicated) nor are they necessarily obligations secured by land within the City. In many cases long term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency.

35

2007/08 Assessed Valuation: Redevelopment Incremental Valuation: Adjusted Assessed Valuation:

CITY OF FREMONT Statement of Direct and Overlapping Debt

$32,547,498,201 (3,379,088.891)

$29168409310

DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT:

Bay Area Rapid Transit District Chabot-Las Positas Community College District Ohlom: Community College District Fremont Unified School District Sunol Glen Unified School District City of Fremont City of Fremont Community Facilities District No. City of Fremont 1915 Act Bonds Washington Township Healthcare District East Bay Regional Park District TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT

DIRECT AND OVERLAPPING GENERAL FUND DEBT:

Alameda County General Fund Obligations Alameda County Pension Obligations Alameda-Contra Costa Transit District Certificates of Participation Chabot-Las Positas Community College District Certificates of Participation Fremont Unified School District Certificates of Participation City of Fremont Certificates of Participation TOTAL DIRECT AND OVERLAPPING GENERAL FUND DEI3T

COMBINED TOTAL DEBT

Percentage of overlapping agency's assessed valuation located within boundaries of the City. Ex dudes issue to be sold

Percent Applicab]c<al

6.867 0.006

81.579 100.000

0.290 100.000 100.000 100.000 69.559

9.977

17.385 17.385 20.878

0.006 100.000 100.000

Debt as of September I, 2008

$ 30,308,191 28,210

I 08,748,886 200,088,035

4,219 34,000,000(bl 67,495,000 27,715,000 37,120,160 12,655,825

518,163,526

79,916,759 39,728,223

2,537,721 290

20,710,000 121 965 000 264 857 993

$783 021 5J9IC)

,., '"' ,,,

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

Ratios to 2007/08 Assessed Valuation: Direct Debt ($34,000,000) ............................. . Total Direct and Overlapping Tax and Assessment Debt ..

Ratios to Adjusted Assessed Valuation Combined Direct Debt ($155,965,000) .. Combined Total Debt

STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/08: $0

Source: California Municipal Statistics, Inc.

Self-Insurance Program

0.10% 1.59%

0.53% 2.68%

The City is exposed to various risks ofloss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees and natural disasters. During fiscal year 1981/82, the City established the Risk Management Fund (an internal service fund) to account for and finance its uninsured risks of loss. The City is self-insured for up to $500,000 for each workers' compensation claim, $500,000 for each general liability claim, $25,000 for each property claim, and the full amount of the loss for unemployment claims. General liability and workers' compensation claims in excess of$500,000 are covered under separate joint powers authority programs. The City retains an independent actuary to analyze the City's potential liability for the City's self-insured portion of the general liability and workers' compensation program. The amount recorded as a liability is the specific reserve for any individual known lawsuits not covered under the general liability or the workers' compensation program estimates for incurred but not reported claims,

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plus any claims that fall within the City's self-insured retention. The accrued claims in the Risk Management Fund ofthe City as of June 30, 2007 were $9,371,000.

In February 1986, the City joined with other municipalities and regional municipal joint powers authorities to form the California Joint Powers Authority ("CJPA"), a public entity risk pool currently operating as a general liability risk management and insurance program for 24 member entities. On July I, 1990, the name of the CJPA was changed to the California Joint Powers Risk Management Authority (the "CJPRMA"). The objective of the CJPRMA is to spread the adverse effects oflosses among the member agencies and to purchase excess insurance as a group, thereby reducing its cost. General liability claims in excess of $500,000 and up to $40,000,000 per occurrence are covered by the CJPRMA.

Since June 2006, the City has also been a member of the CSAC Excess Insurance Authority ("CSAC"). CSAC membership contains 54 California counties and 152 organizations (cities, school districts, special districts and other JPAs). Workers' compensation claims in excess of $500,000 are covered by CSAC through reinsurance up to the limit of $250,000,000. Settled claims have not exceeded this commercial coverage in any of the last three fiscal years.

City Investment Policy and Portfolio

The City follows the practice of pooling cash and investments of all funds, except for funds required to be held by outside fiscal agents under the provisions of bond indentures and certificates of participation trust agreements. Under provisions of the City's investment policy and in accordance with California Government Code Section 53601, the City may invest in the following types of investments: securities of the U.S. government, its sponsored agencies and instrumentalities; insured or collateralized certificates of deposit (or time deposits); negotiable certificates of deposit; bankers' acceptances; commercial paper of"prime" quality; local agency investment fund (State pool) demand deposits; passbook savings account demand deposits; repurchase agreements; reverse repurchase agreements when specifically approved by the City Council; money market funds registered with the SEC; and medium-term corporate notes. Pursuant to provisions of certain bond indentures, certificates of participation trust agreements, funds required to be held by outside fiscal agents under such agreements at the direction of the City may be also, and in certain cases are, invested in guaranteed investment contracts. In fiscal year 1998 the City adopted GASB Statement No. 31, under which the City must adjust the carrying value of its investments to reflect their fair market value at each fiscal year-end and include the effects of these adjustments in the statement of income for that fiscal year.

At June 30, 2008, the City had no investments in repurchase agreements. In addition, although the California Government Code allows the City to borrow funds through the use of reverse repurchase agreements, reverse repurchase agreements require approval of the City Council and the City has no such agreement at this time. Investments and cash at June 30, 2008, in all funds were as follows:

TOTAL CITY POOLED INVESTMENTS (As of June 30, 2008)

ill£ U.S. government sponsored entity securities U.S. government agency- Treasuries Commercial paper Medium term corporate notes

(in Thousands)

Time deposits, negotiated certificates of deposit and money market California Local Agency Investment Fund Total investments

At June 30, 2008, total effective year to date yield was 4. 74%.

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Fair Value $237.434,894

7,176.674 47,283,647 25,588,270 13,418,680 1514082

$332.416.247

Community Economic Profile

Population

The City is the second largest city in the County, the fourth largest in the San Francisco Bay Area and one of the twenty largest in the State. The following table sets forth U.S. Census population figures for the City for (April) 1970, 1980, 1990 and 2000 and annual California Department of Finance estimates for the City and the County for 2003 through 2008 as of January I of each year.

Source: California Department of Finance

Employment

1970 1980 1990 2000

2003 2004 2005 2006 2007 2008

CITY OF FREMONT Population

City of Fremont

100,379 131,945 173,339 203,400

208,784 209,080 209,421 210,150 211,162 213,512

Alameda County

1,071,446 1,105,379 1,276,702 I ,443,741

I ,487,700 1,498,000 1,500,228 I ,509,981 I ,522,597 1,543,000

The following table summarizes historical employment and unemployment in the Oakland-Fremont-Hayward Metropolitan Division, comprised of Alameda and Contra Costa Counties.

OAKLAND METROPOLITAN STATISTICAL AREA Civilian Labor Force, Employment and Unemployment

Annual Averages

Civilian Labor Forcer•> Employment Unemployment Total

Unemployment Rate\M

2003

1,188,700 83 500

1,272,200

6.6%

l•J Based on place of residence; March 2007 Benchmark. lb> The unemployment f<lte is calculated using unroundcd data.

2004

1,187,900 71 900

1,259,800

5.7%

Source: California Employment Development Department, Labor Market Jnfonnation Division

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2005

1,194,300 63 400

I 257 700

5.0%

2006

1,209,700 55 500

1,265,200

4.4%

2007

1,220,600 60 900

I 281 500

4.8%

The following table summarizes the historical numbers of workers in the Oakland-Fremont-Hayward Metropolitan Division by industry.

Agricultural Natural Resources and Mining Construction Manufacturing Trade, Transportation and Utilities lnfonnation Financial Activities Professional and Business Services Educational and Health Services Leisure and Hospitality Other Services Government

Total All Industries

OAKLAND-FREMONT-HAYWARD METROPOLITAN DIVISION Estimated Number of \Vage and Salary \Vorkers by lndustry(al

(in thousands)

2003 2004 2005

2,600 1,500 1,600 900 1,200 1,100

67,100 69,800 72,800 98,000 98,200 95,600

197,200 193,800 195,000 32,600 31,300 30,700 67,700 67,600 69,500

144,900 147,700 150,600 117,000 117,200 118,500 80,400 80,600 83,000 37,500 36,600 35,600

182,300 179 700 180 000

I 028 200 1.025.200 I 033 700

2006 2007

1,500 1,500 1,200 1,200

73,300 72,400 95,800 93,700

197,100 198,100 30,100 29,400 67,700 62,300

154,900 155,500 121,800 124,700 85,600 87,500 35,900 36,200

182 000 186 800

1,046,900 I 046,100

Ia) The industry employment data arc now based upon the North American Industry Classification System (NAICS). Newly released data are not comparable to the data based on the Standard Industrial Classification (SIC). Items may not add to totals due to independent rounding. March 2007 Benchmark.

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

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Largest Employers

The following table represents the major employers in the City, excluding the City:

Company

New United Motor Manufacturing Washington Township Healthcare Scagate Technology LLC Boston Scientific Corp. Logitech Inc. China Custom Manufacturing Ltd. DMS Facility Services Flash Electronics Inc. Sysco Food Services Sanmina-Sci Corp. Power Quotient A van ex Corp. Quanta Computer USA Inc. Kaiser Foundation Hospitals Axt Inc. Mervyn's LLC Spectrum Litho Wells Fargo Bank Virage Logic Corp.

CITY OF FREMONT Major Employers

Product/Service

Manufactures motor vehicle parts & accessories Medical hospital Manufactures computer disk drives Manufactures medical instruments Manufactures computer peripheral equipment Manufactures finished injection molded plastic products Building maintenance service Manufactures printed circuit boards Wholesales general line groceries Manufactures metal housings, enclosures, casings & other containers Manufactures industrial process type computer interface equipment Manufactures fiber optic communication equipment Wholesales computers, peripherals & software Medical hospital Manufactures semiconductors & related devices Wholesales women's & children's clothing Commercial lithographic printing National commercial bank Manufactures semiconductors & related devices

Source: 2008 Harris Info Source, February 2008.

Residential Building Activity

Employees

7,000 1,600 1,300 1,135

976 860 800 605 596 500 435 433 400 400 400 375 359 359 354

The following table reflects the five-year history of residential building permits and their valuation for the City:

,.,

2003104 2004105 2005106 2006107 2007108

Includes all residential building activity.

Source: City of Fremont.

CITY OF FREMONT Residential Building Permits and Valuations

(Dollars in Thousands)

Number ofPcnnits(•l

4,475 4,392 4,361 4,346 3,464

Valuations(•)

$109,896 159,570 160,839 130,772 146,060

According to the Association ofBay Area Governments (ABAG), the County is expected to experience a household demand of91 ,050 for 1995 to 2015, exceeding the local policy potential housing unit supply of83,61 0 units forth is period.

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Commercial Activity

The following table reflects the five-year history of retail outlets and taxable retail sales in the City:

Source:

2002 2003 2004 2005 2006

California Board of Equalization.

Median Household Income

CITY OF FREMONT Trade Outlets and Taxable Sales

(Dollars in Thousands)

5,322 5,381 5,446 5,419 5,220

Taxable Sales

$2,203,279 2,112,936 2,403,707 2,647,214 2,915,868

Effective Buying Income (EBI) is defined as money income less personal income tax and non-tax payments, such as fines, fees or penalties, a number often referred to as "disposable" or "after-tax" income. The following table represents the five year history of median household EBI for the City, County and State:

Year

2001 2002 2003 2004 2005

CITY OF FREMONT, ALAMEDA COUNTY AND STATE OF CALIFORNIA Median Household Effective Buying Income

City of Fremont Alameda County

$60,731 $50,631 68,611 54,076 64,371 49,574 65,026 50,431 66,274 51,415

Source: "Survey of Buying Power", Sales and Marketing Management Magazine.

LEGAL MATTERS

Tax Matters

State of California

$44,464 43,532 42,484 42,924 43,915

Federal tax law contains a number of requirements and restrictions which apply to the Certificates, including investment restrictions, periodic payments of arbitrage profits to the United States, requirements regarding the proper use of bond proceeds and the facilities financed therewith, and certain other matters. The City has covenanted to comply with all requirements that must be satisfied in order for the interest with respect to the Certificates to be excludable from gross income for federal income tax purposes. Failure to comply with certain of such covenants could cause interest with respect to the Certificates to become includable in gross income for federal income tax purposes retroactively to the date of issuance of the Certificates.

Subject to the City's compliance with the above-referenced covenants, under present law, in the opinion of Quint & Thimmig LLP, San Francisco, California, Special Counsel, interest with respect to the Certificates is excludable from

41

the gross income of the owners thereof for federal income tax purposes, and is not included as an item of tax preference in computing the federal alternative minimum tax for individuals and corporations. Interest with respect to the Certi!icates is taken into account, however, in computing an adjustment used in determining the federal alternative minimum tax for certain corporations. The Internal Revenue Code of 1986, as amended (the "Code"), includes provisions for an alternative minimum tax ("AMT") for corporations in addition to the corporate regular tax in certain cases. The AMT, if any, depends upon the corporation's alternative minimum taxable income ("AMTI"), which is the corporation's taxable income with certain adjustments. One of the adjustment items used in computing the AMTI of a corporation (with certain exceptions) is an amount equal to 75% of the excess of such corporation's "adjusted current earnings" over an amount equal to its AMTI (before such adjustment item and the alternative tax net operating loss deduction). "Adjusted current earnings" would include all tax-exempt interest, including interest with respect to the Certi!icates.

In rendering its opinion, Special Counsel will rely upon certi!ications of the City with respect to certain material facts within the City's knowledge. Special Counsel's opinion represents its legal judgment based upon its review of the law and the facts that it deems relevant to render such opinion and is not a guarantee of a result.

Ownership of the Certi!icates may result in collateral federal income tax consequences to certain taxpayers, including, without limitation, corporations subject to the branch protits tax, !inancial institutions, certain insurance companies, certainS corporations, individual recipients of Social Security or Railroad Retirement bene!its and taxpayers who may be deemed to have incurred (or continued) indebtedness to purchase or carry tax-exempt obligations. Prospective purchasers of the Certi!icates should consult their tax advisors as to applicability of any such collateral consequences.

The issue price (the "Issue Price") for each maturity of the Certi!icates is the price at which a substantial amount of such maturity of the Certiticates is !irs! sold to the public. The Issue Price of a maturity of the Certi!icates may be different from the price set forth, or the price corresponding to the yield set forth, on the cover page hereof.

An investor may purchase a Certi!icate at a price in excess of its stated principal amount. Such excess is characterized for federal income tax purposes as "bond premium" and must be amortized by an investor on a constant yield basis over the remaining term of the Certi!icate in a manner that takes into account potential call dates and call prices. An investor cannot deduct amortized bond premium relating to a tax-exempt bond. The amortized bond premium is treated as a reduction in the tax-exempt interest received. As bond premium is amortized, it reduces the investor's basis in the Certi!icate. Investors who purchase a Certi!icate at a premium should consult their own tax advisors regarding the amortization ofbond premium and its effect on the Certiticate's basis for purposes of computing gain or loss in connection with the sale, exchange, redemption or early retirement of the Certi!icate.

There are or may be pending in the Congress of the United States legislative proposals, including some that carry retroactive effective dates, that, if enacted, could alter or amend the federal tax matters referred to above or adversely affect the market value of the Certi!icates. It cannot be predicted whether or in what form any such proposal might be enacted or whether, if enacted, it would apply to bonds issued prior to enactment. Prospective purchasers of the Certi!icates should consult their own tax advisors regarding any pending or proposed federal tax legislation. Special Counsel expresses no opinion regarding any pending or proposed federal tax legislation.

The Internal Revenue Service (the "Service") has an ongoing program of auditing tax-exempt obligations to determine whether, in the view of the Service, interest on such tax-exempt obligations is includable in the gross income of the owners thereof for federal income tax purposes. It cannot be predicted whether or not the Service will commence an audit of the Certi!icates.lf an audit is commenced, under current procedures the Service may treat the City as a taxpayer and the Owners may have no right to participate in such procedure. The commencement of an audit could adversely affect the market value and liquidity of the Certi!icates until the audit is concluded, regardless of the ultimate outcome.

Payments of interest on, and proceeds ofthe sale, redemption or maturity of, tax-exempt obligations, including the Certi!icates, are in certain cases required to be reported to the Service. Additionally, backup withholding may apply to any such payments to any Certi!icate owner who fails to provide an accurate Form W-9 Request for Taxpayer ldentitication Number and Ccrti!ication, or a substantially identical form, or to any Certi!icate owner who is notified by the Service of a failure to report any interest or dividends required to be shown on federal income tax returns. The reporting and backup withholding requirements do not affect the excludability of such interest from gross income for federal tax purposes.

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In the further opinion of Special Counsel, interest payable with respect to the Certificates is exempt from California personal income taxes.

Owners of the Certificates should also be aware that the ownership or disposition of, or the accrual or receipt of interest with respect to, the Certificates have federal or state tax consequences other than as described above. Special Counsel expresses no opinion regarding any federal or state tax consequences arising with respect to the Lease Agreement and the Certificates other than as expressly described above.

Certain Legal Matters

Quint & Thimmig LLP, San Francisco, California, Special Counsel, will render opinions with respect to the validity and enforceability of the Lease Agreement and the Trust Agreement. Copies of such approving opinion will be available at the time of delivery of the Certificates.

Absence of Litigation

There is no action, suit or proceeding known to be pending or threatened, restraining or enjoining the execution or delivery of the Certificates, the Lease Agreement or the Trust Agreement or in any way contesting or affecting the validity of the foregoing or any proceedings of the City taken with respect to any of the foregoing.

MISCELLANEOUS

Rating

Standard & Poor's Ratings Services has assigned its municipal bond rating of"AA" to the Certificates. The rating issued reflects only the view of such rating agency, and verification of the rating assigned and any explanation of their significance should be obtained from Standard & Poor's Ratings Services at 55 Water Street, New York, New York I 0041. There is no assurance that such rating will continue for any given period of time, or that it will not be revised downward or withdrawn entirely by the rating agency if in the judgment of such rating agency circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse affect on the market price of the Certificates.

Underwriting

Pursuant to the terms of a public bid held on September 16, 2008, Morgan Stanley & Co., Incorporated, as Underwriter (the "Underwriter"), has agreed to purchase the Certificates from the District at the purchase price of $27,393,338.38. The Underwriter has represented to the District that the Certificates were reoffered to the public at the prices or yields set forth on the inside cover page of this Official Statement, at an aggregate reoffering price of $27,771,979.70. The Underwriter will be obligated to take and pay for all of the Certificates, if any Certificate is purchased.

Continuing Disclosure

The City has covenanted to provide notices of the occurrence of certain enumerated events, if material, to each Nationally Recognized Municipal Securities Information Repository ("NRMSIR"} and the state information repository, if any. Such filings are available to the public from the NRMSIR. Currently, the City's fiscal year ends on June 30 of each year. The specific nature of the information to be contained in the Annual Report or the notices of material events is set forth below under the caption "APPENDIX C- Form of Continuing Disclosure Certificate." These covenants have been made for the benefit of the holders and beneficial owners of the Notes and to assist the Underwriter in complying with

43

S.E.C. Rule 15c2-12(b)(5). The City has never failed to comply in all material respects with any previous undertakings with regard to said Rule to provide annual reports or notices of material events .

. Financial Advisor

The City has entered into an agreement with the Financial Advisor whereunder the Financial Advisor provides financial advisory services to the City with respect to preparation and sale of the Certificates. The Financial Advisor has read and participated in the drafting of certain portions of this Official Statement and has supervised the completion and editing thereof. The Financial Advisor has not audited, authenticated or otherwise verified the information set forth in the Official Statement, or any other related information available to the Issuer, with respect to accuracy and completeness of disclosure of such information, and the Financial Advisor makes no guaranty, warranty or other representation respecting accuracy and completeness of the Official Statement or any other matter related to the Official Statement.

Availability of Documents

Copies of the Site Lease, Lease Agreement, the Trust Agreement and the Assignment Agreement are available, upon request, from the Finance Department, City of Fremont, 3300 Capitol Avenue, Building B, California 94538, telephone: (510) 494-4610.

Additional Information

The purpose of this Official Statement is to supply information to prospective buyers of the Certificates. Quotations from and summaries and explanations of the Certificates, the Trust Agreement, the Lease Agreement, the Site and Facility Lease and the Assignment Agreement, and the documents, statutes and constitutional provisions referenced herein, do not purport to be complete, and reference is made to said documents, statutes, and constitutional provisions for full and complete statements of their provisions. Appropriate Agency officials, acting in their official capacities, have determined that as of the date hereof, to the best of their knowledge and belief, the information contained herein (excluding the description of the DTC and its book-entry system, and information relating to the reoffering prices of the Certificates to investors, provided by the Underwriter), did not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. This Official Statement has been approved by the City.

CITY OF FREMONT

By Is/

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Harriet V Commons Finance Director

APPENDIX A

SUMMARY OF PRINCIPAL LEGAL DOCUMENTS

Appendix A

APPENDIX A

SUMMARY OF PRINCIPAL LEGAL DOCUMENTS

The following is a brief summary of certain provisions of the Site and Facility Lease, the Lease Agreement, the Assignment Agreement and the Trust Agreement prepared for Certificates. The following also includes definitions of certain terms used therein and in this Official Statement. Such summary is not intended to be definitive. Reference is directed to said documents for the complete text thereof Except as otherwise defined in this summary, the terms previously defined in this Official Statement have the respective meanings previously given. Copies of said documents are available from the City and from the Trustee.

DEFINITIONS

"Assignment Agreement" means the Assignment Agreement, dated as of September 1, 2008, by and between the Authority and the Trustee, together with any duly authorized and executed amendments thereto.

"Authority" means the Fremont Public Financing Authority, a joint exercise of powers authority organized and existing under and by virtue of the laws of the State.

"Authority Representative" means the Chair, Executive Director, Treasurer, Secretary, or the designee of any such official, or any other person authorized by resolution of the Authority delivered to the Trustee to act on behalf of the Authority under or with respect to the Site and Facility Lease, the Lease Agreement, the Assignment Agreement and the Trust Agreement.

"Bond Counsel" means (a) Quint & Thimmig LLP, or (b) any other attorney or firm of attorneys appointed by or acceptable to the City of nationally-recognized experience in the issuance of obligations the interest on which is excludable from gross income for federal income tax purposes under the Code.

"Business Day" means a day which is not a Saturday, Sunday or legal holiday on which banking institutions in the state in which the Principal Corporate Trust Office is located or in the State are closed or are required to close or a day on which the New York Stock Exchange is closed.

"Certificates" means the certificates of participation to be executed and delivered pursuant to the Trust Agreement which evidence direct, undivided fractional Interests of the Owners thereof in Lease Payments.

"City" means City of Fremont, a general law city and municipal corporation organized and existing under and by virtue of the constitution and laws of the State.

"City Representative" means the Mayor, the City Manager, the Finance Director, the Revenue & Treasury Manager, the City Clerk, or the designee of any such official, or any other person authorized by resolution to act on behalf of the City under or with respect to the Trust Agreement and/or the Lease Agreement and/or the Site and Facility Lease and identified as such to the Trustee in writing.

"Closing Date" means September 30, 2008, the date upon which there is a physical delivery of the Certificates in exchange for the amount representing the purchase price of the Certificates by the Original Purchaser.

"Code" means the Internal Revenue Code of 1986 as in effect on the Closing Date or (except as otherwise referenced in the Lease Agreement or the Trust Agreement) as it may be amended to apply to obligations issued on the Closing Date, together with applicable temporary and final regulations promulgated under the Code.

"Continuing Disclosure Certificate" shall mean that certain Continuing Disclosure Certificate executed by the City and dated the date of issuance and delivery of the Certificates, as originally executed and as it may be amended from time to time in accordance with the terms thereof.

Appendix A Page 1

'Defeasance Obligations" means: (a) cash; (b) non-callable Federal Securities (including State and Local Government Securities); (c) non-callable direct obligations of the United States of America which have been stripped by the Department of the Treasury of the United States of America; (d) non-callable bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America: (i) direct obligations or fully guaranteed certificates of beneficial ownership of the U.S. Export-Import Bank; (ii) certificates of beneficial ownership of the Farmers Home Administration; (iii) obligations of the Federal Financing Bank; (iv) participation certificates of the General Services Administration; (v) guaranteed Title XI financings of the U.S. Maritime Administration; (vii) U.S. government guaranteed public housing notes and bonds; and (vii) project notes and local authority bonds of the U.S. Department of Housing and Urban Development; and (e) pre-refunded municipal bonds rated "Aaa" by Moody's and "AAA" by S&P; provided, however, pre-refunded municipal bonds rated by S&P only (i.e., no Moody's rating) are acceptable if such pre-refunded municipal bonds were pre-refunded with cash, direct U.S. or U.S. guaranteed obligations or AAA rated pre-refunded municipal bonds.

"Delivery Costs Fund" means the fund by that name established and held by the Trustee pursuant lo the Trust Agreement.

"Delivery Costs" means all items of expense directly or indirectly payable by or reimbursable to the City or the Authority relating to the execution and delivery of the Site and Facility Lease, the Lease Agreement, the Trust Agreement and the Assignment Agreement or the execution, sale and delivery of the Certificates, including but not limited to filing and recording costs, settlement costs, printing costs, reproduction and binding costs, costs for statistical data, initial fees and charges of the Trustee (including the fees and expenses of its counsel), financing discounts, legal fees and charges, insurance fees and charges (including title insurance), financial and other professional consultant fees, costs of rating agencies for credit ratings, fees for execution, transportation and safekeeping of the Certificates and charges and fees in connection with the foregoing.

"Event of Default" means an event of default under the Lease Agreement.

"Facility" means those certain existing facilities more particularly described in the Site and Facility Lease and in the Lease Agreement.

"Federal Securities" means (a) Cash (insured at all times by the Federal Deposit Insurance Corporation), and (b) obligations of, or obligations guaranteed as to principal and interest by, the United States or any agency or instrumentality thereof, when such obligations are backed by the full faith and credit of the United States including: (i) United States Treasury obligations, (ii) all direct or fully guaranteed obligations, (iii) Farmers Home Administration, (iv) General Services Administration, (v) Guaranteed Title XI financing, (vi) Government National Mortgage Association (GNMA), and (vi) State and Local Government Series.

"Fiscal Year" means the twelve-month period beginning on july 1 of any year and ending on june 30 of the next succeeding year, or any other twelve-month period selected by the City as its fiscal year.

"Independent Counsel" means an attorney duly admitted to the practice of law before the highest court of the state in which such attorney maintains an office and who is not an employee of the Authority, the Trustee or the City.

"Information Services" means Financial Information, Inc.'s "Daily Called Bond Service," 30 Montgomery Street, lOth Floor, jersey City, NJ 07302, Attention: Editor; Kenny Information Services' "Called Bond Service," 65 Broadway, 16th Floor, New York, NY 10006; Moody's "Municipal and Government," 5250 77 Center Drive, Suite 150, Charlotte, NC 28217, Attention: Municipal News Reports; and S&P's "Called Bond Record," 25 Broadway, 3rd Floor, New York, NY 10004; or to such other addresses and I or such other national information services providing information or disseminating notices of redemption of obligations similar to the Certificates.

"Insurance and Condemnation Fund" means the fund by that name established and held by the Trustee pursuant to the Trust Agreement.

Appendix A Page2

"Interest Payment Date" means the first (1st) day of each February and August, commencing February 1, 2009, so long as any Certificates are Outstanding.

"Lease Agreement" means that certain agreement for the lease of the Property by the Authority to the City, dated as of September 1, 2008, together with any duly authorized and executed amendments thereto.

"Lease Payment Date" means the fifteenth (15th) day of january and july in each year during the Term of the Lease Agreement, commencing january 15, 2009.

"Lease Payment Fund" means the fund by that name established and held by the Trustee pursuant to the Trust Agreement.

"Lease Payments" means a portion of the total payments required to be paid by the City pursuant to the Lease Agreement, including any prepayment thereof pursuant to the Lease Agreement, which payments consist of an interest component and a principal component, as set forth in the Lease Agreement.

"Moody's" means Moody's Investors Service, New York, New York, or its successors.

"Net Proceeds," when used with respect to insurance or condemnation proceeds, means any insurance proceeds or condemnation award paid with respect to the Property, to the extent remaining after payment therefrom of all expenses incurred in the collection thereof.

"1990 Certificates" means the $8,200,000 Variable Rate Demand Certificates of Participation (1990 Building and Equipment Acquisition Financing Project) (the "1990 Certificates"), representing direct, undivided fractional interests of the owners thereof in lease payments to be made by the City as the rental for certain property pursuant to a lease agreement with the Authority (as successor to the Fremont Park Facilities Corporation), currently outstanding in the principal amount of $3,450,000.

"1990 Trustee" means U.S. Bank National Association, as successor trustee to Security Pacific National Bank, as trustee for the 1990 Certificates.

"1991 Certificates" means the $5,100,000 Variable Rate Demand Certificates of Participation (1991 Fire Stations Financing Project) (the "1991 Certificates"), representing direct, undivided fractional interests of the owners thereof in lease payments to be made by the City as the rental for certain property pursuant to a lease agreement with the Authority, currently outstanding in the principal amount of $3,400,000.

"1991 Trustee" means Union Bank of California, N.A., as successor trustee to Union Bank, as trustee for the 1991 Certificates.

'Original Purchaser" means the first purchaser of the Certificates upon their delivery by the Trustee on the Closing Date.

"Outstanding," when used as of any particular time with respect to Certificates, means (subject to the provisions of the Trust Agreement) all Certificates theretofore executed and delivered by the Trustee under the Trust Agreement except:

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

(b) Certificates for the payment or redemption of which funds or Defeasance Obligations in the necessary amount shall have theretofore been deposited with the Trustee or an escrow holder (whether upon or prior to the maturity or redemption date of such Certificates), provided that, if such Certificates are to be redeemed prior to maturity, notice of such redemption shall have been given as provided in the Trust Agreement or provision satisfactory to the Trustee shall have been made for the giving of such notice; and

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(c) Certificates in lieu of or in exchange for which other Certificates shall have been executed and delivered by the Trustee pursuant to the Trust Agreement.

"Owner" or "Certificate Owner" or "Owner of a Certificate," or any similar term, when used with respect to a Certificate means the person in whose name such Certificate shall be registered on the Registration Books.

"Participating Underwriter" shall have the meaning ascribed thereto in the Continuing Disclosure Certificate.

"Permitted Encumbrances" means, as of any particular time: (a) liens for general ad valorem taxes and assessments, if any, not then delinquent, or which the City may, pursuant to provisions of the Lease Agreement, permit to remain unpaid; (b) the Assignment Agreement; (c) the Site and Facility Lease; (d) the Lease Agreement; (e) any right or claim of any mechanic, laborer, materialman, supplier or vendor not filed or perfected in the manner prescribed by law; (f) easements, rights-of-way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions which exist of record as of the Closing Date and which the City certifies in writing will not materially impair the use of the Property; and (g) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions established following the date of recordation of the Lease Agreement and to which the Authority and the City agree in writing consent in writing do not reduce the value of the Property.

"Permitted Investments" means any of the following:

(a) Federal Securities;

(b) debentures of the Federal Housing Administration to the extent such obligations are guaranteed by the full faith and credit of the United States of America;

(c) obligations of the following agencies which are not guaranteed by the United States of America: (i) participation certificates or debt obligations of the Federal Home Loan Mortgage Corporation; (ii) consolidated system-wide bonds and notes of the Farm Credit Banks (consisting of Federal Land Banks, Federal Intermediate Credit Banks and Banks for Cooperatives); (iii) consolidated debt obligations or letter of credit-backed issues of the Federal Home Loan Banks; (iv) mortgage-backed securities (excluding stripped mortgage securities which arc valued greater than par on the portion of unpaid principal) or debt obligations of the Federal National Mortgage Association; or (v) letter of credit­backed issues or debt obligations of the Student Loan Marketing Association; provided, however, that not more than ten percent (10%) of the proceeds of the Bonds may, in the aggregate, be invested in any such obligations at one time;

(d) Federal funds, negotiable certificates of deposit, time deposits and bankers acceptances (having maturities of not more than 180 days) of banks (including the Trustee and its affiliates) the short­term obligations of which are rated in one of the two highest Rating Categories by at least one nationally recognized rating agency;

(e) deposits (including those of the Trustee and its affiliates) which arc fully insured by the Federal Deposit Insurance Corporation ("FDIC");

(f) debt obligations (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) rated in one of the two highest Rating Categories by at least one nationally recognized rating agency;

(g) commercial paper (having original maturities of not more than 270 days) rated in one of the two highest Rating Categories by at least one nationally recognized rating agency;

(h) money market funds rated in one of the two highest Rating Categories by at least one nationally recognized rating agency, including funds for which the Trustee, its parent, affiliates or subsidiaries provide investment advisory or other management services, in which case it is agreed that

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the Trustee, its parent, affiliates or subsidiaries shall have the right to be paid its customary management fees in addition to its fees as Trustee under the Trust Agreement;

(i) investment contracts or agreements issued or guaranteed by entities whose long-term debt or claims paying ability of which are rated in one of the two highest long-term rating categories of Moody's or S&P;

(j) repurchase agreements or investment agreements issued by banks, broker I dealers or other financial institutions fully secured by obligations listed in paragraphs (a), (b) or (c) of this definition having a market value at least equal to 105% of face amount of the agreement and possession of which obligations is held or controlled by the Trustee, the Agency or by a third party satisfactory to the Agency under arrangements satisfactory to the Trustee or the Agency, as the case may be; and

(k) the Local Agency Investment Fund of the State, created pursuant to section 16429.1 of the California Government Code, to the extent the Trustee is authorized to register such investment in its name.

'Principal Corporate Trust Office" means the corporate trust office of the Trustee located at 350 California Street, 11" Floor, San Francisco, CA 94104; provided however, that for purposes of redemption, payment, cancellation, surrender, exchange or transfer of Certificates such term means the corporate trust office of the Trustee in Los Angeles, California, or any other such location so designated by the Trustee.

"Proceeds," when used with reference to the Certificates, means the face amount of the Certificates, plus accrued interest and original issue premium, if any, less original issue discount, if any.

"Property" means, collectively, the Site and the Facility.

"Rating Category" means, with respect to any Permitted Investment, one of the generic categories of rating by Moody's applicable to such Permitted Investment, without regard to any refinement or graduation of such rating category by a plus or minus sign or a numeral.

"Registration Books" means the records maintained by the Trustee pursuant to the Trust Agreement for registration of the ownership and transfer of ownership of the Certificates.

"Regular Record Date" means the close of business on the fifteenth (15th) day of the month preceding each Interest Payment Date, whether or not such fifteenth (15th) day is a Business Day.

"Rental Period" means each twelve-month period during the Term of the Lease Agreement commencing on August 2 in any year and ending on August 1 in the next succeeding year; provided, however, that the first Rental Period shall commence on the Closing Date and shall end on August 1, 2009.

"Reserve Fund" means the fund by that name established and held by the Trustee pursuant to the Trust Agreement.

"Reserve Requirement" means an amount equal to the least of maximum annual Lease Payments, 125% of average annual Lease Payments, and 10% of the principal amount of the Certificates, which amount shall be $1,801,945.00 on the Closing Date; provided, however, that if the Certificates are partially refunded, such amount shall be reduced to an amount equal to the maximum annual Lease Payments relating to the Certificates not so refunded, as specified in a certificate of a City Representative delivered to the Trustee.

"S&?" means Standard & Poor's Credit Market Services, a division of The McGraw-Hill Companies, Inc., New York, New York, or its successors.

"Securities Depositories" means The Depository Trust Company, 55 Water Street, SO'h Floor, New York, N.Y. 10041-0099 Attention: Call Notification Department; or to such other addresses and/or such other registered securities depositories holding substantial amounts of obligations of types similar to the Certificates.

Apj)endix A PageS

"Site" means that certain real property more particularly described in the Site and Facility Lease and in the Lease Agreement.

"Site a11d Facility Lease" means the Site and Facility Lease, dated as of September 1, 2008, by and between the City, as lessor, and the Authority, as lessee, together with any duly authorized and executed amendments thereto.

"State" means the State of California.

"Term of tile Lease Agreement" means the time during which the Lease Agreement is in effect, as provided in the Lease Agreement.

"Trust Agreeme11t" means the Trust Agreement, dated as of September 1, 2008, by and among the City, the Authority and the Trustee, together with any duly authorized amendments thereto.

"Trustee" means The Bank of New York Mellon Trust Company, N.A., or any successor thereto, acting as Trustee pursuant to the Trust Agreement.

"2003 Certificates" means the $21,930,000 Variable Rate Demand Certificates of Participation (2003 Refinancing Project) (the "2003 Certificates"), representing direct, undivided fractional interests of the owners thereof in lease payments to be made by the City as the rental for certain property pursuant to a lease agreement with the Authority, currently outstanding in the principal amount of $18,530,000.

"2003 Trustee" means The Bank of New York Mellon Trust Company, N.A., as successor trustee to BNY Western Trust Company, as trustee for the 2003 Certificates.

SITE AND FACILITY LEASE

The Site and Facility Lease is entered into between the City and the Authority. The City agrees to lease the Property to the Authority for a term continuous with the term of the Lease Agreement. The City and the Authority agree that the lease to the Authority of the City's right, title and interest in the Property pursuant to the Site and Facility Lease serves the public purposes of the City by enabling the Authority to lease the Property back to the City.

LEASE AGREEMENT

Deposit of Money

On the Closing Date, the Authority shall cause to be deposited with the Trustee the proceeds of sale of the Certificates. Amounts estimated to be required to pay Delivery Costs shall be deposited in the Delivery Costs Fund, an amount equal to the Reserve Requirement shall be deposited in the Reserve Fund, amounts, together with certain other moneys, required to provide for the refunding of the 1990 Certificates shall be transferred to the 1990 Trustee, amounts, together with certain other moneys, required to provide for the refunding of the 1991 Certificates shall be transferred to the 1991 Trustee, and the remaining amounts, together with certain other moneys, required to provide for the refunding of the 2003 Certificates shall be transferred to the 2003 Trustee.

Payment of Delivery Costs

Payment of Delivery Costs shall be made from the moneys deposited in the Delivery Costs Fund, which moneys shall be disbursed for such purpose in accordance and upon compliance with the Trust Agreement.

Lease

The Authority leases the Property to the City, and the City leases the Property from the Authority, upon the terms and conditions set forth in the Lease Agreement. The leasing of the Property

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by the City to the Authority pursuant to the Site and Facility Lease shall not affect or result in a merger of the City's leasehold estate pursuant to the Lease Agreement and its fee estate as lessor under the Site and Facility Lease.

Term of Agreement; Possession

The Term of the Lease Agreement shall commence on the Closing Date, and shall end on August 1, 2038, unless such term is extended. If, on August 1, 2038, the Trust Agreement shall not be discharged by its terms or if the Lease Payments payable under the Lease Agreement shall have been abated at any time and for any reason, then the Term of the Lease Agreement shall be extended without the need to execute any amendment to the Lease Agreement until there has been deposited with the Trustee an amount sufficient to pay all obligations due under the Lease Agreement, but in no event shall the Term of the Lease Agreement extend beyond August 1, 2048. If, prior to August 1, 2038, the Trust Agreement shall be discharged by its terms, the Term of the Lease Agreement shall thereupon end. The Trustee shall notify the Authority of the termination of the Lease Agreement pursuant to the Trust Agreement.

The City agrees to accept and take possession of the Property on or prior to the date of recordation of the Lease Agreement. The first Lease Payment shall be due on january 15, 2009.

Lease Payments

Obligation to Pay. The City agrees to pay to the Authority, its successors and assigns, as rental for the use and occupancy of the Property during each Rental Period, the Lease Payments (denominated into components of principal and irtterest) in the respective amounts specified in the Lease Agreement, to be due and payable on the respective Lease Payment Dates specified in the Lease Agreement. Any amount held in the Lease Payment Fund on any Lease Payment Date (other than amounts resulting from the prepayment of the Lease Payments in part but not in whole and other than amounts required for payment of Certificates not yet surrendered) shall be credited towards the Lease Payment then due and payable; and no Lease Payment need be made on any Lease Payment Date if the amounts then held in the Lease Payment Fund are at least equal to the Lease Payment then required to be paid. The Lease Payments for the Property payable in any Rental Period shall be for the use of the Property for such Rental Period.

Effect of Prepayment. Ir1 the event that the City prepays all remaining Lease Payments and all additional payments due under the Lease Agreement in full, the City's obligations under the Lease Agreement shall thereupon cease and terminate including, but not limited to, the City's obligation to pay Lease Payments under the Lease Agreement; subject however, to the provisions of the Lease Agreement in the case of prepayment by application of a security deposit. In the event that the City optionally prepays the Lease Payments in part but not in whole, such prepayment shall be credited entirely towards the prepayment of the Lease Payments as follows: (i) the principal components of each remaining such Lease Payments shall be reduced in such order as shall be selected by the City in integral multiples of $5,000; and (ii) the interest component of each remaining Lease Payment shall be reduced by the aggregate corresponding amount of interest which would otherwise be payable with respect to the Certificates redeemed pursuant to the Trust Agreement.

Rate on Overdue Payments. In the event the City should fail to make any of the payments required in the Lease Agreement, the payment in default shall continue as an obligation of the City until the amount in default shall have been fully paid and the City agrees to pay the same with interest thereon, to the extent permitted by law, from the date of default to the date of payment at the rate per annum payable with respect to the Certificates. Such interest, if received, shall be deposited in the Lease Payment Fund or in the Reserve Fund to replenish the Reserve Fund if withdrawals were made therefrom as a result of the default.

Fair Rental Value. The Lease Payments for each Rental Period shall constitute the total rental for the Property for each such Rental Period and shall be paid by the City in each Rental Period for and in consideration of the right of the use and occupancy and the continued quiet use and enjoyment of the Property during each Rental Period. The parties to the Lease Agreement have agreed and determined that the total Lease Payments represent the fair rental value of the Property. In making such determination, consideration has been given to the obligations of the parties under the Lease Agreement,

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the uses and purposes which may be served by the Property and the benefits therefrom which will accrue to the City and the general public.

Source of Payments; Budget and Appropriation. Lease Payments shall be payable from any source of available funds of the City. The City covenants to take such action as may be necessary to include all Lease Payments due under the Lease Agreement in each of its budgets during the Term of the Lease Agreement and to make the necessary annual appropriations for all such Lease Payments and for additional payments due under the Lease Agreement. To that end, the Board of Trustees shall direct budgetary staff to include in each annual budget proposal to the Board of Trustees an appropriation sufficient to pay Lease Payments and Additional Payments. The City expresses its present intent to appropriate Lease Payments and additional payments due under the Lease Agreement during the Term of the Lease Agreement. The covenants on the part of the City contained in the Lease Agreement shall be deemed to be and shall be construed to be duties imposed by law and it shall be the duty of each and every public official of the City to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the City to carry out and perform the covenants and agreements in the Lease Agreement agreed to be carried out and performed by the City.

Assignment. The City understands and agrees that all Lease Payments have been assigned by the Authority to the Trustee in trust, pursuant to the Assignment Agreement, for the benefit of the Owners of the Certificates, and the City assents to such assignment. The Authority directs the City, and the City agrees to pay to the Trustee at the Principal Corporate Trust Office, all payments payable by the City pursuant to the Lease Agreement.

Additional Payments

In addition to the Lease Payments, the City shall pay when due the following additional payments:

(a) Any fees and expenses incurred by the City in connection with or by reason of its leasehold estate in the Property as and when the same become due and payable;

(b) Any amounts due to the Trustee pursuant to the Trust Agreement for all services rendered under the Trust Agreement and for all reasonable expenses, charges, costs, liabilities, legal fees and other disbursements incurred in and about the performance of its powers and duties under the Trust Agreement;

(c) Any reasonable fees and expenses of such accountants, consultants, attorneys and other experts as may be engaged by the City, the Authority or the Trustee to prepare audits, financial statements, reports, opinions or provide such other services required under the Lease Agreement or the Trust Agreement;

(d) Any reasonable out-of-pocket expenses of the City in connection with the execution and delivery of the Lease Agreement or the Trust Agreement, or in connection with the execution and delivery of the Certificates, including any and all expenses incurred in connection with the authorization, execution, sale and delivery of the Certificates, or incurred by the Authority in connection with any litigation which may at any time be instituted involving the Lease Agreement, the Trust Agreement, the Certificates or any of \he other documents contemplated or thereby, or incurred by the Authority in connection with the Continuing Disclosure Certificate, or otherwise incurred in connection with the administration thereof.

Title

During the Term of the Lease Agreement, the Authority shall hold leasehold title to the Property and shall hold fee title \o those portions of the Property which are newly acquired or constructed and any and all additions which comprise fixtures, repairs, replacements or modifications to the Property, except for those fixtures, repairs, replacements or modifications which are added to the Property by the City at its own expense and which may be removed without damaging the Property and except for any items added to the Property by the City pursuant to the Lease Agreement.

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If the City prepays the Lease Payments in full or makes the security deposit permitted by the Lease Agreement, or pays all Lease Payments during the Term of the Lease Agreement as the same become due and payable, all right, title and interest of the Authority in and to the Property shall be terminated. The Authority agrees to take any and all steps and execute and record any and all documents reasonably required by the City to consummate any such transfer of title.

Maintenance, Utilities, Taxes and Assessments

Throughout the Term of the Lease Agreement, as part of the consideration for the rental of the Property, all improvement, repair and maintenance of the Property shall be the responsibility of the City and the City shall pay, or otherwise arrange, for the payment of all utility services supplied to the Property which may include, without limitation, janitor service, security, power, gas, telephone, light, heating, water and all other utility services, and shall pay for or otherwise arrange for the payment of the cost of the repair and replacement of the Property resulting from ordinary wear and tear or want of care on the part of the City or any assignee or sublessee thereof. In exchange for the Lease Payments, the Authority agrees to provide only the Property. The City waives the benefits of subsections 1 and 2 of section 1932 of the California Civil Code, but such waiver shall not limit any of the rights of the City under the terms of the Lease Agreement.

The City shall also pay or cause to be paid all taxes and assessments of any type or nature, if any, charged to the Authority or the City affecting the Property or the respective interests or estates therein; provided that with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the City shall be obligated to pay only such installments as are required to be paid during the Term of the Lease Agreement as and when the same become due.

The City may, at the City's expense and in its name, in good faith contest any such taxes, assessments, utility and other charges and, in the event of any such contest, may permit the taxes, assessments or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom unless the Authority shall notify the City that, in the opinion of Independent Counsel, by nonpayment of any such items, the interest of the Authority in the Property will be materially endangered or the Property or any part thereof will be subject to loss or forfeiture, in which event the City shall promptly pay such taxes, assessments or charges or provide the Authority with full security against any loss which may result from nonpayment, in form satisfactory to the Authority. The City shall provide the Authority with written notice of any such contest and shall provide such updates on the contest as the Authority may reasonably request.

Modification of Property

The City shall, at its own expense, have the right to remodel the Property or to make additions, modifications and improvements to the Property. All additions, modifications and improvements to the Property shall thereafter comprise part of the Property and be subject to the provisions of the Lease Agreement. Such additions, modifications and improvements shall not in any way damage the Property, substantially alter its nature, cause the interest component of Lease Payments to be subject to federal income taxes or cause the Property to be used for purposes other than those authorized under the provisions of State and federal law; and the Property, upon completion of any additions, modifications and improvements made thereto pursuant to the Lease Agreement, shall be of a value which is not substantially less than the value of the Property immediately prior to the making of such additions, modifications and improvements. The City will not permit any mechanic's or other lien to be established or remain against the Property for labor or materials furnished in connection with any remodeling, additions, modifications, improvements, repairs, renewals or replacements made by the City pursuant to the Lease Agreement; provided that if any such lien is established and the City shall first notify the Authority of the City's intention to do so, the City may in good faith contest any lien filed or established against the Property, and in such event may permit the items so contested to remain undischarged and unsatisfied during the period of such contest and any appeal therefrom and shall provide the Authority with full security against any loss or forfeiture which might arise from the nonpayment of any such item, in form satisfactory to the Authority. The Authority will cooperate fully in any such contest, upon the request and at the expense of the City.

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Insurance

Public Liability and Property Damage Insurance. The City shall maintain or cause to be maintained, throughout the Term of the Lease Agreement, insurance policies, including a standard comprehensive general insurance policy or policies in protection of the Authority, the City and the Trustee and their respective members, officers, agents and employees. Such liability insurance may be maintained as part of or in conjunction with any other liability insurance coverage carried by the City, and may be maintained through a joint exercise of powers authority created for such purpose or in the form of self­insurance by the City. Said policy or policies shall provide for indemnification of said parties against direct or consequential loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the operation of the Property. Said policy or policies shall provide coverage in the minimum liability limits of $1,000,000 for personal injury or death of each person and $3,000,000 for personal injury or deaths of two or more persons in each accident or event, and in a minimum amount of $100,000 (subject to a deductible clause of not to exceed $5,000) for damage to property resulting from each accident or event. Such public liability and property damage insurance may, however, be in the form of a single limit policy in the amount of $3,000,000 covering all such risks. Such liability insurance may be maintained as part of or in conjunction with any other liability insurance coverage carried by the City and may be maintained in the form of insurance maintained through a joint exercise of powers authority created for such purpose or in the form of self-insurance by the City. The Net Proceeds of such liability insurance shall be applied toward extinguishment or satisfaction of the liability with respect to which the insurance proceeds shall have been paid.

Fire and Extended Coverage Insurance; No Earthquake Insurance. The City shall maintain, or cause to be maintained throughout the Term of the Lease Agreement, insurance against loss or damage to any part of the Property constituting structures, if any, by fire and lightning, with extended coverage and vandalism and malicious mischief insurance; provided, however, that the City shall not be required to maintain earthquake insurance with respect to the Property. Said extended coverage insurance shall, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, vehicle damage, smoke and such other hazards as are normally covered by such insurance. Such insurance shall be in an amount equal to one hundred percent (100%) of the replacement cost of such portion of the Property, if any. Such insurance may be subject to deductible clauses of not to exceed $100,000 for any one loss. Such insurance may be maintained as part of or in conjunction with any other fire and extended coverage insurance carried by the City and may be maintained in whole or in part in the form of insurance maintained through a joint exercise of powers authority created for such purpose. The Net Proceeds of such insurance shall be applied as provided in the Lease Agreement. The City may not satisfy the requirements of the Lease Agreement for fire and extended coverage insurance with self-insurance.

Rental Interruption Insurance. The City shall maintain, or cause to be maintained, throughout the Term of the Lease Agreement rental interruption or use and occupancy insurance to cover loss, total or partial, of the use of any part of the Property during the Term of the Lease Agreement as a result of any of the hazards covered in the insurance required by the Lease Agreement, if any, in an amount at least equal to two times maximum annual Lease Payments. The Net Proceeds of such insurance shall be paid to the Trustee and deposited in the Lease Payment Fund and shall be credited towards the payment of the Lease Payments in the order in which such Lease Payments come due and payable. Such insurance may be maintained as part of or in conjunction with any other insurance carried by the City and may be maintained in whole or in part in the form of insurance maintained through a joint exercise of powers authority created for such purpose. The City may not satisfy the requirements of the Lease Agreement for rental interruption insurance with self-insurance.

Title Insurance. The City shall provide, from moneys in the Delivery Costs Fund or at its own expense, on the Closing Date, an CLTA title insurance policy in the amount of not less than the principal amount of the Certificates, insuring the City's leasehold estate in the Property, subject only to Permitted Encumbrances.

Insurance Net Proceeds; Form of Policies. Each policy or other evidence of insurance required by the Lease Agreement shall provide that all proceeds thereunder shall be payable to the Trustee as and to the extent required under the Lease Agreement, shall name the Trustee as an additional insured and shall be applied as provided in the Lease Agreement. Insurance must be provided by an insurer rated "A" or better by S&P or A.M. Best Company. The City shall pay or cause to be paid when due the premiums for

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all insurance policies required by the Lease Agreement. The Trustee shall not be responsible for the sufficiency of any insurance required in the Lease Agreement including any forms of self-insurance and shall be fully protected in accepting payment on account of such insurance or any adjustment, compromise or settlement of any loss. The City shall cause to be delivered annually on or before each September 1 to the Trustee a certification, signed by a City Representative, stating compliance with the provisions of the Lease Agreement. The Trustee shall be entitled to rely on such certification without independent investigation. The City shall have the adequacy of any insurance reserves maintained by the City or by a joint exercise of powers authority, if applicable, for purposes of the insurance required by the Lease Agreement reviewed at least annually, on or before each September 1, by an independent insurance consultant and shall maintain reserves in accordance with the recommendations of such consultant to the extent moneys are available for such purpose and not otherwise appropriated.

Tax Covenants

Private Activity Bond Limitation. The City shall assure that proceeds of the Certificates are not so used as to cause the Certificates or the Lease Agreement to satisfy the private business tests of section 141(b) of the Code or the private loan financing test of section 141(c) of the Code.

Federal Guarantee Prohibition. The City shall not take any action or permit or suffer any action to be taken if the result of the same would be to cause any of the Certificates or the Lease Agreement to be "federally guaranteed" within the meaning of section 149(b) of the Code.

Rebate Requirement. The City shall take any and all actions necessary to assure compliance with section 148(1) of the Code, relating to the rebate of excess investment earnings, if any, to the federal government, to the extent that such section is applicable to the Certificates and the Lease Agreement.

No Arbitrage. The City shall not take, or permit or suffer to be taken by the Trustee or otherwise, any action with respect to the proceeds of the Certificates which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the Closing Date would have caused the Certificates or the Lease Agreement to be "arbitrage bonds" within the meaning of section 148 of the Code.

Maintenance of Tax-Exemption. The City shall take all actions necessary to assure the exclusion of interest with respect to the Certificates from the gross income of the Owners of the Certificates to the same extent as such interest is permitted to be excluded from gross income under the Code as in effect on the Closing Date.

No Condemnation

The City covenants and agrees, to the extent it may lawfully do so, that so long as any of the Certificates remain outstanding and unpaid, the City will not exercise the power of condemnation with respect to the Property. The City further covenants and agrees, to the extent it may lawfully do so, that if for any reason the foregoing covenant is determined to be unenforceable or if the City should fall or refuse to abide by such covenant and condemns the Property, the appraised value of the Property shall not be less than the greater of (i) if the Certificates are then subject to redemption, the principal and interest components of the Certificates Outstanding through the date of their redemption, or (ii) if the Certificates are not then subject to redemption, the amount necessary to defease the Certificates to the first available redemption date in accordance with the Trust Agreement.

Eminent Domain

If all of the Property shall be taken permanently under the power of eminent domain or sold to a government threatening to exercise the power of eminent domain, the Term of the Lease Agreement shall cease as of the day possession shall be so taken. If less than all of the Property shall be taken permanently, or if all of the Property or any part thereof shall be taken temporarily under the power of eminent domain, (1) the Lease Agreement shall continue in full force and effect and shall not be terminated by virtue of such taking and the parties waive the benefit of any law to the contrary, and (2) there shall be a partial abatement of Lease Payments as a result of the application of the Net Proceeds of any eminent domain award to the prepayment of the Lease Payments, in an amount to be agreed upon by the City and

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the Authority and communicated to the Trustee such that the resulting Lease Payments represent fair consideration for the usc and occupancy of the remaining usable portion of the Property, except to the extent of special funds, such as amounts in the Reserve Fund available for the payment of Lease Payments.

Application of Net Proceeds

From Insurance Award. The Net Proceeds of any insurance award resulting from any damage to or destruction of any portion of the Property constituting structures, if any, by fire or other casualty shall be paid by the City to the Trustee, as assignee of the Authority under the Assignment Agreement, deposited in the Insurance and Condemnation Fund held by the Trustee and applied as set forth in the Trust Agreement.

From Eminent Domain Award. The Net Proceeds of any eminent domain award shall be paid by the City to the Trustee, as assignee of the Authority under the Assignment Agreement, deposited in the Insurance and Condemnation Fund and applied as set forth in the Trust Agreement.

From Title Insurance. The Net Proceeds of any title insurance award shall be paid to the Trustee, as assignee of the Authority under the Assignment Agreement, deposited in the Insurance and Condemnation Fund and applied as set forth in the Trust Agreement.

Abatement of Lease Payments in the Event of Damage or Destruction

Lease Payments shall be abated during any period in which, by reason of damage or destruction, there is substantial interference with the use and occupancy by the City of the Property or any portion thereof to the extent to be agreed upon by the City and the Authority and communicated by a City Representative to the Trustee. The parties agree that the amounts of the Lease Payments under such circumstances shall not be less than the amounts of the unpaid Lease Payments as are then set forth in the Lease Agreement, unless such unpaid amounts are determined to be greater than the fair rental value of the portions of the Property not damaged or destroyed, based upon the opinion of an MAl appraiser with expertise in valuing such properties, or other appropriate method of valuation, in which event the Lease Payments shall be abated such that they represent said fair rental value. Such abatement shall continue for the period commencing with such damage or destruction and ending with the substantial completion of the work of repair or reconstruction as communicated by a City Representative to the Trustee. In the event of any such damage or destruction, the Lease Agreement shall continue in full force and effect and the City waives any right to terminate the Lease Agreement by virtue of any such damage and destruction. Notwithstanding the foregoing, there shall be no abatement of Lease Payments to the extent that (a) the proceeds of rental interruption insurance or (b) amounts in the Reserve Fund, if cash funded, and/or the Insurance and Condemnation Fund and/or the Lease Payment Fund are available to pay Lease Payments which would otherwise be abated, it being declared that such proceeds and amounts constitute special funds for the payment of the Lease Payments.

Access to the Property

The City agrees that the Authority and any Authority Representative, and the Authority's successors or assigns, shall have the right at all reasonable times to enter upon and to examine and inspect the Property. The City further agrees that the Authority, any Authority Representative, and the Authority's successors or assigns shall have such rights of access to the Property as may be reasonably necessary to cause the proper maintenance of the Property in the event of failure by the City to perform its obligations under the Lease Agreement.

Release and Indemnification Covenants

The City shall and agrees to indemnify and save the Authority and the Trustee and their officers, agents, directors, employees, successors and assigns harmless from and against all claims, losses and damages, including legal fees and expenses, arising out of (i) the use, maintenance, condition or management of, or from any work or thing done on the Property by the City, (ii) any breach or default on the part of the City in the performance of any of its obligations under the Lease Agreement or the Trust Agreement, (iii) any act or omission of the City or of any of its agents, contractors, servants, employees or

Appendix A Page 12

licensees with respect to the Property, (iv) any act or omission of any sublessee of the City with respect to the Property, or (v) the authorization of payment of the Delivery Costs. Such indemnification shall include the costs and expenses of defending any claim or liability arising under the Lease Agreement or the Trust Agreement and the transactions contemplated thereby. No indemnification is made in the Lease Agreement for willful misconduct, negligence or breach of duty under the Lease Agreement by the Authority, its officers, agents, directors, emp1oyees, successors or assigns.

Assignment by the Authority

The Authority's rights under the Lease Agreement, including the right to receive and enforce payment of the Lease Payments to be made by the City under the Lease Agreement, have been assigned to the Trustee pursuant to the Assignment Agreement.

Assignment and Subleasing by the City

The Lease Agreement may not be assigned by the City. The City may sublease the Property or any portion thereof, but only with the written consent of the Authority and subject to, and delivery to the Authority of a certificate as to, all of the following conditions:

(a) The Lease Agreement and the obligation of the City to make Lease Payments shall remain obligations of the City;

(b) The City shall, within thirty (30) days after the delivery thereof, furnish or cause to be furnished to the Authority, the Trustee a true and complete copy of such sublease;

(c) No such sublease by the City shall cause the Property to be used for a purpose other than as may be authorized under the provisions of the Constitution and laws of the State; and

(d) The City shall furnish the Authority, the Trustee with a written opinion of Bond Counsel, which shall be an Independent Counsel, stating that such sublease does not cause the interest components of the Lease Payments to become subject to federal income taxes or State personal income taxes.

Amendment of Lease Agreement

(a) Substitution of Site or Facility. The City shall have, and is granted, the option at any time and from time to time during the Term of the Lease Agreement to substitute other land (a "Substitute Site") and/or a substitute facility or substitute Facility (a "Substitute Facility") for the Site (the "Former Site"), or a portion thereof, and/or the Facility (the "Former Facility"), or a portion thereof, provided that the City shall satisfy all of the following requirements (to the extent applicable) which are declared to be conditions precedent to such substitution:

(i) If a substitution of the Site, the City shall file with the Authority and the Trustee an amended Site and Facility Lease which adds thereto a description of such Substitute Site and deletes therefrom the description of the Former Site;

(ii) If a substitution of the Site, the City shall file with the Authority and the Trustee an amended Lease Agreement which adds thereto a description of such Substitute Site and deletes therefrom the description of the Former Site;

(iii) If a substitution of the Facility, the City shall file with the Authority and the Trustee an amended Site and Facility Lease which adds thereto a description of such Substitute Facility and deletes therefrom the description of the Former Facility;

(iv) If a substitution of the Facility, the City shall file with the Authority and the Trustee an amended Lease Agreement which adds thereto a description of such Substitute Facility and deletes therefrom the description of the Former Facility;

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(v) The City shall certify in writing to the Authority and the Trustee that such Substitute Site and/or Substitute Facility serve the purposes of the City, constitutes property that is unencumbered, subject to Permitted Encumbrances, and constitutes property which the City is permitted to lease under the laws of the State;

(vi) The City delivers to the Trustee and the Authority evidence that the value of the Property following such substitution is equal or greater than the Outstanding principal amount of the Certificates and confirms in writing to the Trustee that the indemnification provided pursuant to the Trust Agreement applies with respect to the Substitute Site and/ or Substitute Facility;

(vii) The Substitute Site and/ or Substitute Facility shall not cause the City to violate any of its covenants, representations and warranties made in the Lease Agreement and in the Trust Agreement;

(viii) The City shall obtain an amendment to the title insurance policy required pursuant to the Lease Agreement which adds thereto a description of the Substitute Site and deletes therefrom the description of the Former Site;

(ix) The City shall certify that the Substitute Site and/or the Substitute Facility is of the same or greater essentiality to the City as was the Former Site and/ or the Former Facility;

(x) The City shall provide notice of the substitution to any rating agency then rating the Certificates; and

(xi) The City shall furnish the Authority and the Trustee with a written opinion of Bond Counsel, which shall be an Independent Counsel, stating that such substitution does not cause the interest components of the Lease Payments to become subject to federal income taxes or State personal income taxes.

(b) Release of Site. The City shall have, and is granted, the option at any time and from time to time during the Term of the Lease Agreement to release any portion of the Site, provided that the City shall satisfy all of the following requirements which are declared to be conditions precedent to such release:

(i) The City shall file with the Authority and the Trustee an amended Site and Facility Lease which describes the Site, as revised by such release;

(ii) The City delivers to the Trustee and the Authority evidence that the value of the Site, as revised by such release, is equal or greater than the Outstanding principal amount of the Certificates and confirms in writing to the Trustee that the indemnification provided pursuant to the Trust Agreement applies with respect to the Site, as revised by such release;

(iii) Such release shall not cause the City to violate any of its covenants, representations and warranties made in the Lease Agreement and in the Trust Agreement;

(iv) The City shall obtain an amendment to the title insurance policy required pursuant to the Lease Agreement which describes the Site, as revised by such release; and

(v) The City shall provide notice of the release to any rating agency then rating the Certificates.

(d) Generally. The Authority and the City may at any time amend or modify any of the provisions of this Lease Agreement, but only (i) with the prior written consent of the Owners of a majority in aggregate principal amount of the Outstanding Certificates, or (ii) without the consent of any of the Owners, but only if such amendment or modification is for any one or more of the following purposes:

(A) to add to the covenants and agreements of the City contained in this Lease Agreement, other covenants and agreements thereafter to be observed, or to limit or surrender any rights or power reserved in the Lease Agreement to or conferred upon the City;

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(B) to make such proviSions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in the Lease Agreement, or in any other respect whatsoever as the Authority and the City may deem necessary or desirable, provided that, in the opinion of Bond Counsel, such modifications or amendments will not materially adversely affect the interests of the Owners; or

(C) to ;Jmend any provision thereof relating to the Code, to any extent whatsoever but only if and to the extent such amendment will not adversely affect the exclusion from gross income of interest with respect to the Certificates under the Code, in the opinion of Bond Counsel.

Events of Default and Itemedies

Events of Defau/1. The following shall be "events of default" under the Lease Agreement and the terms "Events of Defa,dt" and "Default" shall mean, whenever they are used in the Lease Agreement, any one or more of the following events:

(a) Failure by the City to pay any Lease Payment or other payment required to be paid at the time specified.

(b) Failure by the City to observe and perform any covenant, condition or agreement on its part to be observed or performed under the Lease Agreement or under the Trust Agreement, for a period of thirty (30) days after written notice specifying such failure and requesting that it be remedied has been given to the City by the Authority, the Trustee or the Owners of not less than five percent (5%) in aggregate principal amount of Certificates then outstanding; provided, however, if the failure stated in the notice can be corrected, but not within the applicable period, the Authority, the Trustee and such Owners shall not unreasonably withhold their consent to an extension of such time if corrective action is instituted by the City within the applicable period and diligently pursued until the default is corrected.

(c) The filing by the City of a voluntary petition in bankruptcy, or failure by the City promptly to lift any execution, garnishment or attachment, or adjudication of the City as a bankrupt, or assignment by the City for the benefit of creditors, or the entry by the City into an agreement of composition with creditors, or the approval by a court of competent jurisdiction of a petition applicable to the City in any proceedings instituted under the provisions of the Federal Bankruptcy Act, as amended, or under any similar acts which may hereafter be enacted.

Remedies on Default. The Trustee shall have the right to re-enter and re-let the Property and to terminate the Lease Agreement. Whenever any Event of Default shall have happened and be continuing, it shall be lawful for the Authority to exercise any and all remedies available pursuant to law or granted pursuant to the Lease Agreement; provided, however, that notwithstanding anything in the Lease Agreement or in the Trust Agreement to the contrary, there shall be no right under any circumstances to accelerate the Lease Payments or otherwise declare any Lease Payments not then in default to be immediately due and payable. Each and every covenant in the Lease Agreement to be kept and performed by the City is expressly made a condition and upon the breach thereof, the Authority may exercise any and all rights of entry and re-entry upon the Property, and also, at its option, with or without such entry, may terminate the Lease Agreement; provided, that no such termination shall be effected either by operation of law or acts of the parties to the Lease Agreement, except only in the manner expressly provided in the Lease Agreement. In the event of such default and notwithstanding any re­entry by the Authority, the City shall, as expressly provided in the Lease Agreement, continue to remain liable for the payment of the Lease Payments and/ or damages for breach of the Lease Agreement and the performance of all conditions therein contained and, in any event such rent and/ or damages shall be payable to the Authority at the time and in the manner as provided in the Lease Agreement, to wit:

(a) In the event the Authority does not elect to terminate the Lease Agreement in the manner hereinafter provided for in paragraph (b) below, the City agrees to and shall remain liable for the payment of all Lease Payments and the performance of all conditions contained in the Lease Agreement and shall reimburse the Authority for any deficiency arising out of the re-leasing of the Property, or, in the event the Authority is unable to re-lease the Property, then for the full amount of all Lease Payments

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to the end of the Term of the Lease Agreement, but said Lease Payments and/ or deficiency shall be payable only at the sam~ time and in the same manner as hereinabove provided for the payment of Lease Payments, notwithstanding such entry or re-entry by the Authority or any suit in unlawful detainer, or otherwise, brought by the Authority for the purpose of effecting such re-entry or obtaining possession of the Property or the exercise of any other remedy by the Authority. The City irrevocably appoints the Authority as the agent and attorney-in-fact of the City to enter upon and re-lease the Property in the event of default by the City in the performance of any covenants contained in the Lease Agreement to be performed by the City and to remove all personal property whatsoever situated upon the Property, to place such property in storage or other suitable place within Riverside County, for the account of and at the expense of the City, and the City exempts and agrees to save harmless the Authority from any costs, loss or damage whatsoever arising or occasioned by any such entry upon and re-leasing of the Property and the removal and storage of such property by the Authority or its duly authorized agents in accordance with the provisions contained in the Lease Agreement. The City waives any and all claims for damages caused or which may be caused by the Authority in re-entering and taking possession of the Property as provided in the Lease Agreement and all claims for damages that may result from the destruction of or injury to the Property and all claims for damages to or loss of any property belonging to the City that may be in or upon the Property. The City agrees that the terms of the Lease Agreement constitute full and sufficient notice of the right of the Authority to re-lease the Property in the event of such re-entry without effecting a surrender of the Lease Agreement, and further agrees that no acts of the Authority in effecting such re-leasing shall constitute a surrender or termination of the Lease Agreement irrespective of the term for which such re-leasing is made or the terms and conditions of such re-leasing, or otherwise, but that, on the contrary, in the event of such default by the City the right to terminate the Lease Agreement shall vest in the Authority to be effected in the sole and exclusive manner hereinafter provided for in paragraph (b) below.

(b) In an Event of Default, the Authority at its option may terminate the Lease Agreement andre­lease all or any portion of the Property. In the event of the termination of the Lease Agreement by the Authority at its option and in the manner provided in the Lease Agreement on account of default by the City (and notwithstanding any re-entry upon the Property by the Authority in any manner whatsoever or the re-leasing of the Property), the City nevertheless agrees to pay to the Authority all costs, loss or damages howsoever arising or occurring payable at the same time and in the same manner as is provided in the Lease Agreement in the case of payment of Lease Payments. Any surplus received by the Authority from such re-leasing shall be credited towards the Lease Payments next coming due and payable. Neither notice to pay rent or to deliver up possession of the premises given pursuant to law nor any proceeding in unlawful detainer taken by the Authority shall of itself operate to terminate the Lease Agreement, and no termination of the Lease Agreement on account of default by the City shall be or become effective by operation of law, or otherwise, unless and until the Authority shall have given written notice to the City of the election on the part of the Authority to terminate the Lease Agreement. The City covenants and agrees that no surrender of the Property and/ or of the remainder of the Term of the Lease Agreement or any termination of the Lease Agreement shall be valid in any manner or for any purpose whatsoever unless stated or accepted by the Authority by such written notice.

No Remedy Exclusive. No remedy is intended to be exclusive and every such remedy shall be cumulative and shall be in addWon to every other remedy given under the Lease Agreement now or hereafter existing at law or in equity. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Authority to exercise any remedy reserved to it in the Lease Agreement, it shall not be necessary to give any notice, other than such notice as may be required in the Lease Agreement or by law.

Security Deposit

Notwithstanding any other provision of the Lease Agreement, the City may, on any date, secure the payment of all or a portion of the Lease Payments remaining due by an irrevocable deposit with the Trustee or an escrow holder under an escrow deposit and trust agreement, of: (a) in the case of a security deposit relating to all Lease Payments, either (i) cash in an amount which, together with amounts on deposit in the Lease Poyment Fund, the Insurance and Condemnation Fund and the Reserve Fund, is sufficient to pay all unpaid Lease Payments, including the principal and interest components thereof, in accordance with the Lease Payment schedule set forth in the Lease Agreement, or (ii) Defeasance

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Obligations in such amount as will, in the written opinion of an independent certified public accountant or other firm of recognized experts in such matters, together with interest to accrue thereon and, if required, all or a portion of moneys or Defeasance Obligations or cash then on deposit and interest earnings thereon in the Lease Payment Fund, the lnsurance and Condemnation Fund and the Reserve Fund, be fully sufficient to pay all unpaid Lease Payments on their respective Lease Payment Dates; or (b) in the case of a security deposit relating to a portion of the Lease Payments, a certificate executed by a City Representative designating the portion of the Lease Payments to which the deposit pertains, and either (i) cash in an amount which is sufficient to pay the portion of the Lease Payments designated in such City Representative's certificate, including the principal and interest components thereof, or (ii) Defeasance Obligations in such amount as will, together with interest to be received thereon, if any, in the written opinion of an independent certified public accountant or other firm of recognized experts in such matters, be fully sufficient to pay the portion of the Lease Payments designated in the aforesaid City Representative's certificate.

ln the event of a deposit pursuant as to all Lease Payments and the payment of all fees, expenses and indemnifications owed to the Trustee, all obligations of the City under the Lease Agreement shall cease and terminate, excepting only the obligation of the City to make, or cause to be made, all payments from the deposit made by the City and the obligations of the City pursuant to the Lease Agreement and title to the Property shall vest in the City on the date of said deposit automatically and without further action by the City or the Authority. Said deposit and interest earnings thereon shall be deemed to be and shall constitute a special fund for the payments and said obligation shall thereafter be deemed to be and shall constitute the installment purchase obligation of the City for the Property. Upon said deposit, the Authority will execute or cause to be executed any and all documents as may be necessary to confirm title to the Property in accordance with the provisions of the Lease Agreement. In addition, the Authority appoints the City as its agent to prepare, execute and file or record, in appropriate offices, such documents as may be necessary to place record title to the Property in the City.

Prepayment

Optional Prepayment. The Authority grants an option to the City to prepay the principal component of the Lease Payments in full, by paying the aggregate unpaid principal components of the Lease Payments, or in part, in a prepayment amount equal to the principal amount of Lease Payments to be prepaid, together with accrued interest to the date fixed for prepayment, without premium.

Said option may be exercised with respect to Lease Payments due on and after August 15, 2010, in whole or in part on any date, commencing August 15, 2009. Said option shall be exercised by the City by giving written notice to the Authority and the Trustee of the exercise of such option at least forty-five (45) days prior to said prepayment date. ln the event of prepayment in part, the partial prepayment shall be applied against Lease Payments in such· order of payment date as shall be selected by the City. Lease Payments due after any such partial prepayment shall be in the amounts set forth in a revised Lease Payment schedule which shall be provided by, or caused to be provided by, the City to the Trustee and which shall represent an adjustment to the schedule set forth in the Lease Agreement taking into account said partial prepayment. The Trustee agrees to notify the Authority in the event of any prepayment of Lease Payments, as provided in the Trust Agreement.

Mandatory Prepayment From Net Proceeds of Insurance, Title Insurance or Eminent Domain. The City shall be obligated to prepay the Lease Payments, in whole on any date or in part on any Lease Payment Date, from and to the extent of any Net Proceeds of an insurance, title insurance or condemnation award with respect to the Property theretofore deposited in the Lease Payment Fund for such purpose. The City and the Authority agree that such Net Proceeds shall be applied first to the payment of any delinquent Lease Payments, and thereafter shall be credited towards the City's obligations under the Lease Agreement. Lease Payments due after any such partial prepayment shall be in the amounts set forth in a revised Lease Payment schedule which shall be provided by, or caused to be provided by, the City to the Trustee and which shall represent an adjustment to the schedule set forth in the Lease Agreement taking into account said partial prepayment.

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ASSIGNMENT AGREEMENT

The Assignment Agreement is entered into between the Authority and the Trustee, pursuant to which the Authority assigns and transfers to the Trustee, for the benefit of the Owners, certain of the rights of the Authority under the Lease Agreement, including the right to receive Lease Payments under the Lease Agreement and the rights and remedies of the Authority under the Lease Agreement to enforce payment of Lease Payments or otherwise to protect and enforce the Lease Agreement in the event of default by the County. Certain rights of the Authority to payment of advances, indemnification and attorneys' fees and expenses are not assigned.

TRUST AGREEMENT

Delivery Costs Fund; Payment of Delivery Costs

There shall be deposited in the Delivery Costs Fund the proceeds of sale of the Certificates required to be deposited therein pursuant to the Trust Agreement and any other funds from time to time deposited with the Trustee for such purpose and identified in writing to the Trustee ..

The moneys in the Delivery Costs Fund shall be disbursed by the Trustee to pay the Delivery Costs. Disbursements from the Delivery Costs Fund shall be made by the Trustee on receipt of a sequentially numbered requisition, signed by a City Representative.

The Trustee shall be responsible for the safekeeping and investment (in accordance with the Trust Agreement) of the moneys held in the Delivery Costs Fund and the payment thereof in accordance with the Trust Agreement, but the Trustee shall not be responsible for the truth or accuracy of such requisitions, may rely conclusively thereon and shall be under no duty to investigate or verify any statements made therein.

Upon written notice from a City Representative that all Delivery Costs have been paid, the Trustee shall transfer any moneys then remaining in the Delivery Costs Fund to the Lease Payment Fund and applied for the purposes of such fund, the Delivery Costs Fund shall be closed, the Trustee shall no longer be obligated to make payments for Delivery Costs and all further Delivery Costs shall be paid by the City.

Assignment of Rights in Lease Agreement

The Authority has, in the Assignment Agreement, transferred, assigned and set over to the Trustee certain of its rights but none of its obligations set forth in the Lease Agreement, including but not limited to all of the Authority's rights to receive and collect Lease Payments and all other amounts required to be deposited in the Lease Payment Fund pursuant to the Lease Agreement or pursuant to the Trust Agreement. All Lease Payments and such other amounts to which the Authority may at any time be entitled shall be paid directly to the Trustee and all of the Lease Payments collected or received by the Authority shall be deemed to be held and to have been collected or received by the Authority as the agent of the Trustee, and if received by the Authority at any time shall be deposited by the Authority with the Trustee within one Business Day after the receipt thereof, and all such Lease Payments and such other amounts shall be forthwith deposited by the Trustee upon the receipt thereof in the Lease Payment Fund.

Lease Payment Fund

All moneys at any time deposited by the Trustee in the Lease Payment Fund shall be held by the Trustee in trust for the benefit of the Owners of the Certificates. So long as any Certificates are Outstanding, neither the City nor the Authority shall have any beneficial right or interest in the Lease Payment Fund or the moneys deposited therein, except only as provided in the Trust Agreement.

There shall be deposited in the Lease Payment Fund all Lease Payments received by the Trustee, including any moneys received by the Trustee for deposit therein pursuant to the Trust Agreement or the Lease Agreement, and any other moneys required to be deposited therein pursuant to the Lease Agreement or the Trust Agreement.

Appendix A Page 18

All amounts in the Lease Payment Fund shall be used and withdrawn by the Trustee solely for the purpose of paying the principal and interest with respect to the Certificates as the same shall become due and payable in accordance with the provisions of the Trust Agreement.

Any surplus remaining in the Lease Payment Fund after redemption and/or payment of all Certificates, including accrued interest (if any) and payment of any applicable fees and expenses to the Trustee, or provision for such redemption or payment having been made to the satisfaction of the Trustee, shall be withdrawn by the Trustee and remitted to the City.

Reserve Fund

All moneys at any time on deposit in the Reserve Fund shall be held by the Trustee in trust for the benefit of the Owners of the Certificates, and applied solely as provided in the Trust Agreement.

If, on any Interest Payment Date, the moneys available in the Lease Payment Fund do not equal the amount of the principal and interest with respect to the Certificates then coming due and payable, the Trustee shall apply the moneys available in the Reserve Fund to make delinquent Lease Payments by transferring the amount necessary for this purpose to the Lease Payment Fund. Upon receipt of any delinquent Lease Payment with respect to which moneys have been advanced from the Reserve Fund, such Lease Payment shall be deposited in the Reserve Fund to the extent of such advance.

If, on any Interest Payment Date, the moneys on deposit in the Reserve Fund and the Lease Payment Fund (excluding amounts required for payment of principal and interest with respect to Certificates not presented for payment) are sufficient to pay all Outstanding Certificates, including all principal and interest, the Trustee shall transfer all amounts then on deposit in the Reserve Fund to the Lease Payment Fund to be applied to the payment of the Lease Payments, and such moneys shall be distributed to the Owners of Certificates in accordance with the Trust Agreement. Any amounts remaining in the Reserve Fund upon payment in full of all Outstanding Certificates and all amounts due the Trustee under the Trust Agreement, or upon provision for such payment as provided in the Trust Agreement, shall be withdrawn by the Trustee and paid to the City.

At any time, moneys on deposit in the Reserve Fund may be substituted by the City with a letter of credit, surety bond, bond insurance policy or other form of guaranty from a financial institution, the long-term, unsecured obligations of which are rated in the highest rating category by Moody's and S&P, in an amount equal to the Reserve Requirement, upon presentation to the Trustee of such letter of credit, surety bond, bond insurance policy or other form of guaranty from a financial institution, with evidence from the City that such letter of credit, surety bond, bond insurance policy or other form of guaranty from a financial institution rated in the highest rating category by Moody's and S&P. Upon such substitution, the Trustee shall transfer amounts on deposit in the Reserve Fund to the City in an amount equal to the maximum limits or principal amount, as applicable, of such letter of credit, surety bond, bond insurance policy or other form of guarantee which shall be segregated by the City and applied solely to the funding of capital projects.

Insurance and Condemnation Fundi Application of Net Proceeds of Insurance Award

(a) Any Net Proceeds of insurance against damage to or destruction of any part of the Property collected by the City in the event of any such damage or destruction shall be paid to the Trustee by the City pursuant to the Lease Agreement and deposited by the Trustee promptly upon receipt thereof in a special fund designated as the "Insurance and Condemnation Fund" to be established by the Trustee when deposits are required to be made therein.

(b) Within ninety (90) days following the date of such deposit, the City shall determine and notify the Trustee in writing of its detern1ination either (i) that the replacement, repair, restoration, modification or improvement of the Property is not economically feasible or in the best interest of the City, or (ii) that all or a portion of such Net Proceeds are to be applied to the prompt replacement, repair, restoration, modification or improvement of the damaged or destroyed portions of the Property.

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(c) In the event the City's determination is as set forth in clause (i) of paragraph (b) above, such Net Proceeds shall be promptly transferred by the Trustee to the Lease Payment Fund, applied to the prepayment of Lease Payments pursuant to the Lease Agreement and applied to the redemption of Certificates as provided in the Trust Agreement; provided, however, that in the event of damage or destruction of the Property in full, such Net Proceeds may be transferred to the Lease Payment Fund only if sufficient, together with other moneys available therefor, to cause the prepayment of the principal components of all unpaid Lease Payments pursuant to the Lease Agreement, otherwise such Net Proceeds shall be applied to the replacement, repair, restoration, modification or improvement of the Property; provided further, however, that in the event of damage or destruction of the Property in part, such Net Proceeds may be transferred to the Lease Payment Fund and applied to the prepayment of Lease Payments only if the resulting Lease Payments represent fair consideration for the remaining portions of the Property, evidenced by a certificate signed by a City Representative and an Authority Representative.

(d) In the event the City's determination is as set forth in clause (ii) of paragraph (b) above, Net Proceeds deposited in the Insurance and Condemnation Fund shall be applied to the prompt replacement, repair, restoration, modification or improvement of the damaged or destroyed portions of the Property by the City, and disbursed by the Trustee upon receipt of requisitions signed by a City Representative stating with respect to each payment to be made (i) the requisition number, (ii) the name and address of the person, firm or corporation to whom payment is due, (iii) the amount to be paid and (iv) that each obligation mentioned therein has been properly incurred, is a proper charge against the Insurance and Condemnation Fund, has not been the basis of any previous withdrawal, and specifying in reasonable detail the nature of the obligation, accompanied by a bill or a statement of account for such obligation. The Trustee shall not be responsible for the representations made in such requisitions and may conclusively rely thereon and shall be under no duty to investigate or verify any statements made therein. Any balance of the Net Proceeds remaining after such work has been completed shall be paid to the City.

Application of Net Proceeds of Eminent Domain Award

If all or any part of the Property shall be taken by eminent domain proceedings (or sold to a government threatening to exercise the power of eminent domain), the Net Proceeds therefrom shall be deposited with the Trustee in the Insurance and Condemnation Fund pursuant to the Lease Agreement and shall be applied and disbursed by the Trustee as follows:

(a) If the City has given written notice to the Trustee of its determination that (i) such eminent domain proceedings have not materially affected the operation of the Property or the ability of the City to meet any of its obligations with respect to the Property under the Lease Agreement, and (ii) such proceeds are not needed for repair or rehabilitation of the Property, the City shall so certify to the Trustee and the Trustee, at the City's written request, shall transfer such proceeds to the Lease Payment Fund to be credited towards the prepayment of the Lease Payments pursuant to the Lease Agreement and applied to the redemption of Certificates in the manner provided in the Trust Agreement.

(b) If the City has given written notice to the Trustee of its determination that (i) such eminent domain proceedings have not materially affected the operation of the Property or the ability of the City to meet any of its obligations with respect to the Property under the Lease Agreement, and (ii) such proceeds are needed for repair, rehabilitation or replacement of the Property, the City shall so certify to the Trustee and the Trustee, at the City's written request, shall pay to the City, or to its order, from said proceeds such amounts as the City may expend for such repair or rehabilitation, upon the filing with the Trustee of requisitions of the City Representative in the form and containing the provisions set forth in the Trust Agreement. The Trustee shall not be responsible for the representations made in such requisitions and may conclusively rely thereon and shall be under no duty to investigate or verify any statements made therein.

(c) If (i) less than all of the Property shall have been taken in such eminent domain proceedings or sold to a government threatening the use of eminent domain powers, and if the City has given written notice to the Trustee of its determination that such eminent domain proceedings have materially affected the operation of the Property or the ability of the City to meet any of its obligations with respect to the Property under the Lease Agreement or (ii) all of the Property shall have been taken in such eminent domain proceedings, then the Trustee shall transfer such proceeds to the Lease Payment Fund to be

Appendix A Page 20

credited toward the prepayment of the Lease Payments pursuant to the Lease Agreement and applied to the redemption of Certificates in the manner provided in the Trust Agreement.

Application of Net Proceeds of Title Insurance Award

The Net Proceeds from a title insurance award shall be deposited with the Trustee in the Insurance and Condemnation Fund pursuant to the Lease Agreement and shall be transferred to the Lease Payment Fund to be credited towards the prepayment of Lease Payments required to be paid pursuant to the Lease Agreement and applied to the redemption of Certificates in the manner provided in the Trust Agreement.

Moneys in Funds; Investment

Held in Trust. The moneys and investments held by the Trustee under the Trust Agreement are irrevocably held in trust for the benefit of the Owners of the Certificates and for the purposes specified in the Trust Agreement and such moneys, and any income or interest earned thereon, shall be expended only as provided in the Trust Agreement and shall not be subject to levy, attachment or lien by or for the benefit of any creditor of the Authority, the Trustee, the City or any Owner of Certificates.

Investments Authorized. Moneys held by the Trustee under the Trust Agreement shall, upon written order of a City Representative, be invested and reinvested by the Trustee in Permitted Investments. The Trustee may deem all investments directed by a City Representative as Permitted Investments without independent investigation thereof. If a City Representative shall fail to so direct investments, the Trustee shall invest the affected moneys in Permitted Investments described in paragraph (g) of the definition thereof. Such investments, if registrable, shall be registered in the name of and held by the Trustee or its nominee. The Trustee may purchase or sell to itself or any affiliate, as principal or agent, investments authorized by this the Trust Agreement. Such investments and reinvestments shall be made giving full consideration to the time at which funds are required to be available. The Trustee may act as principal or agent in the making or disposing of any investment and make or dispose of any investment through its investment department or that of an affiliate and shall be entitled to its customary fees therefor. The Trustee is authorized, in making or disposing of any investment permitted by the Trust Agreement, to deal with itself (in its individual capacity) or with one or more of its affiliates, whether it or such affiliate is acting as an agent of the Trustee or for any third person or dealing as principal for its own account.

Allocation of Earnings. Unless and until otherwise directed by the City to the Trustee in writing, all interest or income received by the Trustee on investment of the Lease Payment Fund shall be retained in the Lease Payment Fund. Amounts retained or deposited in the Lease Payment Fund pursuant to the Trust Agreement shall be applied as a credit against the Lease Payment due by the City pursuant to the Lease Agreement on the Lease Payment Date following the date of deposit. All interest received by the Trustee on investment of the Reserve Fund shall be retained in the Reserve Fund in the event that amounts on deposit in the Reserve Fund are less than the Reserve Requirement. Reserve Fund investments may not have maturities extending beyond five years. [n the event that amounts then on deposit in the Reserve Fund on the valuation date described in the Trust Agreement equal or exceed the Reserve Requirement, such excess shall be transferred to the Lease Payment Fund. Transfers to the Lease Payment Fund from the Reserve Fund shall be made by the Trustee on or prior to each February 1 and August 1. All interest or income in the Delivery Costs Fund shall be retained in the Delivery Costs Fund until the Delivery Costs Fund is closed pursuant to the Trust Agreement.

Such investments shall be valued by the Trustee not less often than quarterly, at the market value thereof, exclusive of accrued interest. Deficiencies in the amount on deposit in any fund or account resulting from a decline in market value shall be restored no later than the succeeding valuation date. Investments purchased with funds on deposit in the Reserve Fund shall have a term to maturity of not greater than five years.

Amendments

The Trust Agreement and the rights and obligations of the Owners of the Certificates, the Lease Agreement and the rights and obligations of the parties thereto, the Site and Facility Lease and the rights

Appendix A Page 21

and obligations of the parties thereto and the Assignment Agreement and the rights and obligations of the parties thereto, may be modified or amended at any time by a supplemental agreement which shall become effective when the written consent of the Owners of at least sixty percent (60%) in aggregate principal amount of the Certificates then Outstanding, exclusive of Certificates disqualified as provided in the Trust Agreement, shall have been filed with the Trustee. No such modification or amendment shall (1) extend or have the effect of extending the fixed maturity of any Certificate or reducing the interest rate with respect thereto or extending the time of payment of interest, or reducing the amount of principal thereof, without the express consent of the Owner of such Certificate, or (2) reduce or have the effect of reducing the percentage of Certificates required for the affirmative vote or written consent to an amendment or modification of a Lease Agreement, or (3) modify any of the rights or obligations of the Trustee without its written assent thereto. Any such supplemental agreement shall become effective as provided in the Trust Agreement.

The Trust Agreement and the rights and obligations of the Owners of the Certificates and the Lease Agreement and the rights and obligations of the respective parties thereto, may be modified or amended at any time by a supplemental agreement, without the consent of any such Owners, but only to the extent permitted by law and only (1) to add to the covenants and agreements of the Authority or the City, (2) to cure, correct or supplement any ambiguous or defective provision contained therein and which shall not, in the opinion of nationally recognized bond counsel, adversely affect the interests of the Owners of the Certificates, (3) in regard to questions arising thereunder, as the parties thereto may deem necessary or desirable and which shall not, in the opinion of nationally recognized bond counsel, materially adversely affect the interests of the Owners of the Certificates; (4) to make such additions, deletions or modifications as may be necessary or appropriate in the opinion of bond counsel to assure the exclusion from gross income for federal income tax purposes of the interest component of Lease Payments and the interest payable with respect to the Certificates, (5) to add to the rights of the Trustee, or (6) to maintain the rating or ratings assigned to the Certificates. Any such supplemental agreement shall become effective upon execution and delivery by the parties thereto, as the case may be.

The Trust Agreement and the Lease Agreement may not be modified or amended at any time by a supplemental agreement which would modify any of the rights and obligations of the Trustee without its written assent thereto.

Certain Covenants

Compliance With and Enforcement of Lease Agreement. The City covenants and agrees with the Owners of the Certificates to perform all obligations and duties imposed on it under the Lease Agreement. The Authority covenants and agrees with the Owners of the Certificates to perform all obligations and duties imposed on it under the Lease Agreement.

The City will not do or permit anything to be done, or omit or refrain from doing anything, in any case where any such act done or permitted to be done, or any such omission of or refraining from action, would or might be a ground for cancellation or termination of their respective Lease Agreement by the Authority thereunder. The Authority and the City, immediately upon receiving or giving any notice, communication or other document in any way relating to or affecting their respective estates, or either of them, in the Property, which may or can in any manner affect such estate of the City or the Authority, will deliver the same, or a copy thereof, to the Trustee.

Observance of Laws and Regulations. The City and the Authority will well and truly keep, observe and perform all valid and lawful obligations or regulations now or hereafter imposed on them by contract, or prescribed by any law of the United States, or of the State, or by any officer, board or commission having jurisdiction or control, as a condition of the continued enjoyment of any and every right, privilege or franchise now owned or hereafter acquired by the City or the Authority, respectively, including its right to exist and carry on business as a public entity, to the end that such rights, privileges and franchises shall be maintained and preserved, and shall not become abandoned, forfeited or in any manner impaired.

Budgets. The City shall supply to the Trustee as soon as practicable, but not later than September 15 in each year, a written determination by a City Representative that the City has made adequate provision in its annual budget for the payment of Lease Payments due under the Lease Agreement in the

Appendix A Page 22

Fiscal Year covered by such budget. The determination given by the City to the Trustee shall be that the amounts so budgeted are fully adequate for the payment of all Lease Payments and Additional Payments due under the Lease Agreement in the annual period covered by such budget.

Continuing Disclosure. The City covenants and agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure Certificate. Notwithstanding any other provision of the Trust Agreement, failure of the City to comply with the Continuing Disclosure Certificate shall not be considered an Event of Default; however, the Trustee may, upon payment of its fees and expenses, including counsel fees, and receipt of indemnity satisfactory to it, at the request of any Participating Underwriter or the holders of at least 25% aggregate principal amount of Outstanding Certificates, shall or any holder or beneficial owner of the Certificates may, take such actions as may be necessary and appropriate to compel performance, including seeking mandate or specific performance by court order.

Limitation of Liability

Limited Liability of City. Except for the payment of Lease Payments when due in accordance with the Lease Agreement and the performance of the other covenants and agreements of the City contained in the Lease Agreement and the Trust Agreement, the City shall have no pecuniary obligation or liability to any of the other parties or to the Owners of the Certificates with respect to the Trust Agreement or the terms, execution, delivery or transfer of the Certificates, or the distribution of Lease Payments to the Owners by the Trustee, except as expressly set forth in the Trust Agreement.

No Liability of City or Authority for Trustee Performance. Neither the City nor the Authority shall have any obligation or liability to any of the other parties or to the Owners of the Certificates with respect to the performance by the Trustee of any duty imposed upon it under the Trust Agreement.

Indemnification of Trustee. The City shall to the extent permitted by law indemnify and save the Trustee, its officers, employees, directors, affiliates and agents harmless from and against all claims, losses, costs, expenses, liability and damages, including legal fees and expenses (including allocated costs of internal counsel), arising out of (i) the use, maintenance, condition or management of, or from any work or thing done on, the Property by the Authority or the City, (ii) any breach or default on the part of the Authority or the City the performance of any of their respective obligations under the Lease Agreement, the Assignment Agreement, the Trust Agreement and any other agreement made and entered into for purposes of the Property, (iii) any act of the Authority or the City or of any of their respective agents, contractors, servants, employees, licensees with respect to the Property, (iv) any act of any assignee of, or purchaser from the Authority or the City or of any of its or their respective agents, contractors, servants, employees or licensees with respect to the Property, (v) the authorization of payment of Delivery Costs, (vi) the actions of any other party, including but not limited to the ownership, operation or use of the Property by the Authority or the City including, without limitation, the use, storage, presence, disposal or release of any Hazardous Substances on or about the Property, (vii) the Trustee's exercise and performance of its powers and duties under the Trust Agreement or as assigned to it under the Assignment Agreement, (viii) the offering and sale of the Certificates; (ix) the presence under or about or release from the Property, or any portion thereof, of any substance, material or waste which is or becomes regulated or classified as hazardous or toxic under State, local or federal law, or the violation of any such law by the City; or (x) any untrue statement or alleged untrue statement of any material fact or omission or alleged omission to state a material fact necessary to make the statements made, in the light of the circumstances under which they were made, not misleading, in any official statement or other offering document utilized in connection with the sale of the Certificates. Such indemnification shall include the costs and expenses of defending against any claim or liability arising under the Trust Agreement. No indemnification will be made under the Trust Agreement for willful misconduct or negligence under the Trust Agreement by the Trustee, its officers, affiliates or employees. The City's obligations under the Trust Agreement shall remain valid and binding notwithstanding maturity and payment of the Certificates or resignation or removal of the Trustee.

Assignment of Rights; Remedies. Pursuant to the Assignment Agreement, the Authority has transferred, assigned and set over to the Trustee certain of the Authority's rights in and to the Lease Agreement, including without limitation all of the Authority's rights to exercise such rights and remedies conferred on the Authority pursuant to the Lease Agreement as may be necessary or convenient (i) to enforce payment of the Lease Payments and any other amounts required to be deposited in the Lease

Appendix A Page 23

Payment Fund or the Insurance and Condemnation Fund, and (ii) otherwise to exercise the Authority's rights and take any action to protect the interests of the Trustee or the Certificate Owners in an Event of Default.

If an Event of Default shall happen, then and in each and every such case during the continuance of such Event of Default, the Trustee may, and shall, upon request of the Owners of a majority in aggregate principal amount of the Certificates then Outstanding, and upon payment of its fees and expenses, including counsel fees, and being indemnified to its satisfaction therefor shall, exercise any and aJJ remedies available pursuant to law or granted pursuant to the Lease Agreement; provided, however, that notwithstanding anything in the Trust Agreement or in the Lease Agreement to the contrary, there shall be no right under any circumstances to accelerate the maturities of the Certificates or otherwise to declare any Lease Payment not then in default to be immediately due and payable.

Appendix A Page 24

APPENDIXB

INDEPENDENT AUDITOR'S LETTER, MANAGEMENT'S DISCUSSION AND ANALYSIS, BASIC FINANCIAL STATEMENTS AND SUPPLEMENTAL

INFORMATION FOR YEAR ENDED JUNE 30, 2007 FOR THE CITY OF FREMONT

Appendix B

IC&L Caporicci & Larson Certified Public Accountants

INDEPENDENT AUDITORS' REPORT

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

Fremont, California

We have audited the accompanying financial statements of the governmental activities, each major fund, a~d the aggregate remaining fund information of the City of Fremont, California (City), as of and for the year ended June 30, 2007, which collectively comprise the City's basic financial statements as listed in the table bf contents.· These financial statements are the responsibility of the City's management. Our responsibility is to express an opinion on these financial statements based on our audit. . !

i

We conducted our audit in accordance with generally accepted auditing standards in the United States ~d the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit. includes examining, on a test basis, evidence supporting the amounts and disclosures in. the financi.~l statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall basic financial statement presentation. We believe that o;,r audit provides a reasonable basis for our opinion.

In our opinion, the basic financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate. remainhlg fund information of the City as of June 30, 2007, and the respective changes in financial position 'and cash flows, where applicable, thereof for the year then ended in conformity with generally accepted accountiflg principles in the United States. ·

In accordance with Government Auditing Standards, we have also issued our report dated November 16, 2007, ,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 grants. 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 no\ to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered· in assessing the results of our audit.

Toll Free Ph: (877) 862-2200

Oakland J8UGraudAve.,Suitc 1;'165 O:~.kland, California 9-161 ?.

Orange County 9 Corporate P:uk, Suite 100

Irvine, Ol.lifomla 92606

Toll Free Fax: (866) 436--0927

Saaamento 777 Campus Commons N.d., Suite 200

Sacr;unento,Cilifonlil 958:l':i

San Diep 48S8 M\.>n:Ury,Suite 106

San Diego, Callfomi:l 92111

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

Fremont, California Page2

The accompanying Required Supplementary Information, such as Management's Discussion and Analysis, budgetary comparison information and other information, is not a required part of the basic financial statements but is supplementary information required by generally accepted accounting principles of the United States. We have applied certain limited. procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the Required Supplementary Information. However, we did not audit the information and express no opinion on it.

Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City's basic financial statements. The accompanying Supplementary Information is presented for purposes of additional analysis and is not a required part of the basic financial statements. The Supplementary Information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken 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 express no opinion on them.

~eL,; f 6u~ Oakland, California November 16, 2007

2

CITY OF FREMONT, CALIFORNIA Management's Discussion and Analysis For the Fiscal Year Ended June 30,2007

As management of the City of Fremont, we offer readers of the City's financial statements this narrative overview and analysis of the financial activities of the City of Fremont for the fiscal year ended June 30, 2007. We encourage readers to consider the information presented here in conjunction with additional information we have furnished in our letter of transmittal, which can be found in the Introductory Section at the front of this report.

FINANCIAL HIGHLIGHTS

• The total assets of the City of Fremont exceeded its liabilities at the close of the most recent fiscal year by $813,201,000 (net assets). Of this amount, $51,666,000 (unrestricted net assets) may be used to meet the City's ongoing obligations to citizens and creditors without constraints established by debt covenants, enabling legislation, or other legal requirements.

• The City's total net assets increased by $35,304,000, as a result of both somewhat improved revenues and actions taken by the City Council and City Manager to minimize costs and control spending.

• As of June 30, 2007, the City of Fremont's governmental funds reported combined ending fund balances of $302,806,000, an increase of $16,145,000 in comparison with the prior year. Of this amount, 42% ($127,178,000) is reserved to indicate that it is not available for new spending because it has already been committed either to liquidate contracts and purchase orders of the prior period ($81,758,000), or to pay debt service ($45,420,000). The remaining 58% ($175,628,000) constitutes unreserved fund balance that is available for spending, but has been designated for a variety of specific future uses.

• At the end of FY 2006/07, unreserved fund balance for the General Fund was $41,684,000. Of this amount, $16,159,000 was designated by City Council policy for use for costs associated with unforeseen events (contingencies), and $3,232,000 was designated by City Council policy for start­up costs for future programs with potential to generate revenues sufficient to cover costs and repay the start-up investment. Both of these policies were adopted by the City Council in June 1996. In addition, $15,276,000 was designated to provide funds to deal with significant levels of financial uncertainty related to the City's economic environment and the unknown effects of the State budget, and a positive $132,000 was designated for fair value adjustments on the City's investment portfolio for net gains recognized by the City, but not yet realized at June 30, 2007. Of the $15,276,000 designated for budget uncertainty, $4,100,000 was transferred to the City's capital improvement program on July 1, 2007, to provide additional funding for capital projects.

In addition, although $9,297,000 of unreserved fund balance was appropriated in the FY 2007/08 operating budget, this action was taken before the end of FY 2006/07, and final results for the year were not yet known. After the books were closed, it was determined that only $6,885,000 was available to fund FY 2007/08 appropriations- a difference of $2,412,000.

• The City's total capital debt decreased by $9,975,000 due to annual debt service payments. There was no new debt issued in FY 2006/07.

3

City of Fremont, California l\1anagement's Discussion and Analysis for the Fiscal Year Ended June 30, 2007

OVERVIEW OF THE FINANCIAL STATEMENTS

This discussion and analysis is intended to serve as an introduction to the City of Fremont's basic financial statements, which consist of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves.

Government-wide Financial Statements

The government-wide financial statements are designed to provide readers with a broad overview of the City of Fremont's finances, in a manner similar to a private-sector business.

The Statement of Net Assets presents information on all of the City's assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City is improving or deteriorating.

The Statement of Activities and Changes in Net Assets presents information showing how the City's net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will result in cash flows in future fiscal periods (e.g., uncollected taxes, and earned but unused vacation and other compensated leave).

All of the City's activities are considered to be governmental in nature and, as a result, no business-type activities are reported in these statements. Governmental activities are those that are principally supported by taxes and intergovernmental revenues. For the City of Fremont, governmental activities consist of police services, fire services, human services, capital assets maintenance and operations, recreation services, community development and environmental services, and general government administration.

The City is the primary government in this report. There are no discretely presented component units. However, these financial statements include three other entities that, although legally separate, are important because the City is financially accountable for them. These component units are the Redevelopment Agency of the City of Fremont, the Fremont Public Financing Authority, and the Fremont Social Services Joint Powers Authority QPA). These component units have been included as an integral part of the City of Fremont (that is, their accounts are "blended" with those of the City) and they are not reported as separate discrete component units in these financial statements.

4

City of Fremont, California Management's Discussion and Analysis For the Fiscal Year Ended June 30, 2007

Fund Financial Statements

A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City of Fremont, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City of Fremont can be divided into three 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 the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. This information may be useful in evaluating a government's near-term financing requirements.

Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government's near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to assist the reader with this comparison between governmental funds and governmental activities shown in the government­wide financial statements.

The City of Fremont maintains fifty-five individual governmental funds. Information is presented in the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances for the following individual funds that are considered to be major funds:

0 General Fund 0 Development Impact Fees 0 Redevelopment Agency Operations 0 Development Cost Center 0 Low and Moderate Income Housing 0 Recreation Services 0 Redevelopment Agency Debt Service 0 Capital Maintenance 0 Redevelopment Agency Capital Projects

Data for the other forty-six governmental funds is combined into a single, aggregated presentation. Individual fund data for each of these nonmajor governmental funds is provided in the form of combining statements elsewhere in this report.

The City adopts an annual appropriated budget for its General Fund, and the Redevelopment Agency Operations, Low and Moderate Income Housing, Development Cost Center, and Recreation Services funds. Budgetary comparison statements have been provided to demonstrate compliance with the adopted budget.

5

City of Fremont, California lVfanagement's Discussion and Analysis For the Fiscal Year Ended June 30, 2007

Proprietary funds. The only proprietary funds the City has are internal service funds, which are an accounting device used to accumulate and allocate costs internally among the City's various functions. The City uses internal service funds to account for its risk management activities and for its information technology services. Because both of these services exist to benefit governmental functions, they have been included within governmental activities in the government-wide financial statements.

Both 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 provided in the form of combining statements elsewhere in this report.

Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City's own programs. The only fiduciary funds the City has are agency funds. The accounting used for these funds is much like that used for governmental funds. These funds are reported in a separate statement of fiduciary net assets.

Notes to the Basic Financial Statements

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

Other Information

In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information. This information includes budgetary comparison schedules, as well as more detailed inf()rmation about the City's use of the modified approach for certain of its infrastructure assets, and about its progress in funding its obligation to provide pension benefits to its employees.

GOVERNMENT-WIDE FINANCIAL ANALYSIS

As noted earlier, net assets may serve over time as a useful indicator of a government's overall financial position. In the case of the City of Fremont, assets exceeded liabilities by $813,201,000 at the close of the 2006/07 fiscal year. In comparison, last year assets exceeded liabilities by $777,897,000.

6

City of Fremont, California Management's Discussion and Analysis For the Fiscal Year Ended June 30,2007

Information about net assets is presented in the summary schedule, below:

Current and other assets

Capital assets

Total assets

Current liabilities

Noncurrent liabilities

Total liabilities

Net assets:

SUMMARY OF NET ASSETS JUNE 30, 2007 AND 2006

(dollars in thousands)

2007 2006

$ 351,708 $ 326,842

721,146 715,959

1,072,854 1,042,801

40,104 35,329

219,549 229,575

259,653 264,904

Invested in capital assets, net of related debt 507,802

253,733

51,666

492,609

232,687

52,601

Restricted

Unrestricted

Total net assets $ 813,201 $ 777,897

Percentage Change

7.6%

0.7%

2.9%

13.5%

(4.4%)

(2.0%)

3.1%

9.0%

(1.8%)

4.5%

The increase in current and other assets is primarily due to more cash and investments held by the City at June 30, 2007 because of increased collections of development impact fees and increased amounts received from other governments related to the Washington Boulevard/Paseo Padre Parkway Grade Separation project. Current liabilities increased because accounts payable were higher at the end of FY 2006/07 as a result of amounts due to contractors for street maintenance and the grade separation project. The decrease in noncurrent liabilities reflects the repayment of $9,975,000 in long-term debt.

By far, the largest portion of the City's net assets (62%) reflects its investment in capital assets (e.g., land, buildings, machinery and equipment) less any related debt used to acquire those assets that is still outstanding. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City's investment in its capital assets is reported net of related debt, the resources needed to repay this debt must be provided from other sources because the capital assets themselves cannot be used to liquidate these liabilities. An additional portion of the City's net assets (31%) represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net assets (7%) may be used to meet the City's ongoing obligations to citizens and creditors.

7

City of Fremont, California Management's Discussion and Analysis For the Fiscal Year Ended June 30, 2007

The City's net assets increased by $35,304,000 (4.5%) during the current fiscal year. Information about changes in net assets is presented in the summary schedule, below:

SUMMARY OF CHANGES IN NET ASSETS FOR THE YEARS ENDED JUNE 30, 2007 AND 2006

(dollars in thousands)

2007 2006 Revenues: Program revenues:

Charges for services $ 34,025 $ 29,314 Operating grants and contributions 28,035 15,674 Capital grants and contributions 231 649

General revenues: Property tax 89,561 83,009 Sales tax 34,191 32,277 Business tax 6,738 6,771 Motor vehicle in lieu 1,220 2,041 Other taxes and fees 23,616 17,939 Investment earnings 13,759 9,049 Miscellaneous 5,839 6,411

Total revenues 237,215 203,134

Program expenses: General government 13,008 11,504 Police services 50,901 46,924 Fire services 28,587 27,439 Human services 7,023 6,623 Capital assets maintenance and operations 51,923 34,034

· Recreation services 5,747 5,293 Community development and

environmental services 35,676 46,315 Interest on debt 9,046 8,749

Total program expenses 201,911 186,881

Increase in net assets 35,304 16,253 Net assets, beginning of year 777,897 761,644

Net assets, end of year $813,201 $777,897

Percentage Change

16.1% 78.9%

(64.4%)

7.9% 5.9%

(0.5%) (40.2%)

31.6% 52.0% (8.9%) 16.8%

13.1% 8.5% 4.2% 6.0%

52.6% 8.6%

(23.0%) 3.4% 8.0%

117.2% 2.1%

4.5%

The $35,304,000 increase in net assets this fiscal year is attributable to both increased revenues and actions taken by the City Council and City Manager to minimize costs and control spending.

8

City of Fremont, California Management's Discussion and Analysis For the Fiscal Year Ended June 30,2007

Revenues. Charges for services increased by $4,711,000 (16.1%) over the prior year. The single most significant increase occurred in charges for Community Development and Environmental services, which increased by $3,494,000. Other increases in charges for services occurred in Police services, which increased by $701,000 because of more general fine collections and fees for other general Police services such as background checks, towing, animal shelter services and jail bookings, and in Human Services and Recreation Services, where charges increased by $313,000 and $371,000, respectively, due to adjustments to the types of services provided to better meet the community's needs and increasing the levels of fees to keep pace with inflation. These increases were partially offset by minor decreases in other areas.

Operating grants and contributions increased by $12,361,000 (78.9%) compared to the prior year, primarily due to increased grants and contributions for street maintenance and capital projects -specifically, the Washington Boulevard/Paseo Padre Parkway Grade Separation project. There were also a variety of relatively minor decreases/ increases in other grant funding sources throughout the organization.

The City's property tax revenues increased $6,552,000 (7.9%) and reflect the increase in assessed valuation from the prior year. However, the City continues to watch for a possible softening of property tax revenues in the wake of the recent downturn in the housing market both locally and nationally. Gross assessed valuation for secured property increased 7.8% between FY 2005/06 and FY 2006/07, and that for unsecured personal property increased by 19.3%. Unsecured personal property represents 6.6% of the FY 2006/07 total gross assessed valuation.

Sales tax increased $1,914,000 (5.9%) due to increased economic activity, as well as economic expansion resulting from new businesses at Pacific Commons, a major retail development complex. Sales tax from business-to-business activity also continued its rebound, although a bit more modestly than in the prior year, reflecting some measure of economic recovery in Silicon Valley.

Motor vehicle in-lieu revenues decreased by 40.2%, from $2,041,000 in FY 2005/06 to $1,220,000 in FY 2006/07. This decrease is a result of new legislation (AB 1602) that provides for an annual redistribution of Vehicle License Fees (VLF) to newly incorporated cities and annexed areas throughout the state.

Other taxes and fees consist of the following (dollars in thousands):

Percentage 2006/07 2005/06 Change

Other taxes $ 4,868 $ 4,745 2.6%

Development impact fees 10,846 5,527 96.2%

Franchises 7,902 7,667 3.1%

Total $23,616 $17,939 31.6%

9

City of Fremont, California Management's Discussion and Analysis For the Fiscal Year Ended June 30,2007

Other taxes were marginally higher because an increase in transient occupancy tax collections ($543,000) offset a decrease in property transfer tax collections ($444,000). This decrease in property transfer tax revenue is one reason the City is concerned about a possible softening of property tax revenues in the future. The increase in development impact fee collections reflects the issuance of permits for several new housing development projects in FY 2006/07, including Maple Square Apartments, Irvington Family Apartments and Ville D'Este.

Investment earnings were higher because of higher interest rates over the course of the year, combined with larger cash and investment balances throughout the year. In FY 2006/07, the average portfolio yield was 4.67%, compared to 3.62% in FY 2005/06. This resulted in an increase in investment earnings of $4,710,000 (52.0% ).

The decrease in miscellaneous and other revenue is attributable to the following one-time events in FY 2005/06 that did not occur in FY 2006/07:

• In FY 2005/06 ($2,200,000) - a contribution from Union Pacific Railroad for their share of construction costs for the Washington Boulevard/Paseo Padre Parkway Grade Separation project.

• In FY 2005/06 ($1,275,000) - a payment from a developer in accordance with the City's inclusionary housing ordinance, which requires an in-lieu fee for low-income housing projects.

Offsetting these items was a one-time revenue of $4,172,000 from the sale of property on Canyon Heights Drive, received in FY 2006/07.

Program Expenses. The City's revenues continue to be volatile. As a result, the City continued actions begun in prior years to minimize costs and control spending, including reducing staffing levels by more than 20% in FY 2003/04. Although program expenses increased by 8.0%, to $201,911,000, in FY 2006/07, this increase is due to the filling of some authorized positions that were vacant in the prior year, unanticipated public safety overtime costs, increased street maintenance efforts made possible by the receipt of additional resources from other governmental agencies, and inflationary increases. When the revenues associated with program expenses are taken into account, the net costs of services actually decreased by 1.1% between FY 2005/06 and FY 2006/07.

Economic factors and next year's budget are discussed in more detail later in this discussion and analysis.

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City of Fremont, California Management's Discussion and Analysis For the Fiscal Year Ended June 30, 2007

For each governmental activity, the total costs are the expenses associated with that activity. Net costs take into account any revenues that support the costs of an activity directly, such as grants and charges for services. Information about the total and net cost of governmental activities is presented below:

TOTAL AND NET COST OF GOVERNMENTAL ACTIVITIES FOR THE YEARS ENDED JUNE 30, 2007 AND 2006

(dollars in thousands)

Total Cost of Services Net Cost of Services % %

2007 2006 Change 2007 2006 Change

Police services $50,901 $46,924 8.5% $43,887 $41,377 6.1%

Fire services 28,587 27,439 4.2% 25,692 24,444 5.1%

Human services 7,023 6,623 6.0% 2,947 2,932 0.5% Capital assets maintenance

and operations 51,923 34,034 52.6% 28,693 22,582 27.1%

Recreation services 5,747 5,293 8.6% 1,902 1,819 4.6%

Community development and environmental services 35,676 46,315 (23.0%) 14,810 28,391 (47.8%)

General government 13,008 11,504 13.1% 12,643 10,950 15.5%

Interest on debt 9,046 8,749 3.4% 9,046 8,749 3.4%

Total $201,911 $186,881 8.0% $139,620 $141,244 (1.1%)

Both police and fire services expenses increased this year, partially due to increased labor costs. There were also a number of public safety incidents during the year that resulted in additional overtime costs for police services.

The increased costs in human services were almost entirely offset by increased grants and by increases in revenues from charges for services.

Because of increased operating grants and contributions for capital assets maintenance and operations, expenses in this function increased 52.6%. This increase was partially offset by increased operating grants to fund street maintemmce. Maintenance of the City's capital assets is an important priority, and staff continues to work to find and deploy funding in the most effective way possible.

Recreation services expenses in FY 2006/07 increased by 8.6% ($434,000). This is due to the increased costs of providing these services, which were partially offset by fee increases to program participants. Since FY 2001/02, however, the total cost of recreation services has actually decreased 5.9% (from $6,110,000 in FY 2001/02), and the net cost has decreased 42.4% (from $3,133,000 in FY 2001/02).

Community development and environmental services expenses decreased 23.0% ($10,639,000). This decrease is mainly due to a decrease in Redevelopment Agency project costs because of the completion of several major housing developments and fewer costs this year related to major transportation

11

City of Fremont, California Management's Discussion and Analysis For the Fiscal Year Ended June 30,2007

projects. In FY 2006/07, the Agency's community development expenses were $14,574,000, compared to $27,186,000 in FY 2005/06. The decrease in the net cost of community development and environmental services is attributable to increased collections of development impact fees, discussed above.

The total cost of general government services increased by 13.1% ($1,504,000), from $11,504,000 in FY 2005/06 to $13,008,000 in FY 2006/07, primarily due to filling some authorized positions that had been vacant in the prior year and inflationary costs. Overall, the total cost of general government in actual dollars, which does not account for inflation, has increased only 2.6% since the FY 2001/02 level of $12,678,000.

A significant portion of the City's long-term debt is variable rate debt, and interest payments fluctuate according to market rate changes. Because of the overall increase in interest rates in FY 2006/07, the City's interest expense increased by 3.4% ($297,000). The effects of increased rates are also seen in the increased interest revenues earned by the City on its cash and investments.

Economic factors and next year's budget are discussed in more detail later in this discussion and analysis.

FINANCIAL ANALYSIS OF THE CITY'S FUNDS

As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance­related legal requirements.

The State Budget Act of 2004 substantially changed the valuation, distribution method, and timing of three major local government revenues: property tax, sales tax, and vehicle license fees. In FY 2004/05, the State issued Economic Recovery Bonds as part of the solution to its record budget deficit. As security for these Bonds, the State temporarily changed the local sales tax allocation from 1% to 0.75% and replaced the reduction of local sales tax with a dollar-for-dollar allocation of local property tax from the County Educational Revenue Augmentation Fund (ERAF). This exchange mechanism (the so­called "triple flip") will be in place as long as the Bonds are outstanding. True-up reconciliations between the actual amounts and the State estimates are done each year in October, and the true-up property tax distribution is paid in January of the following year. The net effect of this exchange on the City is that property tax is remitted twice a year, while sales tax is remitted monthly.

During FY 2004/05, the State also permanently reduced the Vehicle License Fee (VLF) rate from 2% to 0.65%. For FY 2004/05, the amount the City would have received from VLF at the 2% rate was calculated and the difference between the two amounts was added to the property tax base through transfer from the County ERAF. The City now receives its portion of VLF at the now-permanent low rate and the increased property tax base grows according to economic conditions. In addition, beginning in FY 2006/07, AB 1602 provides for reallocations of VLF based on new incorporations and annexations that occur throughout the state.

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 financing

12

City of Fremont, California Management's Discussion and Analysis For the Fiscal Year Ended June 30,2007

requirements. In particular, unreserved fund balance may serve as a useful measure of a government's net resources available for spending at the end of the fiscal year.

As of the end of FY 2006/07, the City's governmental funds reported combined ending fund balances of $302,806,000, an increase of $16,145,000 from the prior year. Of this amount, 42% ($127,178,000) is reserved to indicate that it is not available for new spending because it has already been committed either to liquidate contracts and purchase orders of the prior period ($81,758,000), or to pay debt service ($45,420,000). The remaining 58% ($175,627,000) constitutes unreserved fund balance that is available for spending, but has been designated for a variety of specific future uses.

The following are the major funds that either qualified under the reporting criteria or were considered to be important to financial statement users:

General Fund- The General Fund is the City's chief operating fund. At the end of FY 2005/06, total fund balance was $40,034,000, of which $39,405,000 was unreserved. At the end of FY 2006/07, total fund balance was $42,134,000, of which $41,684,000 was unreserved. Of this unreserved amount, $16,159,000 (12.5% of budgeted expenditures and transfers out) was designated by City Council policy for use for costs associated with unforeseen events (contingencies), and $3,232,000 (2.5% of budgeted expenditures and transfers out) was designated by City Council policy for start-up costs for future programs with potential to generate revenues sufficient to cover costs and repay the start-up investment. Both of these policies were adopted by the City Council in June 1996. In addition, $15,276,000 was earmarked to provide funds to deal with significant levels of financial uncertainty related to the City's economic climate and the unknown effects of the ongoing State budget imbalance, and a positive $132,000 was designated for fair value adjustments on the City's investment portfolio for net gains recognized by the City, but not yet realized at June 30, 2007.

In addition, although $9,297,000 of unreserved fund balance was appropriated in the FY 2007/08 operating budget, this action was taken before the end of FY 2006/07, and final results for the year were not yet known. After the books were closed, it was determined that only $6,885,000 was available to fund FY 2007/08 appropriations- a difference of $2,412,000.

The fund balance of the City's General Fund increased by $2,100,000 during the 2006/07 fiscal year. Revenues and transfers in of $130,681,000 were 6.7% ($8,151,000) higher than in FY 2005/06. Increases in property tax, sales tax, charges for services, and investment earnings all contributed to the positive revenue growth in the General Fund. Expenditures and transfers out of $128,581,000 increased by 7.9% ($9,343,000). Unanticipated public safety overtime, filling some authorized positions that had been vacant in the prior year 11nd inflationary costs were factors in this increase.

Redevelopment Operations Fund - This is the Redevelopment Agency's operating fund and it is funded with transfers from the Agency's Debt Service Fund. This fund records the administrative expenditures required to support the Agency's capital projects and includes pass-through payments to other taxing entities. This fund balance totaled $1,487,000 at June 30, 2007, compared to $3,412,000 a year earlier.

13

Cily of Fremont, California Management's Discussion and Analysis For the Fiscal Year Ended June 30,2007

Low and Moderate Income Housing Fund- This fund receives 20% of the Redevelopment Agency's tax increment revenue, $6.3 million in FY 2006/07, as a set-aside for development of affordable housing. This fund balance totaled $18,895,000 at June 30, 2007, compared to $15,571,000 a year earlier. The increase in the fund balance is mainly due to lower housing project expenditures because many developments, such as Maple Square Apartment Homes, Lincoln Street Apartments, Irvington Family Apartments, and Rotary Bridgeway Apartments, have been completed or neared completion during FY 2006/07. All of this fund balance is designated for future low and moderate income housing projects as part of the Agency Board's adoption of the Agency's funding allocations plan (annual operating budget) and project appropriations plan (five-year capital improvement program).

Redevelopment Agency Debt Service Fund- This fund receives 80% of the Redevelopment Agency's tax increment revenue to repay outstanding debt and support the Agency's non-housing redevelopment projects. This amounted to approximately $25 million in FY 2006/07. Total tax increment revenue (including the 20% set-aside for housing) increased 7.5% in FY 2006/07, to $31.7 million from $29.5 million in the previous fiscal year. All of the fund balance in this fund ($40,981,000) is reserved for payment of debt service on the Agency's outstanding bonds.

Redevelopment Agency Capital Projects Fund - This fund accounts for the remaining proceeds of tax allocation bonds and tax increment revenues that are not needed for debt service and can be used to fund the Agency's non-housing projects. Expenditures are shown in the community development and capital outlay categories. Fund balance totaled $45,141,000 at June 30, 2007, compared to $38,519,000 a year earlier. The increase is due to a transfer in from the Debt Service Fund of $10 million in tax increment not needed for debt service and, as a result, is available and fully designated for capital projects. Major expenses included payments related to regional transportation projects ($1,988,000) and redevelopment efforts in the historic district ($3,028,000).

Development Impact Fees - This fund represents the aggregate total of park dedication fees, park facility fees, fire impact fees, traffic impact fees and capital facility fees. These fees are levied on all new development in the City to pay for the construction and improvement of public facilities needed as a result of growth. Fees collected in FY 2006/07 were 91% higher than the amount collected in FY 2005/06. This increase in annual collections is largely due to several new housing developments for which permits were issued in FY 2006/07. During FY 2006/07, 79% of this fund's expenditures ($2,933,000) were for traffic-related impacts and 20% ($762,000) were for park-related projects. In addition, $1,860,000 was transferred to other funds for use in mitigating traffic-related impacts and for debt service related to capital facilities.

Because these funds are collected for construction or improvements of public facilities, the unreserved fund balance of $53,718,000 is fully designated for capital projects, of which $41,065,000 is related to park development and acquisition. These funds have not yet been spent because of the operational maintenance impacts of adding new parks. These projects are progressing cautiously because of the need to ensure that sufficient operating revenues exist so that park facilities can be adequately and appropriately maintained.

14

City of Fremont, California Management's Discussion and Analysis For the Fiscal Year Ended June 30,2007

Development Cost Center - This fund was established to account for the transactions and activities related to the City's development services, including engineering, planning, and building and construction inspection activities. Its customers are not only the development community, but also the City itself for its own capital projects. Fees collected in this cost center are used for the benefit of the fee payers.

In FY 2002/03, the total dollar valuation of building permits was $181,799,000, reflecting economic conditions of the last recession. Building activity began to recover in subsequent years, as evidenced by increases in the total dollar valuation to $241,257,000 in FY 2003/04, $323,921,000 in FY 2004/05 and $340,050,000 in FY 2005/06. However, in FY 2006/07, the total valuation of permits issued declined to $285,831,000. A portion of this decrease between years is due to some of the large development projects at Pacific Commons being completed in FY 2005/06. At the end of FY 2006/07, unreserved fund balance totaled $2,401,000, down from $2,839,000 in the prior year. This fund balance is designated for various development cost center purposes and will be used to ensure continuity of critical development services.

Recreation Services - This fund was established to account for the transactions and activities related to the delivery of recreation services. Fees collected for recreation services are used for the development of programs and facilities benefiting fee payers. At the end of FY 2006/07, unreserved fund balance was $3,382,000, down from $5,933,000 in the prior year. Although revenues increased substantially ($4,153,000 in FY 2006/07, compared to $3,683,000 in FY 2005/06, a 12.8% increase), costs also increased by 6.6% (from $5,240,000 in FY 2005/06 to $5,588,000 in FY 2006/07). At the same time, there was a one-time $3,000,000 transfer of Recreation Services fund balance to help fund construction of the water play facility that will replace the Swim Lagoon in Central Park. Every effort is made to ensure that recreation services offered are those the community wants. The remaining fund balance will be used to develop or maintain recreation facilities and preserve the continuity of recreation services during economic downturns.

Capital Maintenance - This fund is used to maintain and operate the capital assets of the City. Primary functions include maintenance of City streets, parks, public buildings, vehicles, medians and trees. Its resources consist of transfers from the General Fund, as well as the Integrated Waste Management and Gas Tax funds. At June 30, 2007, this fund had a total fund balance of $2,066,000, of which $1,664,000 was unreserved, but designated for future capital maintenance needs.

Non-major Governmental Funds - The City's non-major funds are presented in the basic financial statements in the aggregate. At June 30, 2007, these funds had a total fund balance of $91,001,000, of which $60,922,000 is reserved for encumbrances and $4,439,000 for debt service. The remaining $25,640,000 is unreserved. A significant portion of these funds is designated for special purposes. More information about these aggregated non-major funds can be found in the combining statements immediately following the required supplementary information.

15

City of Fremont, California Management's Discussion and Analysis For the Fiscal Year Ended June 30, 2007

GENERAL FUND BUDGETARY HIGHLIGHTS

A summary of the budgetary comparison schedule for the General Fund, located in the required supplementary information following the notes to the financial statements, is as follows:

SUMMARY OF GENERAL FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30, 2007

(dollars in thousands)

Variance Original Final from Final Budget Budget Actual Budget

Beginning fund balance, July 1, 2006 $ 33,551 $ 33,551 $ 40,034 $ 6,483

Resources:

Revenues 121,418 121,418 123,231 1,813

Transfers in 7,528 7,528 7,450 (78)

Total Resources 128,946 128,946 130,681 1,735

Charges to appropriations:

Expenditures 93,973 93,912 92,619 (1,293)

Transfers out 35,925 35,986 35,962 (24)

Total charges to appropriations 129,898 129,898 128,581 (1,317) Resources over (under) charges to

appropriations (952) (952) 2,100 3,052

Ending fund balance, June 30, 2007 $ 32,599 $ 32,599 $ 42,134 $ 9,535

Between the time the FY 2006/07 budget was adopted (in June 2006) and the books for the prior fiscal year (FY 2005/06) were closed, the fund balance at June 30, 2006 increased by an unexpected $6.5 million. This was largely due to the following:

• Revenues and transfers in during FY 2005/06 were $6.9 million (5.9%) higher than budgeted. Although property tax, sales tax, and business tax revenues, and investment earnings were all higher than anticipated, the major factor was the receipt of a one-time payment of sales tax ($4,077,000) related to resolution of a long-standing dispute with the State Board of Equalization.

• Savings in expenditures and transfers out during FY 2005/06 also helped, with a reduction of $1.9 million (1.6%) from authorized budget levels. This was due primarily to continued expenditure savings by departments, in addition to the significant budget reductions they had already taken in prior years.

16

City of Fremont, California Management's Discussion and Analysis For the Fiscal Year Ended June 30, 2007

• The FY 2005/06 adopted budget included a planned use of $5.5 million of beginning fund balance to help mitigate the slow recovery of the economy and allow for a transition to lowered staffing and service levels. This planned use wound up not being necessary due to one-time revenues, better economic performance than anticipated, and expenditure savings.

Property tax is the City's main revenue source and, fortunately, it has continued to grow. The City's base property tax revenue increased from $41,238,000 in FY 2005/06 to $42,733,000 in FY 2006/07, a 3.6% increase. With the addition of property tax from the Vehicle License Fee swap, property tax revenue actually increased 10.1 %, from $51,307,000 in FY 2005/06, to $56,432,000 in FY 2006/07. Gross assessed valuation for secured property increased 7.8% from FY 2005/06 to FY 2006/07, and that for unsecured personal property increased by 19.3%. Unsecured personal property represents 6.6% of the FY 2006/07 total gross assessed valuation.

Sales tax is the City's second largest source of revenue, and it can be volatile in an uncertain economy. Revenue volatility, while common to cities nationwide, is exacerbated in the Bay Area, especially in Silicon Valley communities that rely heavily on high-tech, business-to-business sales, as Fremont does. The City's actual sales tax revenue for FY 2006/07 was $34,191,000, an increase of 5.9%. The growth in sales tax is attributed to increased economic activity as well as economic expansion as new businesses have opened at Pacific Commons, a major retail development complex. Sales tax from business-to­business activity has continued to rebound, reflecting some measure of economic recovery in Silicon Valley.

Motor vehicle license fee (VLF) revenues decreased by 40.2%, from $2,041,000 in FY 2005/06 to $1,220,000 in FY 2006/07. This decrease is a result of new legislation (AB 1602) that provides for an annual redistribution of VLF revenues to newly incorporated cities and annexed areas throughout the state.

Because of the continued uncertainty in the City's economic situation, management continues to aggressively manage spending. This resulted in expenditures and transfers out for FY 2006/07 coming in at $1,317,000 less than expected, which is 1.0% below budgeted levels.

The increased revenues and the management of expenditures allowed the General Fund to end FY 2006/07 with an operating surplus of $2,100,000, rather than the operating deficit of $952,000 that was anticipated. This contributes to the City's ability to deal with the continuing prospect of economic uncertainty, service needs in the community that need to be addressed, and continued uncertainty about the State budget and its implications for the future.

17

City of Fremont, California Management's Discussion and Analysis For the Fiscal Year Ended June 30,2007

CAPITAL ASSETS AND DEBT ADMINISTRATION

Capital Assets

Following is a summary of the City of Fremont's capital assets at June 30,2007 and 2006:

SUMMARY OF CAPITAL ASSETS JUNE 30, 2007 AND 2006

(dollars in thousands)

Percentage 2007 2006 Change

Land $ 201,664 $ 199,257 1.2%

Land improvements 5,260 5,260 0.0%

Infrastructure - non-depreciable 367,125 367,125 0.0%

Infrastructure - depreciable 317,673 317,441 0.1%

Buildings and improvements 133,389 115,336 15.7%

Equipment 17,987 17,686 1.7% Vehicles 23,091 22,668 1.9%

Construction in progress 24,725 34,052 (27.4%)

Total Capital Assets 1,090,914 1,078,825 1.1%

Less: Accumulated depreciation 369,768 362,866 1.9%

Governmental activities capital assets, net $ 721,146 $ 715,959 0.7%

The City's investment in capital assets for its governmental activities as of June 30, 2007, amounts to $721,146,000 (net of accumulated depreciation), compared to $715,959,000 in the prior year. This investment in capital assets includes land and land improvements, buildings, equipment, vehicles, streets, curbs and gutters, and construction in progress.

In FY 2006/07, the City added $12,721,000 in new capital assets, and disposed of $633,000 in capital assets. The majority of these disposals ($476,600) were vehicles. Disposals are presented in the financial statements as a decrease in capital assets. The decrease in construction in progress reflects the completion of the Maintenance Center and its transfer from construction in progress to buildings and improvements.

The major additions to capital assets consisted of land acquisition of $2,507,000 (primarily for the Washington Boulevard/Paseo Padre Parkway Grade Separation project), construction costs related to the City's new Maintenance Center ($3,041,000), and new construction and retrofit costs for fire stations ($5,742,000) funded by the proceeds of general obligation bonds.

18

City of Fremont, California Management's Discussion and Analysis For the Fiscal Year Ended June 30, 2007

The City has adopted the modified approach of GASB Statement No. 34 for its roads and streets, which means that these capital assets are not required to be depreciated if certain conditions (as described in Item 2 of the Required Supplementary Information following the notes to the financial statements) are met. The City's policy is to achieve an average Pavement Condition Index (PC!) rating of at least 70 for all its roads and streets. This rating allows minor cracking and raveling of the pavement along with minor roughness that could be noticeable to drivers traveling at the posted speeds. At June 30, 2007, the City's roads and streets system was rated at an average PC! index of 68, down from the average PC! index of 70 in the prior year.

The maintenance estimate for FY 2006/07 to maintain an average PC! rating of 70 was $12,000,000. Actual expenditures for that period were $5,200,000. The difference between the estimate and actual expenditures is attributable to the fact that maintenance estimates are projected over a number of years and then divided by that number of years to calculate an average. In reality, the actual expenditure of money varies from year to year, depending on the nature of the work to be done and the size and number of contracts awarded for that work. However, with the decline in the PC! index (from 70 to 68) and the City's upcoming budget challenges, finding sufficient resources to fund street maintenance will continue to be challenging for the foreseeable future.

Additional information about the City's capital assets can be found in Note l.G and Note 4, following the basic financial statements.

19

City of Fremont, California Management's Discussion and Analysis For the Fiscal Year Ended June 30,2007

Long-term Debt

At the end of FY 2006/07, the City had $212,725,000 in bonds and notes outstanding. Of this amount, $47,645,000 is from tax allocation bonds issued by the Redevelopment Agency, $130,650,000 is related to certificates of participation, and $34,430,000 is from general obligation bonds. Following is a summary schedule of outstanding debt:

SUMMARY OF LONG-TERM DEBT JUNE 30, 2007

Redevelopment Agency Tax Allocation Bonds: Series 2003 Series 2004

General Obligation Bonds: Fire Safety Bonds 2003 Fire Safety Bonds 2004

Certificates of Participation (COPs): 1990 Public Financing Authority 1991 Public Financing Authority 1998 Public Financing Authority 1998 Public Financing Authority 2001 Public Financing Authority 2001 B Public Financing Authority 2002 Public Financing Authority 2003 Public Financing Authority

Total

(dollars in thousands)

Balance July 1, 2006

$ 16,020 37,345

9,630 25,000

4,575 3,800

11,090 17,065 32,845 9,095

35,140 21,095

$222,700

Incurred or Issued

$

$

Satisfied or Matured

$2,070 3,650

200

350 100 260 550 735 350 875 835

$9,975

Balance June 30, 2007

$ 13,950 33,695

9,430 25,000

4,225 3,700

10,830 16,515 32,110

8,745 34,265 20,260

$212,725

Of the outstanding debt, 46% is fixed rate debt (compared to 47% in the prior year), with an average interest rate of approximately 4.06% (compared to 3.92% in the prior year). The remaining 54% of the outstanding debt is variable rate debt, with an average interest rate of 4.09% as of June 30, 2007 (compared to 3.95% in the prior year). The average interest rate on all outstanding City debt is 4.08% at June 30,2007 (compared to 3.94% for the prior year).

The City Council adopted a debt policy in February 1996 that limits debt obligations of the General Fund to 7% of budgeted expenditures and transfers out. As of July 1, 2007, debt obligations were approximately 5.4% of budgeted expenditures and transfers out, which is within the policy limit.

20

City of Fremont, California Management's Discussion and Analysis For the Fiscal Year Ended June 30, 2007

As of june 30, 2007, the three largest outstanding debt obligations were as follows:

• $33,695,000 in Redevelopment Agency tax allocation bonds. These bonds were issued in FY 2003/04, and the proceeds refunded the tax allocation bonds issued in 2000. The primary purpose of the 2000 tax allocation bonds was to refinance the freeway interchanges on Interstate 880 at Dixon Landing Road and Mission Boulevard/Warren Avenue, and a grade separation at Washington Boulevard. The purpose of the Washington Boulevard grade separation is to improve safety, relieve traffic congestion, and accommodate a Bay Area Rapid Transit (BART) extension to Warm Springs and eventually to San jose.

• $34,265,000 in capital certificates of participation (COPs) issued in 2002 to finance construction of the new Maintenance Center, to refinance the 1997 COPs issued to acquire the land for the new Maintenance Center, pay for seismic retrofit costs at the Development Services Center, and to fund certain development costs of the proposed Northgate Senior and Community Center (which has been temporarily deferred due to the City's budget challenges and related reductions in operating expenditures).

• $32,110,000 in capital COPs issued in 2001 to finance the following:

• • • • •

A police detention and property evidence storage facility HV AC improvements to the existing police building Retiring notes used to purchase land for a potential city hall site Acquisition of and improvements to new city offices at 3300 Capitol A venue Acquisition of a site to be used for future construction of the City's Fire Station 11 m the southern Industrial Area. Construction will be funded with a separate COP issue.

All of the issues summarized above are backed by either a stand-by letter of credit or bond insurance. All of the debt issues backed by a letter of credit have an A+ rating from Standard & Poor's. All of the debt issues backed by bond insurance are rated AAA by Standard & Poor's.

In November 2002, Fremont voters approved MeasureR by 74.4%, thereby authorizing the City to issue $51 million in general obligation bonds, to be repaid by a property tax levy. Proceeds from these bonds will be used to replace three fire stations, build public safety training facilities, and make remodeling and seismic improvements to seven existing fire stations. The first issue of these bonds, in the amount of $10 million, was sold in July 2003. The second issue of these bonds, in the amount of $25 million, was sold in April2005. These general obligation bonds were rated AA- by Standard & Poor's.

Additional information about the City's long-term debt can be found in Note 5, following the basic financial statements.

21

City of Fremont, California !Vlanagement's Discussion and Analysis For the Fiscal Year Ended June 30, 2007

ECONOMIC FACTORS AND NEXT YEAR'S BUDGET

Like many cities in California, Fremont continues to face an uncertain economic future. Years of State takeaways of City dollars, coupled with a serious recession in the early years of this decade, have taken their toll on the City's finances. In the adopted FY 2007/08 General Fund budget of $147.2 million, expenditures are projected to exceed revenues, and the City's significant service deficit continues. Two significant transfers from the General Fund to other City funds amounting to $5.1 million were included in the FY 2007/08 budget, contingent on favorable revenue information at mid-year. If revenue performance softens because of fallout from the subprirne mortgage debacle and looming State budget issues, those two itE,ms will be deferred to a future date and reconsidered at that time.

The City has continued to be fiscally responsible during these economically challenging times. Unfortunately, this fiscal responsibility has come at a significant cost to the City organization and to the larger Fremont community, which relies on the City to provide services. Several years ago, the City cut costs by more than 25% and cut staff by more than 20% (220 positions). The consequences have been severe. However, beginning in FY 2007/08, because of improving revenues in FY 2006/07 that appeared to be sustainabl~, and to address significant and growing service deficiencies, rotating fire stations closures were ended, 18 additional public safety staff positions were authorized, and a one­time contribution ($1.5 million) was made to the Capital Improvement Program for street maintenance, in addition to a $4,100,000 transfer from the amount designated for budget uncertainty to provide additional funding for capital projects.

Fremont's economy is part of the Silicon Valley. Locally, the City faces two major challenges. First, the uncertain economic climate continues to have an impact on business-related revenues. The City's dependence on non-retail sales tax and other business-related revenues grew in the late 1990s, leaving the City's budget vulnerable to a business-led economic downturn like the dot-corn collapse. This makes it difficult for the City to provide basic services. Now it appears that property tax revenues will suffer because of the rippling effects of the subprirne mortgage debacle and the tightening of lending standards on the real estate market. Accordingly, management remains cautious about future revenue growth and its ability to keep pace with the costs of much-needed basic services.

The second challenge is related to the State's continued budget problems. Seventy-one percent of the City's general revenue and 74% of its General Fund revenue are comprised of property and sales taxes controlled by the State Legislature. Fremont's financial future is directly linked to the fiscal health of the State government. Although a constitutional amendment (Proposition 1A) was passed by State voters in November 2004 that limits the amounts of reductions of local government revenues in FY 2006/07 and future years and characterizes those reductions as "loans" rather than "take-aways," management continues to be concerned because the State budget continues to have a structural imbalance, and the State can once again look to local governments for "loans" in FY 2008/09.

22

City of Fremont, California Management's Discussion and Analysis For the Fiscal Year Ended June 30, 2007

Fremont is fortunate to have a diverse business community and a relatively strong real estate market. The FY 2007/08 budget assumptions acknowledge the uncertainty in the economy and the State budget, and the budget includes contingency reserves to help the City deal with the risk. In response to the continuing uncertainty the City faces, the City's focus will be on preserving basic services and sustaining maintenance of infrastructure and public facilities. The prudent budgeting and reserve policies developed since the last two recessions in the early part of the 1990s and the 2000s have enabled the City to manage through recent economic downturns. However, despite seeing some positive signs of economic recovery at the end of FY 2006/07, this recovery is tempered by emerging problems in the housing section, and the City continues to face resource challenges in relation to service demands. Aggressive cost management, retail development, and fee increases have helped with the resource problem. Prudent use of fund balance and reserves will mitigate the impact of reduced revenues and cushion the effects on departmental budgets and services.

REQUESTS FOR INFORMATION

This financial report is designed to provide a general overview of the City of Fremont's finances for all those with an interest in the City's financial activities. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the City's Finance Director, Harriet Commons, at 3300 Capital Avenue, P. 0. Box 5006, Fremont, California 94537-5006.

23

BASIC FINANCIAL STATEMENTS

25

GOVERNMENT-WIDE FINANCIAL STATEMENTS

27

City of Fremont Statement of Net Assets

June 30, 2007 (With comparative totnls for June 30, 2006)

Governmental Activities

2007 2006

ASSETS

Current ;;~sscts:

Cash and investments held by City $ 312,497,089 s 292,006,238

Restricted cash and investments held by fiscal agent 4,019,058 6,443,453

Receivables:

Property tax 2,611,998 1,639,431

Sales tax 5,049,986 4,605,082

Due from other governmentill agencies 7,420,613 4,951,681

Accrued interest 9,737,311 7,830,182

Other 3,683,990 3,309,984

Total receivables 28,503,898 22,336,360

Total current assets 345,020,045 320,786,051

Noncurrent assets:

Housing rehabilitation loans receivable, net 1,004,152 1,036,948

Condemnation deposits 1,477,594 679,916

Deferred charges 1,385,283 1,516,768

Land for sale 2,821,430 2,821,430

Capital assets:

Nondepreciable assets 598,774,236 605,694,465

Depreciable assets, net 122,371,560 110,264,891

Total Gtpital assets, net 721,145,796 715,959,356

Total noncurrent assets 727,834,255 722,014,418

Total assets 1,072,854,300 1,042,800,469

LIABILITIES

Current liabilities:

Accounts payable 7,104,394 4,271,875

Salaries and wages payable 5,350,431 4,646,963

Compensated absences 2,074,703 1,858,167

Claims payable 3,629,000 3,473,272

Due to other governmental agencies 8,333,416 7,926,909

Interest payable 1,780,424 1,645,062

Loans payable 1,500,000 1,500,000

Long-term debt- due within ortc year 10,331,389 10,006,389

Total current liabilities 40,103,757 35,328,637

Noncurrent liabilities:

Unearned revenue 4,571,040 4,856,032

Compensated absences 6,224,109 5,574,500

Claims payable 5,742,000 5,800,728

Long-term debt- due in more than one year 203,012,487 213,343,876

Total noncurrent liabilities 219,549,636 229,575,136

Total liabilities 259,653,393 264,903,m

NET ASSF.TS

Invested in capital assets, net of related debt 507,801,920 492,609,091

Restricted for:

Capital projects and capital asset maintenance 167,414,552 154,601,565

Debt service 43,639,784 40,137,254

Community development 28,058,706 23,940,937

Specific projects and programs 14,620,245 14,006,589

Total restricted 253,733,287 232,686,345

Unrestricted 51,665,700 52,601,260

Total net assets $ 813,200,907 $ m,8%,6%

See accompanying Notes to Basic Financial Statements.

29

City of Fremont Statement of Activities and Changes in Net Assets

For the year ended June 30, 2007 (With comparative totals for the year ended june 30, 2006)

Functions/Programs Expenses

Primary government:

Governmental activities:

General government $ 13,008,021

Police services 50,900,709

Fire services 28,586,741

Human services 7,023,486

Capital assets maintenance and operations 51,922,938

Recreation and leisure services 5,746,712

Community development and

environmental services 35,676,597

Interest on debt 9,046,177

Total $ 201,911,381

Program Revenues

Opera ling Capital

Charges for Grants and Grants and

Services Contributions Contributions

$ 365,018 $ $

5,151,589 1,862,392

2,633,354 261,562

1,938,551 2,137,815

1,727,489 21,270,905 231,404

3,844,673

18,364,336 2,502,355

$ 34,025,010 $ 28,035,029 $ 231,404

General revenues:

See accompanying Notes to Basic Financial Statements.

30

Property tax

Sales tax

Business tax

Transient occupancy tax

Property transfer tax

Property tax relief

Total taxes

Motor vehicle in lieu

Development impact fees

Franchise fees

Inveshnent earnings

Miscellaneous

Total general revenues

Change in net assets

Net assets· beginning of year

Net assets- end of year

Total

$ 365,018

7,013,981

2,894,916

4,076,366

23,229,798

3,844,673

20,866,691

$ 62,291,443

$

$

Net (Expense) Revenue and

Changes in Net Assets

Governmental

Activities

2007 2006

(12,643,003) $ (10,949,629)

(43,886,728) (4"1,376,515)

(25,691,825) (24,444,567)

(2,947,120) (2,932,065)

(28,693,140) (22,581,859)

(1,902,039) (1,819,057)

(14,809,906) (28,391,357)

(9,046,177) (8,749,040)

(139,619,938) (141,244,089)

89,560,729 83,008,738

34,190,785 32,276,785

6,738,310 6,771,199

2,885,388 2,342,279

1,504,708 1,948,201

478,095 453,642

135,358,015 126,800,844

1,220,418 2,041,387

10,845,865 5,527,178

7,902,406 7,666,471

13,758,948 9,049,458

5,838,497 6,411,403

174,924,149 157,496,741

35,304,211 16,252,652

777,896,696 761,644,044

813,200,907 $ 777,896,696

31

GOVERNMENTAL FUNDS FINANCIAL STATEMENTS

33

City of Fremont Balance Sheet Governmental Funds June 30,2007 (With comparative totals for june 30, 2006)

ASSETS

Cash and inveshnents held by City

Restricted cash and investments held by fiscal agent

Receivables:

Property tax Sales tax

Due from other governmental agencies

Housing loans receivable, n(!t

Accrued interest

Other

Due from other funds

Total assets

LIABILITIES AND FUND BALANCES

LiabWties;

Accounts payable

Salaries and wages payable

Due to other funds

Due to other governmental ij_gencics

Loans payable and other liabilities

Deferred revenue

Total liabilities

Fund Balances:

Reserved for:

Encumbrances

Debt service

Unreserved, designated, reported in:

General fund

Special revenue funds

C<1pital projects funds

Unreserved, undesignated, reported in:

General fund

Special revenue funds

Capital projects funds

Total fund balances

Total liabilities and fund balances

See accompanying Notes to Basic Financial Statements.

General

Fund

$ 31,491,297

1,363,302

5,049,986

761,771

3,021,066

2,062,405

3,749,372

$ 47,499,199

$ 558,532

4,273,119

533,854

5,365,505

450,170

41,683,524

42,133,694

$ 47,499,199

Major Funds

Low and

Moderate Redevelopment Redevelopmer

Redevelopment Income Agency Agency

Operations Housing Debt Service Capital Projecl

$ 9,851,079 $ 20,616,041 $ 38,971,064 $ 45,549,03

161,037 918,175

249,739 998,957

5,655.586 94,421

$ 9,851,079 $ 26,682,403 $ 40,982,617 $ 45,549,03

$ 6,887 626,387 $ 1,766 $ 282,5(

23,688 5,525

8,333,416

1,500,000

5,655,586 125,0(

8,363,991 7,787,498 1,766 407,5(

576,032 4,408 17,804,0<

40,980,851

911,056 18,890,497

27,337,4'

1,487,088 18,894,905 40,980,851 45,141,5:

$ 9,851,079 $ 26,682,403 $ 40,982,617 $ 45,549,0:

34

Total

Major Funds Governmental Funds

Development Development Recreation Capital Non-major

Impact Fees Cost Center Services Maintenance Funds 2007 2006

$ 55,575,724 $ 5,546,"144 $ 4,383,232 $ 3,365,910 $ 88,155,607 $ 303,505,137 $ 285,199,427

8,046 2,931,800 4,019,058 6,443,453

2,611,998 1,639,431

5,049,986 4,605,082

6,658,842 7,420,613 4,951,681

1,004,152 1,004,152 1,036,948

966,238 9,737,311 7,830,182

379,511 8,301 57,378 1,012,999 3,520,594 3,108,893

3,749,372 2,459,807

$ 55,575,724 $ 5,925,655 $ 4,399,579 $ 3,423,288 $ 100,729,638 $ 340,618,221 $ 317,274,904

$ 354,048 $ 136,757 $ 92,349 $ 1,046,291 $ 3,812,771 $ 6,918,295 $ 4,081,776

416,864 155,182 311,400 67,507 5,253,285 4,572,218

3,749,372 3,749,372 2,459,807

8,333,416 7,926,909

1,500,000 1,500,000

2,875,583 769,617 2,098,658 12,058,298 10,073,957

354,048 3,429,204 1,017,148 1,357,691 9,728,308 37,812,666 30,614,667

1,504,005 95,907 401,269 60,922,068 81,757,899 44,750,900

4,439,357 45,420,208 41,782,316

41,683,524 33,460,282

2,400,544 3,382,431 27,098,308 52,682,836 54,818,495

53,717,671 1,664,328 37,065,805 119,785,296 106,652,462

5,944,467

(709,919) (709,919) (516,943)

(37,814,289) (37,814,289) (231,742)

55,221,676 2,496,451 3,382,431 2,065,597 91,001,330 302,805,555 286,660,237

$ 55,575,724 $ 5,925,655 $ 4,399,579 $ 3,423,288 $ 100,729,638 $ 340,618,221 $ 317,274,904

35

'f1ris pt<ge iutentio11nlly i<'[t blank,

36

City of Fremont Reconciliation of the Governmental Funds Balance Sheet

to the Government-Wide Statement of Net Assets

June 30, 2007 (With comparative totals for june 30, 2006)

Total Fund Balances -Total Governmental Funds

Amounts reported for Governmental Activities in the Statement of Net Assets are different because:

Capital assets used in governmental activities are not current financial resources and therefore are not reported in the Governmental Funds Balance Sheet.

Interest payable on long-term debt does not require current financial resources. Therefore, interest payable is not reported as a liability in the Governmental Funds Balance Sheet.

Deferred charges on bonds not recorded in the governmental funds, which were previously recorded as expenditures and amortized over the terms of the bonds.

Condemnation deposits reported as noncurrent assets, while reported as capital outlay in Governmental Funds Statements of Revenues, Expenditures, and Changes in Fund

Balances.

Internal service funds are used to charge the costs of insurance and information technology to individual funds. The assets and liabilities of the internal service funds are included in governmental activities in the Government· Wide Statement of Net Assets.

Interest receivable is reported as deferred revenue in the Governmental Funds, but should be reflected as income in the Government· Wide Statement of Net Assets

Accruals for compensated absences arc long term liabilities and are not due and payable in the current period nnd therefore they are not reported in the Governmental Funds Balance Sheet.

Long· term debts are not due and payable in the current period and therefore they are not reported in the Governmental Funds Balance Sheet.

Net Assets of Governmental Activities

See accompanying Notes to Basic Financial Statements.

37

2007 2006

$ 302,805,555 $ 286,660,237

718,112,729 712,442,345

(1,780,424) (1,645,062)

1,385,283 1,516,768

1,477,594 679,916

5,355,600 3,807,499

7,487,258 5,217,925

(8,298,812) (7,432,667)

(213,343,876) (223,350,265)

$ 813,200,907 $ m,896,696

City of Fremont Statement of Revenues, Expenditures and Changes in Fund Balances

Governmental Funds

For the year ended June 30, 2007 (With comparative totals for the year ended June 30, 2006)

Major Funds

Low and

Moderate Redevelopment Redevelopment

General Redevelopment Income Agency Agency

Fund Operations Housing Debt Service Capital Projects

REVENUES:

Property tax $ 56,431_767 $ $ 6,338,976 $ 25,355,906 $

Sales tax 34,190,785

Motor vehicle in lieu 1,220,418 0

lntcrgovemmcntal 1,473,151

Business tax 6,738,310

Other taxes 4,390,096

Impact fees

Franchise fees 7,902,406

Charges for services 8,366,094

Investment earnings 2,425,311 341;ll3 829,0"11 1,809,719 1,639,278

Other 92,116 112,612 498,648

Total revenues 123,230,454 453,725 7,666,635 27,165,625 1,639,278

EXPENDITURES:

Current:

General government 12,094,439

Police services 48,898,743

Fire services 27,297,342

Human services 3,088,878

Capital assets maintenance and operations

Recreation and leisure services

Community development and environmental services 630,638 1,658,405 1,636,202 2,728,559

Intergovernmental 8,550,372

Capital outlily 112,655 2,287,837

Debt service:

Principill 5,720,000

Interest and fiscal charges 4%,309 47,000 1,786,287

Total expenditures 92,619,004 10,2o8,m 1,683,202 7,506,287 5,016,396

REVENUES OVER (UNDER) EXPENDITURES 30,611,450 (9,755,052) 5,983,433 19,659,338 (3,377,118)

OTHER FINANCING SOUR<:ES (USES):

Transfers in 7,450,191 8,002,877 462 2,580,727 10,000,000

Transfers out (35,%2,034) (172,649) (2,659,685) (18,000,000)

Total other financing soQrces (uses) (28,511,843) 7,830,228 (2,659,223) (15.419)73) 10,000,000

Net change in fund balar1ces 2,099,607 (1.924,824) 3,324,210 4,240,065 6,622,882

FUND BALANCES:

Beginning of year 40,034,087 3,4"11,912 15,570,695 36,740,786 38,518,650

End of year $ 42,133,694 $ 1,487,088 $ 18,894,905 $ 40,980,851 $ 45,141,532

See accompanying Notes to Basic financial Statements.

38

Total

Major Funds Governmental Funds

Development Development Recreation Capital Non-major

Impact Fee~ Cost Center Services Maintenance Funds 2007 2006

$ $ $ $ s 1,434,080 $ 89,560,729 $ 83,008,738

34,190,785 32,276,785

1,220,418 2,041,387

27,039,973 28,513,124 16,127,222

6,738,310 6,771,199

4,390,096 4,290,480

10,845,865 10,845,865 5,527,178

7,902,406 7,666,471

9,787,540 3,844,673 261,777 9,495,593 31,755,677 30,054,401

2,308,712 246,659 289,100 3,516,119 13,405,022 8,888,252

18,876 5,047,212 5,769,464 6,350,404

13,154,577 10,034,199 4,152,649 261,777 46,532,977 234,291,896 203,002,517

12,094,439 11,012,979

1,167,051 50,065,794 46,191,569

333,452 27,630,794 26,501,821

3,906,759 6,995,637 6,560,721

3,410,034 21,586,960 23,269,005 48,265,999 27,361,954

5,588,467 5,588,467 5,233,963

10,301,751 9,607,774 26,563,329 35,811,739

8,550,372 10,187,704

317,304 29,298 10,395,243 13,142,337 13,254,734

4,255,000 9,975,000 9,675,000

6,481,123 8,810,719 8,705,701

3,727,338 "10,301,751 5,588,467 21,616,258 59,415,407 217,682,887 200,497,885

9,427,219 (267,552) (1,435,818) (21,354,481) (12,882,430) 16,609,009 2,504,632

2,414,707 2,517,463 23,739,514 17,782,125 74,488,066 45,655,624

(1,859,416) (2,737,927) (3,631,859) (3,442,225) (6,485,962) (74,951,757) (45,686,355)

{1,859,4"16) (323,220) (1,114,3%) 20,297,289 ] 1,2%,163 (463,691) (30,731)

7,567,823 (59!1,772) (2,550,214) (1,057,192} (1,586,267) 16,145,318 2,413,901

47,653,853 3,087,223 5,932,645 3,122,789 92,587,597 286,660,237 284,186,336

$ 55,221,676 $ 2,496,451 s 3,382,431 $ 2,065,597 $ 91,001,330 $ 302,805,555 $ 286,660,237

39

City of Fremont Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in

Fund Balances to the Government-Wide Statement of Activities and Changes in Net Assets

For the year ended June 30, 2007 (With comparative totals lor the year ended june 30, 2006)

Net Change in Fund Balances- Total Governmental Funds

Amounts reported for governmental activities in the Statement of Activities are different because:

Governmental funds report capital outlays as expenditures. However, in the Government­Wide Statement of Activities and Changes in Net Assets, the cost of those assets is allocated over their estimated useful lives as depreciation expense. This is the amount of capital assets additions recorded in the current p~riod.

Condemnation deposit increase dU<~ to payment to State Escrow account. This payment is included in Capital Outlay in the Governmental Funds Statement of Revenue, Expenditures, and Changes in Fund Balances.

Contributions of infrastructure assets from developers not reported as revenue in governmental funds.

Depreciation expense on capital assets is reported in the Government-Wide Statement of Activities and Changes in Net Assets, but it does not require the use of current financial resources. Therefore, depreciation is not reported as an expenditure in governmental funds.

Losses on the disposal of capital assets is reported in the Government-Wide Statement of Activities and Changes in Net Assets, but do not require the use of current financial resources. Therefore, it is not reported as an expenditure in governmental funds.

Repayment of bond principal is an expenditure in governmental funds, but the repayment reduces long-term babilities in the Covernment-Wjde Statement of Net Assets.

The net change in interest payable ()0 long-term debt is reported in the Government-Wide Statement of Activities and Changes in Net Assets, but it does not require the use of current financial resources.

Unamortized long term discount/premium is accrued in Government-Wide Statement of Activities and Chnngcs in Net Assets, but it does not require the use of current financial resources. Therefore, unamortized long term discount/premium is not reported as an expenditure in governmental funds.

Prepaid bond issuance costs are arnortized in Government-Wide Statement of Activities and Changes in Net Assets, but are reported as expenditures in governmental funds.

Internal service funds are used to charge the costs of insurance and information technology, to individual funds. The net revenue of the internal service funds is reported with governmental activities.

Increase/ decrease in interest receivable is reported in the Government-Wide Statement of Activities and Changes in Net AsSBts under full accrual basis of accounting but is recorded as deferred revenue under modified accrual for the Governmental Funds.

Changes in long term compensated absences in governmental nctivities are not reported in governmental funds

Change in Net Assets of Governmental Activities

40

$

$

2007 2006

16,145,318 $ 2,473,901

12,344,659 13,254,734

797,678 4,524

231,404 649,463

(6,740,716) (5,772,913)

(164,963) (3,050,496)

9,975,000 9,675,000

(135,362) 56,757

31,389 31,389

(131,485) (131,485)

1,548,101 116,986

2,269,333 (740,559)

(866,145) (314,649)

35,304,211 $ 16,252,652

PROPRIETARY FUND FINANCIAL STATEMENTS

41

City of Fremont Statement of Net Assets

Proprietary Fund

June 30,2007 (With comparative totals for June 30, 2006)

ASSETS

Current assets:

Cash and investments held by City

Other receivables

Total current assets

Noncurrent assets:

Depreciable assets

Less accumulated depreciation

La~d held for resale

Total noncurrent assets

Total assets

LIABILITIES

Current liabilities:

Accounts payable

Salaries and wages payable

Claims payable

Total current liabilities

Noncurrent liabilities:

Claims payable

Total noncurrent liabilities

Total liabilities

NET ASSETS

Invested in capital assets

Unrestricted

Total net assets

See accompanying Notes to Basic Financial Statements.

Internal Service

2007 2006

$ 8,991,952 $ 6,806,811

163,396 201,091

9,155,348 7,007,902

8,155,820 8,056,363

(5,122,753) ( 4,539,352)

2,821,430 2,821,430

5,854,497 6,338,441

15,009,845 13,346,343

186,099 190,099

97,146 74,745

3,629,000 3,473,272

3,912,245 3,738,116

5,742,000 5,800,728

5,742,000 5,800,728

9,654,245 9,538,844

3,033,067 3,517,011

2,322,533 290,488

$ 5,355,600 $ 3,807,499

42

City of Fremont Statement of Revenues, Expenses and Changes in Net Assets

Proprietary Fund

For the year ended June 30, 2007 (With comparative totals for the year ended june 30, 2006)

OPERATING REVENUES:

Charges for services

Other

Total operating revenues

OPERATING EXPENSES:

Salaries and wages

Insurance premiums

Provision for claim losses

Claims administration

Materials and supplies

Depreciation

Other

Total operating expenses

OPERATING INCOME (LOSS)

NONOPERATING REVENUES (EXPENSES):

Investment income

Total nonoperating revenues (expenses)

Transfers in

Transfers out

INCREASE IN NET ASSETS

NET ASSETS:

Beginning of year

End of year

See accompanying Notes to Basic Financial Statements.

43

$

$

Internal Service

2007 2006

11,723,892 $ 9,644,289

69,033 60,999

11,792,925 9,705,288

2,827,426 2,533,351

1,046,388 1,165,279

4,911,365 3,863,260

296,222 330,892

1,295,507 1,052,336

628,977 792,341

56,556 42,780

11,062,441 9,780,239

730,484 (74,951)

353,926 161,206

353,926 161,206

],019,327 526,480

(555,636) (495,749)

1,548,101 116,986

3,807,499 3,690,513

5,355,600 $ 3,807,499

City of Fremont Statement of Cash Flows

Proprietary Fund

For the year ended June 30, 2007 (With comparative totals for the year ended june 30, 2006)

Internal Service

2007 2006

CASH FLOWS FROM OPERATING ACTIVITIES'

Receipts from users $ 11,761,587 $ 9,635,023

Other revenue 69,033 60,999

Less: Payments to suppliers (2,642,117) (2,435,429)

Payments for employees services (2,805,025) (2,632,619)

Payments for claims paid (4,814,365) (3,894,260)

Payments to others (56,556) (42,780)

Net cash provided (used) by operating activities 1,512,557 690,934

CASH FLOWS FROM INVESTING ACTIVITIES'

Interest on cash and investments 353,926 161,206

Net cash provided by investing activities 353,926 161,206

CASH FLOWS FROM CAPITAL ACTIVITIES'

Acquisition of capital assets (145,033) (543,778)

Net cash provided (used) by capital activities (145,033) (543,778)

CASH FLOWS FROM NONCAPIT AL ACTIVITIES'

Transfers in· 1,019,327 526,480

Transfers out (555,636) (495,749)

Net cash provided (used) by noncapital activities 463,691 30,731

Net increase (decrease) in cash and cash investments 2,185,141 339,093

CASH AND INVESTMENTS'

Beginning of year 6,806,811 6,467,718

End of year $ 8,991,952 $ 6,806,811

RECONCILIATION OF OPERATING INCOME TO NET

CASH PROVIDED (USED) BY OPERATING ACTIVITIES,

Operating income (loss) $ 730,484 $ (74,951)

Adjustments to reconcile operating income to net

cash provided (used) by operating activities:

Depreciation 628,977 792,341

Changes in assets and liabilities:

Other receivables 37,695 (9,266)

Accounts payable ( 4,000) 113,078

Salaries and wages payable 22,401 (99,268)

Claims payable 97,000 (31,000)

Net cash provided {used) by operating activities $ 1,512,557 $ 690,934

See accompanying Notes to Basic Financial Statements.

44

FIDUCIARY FUND FINANCIAL STATEMENTS

45

City of Fremont Statement of Fiduciary Net Assets

Fiduciary Funds

June 30,2007 (With comparative totals for june 30, 2006)

All Agency Funds

Assets:

Cash and investments held by City

Restricted cash and investments

held by City

Restricted cash and investments

held by fiscal agent

Interest receivable

Accounts receivable

Other receivables

Total assets

Liabilities:

Accounts payable

Deposits

Total liabilities

See accompanying Notes to Basic Financial Statements.

46

Total ·

2007 2006

$ 16,489,772 $ 13,315,597

2,050,031 1,997,357

18,737,237 43,344,434

36,264 41,888

128,588 27,489

74,022 74,603

$ 37,515,914 $ 58,801,368

$ 132,107 $ 190,902

37,383,807 58,610,466

$ 37,515,914 $ 58,801,368

City of Fremont Index to Notes to Basic Financial Statements For the year ended June 30, 2007

Note 1- Summary of Significant Accounting Policies ............................................................................. 49

A. Financial Reporting Entity ................................................................................................................. 49 B. Basis of Accounting and Measurement Focus ................................................................................. 51 C. Cash and Investments ........................................................................................................................ 55 D. E.

Restricted Cash and Investments ...................................................................................................... 55 lnterfund Transactions ....................................................................................................................... 55

F. Capital Assets ...................................................................................................................................... 56 G. Claims Payable .................................................................................................................................... 57 H. Compensated Absences ..................................................................................................................... 57 I. J.

Long-Term Obligations ...................................................................................................................... 57 Net Assets and Fund Balances .......................................................................................................... 57

K. Use of Restricted/Unrestricted Net Assets ...................................................................................... 59 L. Property Tax ........................................................................................................................................ 59 M. Use of Estimates .................................................................................................................................. 60

Note 2- Cash and Investments ..................................................................................................................... 60

A. Authorized Investments .................................................................................................................... 60 B. Deposits ............................................................................................................................................... 62 C. Risk Disclosures .................................................................................................................................. 62 D. Fair Value Adjustment ....................................................................................................................... 64 E. External Investment Pool ................................................................................................................... 64

Note 3- Receivables ...................................................................................................................................... 65

A. Housing Loans Receivable ................................................................................................................ 65 B. Interest Receivable .............................................................................................................................. 65

Note 4- Capital Assets .................................................................................................................................. 66

Note 5- Long-Term Debt .............................................................................................................................. 67

A. Special Assessment Debt ................................................................................................................... 68 B. Community Facilities District Special Tax Bonds ........................................................................... 68 C. Housing Enabled by Local Partnerships Loan ................................................................................ 69 D. Compensated Absences ..................................................................................................................... 69

Note 6 - Risk Management ........................................................................................................................... 69

A. Participation in Public Entity Risk Pools ......................................................................................... 70

47

City of Fremont Index to Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

Note 7- Interfund Transactions .................................................................................................................. 72

A. Interfund Receivables a.nd Payables ................................................................................................. 72 B. Interfund Transfers ............................................................................................................................. 73

Note 8- Fund Balance Reservations ........................................................................................................... 74

Note 9- Retirement Benefits ........................................................................................................................ 74

A. California Public Employees' Retirement System ........................................................................... 74 B. Post-Retirement Benefits .................................................................................................................... 76

Note 10- Commitments and Contingencies .............................................................................................. 76

A. Housing Loan Commitments ............................................................................................................ 78

Note 11- Subsequent Events ....................................................................................................................... 78

48

City of Fremont Notes to Basic Financial Statements For the year ended June 30, 2007

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Governmental Activities

The City reports the following governmental activities:

General Government- These services are those that are associated with the general administration of the government. These services are primarily provided by the following offices/ departments: City Council, City Manager, City Attorney, City Clerk, Finance, and Human Resources. These offices provide services that support external as well other internal government functions of the City.

Police Seroices - The Police Department is responsible for the safeguarding of citizens' lives and property, the preservation of constitutional rights, and neighborhood problem solving. These services also include the animal shelter and jail bookings.

Fire Seroices - The Fire Department is responsible for providing fire and life safety emergency services in Fremont. Services include emergency response, paramedic services, public education, emergency­preparedness training and hazardous materials management services.

Human Seroices - The Human Services Department offers a range of services to the community, . including a senior center, para transit services, counseling, and support for seniors, families and youth.

Capital Asset Maintenance and Operations- These services include maintenance of the City's capital assets and infrastructure, such as public buildings, parks, streets and vehicles.

Recreation and Leisure Seroices - Services provided by the Parks and Recreation Department include both performing and visual arts, youth and adult sports, youth and early childhood enrichment programs, park visitor services, and management of the community centers, special facilities, and historic sites.

Community Development and Environmental Seroices - These services are provided by the Community Development Department and the Environmental Services Division of the Transportation and Operations Department and include community planning, engineering, code enforcement, building permit and inspection services, and environmental services that enhance and preserve a high quality living environment within the City.

A. Financial Reporting Entity

The City was incorporated in January 1956. The City has a council-manager form of government and provides a wide range of municipal services. As required by generally accepted accounting principles in the United States, these basic financial statements present the City and its component units.

49

City of Fremont Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

A. Financial Reporting Entity, Continued

Component units are legally separate organizations for which the elected officials of the primary government are financially accountable. In addition, component units can be other organizations for which the primary government's exclusion would cause the reporting entity's financial statements to be misleading or incomplete.

The following is a brief overview of the component units included in the accompanying basic financial statements of the City. Financial information for these component units can be obtained from the City's Finance Department.

Redevelopment Agency o[the Cih1 of Fremont (Agencu)- A separate governmental entity established for the purpose of redeveloping certain areas of the City through development of industrial parks, commercial areas, and new residential housing. Funds for redevelopment projects are provided from various sources, including incremental property tax revenues, tax allocation bonds and advances from the City. Separate financial statements for the Agency are available from the City's Finance Department.

Fremont Public Financing Authority (Financing Authority) - A joint powers authority formed by the City and the Agency, organized for the purpose of financing certain capital projects for the City or the Agency. Separate financial statements are not issued for the Financing Authority.

Fremont Social Services JPA (Social Services TPA) - A joint powers authority formed by the City and the Agency, organized for the purpose of facilitating the activities of the Family Resource Center. In 1998, the Social Services JPA entered into a 40-year lease with the City for the two buildings that house the Family Resource Center. The Social Services JPA has committed to subleasing this space to CDBG­eligible tenants at below-market rents over the 40-year lease term. Rents collected from CDBG-eligible tenants are used to make payments on the debt service obligations incurred in connection with the purchase of the buildings. Separate financial statements are not issued for the Social Services JP A.

The City Council serves in separate session as the governing body of the Agency, the Financing Authority, and the Social Services JPA. As a result, the financial activities of these entities are integrally related to those of the City and are "blended" with those of the City.

Other governmental agencies that provide services within the City include the following: • Fremont-Newark Community College District • Fremont Unified School District • Alameda County Flood Control & Water Conservation District • Union Sanitary District • Alameda County Water District • East Bay Regional Park District • Washington Township Hospital District and related organizations • Alameda-Contra Costa Transit District • Bay Area Rapid Transit District • State of California • County of Alameda

50

City of Fremont Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

A. Financial Reporting Entity, Continued

Financial information for the organizations listed on the prior page is not included in the accompanying basic financial statements because they have independently elected governing boards, their operations are separate from those of the City, and they are not financially dependent on the City.

B. Basis of Accounting and Measurement Focus

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

Government - Wide Financial Statements

The City's government-wide financial statements include a Statement of Net Assets and a Statement of Activities and Changes in Net Assets. These statements present summaries of governmental activities for the City. Fiduciary activities of the City are not included in these statements.

These statements are presented on an economic resources measurement focus and the accrual basis of accounting. Accordingly, all of the City's assets and liabilities, including capital assets, as well as infrastructure assets and long-term liabilities, are included in the accompanying Statement of Net Assets. The Statement of Activities presents changes in net assets. Under the accrual basis of accounting, revenues are recognized in the period in which they are earned and 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.

Certain eliminations have been made as prescribed by GASB Statement No. 34 in regards to interfund activities, payables and receivables. All internal service fund balances in the Statement of Net Assets have been elintinated.

The City applies all applicable GASB pronouncements (including all NCGA Statements and Interpretations currently in effect), as well as the following pronouncements issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements: Financial Accounting Standards Board (FASB) Statements and Interpretations, Accounting Principles Board (APB) Opinions, and Accounting Research Bulletins (ARB) of the Committee on Accounting Procedure.

The City applies all applicable FASB Statements and Interpretations issued after November 30, 1989, except those that conflict with or contradict GASB pronouncements.

51

City of Fremont Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

B. Basis of Accouttting and Measurement Focus, Continued

Governmental Fund Financial Statements

Governmental fund financial statements include a Balance Sheet and a Statement of Revenues, Expenditures and Changes in Fund Balances for all major governmental funds and aggregated non-major funds. An accompanying schedule is presented to reconcile and explain the differences in net assets as presented in these statements to the net assets presented in the government-wide financial statements. The City has presented all major funds that meet the criteria prescribed in GASB Statement No. 34.

All governmental funds are accounted for on a spending or current financial resources measurement focus and the modified accrual basis of accounting. Accordingly, only current assets and current liabilities are included on the balance sheet. The Statement of Revenues, Expenditures and Changes in Fund Balances present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets.

The City reports the following major governmental funds:

General Fund - This fund is the City's primary operating fund. It accounts for all financial resources and outlays of the general government. The fund receives the City's discretionary funding sources (e.g., property tax, sales tax, charges for services, etc.) and uses its resources for the general operations of the City (e.g., police, fire, general government) not accounted for in other funds.

Redevelopment Agency (Operating Fund) - This is the Redevelopment Agency's operating fund and is funded with transfers from the Debt Service Fund. This fund records the administrative expenditures required to support the Agency's capital projects and includes pass-through payments to other taxing entities and tax increment revenue.shifted·to the State's Educational Revenue Augmentation Fund.

Low and Moderate Income Housing - This fund receives ·20% of the Redevelopment Agency's tax increment revenue as set aside for affordable housing developments.

Redevelopment Agency (Debt Service Fund) - This fund receives 80% of tax increment revenue to support the Agency's non-housing redevelopment projects. Revenues are transferred from this fund to the Agency's Operating Fund to support operations and are used to pay annual principal and interest charges on the Agency's tax allocation bonds.

Redevelopment Agency (Capital Projects Fund) - This fund includes the remaining proceeds of the tax allocation bonds and tax increment revenues that are designated for the Agency's non-housing projects. Expenditures are shown in the community development and capital outlay categories.

Development Impact Fees- This fund accounts for impact fees levied under California Government Code Sections 66000 et seq., "Fees for Development Projects" (commonly referred to as AB1600) and Section 66477 (commonly referred to as the Quimby Act). The City assesses fees for fire, capital facilities, traffic, park dedication in lieu, and park facilities. These fees are used to defray all or a portion of the cost of additional public facilities needed to provide service to new development.

52

City of Fremont Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

B. Basis of Accounting and Measurement Focus, Continued

Development Cost Center - This fund accounts for services related to planning, engineering and inspection of public and private development construction projects.

Recreation Services -This fund accounts for all recreation programs and services, including Central Park and activities of the community centers. Fees are generated from the various classes and programs offered to the public. All costs of these programs are funded from these fees and from resources provided by the general fund.

Capital Maintenance- This fund accounts for maintenance activities related to the City's capital assets, including parks, streets, buildings, fleet, and urban forestry. This fund is primarily supported by the general fund, and also receives contributions from State Gas Tax and Integrated Waste Management revenues.

Under the modified accrual basis of accounting, revenues are recognized in the accounting period in which they become both measurable and available to finance expenditures of the current period. Accordingly, revenues are recorded when received in cash, except that revenues subject to accrual (generally received within 90 days after year-end) are recognized when due. The primary revenue sources that have been treated as susceptible to accrual by the City are property tax, sales tax, special assessments, intergovernmental revenues, other taxes, interest revenue, rental revenue and certain charges for services. Fines, forfeitures and licenses and permits are not susceptible to accrual because they are usually not measurable until received in cash. Expenditures are recorded in the accounting period in which the related fund liability is incurred.

Deferred revenue arises when potential revenue does not meet both the measurable and available criteria for recognition in the current period. Deferred revenues also arise when the City receives resources before it has a legal claim to them, as when grant monies are received prior to incurring qualifying expenditures or when monies are received before the related services are performed. In subsequent periods, when both revenue recognition criteria are met or when the City has a legal claim to the resources, the liability for deferred revenue is removed from the balance sheet and revenue is recognized.

The reconciliations of the fund financial statements to the government-wide financial statements are provided to explain the differences between the integrated approach of GASB Statement No. 34 and the traditional approach of fund accounting.

Proprietary Fund Financial Statements

Proprietary fund financial statements include a Statement of Net Assets, a Statement of Revenues, Expenses and Changes in Net Assets, and a Statement of Cash Flows for all proprietary funds.

Proprietary funds are accounted for using the economic resources measurement focus and the accrual basis of accounting. Accordingly, all assets and liabilities (whether current or noncurrent) are included in the Statement of Net Assets. The Statement of Revenues, Expenses and Changes in Net Assets presents increases (revenues) and decreases (expenses) in total net assets. Under the accrual basis of accounting, revenues are recognized in the period in which they are earned and expenses are recognized in the period in which the liability is incurred.

53

City of Fremont Notes to Basic Financial Statements, Continued For the year ended June 30,2007

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

B. Basis of Accounting and Measurement Focus, Continued

Operating revenues in the proprietary funds are those revenues that are generated from the primary operations of the fund. All other revenues are reported as nonoperating revenues. Operating expenses are those expenses that are essential to the primary operations of the fund. All other expenses are reported as nonoperating expenses.

The City reports the following proprietary fund:

Internal Service Funds - These funds account for the Risk Management and Information Technology services provided to other City departments on a cost reimbursement basis.

Internal service fund balances and activities have been combined with governmental activities in the government-wide financial statements.

Fiduciary Fund Financial Statements

Fiduciary fund financial statements consist of a Statement of Net Assets. The City's fiduciary funds consist of agency funds, which are custodial in nature and do not involve measurement of results of operations. The agency funds use the accrual basis of accounting.

The City reports the following agency funds:

Local Improvement Districts - This fund accounts for the special assessment bonds issued by local improvement districts or community facility districts under various public improvement acts of the State of California and secured by liens against properties deemed to have been benefited by the improvements for which the bonds were issued. Property owners are assessed their proportionate share, and the City acts as an agent in collecting the assessments from the property owners, forwarding the collections to bondholders and initiating foreclosure proceedings when necessary.

Performance Bonds. Deposits and Confiscated Assets - This fund accounts for bonds and deposits received in conjunction with construction activity within the City, assets confiscated by the police, and other deposits held by the City as a fiduciary.

Tri-City Waste Facility Financing Autlwrity- This fund accounts for revenue bonds issued by the cities of Fremont, Newark and Union City for the closure of the Durham Road Landfill.

Tri-City Waste Disposal Authority- This fund provided for the administration of funds collected by the Tri-City Waste Disposal Authority, a joint powers authority (JPA), which existed to administer disposal agreements for the solid waste generated in the cities of Fremont, Newark, and Union City.

Sou/hem Alameda County GIS- This fund accounts for monies collected from participating agencies for the administration of the Geographic Information System (GIS) through a JPA. The City is the administrator of the GIS, which serves the participating agencies. The parties to the JPA are the City of Fremont, City of Union City, City of Newark, Union Sanitary District, and Alameda County Water District.

54

City of Fremont Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

C. Cash and Investments

The City pools cash resources from all funds in order to facilitate and maximize the management of cash. The balance in the pooled cash account is available to meet current operating requirements. Cash in excess of current requirements is invested in various interest-bearing accounts and other fixed income investments with varying terms.

In accordance with GASB Statement No. 40, Deposit nnd Investment Disclosures (Amendment ofGASB No.3), certain disclosures for deposits and investment risks are made in the following areas:

:Y Interest Rate Risk :r Credit Risk

• Overall • Custodial Credit Risk • Concentration of Credit Risk

In addition, other disclosures include use of certain methods to present deposits and investments, highly sensitive investments, credit quality at year-end and other disclosures.

In accordance with GASB Statement No. 31, Accounting nnd Finnncinl Reporting for Certnin Investments nnd for External Investment Pools, highly liquid money market investments with maturities of one year or less at time of purchase are stated at amortized cost. All other investments are stated at fair value. Market value is used as fair value for those securities for which market quotations are readily available. Interest earned on investments is allocated to all funds on the basis of daily cash and investment balances.

The City participates in an investment pool managed by the State of California, the Local Agency Investment Fund (LAIF), which has invested a portion of the pool funds in structured notes and asset­backed securities. These structured notes and asset-backed securities are subject to market risk as to change in interest rates.

Cash and cash equivalents are considered to be cash on hand, amounts in demand deposits and short-term investments with original maturities of three months or less from the date acquired by the City.

D. Restricted Cash and Investments

Certain restricted cash and investments are held by a fiscal agent for the redemption of bonded debt and for acquisition and construction of certain capital projects.

E. Interfund Transactions

During the normal course of operations, the City has numerous transactions among funds. The significant interfund transactions that occurred during the year can be classified into two types:

Transfers - Transactions to allocate the occurrence of specific expenditures within the receiving fund. These transactions are recorded as transfers in and out in the year in which they are approved.

55

Ci.ty of Fremont Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

E. lnterfund Transactions, Continued

Loans Between Funds - Transactions to loan resources from one fund to another. The interfund loans will be paid back when permanent financing is obtained or definitive funding sources become available. Short-term loans are recorded as "due from other funds" in the disbursing fund and "due to other funds" in the receiving fund.

F. Capital Assets

Capital assets are valued at historical cost or estimated historical cost if actual historical cost is not available. Donated fixed assets are valued at their estimated fair market value on the date donated. City policy has set the capitalization threshold for reporting infrastructure capital assets at $25,000 and for all other capital assets at $5,000. Depreciation is recorded on a straight-line basis over estimated useful lives of the assets, as follows:

Buildings Building Improvements Machinery and Equipment Infrastructure Vehicles

50 years 20 years 5-25 years 15- 100 years 5-27 years

The City defines infrastructure as the basic physical assets that allow the City to function. These assets include the street system, park and recreation lands and improvements system, storm water collection system, and site amenities associated with buildings, such as parking and landscaped areas, used by the City in the conduct of its business.

The City uses the modified approach, as defined by GASB Statement No. 34, for infrastructure reporting of its streets, concrete and asphalt pavements. For all other infrastructure systems, the City uses the basic approach, as defined by GASB Statement No. 34.

The City commissioned an appraisal of City-owned infrastructure and property as of December 31, 2001, and has completed internal updates for June 30, 2006 and 2007. This appraisal determined the original cost, which is defined as the actual cost to acquire new property in accordance with market prices at the time of first construction/ acquisition. Original costs were developed in one of three ways: (1) historical records; (2) standard unit costs appropriate for the construction/ acquisition date; or (3) present cost indexed by a reciprocal factor of the price increase from the construction/ acquisition date of the current date. The accumulated depreciation, defined as the total depreciation from the date of construction/ acquisition to the current date on a straight-line cost method, was computed using industry accepted life expectancies for each infrastructure subsystem. The book value was then computed by deducting the accumulated depreciation from the original cost.

56

City of Fremont Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

G. Claims Payable

The City records a liability to reflect an actuarial estimate of ultimate uninsured losses for both general liability claims (including property damage claims) and workers' compensation claims. The estimated liability for workers' compensation claims and general liability claims includes incurred but not reported (IBNR) claims. There is no fixed payment schedule to pay these liabilities.

H. Compensated Al1sences

In accordance with negotiated labor agreements, employees accumulate earned but unused vacation and other compensated leave, and sick pay benefits. There is no liability for unpaid accumulated sick leave because the City does not pay any amounts when employees separate from service with the City. All vacation and other compensated leave is accrued when incurred in the government-wide and proprietary fund financial staternents. A liability for these amounts is reported in governmental funds only if they are expected to be settled with current financial resources.

I. Long-Term Obligations

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

In the fund financial statements, governmental-type funds 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 issuance are reported as other financing sources, while discounts on debt issuance are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures.

]. Net Assets and fund Balances

Government-Wide Financial Statements

In the government-wide financial statements, net assets are reported in one of three categories:

Invested in Capital Assets, Net o[Related Debt- This category consists of capital assets net of accumulated depreciation and reduced by outstanding debt that is attributed to the acquisition, construction, or improvement of the assets.

Restricted Net Assets - External creditors, grantors, contributors, or laws or regulations of other governments restrict this amount.

Unrestricted Net Assets - This category consists of all net assets that do not meet the definition of "invested in capital assets, net of related debt" or "restricted net assets."

57

City of Fremont Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

J. Net Assets and Ftmd Balances, Continued

Fund Financial Statements

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

Reservations of fund balances of governmental funds are created to either satisfy legal covenants, including state laws, that require a portion of the fund balance be segregated or identify the portion of the fund balance not available for future expenditures. Designated fund balances represent tentative plans for future use of financial resources. Fund reservations and designations used by the City include the following:

• Reserved for Encumbrances represents commitments for materials and services on purchase orders and contracts, which are unperformed.

• Reserved for Debt Service is provided to set aside funds legally restricted for the payment of principal and interest on long-term debt.

• Designated for Budget Uncertainty represents the amounts set up as a hedge against the primary sources of uncertainty in the City's budgets and long-range financial plans.

• Designated for Program Investment represents amounts provided for new programs or enterprises that have the potential for costs to be covered by future revenues. This designation is funded at 2.5% of budgeted Ceneral Fund expenditures and transfers out, in accordance with Council policy.

• Designated for Contingencies is provided to set aside funds to meet costs associated with unforeseen events. This designation is funded at 12.5% of budgeted General Fund expenditures and transfers out, in accordance with Council policy.

• Designated for Fair Value Adjustments represents amounts provided for unrealized gains and losses as a result of changes in the fair market value of investments.

• Designated for Future Appropriations represents funds designated to cover future year expenditures.

• Designated for Low and Moderate Income Housing Programs represents tax increment revenues set aside for low and moderate-income housing projects.

• Designated for Future Maintenance represents funds designated for future maintenance on and/ or replacement of fixed assets.

• Designated for Vehicle Replacement represents funds designated to cover the replacement cost associated with City-owned vehicles.

58

City of Fremont Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

J. Net Assets aud Fuud Balauces, Coutiuued

Fund Financial Statements, Continued

• Designated for Capital Projects represents funds set aside for capital projects as determined by City Council.

• Designated for Specific Purposes represents funds designated for other specific purposes.

K. Use of Restricted/Uurestricted Net Assets

When an expense is incurred for purposes for which both restricted and unrestricted net assets are available, the City's policy is to apply restricted net assets first.

L. PropertJ; Tax

Under California law, property taxes are assessed and collected by the counties at a rate of up to 1% of assessed value, plus other increases approved by the voters. Property taxes go into a pool and are then allocated to cities based on complex formulas. Property taxes are collected by the Auditor-Controller of the County of Alameda (County) and are remitted upon collection to the various taxing entities, including the City and the Agency. Accordingly, the City and the Agency accrue only those taxes that are received from the County within sixty days after year-end.

For assessment and collection purposes, property is classified as either "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 real property having a tax lien that is sufficient, in the opinion of the assessor, to secure payment of the taxes. Unsecured property comprises all taxable property not attached to land, such as personal property or business property. Every tax levied by a county that becomes a lien on secured property has priority over all present and future private liens arising pursuant to State law on the secured property, regardless of the time of the creation of the other liens. A tax levied on unsecured property does not become a lien against the taxed unsecured property, but may become a lien on other property owned by the taxpayer.

Valuation of secured property and establishment of a statutory tax lien occur as of January 1 prior to the tax year (the tax year is the July 1 -June 30 fiscal year of the State) of the related tax levy, and the secured and unsecured tax rolls are certified on or before July 1 of the tax year by the County Assessor.

Lien Date (Secured) Levy Date Secured Taxes- Due Date Secured Taxes- Delinquency Date Unsecured Taxes- Due Date Unsecured Taxes- Delinquency Date

January 1 January 1 November 1 and February 1 December 10 and April10 July 1 August 31

Neither the City nor the Agency has the ability to control the levy rate or the amount of property taxes remitted by the County because State law controls them.

59

City of Fremont Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

M. Use of Estimates

The preparation of the basic financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities. In addition, estimates affect the reported amount of revenues and expenses. Actual results could differ from these estimates and assumptions.

2. CASH AND INVESTMENTS

The City maintains an internal cash and investment pool for all funds. Certain restricted funds that are held and invested by independent outside custodians through contractual agreements are not pooled, and are reported as cash with fiscal agents.

Investment income earned on pooled cash and investments is allocated monthly to the various funds based on average daily cash balances. Investment income from cash and investments with fiscal agents is credited directly to the related funds.

A. Authorized Investments

The City's investment policy is adopted annually by the City Council in accordance with California Government Code Section 53601, and has as its objectives the following (in order of priority):

o Safety: Safety of principal is the foremost objective of the investment program. Investments of the City shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. To attain this objective, diversification is required in the portfolio's composition.

• Liquidity: The portfolio shall remain sufficiently liquid to meet all operating requirements that can be reasonably anticipated. Liquidity refers to the ability to sell an investment at any given moment with a minimal chance of losing some portion of principal or interest.

• Yield: The portfolio shall be designed to attain a market rate of return throughout budgetary and economic cycles, taking into account the investment risk constraints and the cash flow characteristics of the portfolio.

Under provisions of the City's investment policy, the City may invest in the following types of investments:

• Bonds and notes issued by the City.

o U.S. Treasury bills, notes, bonds, or certificates of indebtedness, or those for which the faith and credit of the United States are pledged for the payment of principal and interest.

o Registered state warrants or treasury notes or bonds issued by the State of California.

60

City of Fremont Notes to Basic Financial Statements, Continued For the year ended June 30,2007

2. CASH AND INVESTMENTS, Continued

A. Authorized Investments, Continued

• Bonds, notes, warrants, or other evidence of debt issued by a local agency within the State of California with the highest credit rating (on the date of purchase) by two nationally recognized rating services.

• The Local Agency Investment Fund (LAIF) maintained by the Sta:te of California.

• Obligations issued by agencies or instrumentalities of the U.S. Government.

• Bankers' acceptances with a term not to exceed 180 days.

• Prime commercial paper with a term not to exceed 270 days and the highest rating issued by Moody's Investors Service or Standard & Poor's Corporation, on the date of purchase.

• Negotiable certificates of deposit issued by federally chartered or state-chartered banks or associations or by a state-licensed branch of a foreign bank.

• Repurchase agreements that comply with statutory requirements, are documented by a written agreement, are fuily collateralized by delivery to an independent third-party custodian or the counter party's bank's trust department or safekeeping department, and are for a term of one year or less.

• Medium-term notes with a maximum maturity of five years issued by corporations organized and operating in the United States.

• Shares of beneficial interest issued by diversified management companies investing in authorized securities and obligations (e.g., money market mutual funds).

• Insured or collateralized time deposits or savings accounts secured in accordance with the provisions of Sections 53651 and 53652 of the California Government Code.

• Any pass-through security, collateralized mortgage obligation, mortgage-backed or other pay­through bond, equipment lease-backed certificate, consumer receivable pass-through certificate, or consumer receivable-backed bond with a maximum maturity of five years.

• Guaranteed investment agreements for funds that can be invested longer than five years with final maturity not to exceed ten years.

• Other investments that are permitted by bond indenture agreements.

A five-year maximum maturity for each investment is allowed unless an extension of maturity is granted by the City Council.

In accordance with Section 53651 of the California Government Code, the City cannot invest in inverse floaters, range notes, or interest-only strips that are derived from a pool of mortgages, or in any security that could result in zero interest accrual if held to maturity. The limitation does not apply to investments in shares of beneficial interest issued under the Investment Company Act of 1940 that are authorized investments under Section 53601 of the California Government Code.

61

City of Fremont Noles to Basic Financial Statements, Continued For the year ended June 30, 2007

2. CASH AND INVESTMENTS, Continued

B. Deposits

At june 30, 2007, the carrying amount of the City's time and demand deposits was $3,338,904. The difference between the bank balance of $5,020,946 and the carrying amount resulted from outstanding checks and deposits in transit. Of the time deposits and demand deposits, $500,000 was covered by federal depository insurance and $4,520,946 was collateralized with securities held by the counter party or its agent in accordance with Section 53652 of the California Government Code. The California Government Code requires California banks and savings and loan associations to secure a City's deposits by pledging government securities with a value of 110% of a City's deposits, or by pledging first trust deed mortgage notes having a value of 150% of City's total deposits. The City's main bank account at Bank of America did not meet the 110% collateral requirement and, as of june 30, 2007, the Collateral Pool stood at 102%. These short falls dCJ occur from time to time; however, Bank of America typically maintains collateral balances that are significantly higher than the 110% threshold. The average daily collateral was more than 120% for the entire month of June 2007.

C. Risk Disclosures

The following is a summary of pooled cash and investments, including cash and investments with fiscal agent, at June 30, 2007.

Investments Restricted investments held by city

Subtotal

Checking account balance and petty cash Total held by the city

Restricted cash and investments held by fiscal agent

Totals

Government-Wide

Statement of Net Assets Governmental

Activities

$ 313,541,730

313,541,730

(1,044,641)

312,497,089

4,019,058

Fiduciary Funds Statement of Net Assets

$ 16,489,772

2,050,031

18,539,803

18,539,803

18,737,237

Totals

$ 330,031,502

2,050,031

332,081,533

(1 ,044,641)

331,036,892

22,756,295

$ 316,516,147 $ 37,277,040 $ 353,793,187

Restricted cash and investments held by fiscal agent in the Financing Authority Debt Service Fund are restricted for the payment of principal and interest on certificates of participation and revenue bonds. In the fiduciary funds, restricted cash and investments relate to special assessment bonds and bonds issued by the Tri-City Waste Facility Financing Authority.

62

City of Fremont Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

2. CASH AND INVESTMENTS

C. Risk Disclosures, Continued

As of june 30, 2007, the City had the following investments and maturities:

INVESTMENT MATURITIES (in lears)

Investment Ty~e Fair Value 1 Year or Less 1-2 Years 2-3 Years 3-4 Years

U.S. Agencies $ 237,243,996 $ 54,931,751 $29,133,157 $ 24,861,086 $ 20,889,163

U.S. Treasuries 7,119,455 7,119,455

Commercial Paper 48,743,381 46,743,381

Medium Term Notes 28,041,939 14,583,487 5,484,997 1,987,392

Money Market Accounts 7,018,680 7,018,680

Pooled Accounts 1,514,082 1,514,082

Negotiable Cert. Of Deposit 2,000,000 2,000,000

Time Deposits 4,400,000 4,400,000

Total $ 332,081,533 $ 138,310,816 $ 34,618,154 $ 24,861,086 $22,876,555

4-5 Years

$107,428,839

3,988,083

$111,414,922

Interest Rate Risk. At june 30, 2007, the City held no investments that are "highly sensitive to interest rate fluctuations" as defined by GASB 40. As a means of limiting exposure to fair value losses arising from rising interest rates, the City's investment policy provides that final maturities of securities cannot exceed five years. Specific maturities of investments depend on liquidity needs. At june 30, 2007, the City's pooled cash and investments had the following maturities:

Maturity

Less than one year

One to two years

Two to three years

Three to four years

Four to five years

Percentage of Investment

42%

10%

7% 7%

34%

The weighted-average life of the portfolio was 853 days.

Credit Risk. It is the City's policy that commercial paper have a credit rating of A1 by Standard & Poor's or P-1 by Moody's Investors Service. Corporate bonds and medium-term notes must have a rating of AA or better. Mutual funds and federal agency securities must have the highest rating issued by the nationally recognized statistical rating organizations. The Local Agency Investment Fund (LAIF), administered by the State of California, has a separate investment policy, governed by Government Code Sections 16480-16481.2, that provides credit standards for its investments. The City's investments in federally sponsored agencies are rated AAA by Standard & Poor's and Moody's Investors Service. Medium term notes and corporate bonds are rated from AA to AAA by Standard & Poor's and Moody's Investors Service. Money market funds are rated AAA by Standard & Poor's and Aaa by Moody's Investors Service. Time and demand deposits over $100,000 are collateralized by the financial institution.

63

City of Fremont Noles to Basic Financial Statements, Continued For the year ended June 30,2007

2. CASH AND INVESTMENTS

C. Risk Disclosures, Continued

Custodial Credit Risk. For an investment, custodial credit risk is the risk that, in the event of the failure of the counter-party, the City will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. All securities, with the exception of the money market funds, time deposits, and LAIF, are held by a third-party custodian, Bank of New York Trust Company (BNY). BNY is a registered member of the Federal Reserve Bank. The securities held by BNY are in street name, and a customer number assigned to the City identifies ownership.

D. Fair Value Adjustment

GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External investment Pools, requires that the City's investments be carried at fair market value instead of cost. Accordingly, the City adjusts the carrying value of its investments to reflect their fair value at each fiscal year-end and the effects of these adjustments are included in income for that fiscal year. Changes in value in the fiscal year ended June 30, 2007 from the fiscal year ended June 30, 2006, amounted to an unrealized gain of $1,471,090 for 2006/07. The total amount of the fair market loss adjustment as of June 30, 2007 was $1,601,374.

E. External Investment Pool

The City invests in the California Local Agency Investment Fund (LAIF), a State of California external investment pool which is not rated. LAIF determines fair value on its investment portfolio based on market quotations for those securities where market quotations are readily available, and on amortized cost or best estimate for those securities where market value is not readily available.

The City values its investments in LAIF at amortized cost, which approximates the fair market value.

The City's investments with LAIF at June 30, 2007, include a portion of pool funds invested in structured notes and asset-backed securities. These investments may include the following:

Structured Notes are debt securities (other than asset-backed securities) whose cash flow characteristics (coupon rate, redemption amount, or stated maturity) depend upon one or more indices and/ or have embedded forwards or options.

Asset-Backed Securities, the bulk of which are mortgage-backed securities, entitle their purchasers to receive a share of the cash flows from a pool of assets, such as principal and interest repayments from a pool of mortgages (e.g., CMOs) or credit card receivables.

As of June 30, 2007, the City had $1,514,082 invested in LAlF, which had invested 3.466% of the pool's funds in structured notes and asset-backed securities.

64

City of Fremont Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

3. RECEIVABLES

As of june 30, 2007, the City had the following receivables:

A. Housing Loans Receivable

At June 30, 2007, the City was owed, in its Community Development Block Grant Fund, $1,004,152, for various housing assistance loans made by the City. The terms of repayment are for 20 years at 5% interest per annum. Because the notes do not meet the City's availability criteria for revenue recognition, the City has deferred the revenue related to these loans.

Loan was paid up to City under the HELP loan program with terms of 3 year at 3% simple interest per annum as of 6/30/2006 from the Developers. This is a revolving loan to developers, and no new Joan was made during FY2006/07.

The City has issued various other housing loans that are expected to be forgiven in future years. As a result, the City has recorded an allowance in anticipation of the amount to be forgiven for loans receivable in the same amount as the outstanding principal on those loans, resulting in a zero balance in the basic financial statements. Interest on the loans is recorded as interest receivable with an offsetting amount of deferred revenue because the City's revenue recognition criteria have not been met. The cumulative amount of these loans as of june 30, 2007 is $60,948,926 and the accumulated interest receivable is $6,497,444.

B. Interest Receivable

Interest receivable at June 30, 2007 consists of the following:

Interest receivable on investments held by City

Interest receivable on investments held by fiscal agents

Interest on housing loans, home loans and rehabilitation loans receivable

Total governmental funds interest receivable

Interest receivable on fiduciary funds held by City

Total interest receivable

65

$ 3,145,446

94,421

6,497,444

9,737,311

36,264

$ 9,773,575

City of Fremont Notes to Basic Financial Statements, Continued For the year ended June 30,2007

4. CAPITAL ASSETS

Capital assets activity for the year ended June 30, 2007, consists of the following:

Balance Balance

June 30, 2006 Increase Decrease Transfers June 30, 2007

Nondepreciable Assets:

Land s 199,257,454 $ 2,506,519 $ (100,000) $ $ 201,663,973

land improvements 5,260,249 5,260,249

Infrastructure 367,125,191 367,125,191

Construction in progress 34,051,571 5,743,147 (15,069,895) 24,724,823

Total nondepreciable assets 605,694,465 8,249,666 (100,000) (15,069,895) 598,774,236

Depreciable Assets:

Building and improvements 115,335,626 3,041,740 15,011,707 133,389,073

Equipment 17,685,779 299,219 (56,862) 58,188 17,986,324

Vehicles 22,668,562 899,066 (476,638) 23,090,990

Infrastructure 317,441,306 231,404 317,672,710

Total depreciable assets 473,131,273 4,471,429 (533,500) 15,069,895 492,139,097

Less Accumulated Depreciation For:

Building and improvements (31,736,816) (2,802,712) (34,539,528)

Equipment (9,507,458) (2,475,686) 55,338 (11 ,927,806)

Vehicles (13,166,095) (1,559,467) 413,199 (14,312,363)

Infrastructure (308,456,013) {531 ,827) {308,987,840)

Total accumulated depreciation (362,866,382) (7,369,692) 468,537 (369, 767 ,537)

T olaf depreciable assets, net 110,264,891 (2,898,263) {64,963) 15,069,895 122,371,560

Total capital assets, net $ 715,959,356 $ 5,351,403 $ (164,963) $ $ 721,145,796

Depreciation expense was charged to functions and programs of the primary government, as follows:

Governmental Activities:

General government $ 1,509,152

Police services 674,553

Fire services 924,636

Human services 40,268

Capital assets maintenance and operations 3,476,275

Recreation and leisure services 164,344

Community development and environmental services 580,464

Total depreciation expense, governmental activities $ 7,369,692

66

City of Fremont Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

4. CAPITAL ASSETS, Continued

In accordance with GASB Statement No. 34, the City has reported all capital assets including infrastructure in the Government-Wide Statement of Net Assets. The City elected to use the modified approach, as defined by GASB Statement No. 34, for infrastructure reporting for its pavement system. As a result, no accumulated depreciation expense has been recorded for this system. A more detailed discussion of the modified approach is presented in the Required Supplementary Information section of this report. All other capital assets, including other infrastructure systems, are reported using the basic approach whereby accumulated depreciation and depreciation expense have been recorded.

5. LONG-TERM DEBT

A summary of changes in governmental activities long-term debt and compensated absences for the year ended June 30, 2007, is as follows:

Amounts Incurred Satisfied Amounts Amounts Amounts Interest Outstanding or or Outstanding Due Within Due in More Rates June 30, 2006 Issued Matured June 30, 2007 One Year than One Year

Redevelopment Agency Tax Allocation Bonds:

Series 2003 1.80-4.40% $16,020,000 $ $(2,070,000) $13,950,000 $2,125,000 $11,825,000

Series 20M 3.00-4.00% 37,345,000 (3,650,000} 33,695,000 3,755,000 29,MO,OOO

Total tax allocation bonds 53,365,000 (5, 720,000~ 47,645,000 5,880,000 41,765,000

General Obligation Bond

Fire Safety Bond 2003 1.00-4.40% 9,630,000 (200,000) 9,430,000 210,000 9,220,000

Fire Safety Bond 2005 3.50-5.00% 25,000,000 25,000,000 25 000,000

Total general obligation bonds 34,630,000 j200,000) 34,430,000 210,000 34,220,000

Certificates of Participation

1990 Public Financing Authority Variable 4,575,000 (350,000) 4,225,000 375,000 3,850,000

1991 Public Financing Authority Variable 3,800,000 (100,000) 3,700,000 100,000 3,600,000

1998 Public Financing Authority Variable 11,090,000 (260,000) 10,830,000 270,000 10,560,000

1998 Public Financing Authority 3.8-4.75% 17,065,000 (550,000) 16,515,000 580,000 15,935,000

2001 Public Financing Authority Variable 32,845,000 (735,000) 32,110,000 765,000 31,345,000

20018 Public Financing Authority Variable 9,095,000 (350,000) 8,745,000 365,000 8,380,000

2002 Public Financing Authority Variable 35,140,000 (875,000) 34,265,000 900,000 33,365,000

2003 Public Financing Authority Variable 21,095,000 j835,000) 20,260,000 855,000 19,405,000

Total certificates of participation 134,7051000 {4,055,000) 130,650,000 4,210,000 126,440,000

Total long-term debt 222,700,000 {9,975,000) 212,725,000 10,300,000 202,4'25,000

Unamortized long-term bond discount 650,'265 (31.389) 618,876 31,389 587,487

Compensated absences 7,432,667 6,683,224 j5,817,079) 8,298,812 2,074,703 6,224,109

Total long-term debt with unamortized bond discount and compensated absences $230,782,932 $6,683,224 $(15,823,468~ $221,642,688 $12,406,092 $209,236,596

67

City of Fremont Noles to Basic Financial Statements, Continued For the year !!nded June 30, 2007

5. LONG-TERM DEBT, Continued

Amounts of long-term debt payable in the government-wide financial statements are generally payable from amounts available in related debt service funds and from annual property tax and certain other revenues collected for the purpose of retiring the respective debt obligations.

The annual principal and interest requirements of long-term debt are as follows:

Year Ending Tax Allocalfon Bonds General Obligation Bond Certificates of Participation

June 30, 2007 Principal Interest Principal Interest Principal Interest

2008 $ 5,880,000 $ 1,618,856 $ 210,000 $ 1,551 ,403 $ 4,210,000 $ 5,062,445

2009 6,060,000 1,438,596 220,000 1,S36,3S3 4,475,000 4,88S,6S8

2010 6,2SS,OOO 1,241,286 740,000 1 ,S11 ,678 4,610,000 4,715,825

2011 6,465,000 1,022,881 780,000 1,477,153 4,780,000 4,S37,546

2012 6,700,000 779,121 820,000 1 ,44S,878 4,985,000 4,360,179

2013-2017 16,285,000 888,520 4,740,000 6,751,187 27,300,000 18,678,826

2018-2022 5,785,000 5,700,352 29,020,000 13,211,238

2023-2027 7,130,000 4,275,450 30,460,000 7,137,517

2028-2032 8,88S,OOO 2,370,359 18,970,000 1,951,094

2033-2037 5,120,000 359,672 1,840,000 19,479

Tot<~l $ 47,64S,OOO $ 6,989,260 $ 34,430,000 $ 26,979,485 $ 130,650,000 $ 64,SS9,807

A. Special Assessment Debt (No City Commitment)

Special assessment bonds have been issued under various public improvement acts of the State of California and are secured by liens against properties deemed to have been benefited by the improvements for which the bonds were issued. The City is not liable for repayment and acts only as an agent for the property owners in collecting the assessments, forwarding the collections to bondholders, and initiating foreclosure proceedings when necessary. These bonds are payable solely from assessments, specific reserves, and the proceeds from property foreclosures_ As of June 30, 2007, special assessment and special tax bonded indebtedness (long-term and current portions) was approximately $35,850,000, which was not recognized in the accompanying basic financial statements.

B. Community Facilities District Special Tax Bonds (No CihJ Commitment)

Special tax bonds were issued under the Mello-Roos Community Facilities Act of 1982. The proceeds of the 2001 bonds are to be utilized to finance the acquisition of specified public capital improvements for the development of the District, known as Pacific Commons. The District is intended to be a business park with commercial and industrial facilities. The property owners, with Catellus Development Corporation (now ProLogis) as the master developer and majority landowner, are obligated to pay the interest and principal on the 2001 bonds through an annual levy pursuant to the Rate and Method of Apportionment approved by the City Council and the qualified elector of the District. The 2001 bonds are not a general debt liability of the City and are solely payable from the annual facilities special tax levy and the reserve fund_ As of june 30, 2007, the 2001 bond indebtedness was $29,825,000_

68

City of Fremont Notes to Basic Financial Statements, Continued For the year ended June 30,2007

5. LONG-TERM DEBT, Continued

B. CommzmihJ Facilities District Special Tax Bonds (No CihJ Commitment), Continued

On June 26, 2005, the City Council approved the issuance of $38,000,000 of Community Facilities District 1, Special Tax, Series B (Pacific Commons) bonds. These bonds were issued on july 21, 2005. The net proceeds of the Series B bonds will be used to reimburse the developer for the costs of specified public improvements that have been or are to be built or otherwise conveyed to public agencies in conjunction with the development of Pacific Commons. As of june 30, 2007, the 2005 bond indebtedness was $38,000,000.

C. Housing Enabled by Local Partnerships

The Agency has a $1.5 million HELP Program (Housing Enabled by Local Partnerships) loan payable to the California Housing Finance Agency. The loan has a 10-year term and bears simple interest at 3% per annum. Payments are deferred for the term of the loan. The $1.5 million principal and accrued interest are due September 1, 2010. The Agency uses the HELP funds as a revolving loan fund, primarily for issuing short-term constwction loans to affordable housing developers. As of June 30, 2007, all loans issued to developers have been repaid to the Agency.

D. Compensated Absences

The City records a liability to recognize the financial effect of unused vacation and other compensated leaves. The total of vacation and other compensated leaves is $8,298,812. The City typically uses the General Fund to liquidate compensated absences.

6. RISK MANAGEMENT

The City is exposed to various exposures related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The City established the Risk Management Internal Service Fund to account for and finance its uninsured risks of Joss. Under the City's risk management program, the City retains risk for up to $500,000 for each workers' compensation claim, $500,000 for each general liability claim, and $25,000 for each property claim. The liability for general liability claims and workers' compensation claims in excess of $500,000 is discussed below.

The City records estimated liabilities for claims filed or expected to be filed up to the amounts for which it retains risk in the Risk Management Internal Service Fund. Charges to the General Fund and other funds

are a percentage of payroll costs, as determined from an analysis of claims costs, and are recorded as expenditures or expenses of such funds and revenues of the Risk Management Internal Service Fund.

The City retained an independent actuary in 2007 to perform an analysis of the City's potential liability for its retained risk portions of the general liability and workers' compensation programs. The amount recorded as a liability consists of the specific reserves (self-insured retention) for individual known claims or lawsuits and estimates for incurred but not reported claims. The present value of estimated outstanding losses is calculated using a 5% discount rate to reflect future investment earnings. There

69

City of Fremont Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

6. RISK MANAGEMENT, Continued

were no reductions in insurance coverage from the prior year and there were no insurance settlements that exceeded coverage in each of the past years.

Changes in the balances of claim liabilities (shown as claims payable in the accompanying basic financial statements) during the past three fiscal years ended June 30, 2007, 2006 and 2005 are as follows:

Balance, beginning of year

Provision for claims losses

Claims payments

Balance, end of year

Due in one year

Due in more than one year

Total claim liabilities

$

$

$

$

A. Participation in Public EntihJ Risk Pools

2007

9,274,000

4,911,365

(4,814,365)

9,371,000

3,629,000

5,742,000

9,371,000

$

$

$

$

2006

9,305,000

3,863,260

(3,894,260)

9,274,000

3,473,272

5,800,728

9,274,000

$

$

$

$

2005

8,246,000

4,775,050

(3,716,050)

9,305,000

3,861,426

5,443,574

9,305,000

In February 1986, the City joined with other municipalities and regional municipal joint powers authorities to form the California Joint Powers Risk Management Authority (CJPRMA), a public entity risk pool currently operating as a general liability risk management and insurance program for 22 member entities. The purpose of the CJPRMA is to spread the adverse effects of losses among the member agencies. General liability claims in excess of $500,000 and up to $40,000,000 per occurrence are covered by the C)PRMA. Five years after settlement of all claims for a program year, CJPRMA retroactively adjusts premium deposits for any excess or deficiency in deposits related to paid claims and reserves.

70

City of Fremont Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

6. RISK MANAGEMENT, Continued

A. Participation in Public Entin; Risk Pools, Continued

Summary financial information for C)PRMA as of and for the year ended june 30, 2006 (latest available date), is as follows:

cash and investments $ 73,848,264

Premiums and fees receivable 1,220,716

Other assets 119,383

Total assets $ 75,188,383

Total reserves, unearned premiums and other liabilities $ 42,846,283

Net assets 32,342,080

Total liabilities and net assets $ 75,188,363

Net premiums earned $ 16,397,844

Loss provision and premiums paid (6,824,058)

General and administrative expenses (1,293, 163)

Operating income 8,280,623

Investment income (loss) (1,372,998)

Net income 6,907,625

Insurance Settlement 375,613

Refunds to members (4,227,804)

Change in net assets $ 3,055,434

The CJPRMA refunds excess contributions to members from time to time, based on the results of actuarial studies of each program year's claims experience. These refunds include cumulative earnings on program year contributions but may be reduced by amounts required to fund prior or subsequent year unfavorable claims experience.

The C}PRMA governing board consists of a representative from each member entity. All members have a single vote for policy and charter changes. An executive committee of seven is elected to handle administration. Complete financial statements for the C)PRMA can be obtained from CJPRMA, 2333 San Ramon Valley Blvd., Suite 250, San Ramon, California 94583.

In july 1992, the City joined with other municipalities and special districts to form the Local Agency Workers' Compensation Excess joint Powers Authority (LAWCX), a public entity risk pool currently operating as a workers' compensation risk management and insurance program for 36 member entities. Workers' compens~tion claims in excess of $500,000 and up to $2,000,000 are covered by LAWCX, and claims in excess of $2,000,000 are insured with commercial carriers through LA WCX.

71

City of Fremont Notes to Basic Financial Statements, Continued For the year ended June 30,2007

6. RISK MANAGEMENT, Continued

A. Participation in Public Entity Risk Pools, Continued

Each member of LAWCX is entitled to a seat on the board of directors and to cast weighted votes as set forth in the joint powers agreement. An underwriting committee of five representatives from the members and an executive committee of five representatives are elected to formulate recommendations to the Board. Complete financial statements for LA WCX can be obtained from LAWCX, cf o Bickmore Risk Services, 1831 K Street, Sacramento, California 95814.

In June 2006, the City withdrew from LAWCX and joined CSAC Excess Insurance Authority (CSAC). CSAC !hembership contains 54 California counties and 152 organizations (Cities, schools districts, special districts and other JPA's). Workers' compensation claims in excess of $500,000 are covered by CSAC through reinsurance up to the limit of $250,000,000. The City currently does not have summary financial information on CSAC.

7. INTERFUND TRANSACTIONS

A. Interfund Receivables and Payables

Interfund receivables and payables represent short term loans owed by Non-major Governmental Funds to the General Fund for purposes of covering short term negative cash positions. These interfund transactions are routine year end adjustments. Interfund receivables and payables at june 30, 2007, were as follows:

E g " :> 0

General Fund

Total

72

$

$

Due to

Non~Major

Governmental

Funds

3,749,372

3,749,372

City of Fremont Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

7. INTERFUND TRANSACTIONS, Continued

B. lnterfund Transfers

The General Fund transfers resources to other funds to support activities that cannot be supported through fees, grants, or charges for service. These activities include capital projects, debt service, maintenance, and certain cost center operations. There are also a variety of additional transfers between the General Fund and other funds to cover such items as overhead and vehicle replacement charges.

Interfund transfers for the year ended June 30, 2007, were as follows:

General Fund

Redevelopment Operations

low and Mod. Income Housing

Redevelopment Debt Service

General

Fund

172,649

78.958

Low & Mod.

ROA Income

Operations Housing

$ 2,877 $ "'

8,000.000

ROA

Debt

Service

2.580,727

$

Transfers In

ROA

Capital

Projects

Development

Cost

Center

Recreation Capit;~l

Services Maintenance

Non-Major

Funds

$2,414,707 $2.517,463 $20,131,754 $10,875,444

10,000,000

Internal

Service

Funds Total

19,327 $ 35,962.034

172,649

2,659,685

18,000,000

'5 Development. 0 Impact Fees

950,000 909,416 1,859,416

" ~ Development c: Cost Center

~ Recreation Services

Capital Maintenance

Non-Major Funds

Internal Service Funds

Total

1,!396,267 841,660 2,737,927

!>03,827 28,032 631,859

2,@20,053 822,172 3,442,225

581,333 1 ,296,869 1,000,000 6,485,962

547,104 8,532 555,636

$7,A50, 191 $8,002,877 $ 462$2,580,727$10,000,000$2,414,707$2,517.463$23,739,514$14,782.125$1,019,327 $72,507,393

73

Ci.ty of Fremont Noles to Basic Finandal Statements, Continued For the year ended June 30, 2007

8. FUND BALANCE RESERVATJONS

Reservations of fund balances of governmental funds are created to either satisfy legal covenants, including state laws, that requir~ a portion of the fund balance be segregated or identify the portion of the fund balance not available for future expenditures. Designated fund balances represent tentative plans for future use of financial resources. Fund reservations and designations used by the City are as follows:

Oo R~ions Low& Mod RDA Debt RDA Capotal Development Development Cap.lal Non·m<qor Fund Balances Gomeral Fund '~· Servoce Pro'ects lm act Fees Cost Center Recre!lt!On Maintenance Funds Total

Reserved lor.

Encumbrances $450.170 $576.032 $4,408 '- $17,804,()40 $1,504,005 $95,907 '- $401,269 $00.922.068 $81,757,899

Debt Service 40.980.851 4,439,357 45,420.208

Unreserved, design81ed, repor1ed in·

Budl!"l Uncertarnly 15,276.000 15,276,000

Program Investment 3.232,235 3.232,235

Contmgencies 16,159,175 16,159,175

Fa1r Val"" Adjustments 131,981 131,981

Future Appfopoatroos 6,884,133 6,884,133

Fulure Marntenance 1,664.328 1,664,328

Vehide Re~acemeot 3,315,790 3.315,790

Caprtal Projects 27,337,492 53.717,671 33.750,015 114,805,178

SpeCific Purposes 911,056 18.890,497 2,400,544 3.382,431 27,098,308 52.682,836

UnresefVed uncles~ na1ed 38,524 208 138,524 208

Tolol fund Balance $42,133,694 $1.487,088 $18,894,905 S40.980,651 S45,141,532 $55,221,676 $2,496.451 $3,382,431 $2,065,597 $91.001,330 $302.805,55

9. RETIREMENT BENEFITS

A. Califomia Public Employees' Retirement System

Plan Description -The City's defined benefit pension plans, City of Fremont Miscellaneous Plan and City of Fremont Safety Plan, provide retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries through the California Public Employees' Retirement System (CalPERS). AU permanent City employees classified as full-time, as well as part-time permanent and temporary City employees who work 1,000 or more hours per year, are required to participate in CaiPERS. Benefits vest after five years of service. ·

City employees who rHire at or after age 55 (50 for safety employees) are entitled to an annual retirement benefit, payable monthly for life, in an amount equal to 25'Yo for miscellaneous employees and 3% for safety employees for each year of service of their highest annual salary. The service retirement benefit for public safety is capped at 90% of final compensation. There is no cap on retirement benefits for miscellaneous employees. CalPERS also provides death and disability benefits. These benefit provisions and all other requirements are established by State statute and City ordinance.

The City of Fremont Miscellaneous Plan and City of Fremont Safety Plan are part of the Public Agency portion of CalPERS, an agent multiple-employer defined benefit pension plan_ CalPERS acts as a common investment and administrative agent for participating public employers within the State of California_ Ca!PERS issues a separate comprehensive annual financial report Copies of the CalPERS

74

City of Fremont Notes to Basic Financial Statements, Continued For the year ended June :30, 2007

9. RETIREMENT BENEFITS, Continued

A. California Public Employees' Retirement System, Continued

annual financial report may be obtained from the CalPERS Executive Office, 400 Q Street, Sacramento, California 95814.

Funding Policy- Active plan members in the City of Fremont Miscellaneous Plan are required to contribute 8% of their annual covered salary. Active plan members in the City of Fremont Safety Plan are required to contribute 9% of their annual covered salary. The City is required to contribute the actuarially determined remaining amounts necessary to fund the benefits for its members. The actuarial methods and assumptions used are those adopted by the CalPERS Board of Administration. The required employer contribution rate for fiscal year 2006/07 was 17.784% of covered payroll for miscellaneous employees and 27.147% of covered payroll for safety employees. The contribution requirements of the plan members are established by State statute, and the employer contribution rate is actuarially established and may be amended by CalPERS.

Annunl Pension Cost- For fiscal year 2006/07 the City's annual pension cost was $16,405,151, which was equal to the City's required and actual contributions. The required contribution rate for fiscal year 2006/07 was determined as part of the June 30, 2004 actuarial valuation, which used the entry age normal actuarial cost method with the contributions determined as a percent of pay. The actuarial assumptions included (1) 7.75% investment rate of return (net of administrative expenses); (2) projected salary increases that vary by duration of service ranging from 3.25% to 14.45% for miscellaneous members, and from 3.25% to 13.15% for safety members; (3) an inflation component of 3.0%, and (4) 3.25% annual cost-of-living adjustment for miscellaneous members and 3.25% annual cost-of-living adjustment for safety members. The actuarial values of the Miscellaneous and Safety Plans' assets were determined using a technique that smoothes the effect of short-term volatility in the market value of investments over a three-year period. CalPERS' unfunded actuarial accrued liability (or surplus) is amortized as a level percentage of projected payrolls on a closed basis.

The amortization period at June 30, 2005, was 30 years for both miscellaneous and safety members for prior and current service unfunded liabilities.

Following is three-year trend information for both plans:

Three-Year Trend Information for City of Fremont Miscellaneous Plan

Annual Percentage of

Fiscal Year Pension Cost APC Net Pension

Ending (APC) Contributed Obligation

6/30/05 $ 4,920,590 100%

6/30/06 6,661,794 100%

6/30/07 7,461,565 100%

75

City of Fremont Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

9. RETIREMENT BENEFITS, Continued

A. California Public Employees' Retirement System, Continued

Three-Year Trend Information for City of Fremont Safety Plan

Annual Percentage of

Fiscal Year Pension Cost APC Net Pension

Ending (APC) Contributed Obligation

6/30/05 $ 8,111,926 100%

6/30/06 9,261,718 100%

6/30/07 8,943,586 100%

B. Post-Retirement Benefits

In addition to providing the retirement benefits described above, the City provides post-retirement healthcare benefits, in accordance with bargaining unit agreements, to qualified retired employees. J~etirees must make an election within 90 days following the date of separation from City employment to be eligible for the benefits. The number of employees currently eligible to receive the benefit has increased from 538 in the previous year to 540 in the current year. The City reimburses all or part of premium payments for medical insurance. The reimbursement amount is subject to a negotiation process and varies by bargaining unit and retirement date. The benefit is paid monthly to the retiree subject to proof of coverage and attestation of premium payment. The benefit generally ceases upon death of the retiree. Expenditures for post-retirement benefits are recognized on a pay-as-you-go basis. Total expenditures for premium reimbursement in the years ended June 30, 2006 and June 30, 2007, were $1,403,412 and $1,530,512 respectively.

10. COMMITMENTS AND CONTINGENCIES

The City is a defendant in various lawsuits. Although the outcome of these lawsuits is not presently determinable, in the opinion of the City's legal counsel, the resolution of these matters will not have a material adverse effect on the financial condition of the City.

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

In a cooperation and financing agreement between the City and the Agency, the City and the Agency agree to share the costs of improvements for four freeway interchanges on Interstate 880. In a joint powers agreement with the City of Milpitas, California, the City of Milpitas has agreed to match the City and Agency's contribution towards the costs of improving one of these four freeway interchanges. As of June 30, 2007, the City and Agency had incurred cumulative project expenditures of $58,437,381 for the four interchanges.

76

City of Fremont Notes to Basic Financial Statements, Continued For the year ended June 30,2007

10. COMMITMENTS AND CONTINGENCIES, Continued

The Agency has entered into agreements with various taxing authorities whereby the Agency passes through a portion of its incremental property tax received from the County for these taxing authorities. These payments ;1re shown as intergovernmental expenditures in the accompanying basic financial statements. As of June 30, 2007, the total pass-through obligation of $8,333,416 had not yet been paid. This amount is included in due to other governmental agencies in the accompanying basic financial statements.

A. Housi11g Loa11 Commitme11ts

Maple Square Apartments- To date, the Agency and the City have committed a total of $13,002,961 to Maple Square Apartments developed by Affirmed Housing Group/Fremont Family Housing Partners, L.P., in the Centerville Redevelopment Project Area. This commitment consists of $12,706,961 of Agency set-aside funds and $296,000 of State Workforce Housing Reward Grant funds awarded the City. The 132-unit affordable rental housing development for families opened in February 2007. As of June 30, 2007, $12,602,961 has been disbursed consisting of $12,306,961 of Agency funds and $296,000 of State Grant funds. These loan funds were used for predevelopment, land acquisition and development costs.

Lincoln Oak Apartments - To date, the Redevelopment Agency and the City Council have approved $1,665,000 of affordable housing funds for Lincoln Oaks Apartments (formerly Lincoln Street Apartments). These funds consist of $211,350 of Agency housing set-aside funds, $760,000 of federal Community Development Block Grant (CDBG) funds, and $693,650 of federal HOME Program funds. The 11-unit development opened in summer 2006 and serves very low-income adults with developmental disabilities. As of June 30, 2007, $1,491,204 has been disbursed consisting of $131,350 of Agency funds, $753,054 of CDBG funds and $606,800 of HOME funds.

Irvington Family Apartments - To date, the Agency has approved $9,175,000 of affordable housing funds for Irvington Family Apartments being developed in the Irvington Redevelopment project Area by BRIDGE Housing, Inc. The Agency loan covers predevelopment, acquisition and development costs. The 100-unit family rental housing development is scheduled to open in August 2007. As of June 30, 2007, $9,175,000 has been expended.

Baywood Apartments- In July 2005, the Agency approved a $1,313,000 loan consisting of $513,000 of Agency Affordable Housing Funds, $400,000 of federal Community Development Block Grant funds and $400,000 of federal HOME Program funds to assist with the rehabilitation of Baywood Apartments, an existing 82-unit affordable rental housing community located in the Irvington Redevelopment Project Area. The rehabilitation work was completed in January 2007. As of June 30, 2007, $1,130,667 of funds has been disbursed consisting of $217,667 HOME Program funds, $513,000 of Agency funds and $400,000 of CDBG funds.

Fremont Vista Retirement Homes -In May 2006, the Agency approved additional affordable housing funds of $285,000 for Fremont Vista, a 100-unit senior rental assisted-living facility located on Mission Boulevard in Fremont. Twenty (20) studio apartments are affordable and the rents are controlled by an Agency regulatory agreement. The remaining 80 apartments rent at market rate. To date, $2,665,000 has been approved for the development. As of June 30, 2007, $2,470,000 has been disbursed.

77

City of Fremont Notes to Basic Financial Statements, Continued For the year ended June 30,2007

10. COMMITMENTS AND CONTINGENCIES, Continued

A. Housing Loan Commitments, Continued

With respect to the loan commitments described above, the Agency is repaid based on the type of loan and whether the affordable housing units are for sale or rental. If it is an apartment project, borrowers agree to pay the Agency an amount equal to excess cash, which is defined as the operating revenue in excess of the amount required for operation of the development, including current debt service, other mortgage loans, property management fees, taxes, insurance and other operating costs. In the event that excess cash is not generated, all loan principal and interest payments are deferred. If it is a short­term construction loan, borrowers agree to pay the Agency when permanent financing is in place. Loans issued for homeownership are generally repaid with interest at the time of sale or within a specified period or are issued as equity sharing loans. The Agency has not recorded receivables related to these agreements because the amount of the receivables is not currently available.

11. SUBSEQUENT EVENTS

On October 1, 2007, Tax and Revenue Anticipation Notes (TRANs) proceeds of $19,833,982 were received by the City. The $19,720,000 par value TRAN was sold with a premium of $113,982, with costs of issuance estimated to be $45,000. The City is obligated to set aside security for repayment of the TRAN which will occur on September 30, 2008.

78

REQUIRED SUPPLEMENTARY INFORMATION

79

City of Fremont Required Supplementary Information For the year ended June 30, 2007

1. BUDGETARY INFORMATION

Through the budget, the City Council sets the direction of the City, allocates its resources and establishes its priorities. The Annual Budget assures the efficient and effective uses of the City's economic resources, as well as establishing that highest priority objectives are accomplished.

The Annual Budget serves from July 1 to June 30, and is a vehicle that communicates these priorities to the community, businesses, vendors, employees and other public agencies. In addition, it establishes the foundation of effective financial planning by providing resource allocation, performance measures and controls that permit the evaluation and adjustment of the City's performance.

The City follows these procedures in establishing the budgetary data reflected in the basic financial statements:

a) The City Council adopts an annual budget by resolution prior to August 1 of each fiscal year. The annual budget indicates appropriations by fund or, in some instances, by program. The City Council may adopt supplemental appropriations during the year. At the fund level, expenditures may not legally exceed appropriations. The City Manager is authorized to transfer budgeted amounts between departments or programs within any fund.

The City Manager may also increase appropriations for operating expenditures for the Development Cost Center and Recreation Services Cost Center when quarterly fee estimates in those funds exceed the amounts estimated at the time of budget adoption because of increased fee activity. Any revisions or transfers that alter the total appropriations of other funds must be approved by the City Council.

b) Budgets are adopted on a basis consistent with generally accepted accounting principles (GAAP). Annual appropriated budgets are adopted for the General and certain special revenue funds (specifically Integrated Waste Management, Development Cost Center and Recreation Services). Project-length budgets are adopted for all capital projects funds, and either project-length budgets or non-appropriated financial plans are adopted for certain other special revenue funds (all special revenue funds except those specifically mentioned in the preceding sentence).

c) Supplementary budgetary changes were adopted by the City Council during the year; however, these supplemental budgetary changes were not material in relation to the budget as originally adopted.

Encumbrances

Encumbrances represent commitments related to unperformed contracts for goods or services. Encumbrance accounting, under which purchase orders, contracts, and other commitments for the expenditure of resources are recorded to reserve that portion of the applicable appropriation, is utilized in the governmental fund types. Encumbrances outstanding at year-end are reported as reservations of fund balance and do not constitute expenditures or liabilities because the commitments will be honored during the subsequent year.

80

City of Fremont Required Supplementary Information, Continued For the year ended June 30, 2007

1. BUDGETARY INFORMATION, Continued

Unexpended annual appropriations lapse at the end of the fiscal year; encumbered appropriations are re-budgeted in the next fiscal year. Unexpended capital improvement appropriations are carried forward until the improvements or programs are complete.

Following are the budget comparison schedules for the General Fund and applicable major special revenue funds for which an annual operating budget was adopted.

Budgeta'11. Comt?.arison Schedule, General Fund Variance with

Final Budget

Budgeted Amounts Actual Positive

Original Final Amounts (Negative)

Fund Balance- Beginning $ 33,551,000 $ 33,551,000 $ 40,034,087 $ 6,483,087

Resources (infiows):

Property tax 55,123,000 55,123,000 56,431,767 1,308,767

Sales tax 33,502,000 33,502,000 34,190,785 688,785

Business tax 6,941,000 6,941,000 6,738,310 (202,690)

Other taxes 4,492,000 4,492,000 4,390,096 (101,904)

Motor vehicle in lieu 1,502,000 1,502,000 1,220,418 (281 ,582)

Franchises 7,862,000 7,862,000 7,902,406 40,406

Charges for services 8,540,043 8,540,043 8,366,094 (173,949)

Intergovernmental 646,000 646,000 1,473,151 827,151

Investment earnings 2,783,000 2,783,000 2,425,311 (357,689)

Other 26,957 26,957 92,116 65,159

Operating transfers in 7,528,000 7,528,000 7,450,191 (77,809)

Total resources 128,946,000 128,946,000 130,680,645 1,734,645

Charges to appropriations (outfiows):

General government 13,573,346 12,629,829 12,094,439 535,390

Police services 48,218,860 48,898,743 48,898,743

Fire services 27,874,312 27,933,457 27,297,342 636,115

Human services 3,171,390 3,200,796 3,088,878 111,918

Community development and environmental services 660,462 661,257 630,638 30,619

Capital outlay 112,655 112,655

Debt service:

Interest and fiscal charges 475,000 475,000 496,309 (21 ,309)

Operating transfers out 35,924,968 35,986,601 35,962,034 24,567

Total charges to appropriations 129,898,338 129,898,338 128,581,038 1,317,300

Resources over (under) charges to appropriations (952,338) (952,338) 2,099,607 3,051,945

Fund Balance - Ending $ 32,598,662 $ 32,598,662 $ 42,133,694 $ 9,535,032

81

City of Fremont Required Supplementary Information, Continued For the year ended June 30, 2007

1. BUDGETARY INFORMATION, Continued

Budgetan1 Comv_arison Schedule, Redevelov_ment Ov_erations

Budgeted Amounts

Original Final

Fund Balance- Beginning $ 3,440,208 $ 3,440,208

Resources (inflows):

Investment earnings

Other

Operating transfers in 8,000,000 8,002,877

Total re$ources 8,000,000 8,002,877

Charges to appropriations (outfiows):

Intergovernmental 8,000,000 8,550,372

Community development 1,428,599 1,659,653

Operating transfers out 171,401 171 ,401

Total charges to appropriations 9,600,000 10,381,426

Resources over (under) charges to appropriations (1 ,600,000) (2,378,549)

Fund Balance. Ending $ 1,840,208 $ 1,061,659

Budgetary_ Comv_arison Schedule, Low and Moderate Income Housing

Budgeted Amounts

Original Final

Fund Balance- Beginning $ 10,581,024 $ 10,581,024

Resources (inflows):

Property tax incremnt 5,800,000 5,800,000

Investment earnings 161,000 161,000 Other 800,000 800,000

Operating transfers in 461

Total resources 6,761,000 6,761,461

Charges to appropriations (outflows):

Intergovernmental

Community development 7,773,327 7,726,327

Interest and fiscal charges 47,000

Operating transfers out 2,694,673 2,694,673

Total charges to appropriations 10,468,000 10,468,000

Resources over (under) charges to appropriations (3,707,000) (3, 706,539)

Fund Balance- Ending $ 6,874,024 $ 6,874,485

82

Variance with

Final Budget

Actual Positive

Amounts (Negative)

$ 3,411,912 $ (28,296)

341,113 341,113

112,612 112,612

8,002,877

8,456,602 453,725

8,550,372

1,659,653

171,401

10,381,426

(1 ,924,824) 453,725

$ 1,487,088 $ 425,429

Variance with

Final Budget

Actual Positive

Amounts (Negative)

$ 15,570,695 $ 4,989,671

6,338,976 538,976 829,011 668,011

498,648 (301 ,352)

462

7,667,097 905,636

1,683,202 6,043,125

47,000

2,659,685 34,988

4,389,887 6,078,113

3,277,210 6,983,749

$ 18,847,905 $ 11,973,420

City of Fremont Required Supplementary Information, Continued For the year ended June 30, 2007

1. BUDGETARY INFORMATION, Continued

Budgetary Comearison Schedule, Develoement Cost Center Final Budget

Budgeted Amounts Actual Positive

Original Final Amounts (Negative)

Fund Balance- Beginning $ 3,432,568 $ 3,232,568 $ 3,087,223 $ (145,345)

Resources (inflows):

Charges for services 10,287,449 10,287,449 9,787,540 (499,909)

Investment earrlings 132,000 132,000 246,659 114,659

Operating transfers in 2,341,999 2,414,708 2,414,707 (1)

Total resources 12,761,448 12,834,157 12,448,906 (385,251)

Charges to appropriations (outflows):

Community development and environmental services 10,942,862 11,015,571 10,301,751 713,820

Operating transfers out 2,018,869 2,802,86g 2,737,g27 64,g42

Total charges to appropriations 12,g61 ,731 13,818,440 13,03g,678 778,762

Resources over (under) charges to appropriations (200,283) (g84,283) (5g0,772) 3g3,511

Fund Balance- Ending $ 3,232,285 $ 2,248,285 $ 2,4g6,451 $ 248,166

Budgetant Comearison Schedule, Recreation Services Variance with

Final Budget

Budgeted Amounts Actual Positive

Original Final Amounts (Negative)

Fund Balance- Beginning $ 5,665,033 $ 5,665,033 $ 5,932,645 $ 267,612

Resources (inflows):

Charges for services 3,706,614 3,706,614 3,844,673 138,05g

Investment earnings 75,040 75,040 289,100 214,060

Other 14,300 14,300 18,876 4,576

Operating transfers in 2,4g2,000 2,517,463 2,517,463

Total resources 6,287,g54 6,313,417 6,670,112 356,6g5

Charges to appropriations (outflows):

Recreation and leisure services 5,698,716 5,724,17g 5,588,467 135,712

Operating transfers out 715,194 3,715,194 3,631 ,85g 83,335

Total charges to appropriations 6,413,910 g,43g,373 g,220,326 21g,047

Resources over (under) charges to appropriations (125,956) (3,125,956) (2,550,214) 575,741

Fund Balance- Ending $ 5,539,077 $ 2,53g,o77 $ 3,382,431 $ 843,354

83

City of Fremont Required Supplementary Information, Continued For the year ended June 30, 2007

2. MODIFIED APPROACH FOR THE CITY'S INFRASTRUCTURE

In accordance with GASB Statement No. 34, the City accounts for and reports infrastructure capital assets. The City defines infrastructure as the basic physical assets including the street system; park and recreation lands and improvement system; storm water collection system; and site amenities associated with buildings, such as parking and landscaped areas, used by the City in the conduct of its business. Each major infrastructure system is divided into subsystems. For example, the street system is divided into concrete and asphalt pavements, concrete curb and gutters, sidewalks, medians, streetlights, traffic control devices (signs, signals and pavement markings), landscaping and land. Subsystem detail is not presented in these basic financial statements; however, the City maintains detailed information on these subsystems.

The City has ~lected to use the modified approach, as defined by GASB Statement No. 34, for the Roads and Streets networks. Under GASB Statement No. 34, eligible infrastructure capital assets are not required to be depreciated under the following conditions:

• The City manages the eligible infrastructure capital assets using an asset management system with characteristics of (1) an up-to-date inventory; (2) perform condition assessments and summarize the results using a measurement scale; ·and (3) estimate annual amount needed to maintain and preserve at the established condition assessment level.

• The City documents that the eligible infrastructure capital assets are being preserved approximately at or above the established and disclosed condition assessment level.

In 2006, the City commissioned a study to update the physical condition assessment of the streets. The prior assessm~nt study was completed in 2004. The streets, primarily concrete and asphalt pavements were defined as all physical features associated with the operation of motorized vehicles that exist within the limits of right of way. City-owned streets are classified based on land use, access and traffic utilization into the following four classifications: (1) arterial/major, (2) secondary, (3) collector and (4) local. This condition assessment will be performed every two to three years. Each street was assigned a physical condition based on 17 potential defects. A Pavement Condition Index (PCI), a nationally recognized index, was assigned to each street and expressed in a continuous scale from 0 to 100, where 0 is assigned to the least acceptable physical condition and 100 is assigned to the physical characteristics of a new street. The following conditions were defined:

Condition Rating

Excellent 86-100

Good 71-85

Fair 51-70

Poor 26-50

Very Poor 0-25

84

City of Fremont Required Supplementary Information, Continued For the year ended June 30, 2007

2. MODIFIED APPROACH FOR THE CITY'S INFRASTRUCTURE, Continued

The City's policy is to achieve an average rating of 70 for all streets. This rating allows minor cracking and raveling of the pavement along with minor roughness that could be noticeable to drivers traveling at the posted speeds. As of June 30, 2007, the City's street system was rated at a PC! index of 68 on the average with the detail condition as follows:

Condition Rating

71-100

51-70

0-50

June 30, 2007 June 30, 2006

Good to Excellent

Fair

Substandard to Poor

66.9%

17.0%

16.1%

64.5%

17.3%

18.2%

The City's streets are constantly deteriorating due to the following four factors: {1) traffic using the streets; (2) the sun's ultra-violet rays drying out and breaking down the top layer of pavement; (3) utility company/private development interests' trenching operations; and (4) water damage from natural precipitation and other urban runoff. The City is continuously taking actions to arrest the deterioration through short-term maintenance activities, such as pothole patching, street sweeping, and sidewalk repair. In addition, the City completed the following major street maintenance projects in fiscal year 2006/07:

Project

Annual Asphalt Overlay Project

Stevenson Blvd Improvements

Grimmer Blvd Improvements

Contract Amount

$3,562,160

$3,206,206

$1,093,096

In total, the City expended $5,199,654 on street maintenance for the fiscal year ended June 30, 2007. These expenditures delayed deterioration; however, the overall rating of the City's streets was not improved through these maintenance expenditures.

The City estimates that the amount of annual expenditures required to maintain the City's streets at the average PC! rating of 68 through the year 2007 is an average of $12,000,000. A schedule of estimated annual amounts calculated to maintain and preserve its streets at the current level compared to actual expenditures for street maintenance for the last five years follows.

Maintenance Actual PCI

Fiscal Year Estimate Expenditures Rating

2002-03 $ 4,255,081 $ 6,777,620 79

2003-04 4,655,000 2,392,948 74

2004-05 5,500,000 384,506 71

2005-06 6,200,000 323,178 70

2006-07 10,800,000 5,199,654 68

85

City of Fremont Required Supplementary Information, Continued For the year ended June 30,2007

2. MODIFIED APPROACH FOR THE CITY'S INFRASTRUCTURE, Continued

The City has an on-going street rehabilitation program funded in the Capitallmprovement Program that is intended to improve the condition rating of City streets. The rehabilitation program is formulated based on deficiencies identified as a part of its Pavement Management System (PMS). As of june 30, 2007, approximately 33.1% of the City's streets were rated below the average standard of 70, a slight decrease from 2005/06 and 2004/05 when the percentage of streets rated below 70 were 35.5% and 36.2%, respectively. The City will continue to rehabilitate these segments of the streets.

3. DEFINED BENEFIT PENSION PLAN

A schedule of funding progress for the year ended june 30, 2007, including the past three actuarial valuations, is presented below:

Actuarial

Valuation

Date•

0613012004 $

06130/2005

0613012006

Actuarial

Valuation

Date*

06/30/2004

06/30/2005

06/30/2006

PUBLIC EMPLOYEES' RETIREMENT SYSTEM (CaiPERS) SCHEDULE OF FUNDING PROGRESS

Miscellaneous Employees

Entry Age Unfunded

Actuarial Actuarial Actuarial Annual

Asset Accrued Accrued Funded Covered

Value Liability Liability Ratio Payroll

Unfunded

Actuarial

Liability as

Percentage of

Covered

Payroll

161,076,023 $ 204,787,713 $ 43,711,690 78.7% $ 39.408,517 110.92%

176,708,876 229,820,688 53,111,812 76.9% 40,752,097 130.33%

193,579,760 249,738,009 56,158,249 77.5% 40,981,091 137.03%

PUBLIC EMPLOYEES' RETIREMENT SYSTEM (CaiPERS) SCHEDULE OF FUNDING PROGRESS

Safety Employees Unfunded

Actuarial

Entry Age Unfunded Liability as

Actuarial Actuarial Actuarial Annual Percentage of

Asset Accrued Accrued Funded Covered Covered

Value Liability Liability Ratio Payroll Payroll

$ 243,827,133 $ 295,673,895 $ 51,846,762 82.5% $ 30,417,135 170.45%

261,977,431 320,681,742 58,704,311 81.7% 30,631,016 191.65%

281,612,246 345,024,916 63,412,670 81.6% 32,720,037 193.80%

*Latest available information

86

SUPPLEMENTARY INFORMATION

87

NON-MAJOR GOVERNMENTAL FUNDS

89

SPECIAL REVENUE FUNDS

Special Revenue Funds are used to account for City revenues from sources that, by law or administrative action, are designated to finance particular functions or activities of government. The individual special revenue funds are as follows:

Community Development Block Grunt - This fund accounts for grants from the U.S. Department of Housing and Urban Development for the primary purpose of developing viable urban communities.

Home Grunt - This fund accounts for monies received under the HOME Investment Partnership Act. HOME funds can be used to acquire, rehabilitate, finance, and construct affordable housing and provide tenant-based rental assistance. .

HUD/HOPE Grant - This fund accounts for monies received through the Housing Authority of Alameda County from the Department of Housing and Urban Development (HUD) for special Housing Opportunities for the People Everywhere (HOPE) grant. Case management is provided to enable functionality impaired older persons to obtain services that promote and maintain their optimum levels of functioning.

HUD/SHP Grant- This fund accounts for funds from the Department of Housing and Urban Development to implement the Homeless Outreach for People Empowerment project.

Mufti-family Housing- This fund accounts for fees received for monitoring the Residential Mortgage Loan Program.

Older Americans Grant- This fund accounts for federal grant monies received under the Older Americans Act. Case management is provided to enable functionality impaired older persons to obtain services.

Tri-City Elders- The Tri-City Elders Coalition works to identify and effectively meet the needs of seniors to enable them to remain independent in their own homes and communities. This is accomplished through advocacy, education, resource coordination and information sharing.

Senior Services - This fund accounts for revenues and expenditures for programs conducted by the Senior Citizens Center.

Multipurpose Senior Services Program (MSSP) - This fund accounts for monies received from the State Department of Aging (via Federal pass-thru) to provide services aimed at allowing frail elders to remain in their homes.

Area Agency on Aging MSSP- This fund accounts for monies received from the State Department of Aging (via County pass-thru) to provide services aimed at allowing frail elders to remain in their homes.

Youth Service Center- This fund accounts for Youth Service Center grants received from the State Council for Criminal Justice.

Every Child Counts Grant- This fund accounts for monies allocated through Alameda County from State Proposition 10 (tobacco taxes) to support early childhood programs in Youth and Family Services.

Alameda Behavioral Health Care- This fund accounts for the monies used to support a multi-disciplinary team approach to family support at the Family Resource Center.

90

SPECIAL REVENUE FUNDS, Continued

Measure B- Under Measure B, the City receives the proceeds of an additional half-cent sales tax for use on transportation-related expenditures. This fund accounts for the portion of these monies used to partially fund the City's paratransit program.

Family Resource Center- This fund accounts for monies received for leases at the Family Resource Center. This revenue is used for maintenance and operating costs of the center.

Haas Grant - This fund accounts for monies from the Evelyn and Walter Haas, Jr. Fund for the Family Resource Center. Funds are used for several FRC program areas.

Human Services Miscellaneous - This fund accounts for donations that support Human Services Departments programs, as well as, small grants given to Human Services by private contributors.

Integrated Waste Management- This fund accounts for monies received by the City to comply with the provisions of AB939 for the purpose of addressing recycling, household hazardous waste and solid waste management issues. These revenues may only be spend for integrated waste management and waste reduction programs.

Integrated Waste Used Oil Grant - This fund accounts for grant monies received by the City from the California Integrated Waste Management Board under their Used Oil Block Grant program. This grant provides funds to help establish and maintain used oil and filter collection programs.

Urban Runoff- The Clean Water Fee special assessment funds the Urban Runoff Clean Water Program. This program is based on the Stormwater Management Plan of the Alameda Countywide Clean Water Program. The plan is required for and a part of the National Pollutant Discharge Elimination System permit. Included in the plan are tasks for municipalities to carry out, including public information, municipal maintenance activities, new development requirements, illicit discharge elimination, industrial discharge identification and control, monitoring and special studies.

Traffic Safety OTS- This fund accounts for monies received from the State. "Avoid the 21" provides for aggressive enforcement and strong public relations for a county-wide collaborative campaign against drinking drivers in Alameda County. A vehicle impound program added two additional traffic officers and one sergeant to the traffic unit. This program focuses on education and enforcement with a goal to decrease injury traffic collisions by I 0%.

Abandoned Vehicle- This fund accounts for monies received by the City under California Vehicle Code Sections 9250.7 and 22710 and is used for the abatement, removal, and disposal as public nuisances of any abandoned, wrecked, dismantled, or inoperative vehicles from private or public property.

Narcotics Asset Seizure - This fund accounts for assets confiscated by the City and by the Southern Alameda County Narcotics Enforcement Team (SACNET), which consists of police officers from the cities of Fremont, Newark and Union City. These assets may only be used for future narcotics investigations.

COPS AB3229- This fund accounts for State funds distributed by the County for front-line law enforcement services, including anti-gang and community crime prevention programs.

Justice Assistance Grant- This fund accounts for federal pass through money and allows states, tribes and local government to support a broad range of activities to prevent and control crime based on their local needs and conditions, such as initiatives technical assistance, training personnel, and equipment supplies.

91

SPECIAL REVENUE FUNDS, Continued

Law Enforcement Technology- This fund accounts for development of technologies and automated systems to assist state and local law enforcement agencies in investing, responding to and preventing crime.

Metropolitan Medical Response System (MMRS) - This fund accounts for federal grants to fund the purchase of anti-terrorism equipment, medications and training and exercise for terrorism responses.

Miscellaneous Federal Grants - This fund accounts for federal monies received for various individual federal grants that require Single Audit.

Miscellaneous State Support - This fund accounts for one-time miscellaneous funds received from State agenctes.

Traffic Congestion AB2928- This fund accounts for monies provided by State legislation to be used for street improvements, and/or projects specified in the Assembly Bill. The bill also requires a Maintenance of Effort (MOE) from the General Fund over a 3-year period.

State Gas Tax- This fund accounts for monies apportioned to the City from State-collected gasoline taxes. The annual allocation may be spent for street maintenance or construction. Funds are apportioned by the State on the basis of population.

County Support for City Street- This fund received and expends the money allocated from Alameda County as the City's share of the State gasoline taxes allocated for County roads.

Maintenance District - This fund accounts for lighting and landscape maintenance acttvtttes in new subdivisions within the City. These activities are funded by special assessments on property within the benefited area.

DEBT SERVICE FUNDS

Debt Service Funds are used to record the accumulation of resources for, and the payment of, principal, interest and fiscal charges on general long-term debt. The individual debt service funds are as follows:

2003 & 2005 Fire General Obligation Bonds- Voters of the City of Fremont approved Measure R in the November 2002 election, which authorizes the City to issue $51 million in general obligation bonds to provide funding to replace three fire stations, build a public safety training center, and make remodeling and seismic improvements to seven existing fire stations. To date, $35,000,000 of these bonds have been issued: Series A for $10,000,000, was issued on July 17, 2003 and Series B, for $25,000,000, was issued on April 14,2005.

Financing Authority - This fund accounts for the payment of principal and interest on certificates of participation. The proceeds of the debt were used to finance construction of capital facilities.

92

CAPITAL PROJECT FUNDS

Capital Project Funds are used to account for the acquisition or construction of major capital facilities and improvements. The specific capital project funds are listed below:

Transportation Development Act - This fund accounts for funds received under the Transportation Development Act (Article 3) to be used for street construction projects.

Miscellaneous State Grants Capital- This fund accounts for one-time miscellaneous funds received from State agencies.

Interchange Construction- This fund accounts for construction of Interstate 880 interchange at Fremont Boulevard, Mission Boulevard, Auto Mall Parkway and Dixon Landing Road.

Vehicle Replacement- This fund accounts for vehicle acquisitions.

Capital Improvement- By Council resolution, this fund can be used only to finance capital improvements for the City, including the acquisition, construction, and initial equipping of parks, recreation areas, public safety facilities, or other public works projects. Amounts in this fund are received as transfers from the General Fund, as interest earned on invested cash balances, as proceeds from the sale of certain parcels of land, or as proceeds of debt.

Capital Improvement Outside Sources - This fund accounts for contributions received from other outside sources that are intended to help fund specific capital projects.

Measure B- Under Measure B, the City receives the proceeds of an additional half-cent sales tax for use on transportation-related expenditures. This fund accounts for that portion of these monies used to fund transportation-related capital projects.

lntermodal Surface Transportation Efficiency Act (ISTEA)- ISTEA was created in 1991 to provide federal funding for transportation projects. It replaces the Federal Aid Urban Program. Among ISTEA's many programs, three provide capital improvement funds for local governments. These programs are known as the Surface Transportation Program, the Congestion Mitigation and Air Quality Improvement Program, and the Transportation Enhancement Activity Program. Funds are applied for on a project-by-project basis.

Traffic System Management- This fund received monies from the Bay Area Quality Management District under AB434. The fund's expenditures relate to the implementation of the City's trip reduction ordinance­a State-mandated activity.

2003 & 2005 Fire General Obligation Bonds - This fund accounts \or debt proceeds used for the construction, remodeling, or improvements of fire stations.

Financing Authority- This fund accounts for debt proceeds used to construct capital facilities.

93

City of Fremont Combining Balance Sheet

Non-Major Governmental Funds

June 30, 2007 (With comparative totals for june 30, 2006)

ASSETS

Cash and investments held by City

Restricted C<lsh and investments

held by fiscaJ agent

Receivables:

Due from other governmental agencies

Housing l"ehabilitation loans, net

Accrued interest

Other

Total assets

LIABILITIES AND FUND BALANCES

Liabilities:

Accounts payable

Salaries and wages payable

Due to other funds

Deferred revenue

Total liabilities

Fund Balances:

Reserved for encumbrances

Reserved for debt service

Unreserved:

Designated:

Spe<:ific purposes

Capital projects

Undesignated

Total fund balances

Total liabilities and fund balances

Community

Development

Block

Grant

$ $

501,181

1,004,152

55,167

$ 1,560,500 $

$ 267,145 $

4,112

243,522

1,045,721

1,560,500

520,752

(520,752)

$ 1,560,500 $

94

Special Revenue Funds

HOME HUD/HOPE HUD/SHP Multi-family

Grant Grant Grant Housing

$ 5,952 $ $ 203,166

178,028 327,072

745,952 39,999

923,980 $ 5,952 $ 367,071 $ 203,166

4,633 $ $ 60,803 $ 6,750

6,827

171,308 266,269

745,952 39,999 134

921,893 367,071 13,711

138,769

5,952 189,455

(136,682)

2,087 5,952 189,455

923,980 $ 5,952 $ 367,071 $ 203,166

Older

Americans

Grant

8,053

8,053

8,053

8,053

8,053

$

$

$

$

Tri-City

Elders

116,348

116,348

538

538

115,810

115,810

116,348

$

$

$

$

Senior

Services

195,412

1,650

197,062

7,473

11,640

150,662

169,775

2,276

25,011

27,287

197,062

Special Revenue Funds

Multipurpose

Senior Svc.

Program

$

114,616

$ 114,616

$ 9,574

105,042

114,616

10,000

(10,000)

$ 114,616

Area Agency

on Aging

MSSP

$

33,565

832

$ 34,397

$ 33

30,800

30,833

3,564

3,564

$ 34,397

95

$

$

$

$

Youth

Service

Center

43,465

136,295

179,760

2,000

177,760

179,760

179,760

Every

Child Counts

Grant

$ 278,315

71,852

$ 350,167

$

2,296

347,871

350,167

$ 350,167

Alameda

Behavioral

Health Care

$

26,466

$ 26,466

$

26,466

26,466

$ 26,466

(Continued)

Cil:y of Fremont Combining Balance Sheet

Non-Major Governmental Funds, Continued

June 30, 2007 (With comparative totals for june 30, 2006)

Measure B

ASSETS

Cash and investments held by City $

Restricted cash and investments

held by fiscal agent

Receivables:

Due from othE~r governmental agencies 266,062

Housing rehabilitation loans, net

Accrued interest

Other

Total asset& $ 266,062

LIABILITIES AND FUND BALANCES

Liabilities:

Accounts payable $ 46,395

Salaries and wages payable 873

Due to other funds 564

Deferred revenue

Total liabilities 47,832

Fund Balances:

Reserved for encumbrances

Reserved for debt service

Unreserved:

Designated.:

Specific purposes 218,230

Capital projects

Undesignated

Total fund balances 218,230

Total liabilities and fund balances $ 266,062

$

$

$

$

Special Revenue Funds

Family Integrated

Resource Haas Human Services Waste

Center Grant Misc. Management

4,617,979 $ 13,649 $ 332,595 $ 7,091,783

86,670 671,996

4,704,649 $ 13,649 $ 332,595 $ 7,763,779

11,108 $ 486 $ 49 $ 234,349

19,899 12,654

96,758

31,007 486 49 343,761

7,243 139,491

4,666,399 13,163 332,546 7,280,527

4,673,642 13,163 332,546 7,420,018

4,704,649 $ 13,649 $ 332,595 $ 7,763,779

96

Integrated

Waste Used

Oil Grant

10,988

10,988

10,988

10,988

10,988

Urban

Runoff

2,588,926

$ 2,588,926

$ 16,tl7

9,940

26,157

110,499

2,452,270

2,562,769

$ 2,588,926

$

$

Traffic

Safety OTS

$

$

Special Revenue Funds

Abandoned

Vehicle

$

71,841

$ 71,841

$

71,841

71,841

$ 71,841

Narcotics

$

$

$

$

97

Asset

Seizure

524,029

33,177

557,206

5,972

1,562

7,534

549,672

549,672

557,206

$

$

$

$

COPS

AB3229

106,783

106,783

106,783

106,783

106,783

$

$

$

$

Justice

Assistance

Grant

26,705

26,705

1,428

1,428

25,277

25,277

26,705

Law

Enforcement

Technology

$

$

$

$

(Continued)

City of Fremont Combining 13alance Sheet

Non-Major Governmental Funds, Continued

June 30, 2007 (With comparative totals for june 30, 2006)

Metropolitan

Medical

Response

System

ASSETS

Cash and invcsbnents held by Cily $ 316,798

Restricled cash and investments

held by fiscal agent

Receivables:

Due from other governmental agencies

Housing rehabilitation loa~S; "net

Accrued interest

Other

Total assets $ 316,798

LIABILITIES AND FUND BALANCES

Liabilities:

Accounts payable $ 3,562

Salaries and wqges payable

Due to other funds

Deferred revenue

Total liabilities 3,562

Fund Balances:

Reserved for encumbrances 26,343

Reserved for d~bt service

Unreserved:

Designated:

Specific ptuposes 286,893

Capital projects

Undesignated

Total fund balances 313,236

Total liabilities and fund ba]ances $ 316,798

Special Revenue Funds

Miscellaneous Miscellaneous Traffic

Federal State Congestion State

Grants Support AB2928 Gas Tax

$ $ $ 2,586,755 $ 8,191,839

98,315 106,736 345,595

740

70,541 45,015

$ 98,315 $ 178,017 $ 2,586,755 $ 8,582,449

$ 51,894 $ 25,618 $ 182,752 $ 53,156

27,729 151,659

18,692 740

98,315 178,017 182,752 53,156

42,485 717,248 260,244

1,686,755 8,269,049

(42,485)

2,404,003 8,529,293

$ 98,315 $ 178,017 $ 2,586,755 $ 8,582,449

98

Special Revenue Flmds Total Debt Service Funds Capital Project Funds

Non-major Total Miscellaneous

County Special 2003&2005 Non-major Transportation State

Support for Maintenance Revenue Fire General Financing Debt Development Grants

City Street District Funds Obligation Bonds Authority Service Act Capital

$ 326,113 $ 205,873 $ 27,729,020 $ 1,554,451 $ $ 1,554,451 $ $

33,177 2,884,906 2,884,906

2,203,835 141,024 2,040,497

1,004,152

841,858

1,012,999

$ 326,113 $ 205,873 $ 32,825,041 $ 1,554,451 $ 2,884,906 $ 4,439,357 $ 141,024 $ 2,040,497

$ $ 8,905 $ 1,000,840 $ $ $ $ 60,285 $ 64,335

67,507

1,292,001 80,739 1,976,162

2,098,658

8,905 4,459,006 141,024 2,040,497

1,977,646 40,260 25,655,207

1,554,451 2,884,906 4,439,357

326,113 196,968 27,098,308

(709,919) (40,260) (25,655,207)

326,113 196,968 28,366,035 1,554,451 2,884,906 4,439,357

$ 326,113 $ 205,873 $ 32,825,041 $ 1,554,451 $ 2,884,906 $ 4,439,357 $ 141,024 $ 2,040,497

(Continued)

99

City of Fremont Combining Balance Sheet

Non-Major Governmental Funds, Continued

June 30,2007 (With comparative totals for june 30, 2006)

Interchange

Construction

ASSETS

Cash and invcstme11ts held by City $ 6,448,134

Restricted cash and investments

held by fiscal agent

Receivables:

Due from other governmental agencies

Housing rehabilitation loans, net

Accrued interest

Other

Total assets $ 6,448,134

LIABILITIES AND FUND BALANCES

Liabilities:

Accounts payable $

Salaries and wages payable

Due to other funds

Deferred revenue

Totalliabiliti~s

Fund Balances:

Reserved for encumbrances

Reserved for debt service

Unreserved:

Designated:

Specific purposes

Capital projects 6,448,134

Undcsignated

Total fund balances 6,448,134

Total liabilities and fund balances $ 6,448,134

Vehicle

Replacement

$ 3,517,775

$ 3,517,775

$ 5,912

5,912

196,073

3,315,790

3,511,863

$ 3,517,775

100

Capital Project Funds

Capital

Capital Improvement-

Improvement Outside Sources Measure B

$ 25,366,923 $ 3,900,212 $ 7,429,119

831,352

$ 25,366,923 $ 3,900,212 $ 8,260,471

$ 102,560 $ 5,758 $ 1,276,565

102,560 5,758 1,276,565

1,343,522 9,971,005 11,878,677

23,920,841

(6,076,551) (4,894,771)

25,264,363 3,894,454 6,983,906

$ 25,366,923 $ 3,900,212 $ 8,260,471

Capital Project Funds Total

Intermodal 2003 & 2005 Non-major

Surface Traffic Fire General Capital Total Non-major

Transportation System Obligation Financing Projects Governmental Funds

Efficiency Act Management Bonds Authority Funds 2007 2006

$ $ $ 12,209,973 $ $ 58,872,136 $ 88,155,607 $ 68,926,806

13,717 13,717 2,931,800 5,196,891

1,380,074 62,060 4,455,007 6,658,842 3,834,125

1,004,152 1,036,948

124,380 124,380 966,238 863,812

1,012,999 36,782

$ 1,380,074 $ 62,060 $ 12,334,353 $ 13,717 $ 63,465,240 $ 100,729,638 $ 79,895,364

$ 1,040,242 $ 1,422 $ 254,852 $ $ 2,811,931 $ 3,812,771 $ 1,094,591

67,507 43,686

339,832 60,638 2,457,371 3,749,372 2,459,807

2,098,658 1,855,607

1,380,074 62,060 254,852 5,269,302 9,728,308 5,453,691

208,320 939,180 8,712,178 58,944,422 60,922,068 15,870,614

4,439,357 5,041,530

27,098,308 10,935,634

3,367,323 13,717 37,065,805 37,065,805 43,342,580

(208,320) (939,180) (37,814,289) (38,524,208) (748,685)

12,079,501 13,717 58,195,938 91,001,330 74,441,673

$ 1,380,074 $ 62,060 $ 12,334,353 $ 13,717 $ 63,465,240 $ 100,729,638 $ 79,895,364

(Concluded)

101

City of Fremont Combining Statement of Revenues, Expenditures and Changes in Fund Balances

Non-Major Governmental Funds

For the year ended June 30, 2007 (With comparative totals for the year ended June 30, 2006)

Special Revenue Funds

Community

Development

Block HOME HUD/HOPE HUDJSHP

Grant Grant Grant Grant

REVENUES:

Property tax $ $ $ $ Charg10!s for services

IntergQvcmmental 1,713,443 398,975 261,148

Investment earnings 229

Other 383,176

Total revenues 2,096,619 398,975 229 261,148

EXPENDITURES:

Current:

Police services

Fire services

Human services

Capital assets maintenance and operations

Colhmunity development and

environmental services 2,039,530 375,290 259,128

Capit<ll outlay

Debt service:

Principal

Interest and fiscal charges

Total expenditures 2,039,530 375,290 259,128

REVENUES OVER (UNDER)

EXI'ENDITURES 57,089 23,685 229 2,020

OTHER FINANCING SOURCES (USES):

Transfers in

Transfers out (57,089) (29,342) (2,020)

'total other financing sources (uses) (57,089) (29,342) (2,020)

Net change in fund balances (5,657) 229

FUNO BALANCES:

Beginning of year 7,744 5,723

End of year $ $ 2,087 $ 5,952 $

102

Multi-family

Housing

$

39,177

13,850

53,027

276,432

276,432

(223,405)

(4,164)

(4,164)

(227,569)

417,024

$ 189,455

Special Revenue Funds

Older Multipurpose Area Agency Youth Every Alameda

Americans Tri-City Senior Senior Svc. on Aging Service Child Counts Behavioral

Grant Elders Services Program MSSP Center Grant Health Care

$ $ $ $ $ $ $ $ 206,422 412,569

43,086 257,810 126,521 470,015 75,000 137,257

4,763 2,287

27,257 221,379 1,878

43,086 32,020 430,088 257,810 128,399 470,015 487,569 137,257

43,086 27,300 703,608 240,464 125,824 470,015 414,317 131,651

43,086 27,300 703,608 240,464 125,824 470,015 414,317 131,651

4,720 (273,520) 17,346 2,575 73,252 5,606

312,000

(459,252) (17,346) (2,575) (19,636) (5,606)

(147,252) (17,346) (2,575) (19,636) (5,606)

4,720 (420,772) 53,616

111,090 448,059 3,564 296,551

$ $ 115,810 $ 27,287 $ $ 3,564 $ $ 350,167 $

(Continued)

103

City of Fremont Combining Statement of Revenues, Expenditures and Changes in Fund Balances

Non-Major Governmental Funds, Continued

For the year ended June 30, 2007 (With comparative totals for the year ended june 30, 2006)

Special Revenue Funds

Family

Resource Haas Human Servlces

Measure B Center Grant Misc.

REVENUES:

Property tax $ $ $ $

Charges for services 10,673 805,577 3,000

Intergovernmental 797,701 216,575 24,367

Investment earnings 2,985 195,072 2,195 1,924

Other 73,261 11,366

Total revenues 811,359 1,290,485 2,195 40,657

EXPENDITURES:

Current:

Police services

Fire services

Human services 795,046 617,012 46,887 103,286

Capital assets maintenance and operations

Community development and

environmental services

Capital outlay

Debt service:

Principal

Interest and fiscal charges 56,045

Total expenditures 795,046 673,057 46,887 103,286

REVENUES OVER (UNDER)

EXPENDITURES 16,313 617,428 (44,692) (62,629)

OTHER FINANCING SOURCES (USES):

Transfers in 445,175

Transfers out (865,738) (382) (50,000)

Total other financing sources (uses) (865,738) (382) 395,175

Net change in fund balances 16,313 (248,310) (45,074) 332,546

FUND BALANCES:

Beginning of year 201,917 4,921,952 58,237

End of year $ 218,230 $ 4,673,642 $ 13,163 $ 332,546

104

Integrated

Waste

Management

$

6,307,463

98,265

6,405,728

5,375,068

5,375,068

1,030,660

1,558

(2,413,188)

(2,411,630)

(1,380,970)

8,800,988

$ 7,420,018

Special Revenue Funds

Integrated

Waste Narcotics Justice Law

Used Oil Urban Traffic Abandoned Asset COPS Assistance Enforcement

Grant Runoff Safety OTS Vehicle Seizure AB3229 Grant Technology

$ $ $ $ $ $ $ $ 1,323,981

6,157 14,992 151,170 166,701 409,045 26,705 98,723

18,997 7,738

6,157 1,323,981 14,992 151,170 185,698 416,783 26,705 98,723

14,992 151,170 226,163 310,000 32,923 98,723

142,984

6,157 971,215

74,674

6;157 1,114,199 14,992 151,170 300,837 310,000 32,923 98,723

209,782 (115,139) 106,783 (6,218)

50,000

(122,168)

(122,168) 50,000

87,614 (65,139) 106,783 (6,218)

2,475,155 614,811 31,495

$ $ 2,562,769 $ $ $ 549,672 $ 106,783 $ 25,277 $

(Continued)

105

City of Fremont Combining Statement of Revenues, Expenditures and Changes in Fund Balances

Non-Major Governmental Funds, Continued

For the year ended June 30, 2007 (With comparative totals for the year ended June 30, 2006)

Special Revenue Funds

Metropolitan

Medical Miscellaneous Miscellaneous Traffic

Response Federal State Congestion

System Grants Support AB2928

REVENUES:

Property tax $ $ $ $

Charges for services

Intergoverrunental 248,763 218,962 750,967 1,547,256

Investment earnings 14,686 100,349

Other

Total revenues 263.449 218,962 750,967 1,647,605

EXPENDITURES:

Current:

Police services 45,580 287,500

Fire services 236,619 96,833

Human services 76,549 111,714

Capital assets maintenance and operations 182,752

Conununity development and

environmental services 296,000

Capital outlay 43,753

Debt service:

Principal

Interest and fiscal charges

Total expenditures 236,619 218,962 738,967 182,752

REVENUES OVER (UNDER)

EXPENDITURES 26,830 12,000 1.464,853

OTHER FINANCING SOURCES (USES):

Transfers in

Transfers out (12,000)

Total other financing sources (uses) (12,000)

Net change in fund balances 26,830 1.464,853

FUND BALANCES:

Beginning of year 286,406 939,150

End of year $ 313,236 $ $ $ 2.404,003

106

State

Gas Tax

$

3,808,614

374,684

4,183,298

3,802,941

3,802,941

380,357

(1,196,000)

(1,196,000)

(815,643)

9,344,936

$ 8,529,293

Special Revenue Funds

County

Support for Maintenance

City Streets District

$ $

141,731

13,695

13,695 141,731

4,130 112,877

4,130 112,877

9,565 28,854

(5,644)

(5,644)

9,565 23,210

316,548 173,758

$ 326,113 $ 196,968

$

Total

Non-major

Special

Revenue

Funds

9,250,593

12,082,068

739,604

718,317

22,790,582

1,167,051

333,452

3,906,759

4,245,684

9,598,820

118,427

56,045

19,426,238

3,364,344

808,733

(5,262,150)

(4,453,417)

(1,089,073)

29,455,108

$ 28,366,035

Debt Service Funds

2003 & 2005

Fire General

Obligation Bond

$ 1,434,080

12,799

94,794

1,541,673

200,000

1,566,752

1,766,752

(225,079)

(225,079)

1,779,530

$ 1,554,451

107

$

Financing

Authority

165,175

165,175

4,055,000

4,760,892

8,815,892

(8,650,717)

8,433,704

(160,081)

8,273,623

(377,094)

3,262,000

$ 2,884,906

$

Total

Non-major

Debt

Service

Fund

1,434,080

12,799

259,969

1,706,848

4,255,000

6,327,644

10,582,644

(8,875,796)

8,433,704

(160,081)

8,273,623

(602,173)

5,041,530

$ 4,439,357

Capital Projects

Miscellaneous

Transportation State

Development Grants

Act Capital

$ $

140,928 7,304,469

140,928 7,304,469

140,928 7,552,493

8,954

(256,978)

140,928 7,304,469

$ $

(Continued)

City of Fremont Combining Statement of Revenues, Expenditures and Changes in Fund Balances

Non-Major Governmental Funds, Continued

For the year ended June 30,2007 (With comparative totals for the year ended June 30, 2006)

Capital Projects

Capital

Interchange Vehicle Capital Improvement

Construction Replacement Improvement Outside Sources

REVENUES:

Property tax $ $ $ $

Charges for services 245,000

Intergovernmental

Investment earnings 243,315 140,839 897,422

Other 28,816 4,171,500 128,579

Total revenues 243,315 169,655 5,313,922 128,579

EXPENDITURES:

Current:

Police services

Fire services

Human services

Capital assets maintenance and operations 44,838 1,748,588 1,274,137

Community development an<i

environmental services

Capital outlay 745,308 324,655 914,580

Debt service:

Principal

Interest and fiscal charges

Total expenditures 790,146 2,073,243 2,188,717

REVENUES OVER (UNDER)

EXPENDITURES 243,315 (620,491) 3,240,679 (2,060,138)

OTHER FINANCING SOURCES (USES):

Transfers in 909,417 1,170,120 6,458,148

Transfers out (1,000,000) (63,000)

Total other financing sources (uses) 909,417 170,120 6,395,148

Net change in fund balances 1,152,732 (450,371) 9,635,827 (2,060,138)

FUND BALANCES:

Beginning of year 5,295,402 3,962,234 15,628,536 5,954,592

End of year $ 6,448,134 $ 3,511,863 $ 25,264,363 $ 3,894,454

108

Measure B

$

4,668,357

316,517

4,984,874

6,050,645

6,050,645

(1,065,771)

(1,065,771)

8,049,677

$ 6,983,906

Intermodal

Surface

Transportation

Efficiency Act

$

2,797,567

2,797,567

2,177,907

619,660

2,797,567

$

Capital Projects

Traffic

System

Management

$

33,785

33,785

33,785

33,785

$

2003 & 2005

Fire General

Obligation

Bonds

$

859,283

859,283

6,078,486

6,078,486

(5,219,203)

(5,219,203)

17,298,704

$ 12,079,501

$

$

Financing

Authority

59,170

59,170

1,851,105

97,434

1,948,539

(1,889,369)

2,003

(731)

1,272

(1,888,097)

1,901,814

13,717

109

$

Total

Non-major

Capital

Projects

Funds

245,000

14,945,106

2,516,546

4,328,895

22,035,547

19,023,321

8,954

10,276,816

97,434

29,406,525

(7,370,978)

8,539,688

(1,063,731)

7,475,957

104,979

58,090,959

$ 58,195,938

Total Non-major

Governmental Funds

$

2007

1,434,080

9,495,593

27,039,973

3,516,119

5,047,212

46,532,977

1,167,051

333,452

3,906,759

23,269,005

9,607,774

10,395,243

4,255,000

6,481,123

59,415,407

(12,882,430)

17,782,125

(6,485,962)

11,296,163

(1,586,267)

92,587,597

$ 91,001,330

$

2006

2,216,125

2,898,066

11,375,515

2,189,608

5,092,502

23,771,816

940,054

439,370

3,699,326

3,805,712

5,340,581

11,341,303

4,110,000

5,426,026

35,102,372

(11,330,556)

12,021,048

(1,953,987)

10,067,061

(1,263,495)

75,705,168

$ 74,441,673

(Concluded)

PROPRIETARY FUNDS

111

City of Fremont Combining Statement of Net Assets

Proprietary Fund Type

June 30,2007 (With comparative totals for june 30, 2006)

ASSETS

Current assets:

Cash and investments held by City

Other receivables

Total current assets

Noncurrent assets:

Depreciable assets

Less accumulated depreciation

Land held for resale

Total noncurrent nssets

Total assets

LIABILITIES

Current liabilities:

Accounts payable

Salaries and wages payable

Claims payable

Total current liabilities

Noncurrent liabilities:

Claims payable

Total noncurrent liabilities

Total liabilities

NET ASSETS

Invested in capital assets

Unrestricted

Total net assets

Risk

Management

$ 7,515,774

7,515,774

2,821,430

2,821,430

10,337,204

44,911

37,822

3,629,000

3,711,733

5,742,000

5,742,000

9,453,733

883,471

$ 883,471

112

Internal Service Funds

Totals

Information

Technology 2007 2006

$ 1,476,178 $ 8,991,952 $ 6,806,811

163,396 163,396 201,091

1,639,574 9,155,348 7,007,902

8,155,820 8,155,820 8,056,363

(5,122,753) (5,122,753) (4,539,352)

2,821,430 2,821,430

3,033,067 5,854,497 6,338,441

4,672,641 15,009,845 13,346,343

141,188 186,099 190,099

59,324 97,146 74,745

3,629,000 3,473,272

200,512 3,912,245 3,738,116

5,742,000 5,800,728

5,742,000 5,800,728

200,512 9,654,245 9,538,844

3,033,067 3,033,067 3,517,011

1,439,062 2,322,533 290,488

$ 4,472,129 $ 5,355,600 $ 3,807,499

City of Fremont Combining Statement of Revenues, Expenses and Changes in Net Assets

Proprietary Fund Type

For the year ended June 30,2007 (With comparative totals for the year ended June 30, 2006)

Internal Service Funds

Totals

Risk Information

Management Technology 2007

OPERATING REVENUES:

Charges for services $ 6,818,796 $ 4,905,096 $ 11,723,892 $

Other 53,511 15,522 69,033

Total operating revenues 6,872,307 4,920,618 11,792,925

OPERATING EXPENSES:

Salaries and wages 370,507 2,456,919 2,827,426

Insurance premiums 1,046,388 1,046,388

Provision for claim losses 4,911,365 4,911,365

Claims administration 296,222 296,222

Materials and supplies 69,937 1,225,570 1,295,507

Depreciation 628,977 628,977

Other 56,556 56,556

Total operating expenses 6,694,419 4,368,022 11,062,441

OPERATING INCOME (LOSS) 177,888 552,596 730,484

NONOPERATING REVENUES (EXPENSES):

Investment income 314,198 39,728 353,926

Total nonoperating revenues (expenses) 314,198 39,728 353,926

Transfers in 1,019,327 1,019,327

Transfers out (555,636) (555,636)

INCREASE IN NET ASSETS 492,086 1,056,015 1,548,101

NET ASSETS:

Beginning of year 391,385 3,416,114 3,807,499

End of year $ 883,471 $ 4,472,129 $ 5,355,600 $

113

2006

9,644,289

60,999

9,705,288

2,533,351

1,165,279

3,863,260

330,892

1,052,336

792,341

42,780

9,780,239

(74,951)

393,654

393,654

526,480

(495,749)

349,434

3,690,513

3,807,499

City of Fremont Combining Statement of Cash Flows Proprietary Fund Type

For the year ended June 30, 2007 (With comparative totals for the year ended June 30, 2006)

Intemal Service Funds

Totals

Risk Information

Management Technology 2007 2006

CASH FLOWS FROM OPERATING ACTIVITIESo

Receipts from users $ 6,823,199 $ 4,938,388 $ 11,761,587 $ 9,635,023

Other revenue 53,511 15,522 69,033 60,999

Less: Payments to suppliers (1,434,829) (1,207,288) (2,642,117) (2,435,429)

Payments for employees services (361,418) (2,443,607) (2,805,025) (2,6:12,619)

Payments for claims paid (4,814,365) (4,814,365) (3,894,260)

Payments to others (56,556) (56,556) (42,780)

Net cash provided (used) by operating activities 266,098 1,246,459 1,512,557 690,934

CASH FLOWS FROM INVESTING ACTIVITIESo

Interest on cash and investments 314,198 39,728 353,926 161,206

Net cash provided by investing activities 314,198 39,728 353,926 161,206

CASH FLOWS FROM CAPITAL ACTIVITIESo

Acquisition of capital assets (145,033) (145,033) (543,778)

Net cash provided (used) by capital activities (145,033) (145,033) (543,778)

CASH FLOWS FROM NON CAPITAL ACTIVITIES:

Transfers in 1,019,327 1,019,327 526,480

Transfers out (555,636) (555,636) (495,749)

Net cash provided (used) by noncapital activities 463,691 463,691 30,731

Net increase (decrease) in cash and cash investments 580,290 1,604,845 2,185,141 339,093

CASH AND INVESTMENTS:

Beginning of year 6,935,478 (128,667) 6,806,811 6,467,718

End of year $ 7,515,774 $ 1,476,178 $ 8,991,952 $ 6,806,811

RECONCIUA TION OF OPI:RATING

INCOME (LOSS) TO NET CASH PROVIDED

(USED) BY OPERATING ACTIVITIESo

Operating income (loss) $ 177,888 $ 552,596 $ 730,484 $ (74,951)

Adjustments to reconcile opetating income (loss)

to net cash provided (used) by operating activities:

Depreciation 628,977 628,977 792,341

Changes in assets and liabilities:

Accounts receivable 4,403 33,292 37,695 (9,266)

Accounts payable (22,282) 18,282 (4,000) 113,078

Salaries and wages payable 9,089 13,312 22,401 (99,268)

Compensated absences

Claims payable 97,000 97,000 (31,000)

Net cash provided (used) by operating activities $ 266,098 $ 1,246,459 $ 1,512,557 $ 690,934

T14

FIDUCIARY FUND FINANCIAL STATEMENTS

Agency Funds are used to account for assets held by the City on behalf of others as their agent. Agency funds are custodial in nature (i.e., assets equal liabilities) and do not involve measurement of results of operations. Specific agency funds are as follows:

Local Improvement Districts - Special assessment bonds were issued by local improvement districts under various public improvement acts of the State of California and are secured by liens against properties deemed to have been benefited by the improvements for which the bonds were issued. The City acts as an agent in collecting the assessments from the property owners, forwarding the collections to bondholders, and initiating foreclosure proceedings when necessary. This fund also accounts for the City of Fremont Community Facilities District No.1. $30 million Series 2001 bonds and $38 million Series 2005 bonds which were issued to finance the public improvements at Pacific Commons. The 2001 and 2005 Series bonds each have a series of maturities of up to 30 years and have a weighted average fixed interest rate of 6.11% (Series 2001) and 5.33% (Series 2005).

Perfonnance Bonds, Deposits and Confiscated Assets - This fund accounts for bonds and deposits received in conjunction with construction activity within the City, assets confiscated by the police and other deposits, held by the City in a fiduciary capacity.

Tri-City Waste Facilihj Financing Authority -This fund accounts for the revenue bonds issued by the cities of Fremont, Newark and Union City to pay for the cities' share of the future landfill closing costs of the Durham Road Landfill.

Tri-City Waste Disposal Authority - This fund provides for the administration of funds collected by the Tri-City Waste Disposal Authority, which exists to administer disposal agreements for solid waste generated in the cities of Newark, Union City and Fremont.

Soutl!em Alameda Cozmh; GIS - This fund accounts for monies collected from participating agencies for the administration of the program. The City of Fremont is the administrator of the Geographic Information System which serves the participating agencies. The program operates under a JPA that was approved by the City of Fremont, City of Union City, City of Newark, Union Sanitary District and Alameda County Water District.

115

City of Fremont Statement of Fiduciary Net Assets

Fiduciary Funds

June 30, 2007 (With comparative totals for June 30, 2006)

All Agency Funds

Assets:

Cash and investments held by City

Restricted cash and investments

held by City Restricted cash and investments

held by fiscal agent

Interest receivable

Accounts receivable

Other receivables

Total assets

Liabilities:

Accounts payable

Deposits

Total liabilities

Local

Improvement

Districts

$ 14,554,893

2,050,031

17,951,384

36,264

36,382

$ 34,628,954

$ 8,160

34,620,794

$ 34,628,954

116

Performance

Bonds, Tri-City Waste

Deposits and Facility

Confiscated Financing

Assets Authority

$ 1,547,010 $ 380,724

20,541 765,312

119,547

37,640

$ 1,687,098 $ 1,183,676

$ 123,947 $

1,563,151 1,183,676

$ 1,687,098 $ 1,183,676

Tri-City Southern

Waste Alameda

Disposal County Total

Authority GIS 2007 2006

$ $ 7,145 $ 16,489,772 $ 13,315,597

2,050,031 1,997,357

18,737,237 43,344,434

36,264 41,888

9,041 128,588 27,489

74,022 74,603

$ $ 16,186 $ 37,515,914 $ 58,801,368

$ $ $ 132,107 $ 190,902

16,186 37,383,807 58,610,466

$ $ 16,186 $ 37,515,914 $ 58,801,368

117

City of Fremont Statement of Changes in Assets and Liabilities Agency Funds

For the year ended June 30, 2007

Balance

July 1, 2006

Local Improvement Districts

Assets:

Cash and investments held by City $ 11,516,095

Restricted cash and investments held by City 1,997,357

Restricted cash and inveslments held by fiscal agent 42,559,356

Interest receivable 41,888

Other receivables 28,415

Total assets $ 56,143,111

Uabilities:

Accounts payable $ 6,978

Deposits 56,136,133

Total liabilities $ 56,143,111

Performance Bonds 1 DeQosits <tnd Confiscated Assets

Assets:

Cash and investments held by City $ 1,424,720

Reslricted cash and investments held by fiscal agent 20,324

Accounts receivable

Total assets $ 1,445,044

Liabilities:

Accounts payable $ 166,429

Deposits 1,278,615

Total liabilities $ 1,445,044

Tri-Ci!y Waste Facili!Y Financ!ng Authori!)':

Assets:

Cash and investments held by City $ 371,148

Restricted cash and investments held by fiscal agent 764,754

Other receivables 46,188

Total assets $ 1,182,090

Liabilities:

Deposits $ 1,182,090

Total liabilities $ 1,182,090

118

Balance

Additions Deductions June 30, 2007

$ 18,658,522 $ (15,619,724) $ 14,554,893

52,674 2,050,031

12,786,722 (37,394,694) 17,951,384

2,688,976 (2,694,600) 36,264

5,653,688 (5,645,721) 36,382

$ 39,840,582 $ (61,354,739) $ 34,628,954

$ 8,160 $ (6,978) $ 8,160

43,073,109 (64,588,448) 34,620,794

$ 43,081,269 $ (64,595,426) $ 34,628,954

$ 2,225,117 $ (2,102,827) $ 1,547,010

217 20,541

461,959 (342,412) 119,547

$ 2,687,293 $ (2,445,239) $ 1,687,098

$ 1,309,291 $ (1,351,773) $ 123,947

2,347,077 (2,062,541) 1,563,151

$ 3,656,368 $ (3,414,314) $ 1,687,098

$ 703,548 $ (693,972) $ 380,724

785,357 (784,799) 765,312

39,755 (48,303) 37,640

$ 1,528,660 $ (1,527,074) $ 1,183,676

$ 599,706 $ (598,120) $ 1,183,676

$ 599,706 $ (598,120) $ 1,183,676

(Continued)

City of Fremont Statement of Changes in Assets and Liabilities Agency Funds, Continued

For the year ended June 30, 2007

Balance

Julr 1, 2006

Tri-City Waste Disgosa.l Authority

Assets:

Cash and investments held by City $ 17,495

Total assets $ 17,495

Liabilities:

Accounts payable $ 17,495

Total liabilities $ 17,495

Southern Alameda County GIS

Assets:

Cash and investments held by City $ (13,861)

Accounts receivable 27,489

Total assets $ 13,628

Liabilities:

Accounts payable $

Deposits 13,628

Total liabilities $ 13,628

Total Agency Funds

Assets:

Cash and investments: held by City $ 13,315,597

Restricted cash and investments held by City 1,997,357

Restricted cash and investments held by fiscal agent 43,344,434

Interest receivable 41,888

Accounts receivables 27,489

Other receivables 74,603

Total assets $ 58,801,368

Liabili.ties:

Accounts payable $ 190,902

Deposits 58,610,466

Total liabilities $ 58,801,368

Jl9

$

$

$

$

$

$

$

$

$

$

$

$

Balance

Additions Deductions june 30, 2007

$ (17,495) $

$ (17,495) $

$ (17,495) $

$ (17,495) $

48,330 $ (27,324) $ 7,145

9,041 (27,489) 9,041

57,371 $ (54,813) $ 16,186

5,040 $ (5,040) $

2,558 16,186

7,598 $ (5,040) $ 16,186

21,635,517 $ (18,461,342) $ 16,489,772

52,674 2,050,031

13,572,296 (38,179,493) 18,737,237

2,688,976 (2,694,600) 36,264

471,000 (369,901) 128,588

5,693,443 (5,694,024) 74,022

44,113,906 $ (65,399,360) $ 37,515,914

1,322,491 $ (1,381,286) $ 132,107

46,022,450 (67,249,109) 37,383,807

47,344,941 $ (68,630,395) $ 37,515,914

(Concluded)

APPENDIXC

FORM OF FINAL OPINION OF SPECIAL COUNSEL

Appendix C

APPENDIX C

FORM OF FINAL OPINION OF SPECIAL COUNSEL

[Letterhead of Quint & Thimmig LLP]

[Closing Date]

City Council of the City of Fremont

3300 Capitol Avenue Fremont, California 94538

OPINION: $27,675,000 Certificates of Participation (2008 Refinancing Project) Evidencing Direct, Undivided Fractional Interests of the Owners Thereof in Lease Payments to be Made by the City of Fremont (Alameda County, California), as the Rental for Certain Property Pursuant to a Lease Agreement with the Fremont Public Financing Authority

Members of the City Council:

We have acted as special counsel in connection with the delivery by the City of Fremont (the "City"), of its $27,675,000 Lease Agreement, dated as of September 1, 2008, by and between the Fremont Public Financing Authority (the "Authority") and the City (the "Lease Agreement"), pursuant to the California Government Code. The Authority has, pursuant to the Assignment Agreement, dated as of September 1, 2008 (the "Assignment Agreement"), by and between the Authority and The Bank of New York Mellon Trust Company, N.A:, as trustee (the "Trustee"), assigned certain of its rights under the Lease Agreement, including its right to receive a portion of the lease payments made by the City thereunder (the "Lease Payments"), to the Trustee. Pursuant to the Trust Agreement, dated as of September 1, 2008, by and among the Trustee, the Authority and the City (the "Trust Agreement"), the Trustee has executed and delivered certificates of participation (the "Certificates") evidencing direct, undivided fractional interests of the owners thereof in the Lease Payments. We have examined the law and such certified proceedings and other papers as we deem necessary to render this opinion.

As to questions of fact material to our opinion, we have relied upon representations of the City contained in the Lease Agreement and in the certified proceedings and certifications of public officials and others furnished to us without undertaking to verify the same by independent investigation.

Based upon our examination, we are of the opinion, under existing law, as follows:

1. The City is duly created and validly existing as a general law city organized and existing under and by virtue of the Constitution and laws of the State of California with the power to enter into the Lease Agreement and the Trust Agreement and to perform the agreements on its part contained therein.

2. The Lease Agreement has been duly authorized, executed and delivered by the City and is an obligation of the City valid, binding and enforceable against the City in accordance with its terms.

3. The Trust Agreement and the Assignment Agreement are valid, binding and enforceable in accordance with their terms.

Appendix C Page 1

4. Subje~t to the terms and provisions of the Lease Agreement, the Lease Payments to be made by the City are payable from general funds of the City lawfully available therefor. By virtue of the Assignment Agreement, the owners of the Certificates are entitled to receive their fractional share of the Lease Paym<ents in accordance with the terms and provisions of the Trust Agreement.

5. The portion of the Lease Payments designated as and comprising interest and received by the owners of the Certificates is excludable from gross income for federal income tax purposes under section 103 of the Internal Revenue Code of 1986, as amended (the "Code") and, under section 55 of the Code, is not included as an item of tax preference in computing the federal alternative minimum tax for individuals and corporations under the Code but is taken into account in computing an adjustment used in determining the federal alternative minimum tax for certain corporations. The opinions set forth in the preceding sentence are subject to the condition that the City comply with all requirements of the Code that must be satisfied subsequent to the delivery of the Lease Agreement in order that such interest be, or continue to be, excluded from gross income for federal income tax purposes. The City has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of such interest in gross income for federal income tax purposes to be retroactive to the date of delivery of the Lease Agreement. We express no opinion regarding other federal tax consequences arising with respect to the Lease Agreement and the Certificates.

6. The portion of the Lease Payments designated as and comprising interest and received by the owners of \he Certificates is exempt from personal income taxation imposed by the State of California.

Ownership of the Certificates may result in other tax consequences to certain taxpayers, and we express no opinion regarding any such collateral consequences arising with respect to the Certificates.

The rights of the owners of the Certificates and the enforceability of the Lease Agreement, the Assignment Agreement and the Trust Agreement may be subject to the Bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted and also may be subject to the exercise of judicial discretion in accordance with general principles of equity.

In rendering this optmon, we have relied upon certifications of the City and others with respect to certain material facts. Our opinion represents our legal judgment based upon such review of the law and the facts that we deem relevant to render our opinion and is not a guarantee of a result. This opinion is given as of the date hereof and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that may hereafter occur.

Respectfully submitted,

Appendix C Page2

APPENDIXD

FORM OF CONTINUING DISCLOSURE CERTIFICATE

Appendix- D

APPENDIX D

FORM OF CONTINUING DISCLOSURE CERTIFICATE

This CONTINUING DISCLOSURE CERTIFICATE (the "Disclosure Certificate") is executed and delivered by the CITY OF FREMONT (the "City") in connection with the execution and delivery of $27,675,000 City of Fremont (Alameda County, California) Certificates of Participation (2008 Refinancing Project) (the "Certificates"). The Certificates are being executed and delivered pursuant to a Trust Agreement, dated as of September 1, 2008, by and among The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee"), the City and the Fremont Public Financing Authority (the "Trust Agreement"). The City covenants and agrees as follows:

Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the holders and beneficial owners of the Certificates and in order to assist the Participating Underwriters in complying with S.E.C. Rule 15c2-12(b)(5).

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

"Annual Report" shall mean any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.

"Dissemination Agent" shall mean City or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation.

"Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure Certificate.

"National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule.

"Participating Underwriter" shall mean any of the original underwriters of the Certificates required to comply with the Rule in connection with offering of the Certificates.

"Repository" shall mean each National Repository and each State Repository.

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

"State Repository" shall mean any public or private repository or entity designated by the State of California as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Certificate, there is no State Repository.

Section 3. Provision of Annual Reports.

(a) The City shall, or shall cause the Dissemination Agent to, not later than nine months after the end of the City's fiscal year (which currently would be March 31), commencing March 31, 2009, with the report for the 2007-2008 fiscal year, provide to each Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than fifteen (15) Business Days prior to said date, the City shall provide the Annual Report to the Dissemination Agent (if other than the City). The City shall provide a written certificate with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent may conclusively rely upon such certificate of the City and shall have no duty or obligation to review such Annual Report. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the City may be submitted separately from the

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balance of the Annual Report, and later than the date required above for the filing of the Annual Report if not available by that date. If the City's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section S(c).

(b) If the City is unable to provide to the Repositories an Annual Report by the date required in subsection (a), the City shall send a notice to the Municipal Securities Rulemaking Board and the State Repository in substantially the form attached as Exhibit A.

(c) The Dissemination Agent shall:

(i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and each State Repository, if any; and

(ii) if the Dissemination Agent is other than the City and if the City requests the Dissemination Agent to provide the Annual Report to the Repositories, and if and to the extent the City has provided an Annual Report in final form to the Dissemination Agent for dissemination, file a report with the City certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided and listing all the Repositories to which it was provided.

Section 4. Content of Annual Reports. The City's Annual Report shall be in a format suitable for filing with each Repository and shall contain or incorporate by reference the following:

(a) Audited Financial Statements 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 City's audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available.

(b) To the extent not set forth in the Audited Financial Statements, operating data with respect to the City for preceding fiscal year, substantially similar to that provided in the corresponding tables and charts in the official statement for the Certificates:

(i) general fund revenue sources by type (over $1,000,000); (ii) assessed valuations and tax collection records; (ii) summary of investments, to the extent not summarized in the Audited

Financial Statements, including types and amounts of investments; (iv) combined annual contribution (City's share and employees' share) to the

Public Employees Retirement System; (v) adopted general fund budget; and (vi) to the extent not summarize in the Audited Financial Statements, a schedule of

general fund long term debt, indicating type of issue, final maturity, interest rate range, original issue amount, outstanding principal amount, dollar amount maturing in the fiscal year to which the report relates and principal amount outstanding as of the end of the fiscal year to which the report relates.

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 City or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The City shall clearly identify each such other document so included by reference.

(c) In addition to any of the information expressly required to be provided under this Disclosure Certificate, the City shall provide such further material information, if any, as may be

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necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading.

The City is solely responsible for the content and format of the Annual Report.

Section 5. Reporting of Significant Events.

(a) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Certificates, if the City determines that such event is material:

(i) Principal and interest payment delinquencies. (ii) Non-payment related defaults. (iii) Unscheduled draws on debt service reserves reflecting financial difficulties. (iv) Unscheduled draws on credit enhancements reflecting financial difficulties. (v) Substitution of credit or liquidity providers, or their failure to perform. (vi) Adverse tax opinions or events affecting the tax-exempt status of the security. (vii) Modifications to rights of security holders. (viii) Contingent or unscheduled bond calls. (ix) Defeasances. (x) Release, substitution, or sale of property securing repayment of the securities. (xi) Rating changes.

(b) Whenever the City obtains knowledge of the occurrence of a Listed Event, the City shall as soon as possible determine if such event would be material under applicable Federal securities law. The Dissemination Agent shall have no responsibility for such determination and shall be entitled to conclusively rely on the City's determination.

(c) If the City determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the City shall promptly file a notice of such occurrence with the Municipal Securities Rulemaking Board and each State Repository. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)( viii) and (ix) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Certificates pursuant to the Trust Agreement.

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

Section 7. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such 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 City pursuant to this Disclosure Certificate. The initial Dissemination Agent shall be the City. The Dissemination Agent may resign by providing thirty days written notice to the City. If at any time there is no designated Dissemination Agent appointed by the City, or if the Dissemination Agent so appointed is unwilling or unable to perform the duties of Dissemination Agent hereunder, the City shall be the Dissemination Agent and undertake or assume its obligations hereunder.

Section 8. Amendment: Waiver. Notwithstanding any other provisiOn of this Disclosure Certificate, the City may amend this Disclosure Certificate (provided the Dissemination Agent shall not be obligated to enter into any such amendment that modifies or increases its duties hereunder), and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied:

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(a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or S(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Certificates, or type of business conducted;

(b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Certificates, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

(c) the proposed amendment or waiver either (i) is approved by holders of the Certificates in the manner provided in the Trust Agreement for amendments to the Trust Agreement with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Certificates.

If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual financial information filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided.

If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the City to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be sent to the Repositories in the same manner as for a Listed Event under Section S(c).

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

Section 10. Default. In the event of a failure of the City to comply with any provision of this Disclosure Certificate any holder or beneficial owner of the Certificates may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Lease Agreement or the Trust Agreement, and the sole remedy under this Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance.

Section 11. Duties. Immunities and Liabilities of Dissemination Agent. All of the immunities, indemnities, and exceptions from liability in Article IX of the Trust Agreement insofar as the relate to the Trustee shall apply to the Dissemination Agent in this Disclosure Certificate. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City agrees to indemnify and save the Dissemination Agent, and its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of the disclosure of information pursuant to the Disclosure Certificate or arising out of or in the exercise of performance of its powers and duties hereunder, including the costs and expenses (including

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attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The Dissemination Agent shall have no duty of obligation to review any information provided to it hereunder and shall not be deemed to be acting in any fiduciary capacity for the City, the owner of a Certificate, or any other party. The Trustee shall have no liability to any party for any monetary damages or other financial liability of any kind whatsoever related to or arising from any breach of this Disclosure Certificate. No person shall have any right to commence any action against the Dissemination Agent seeking any remedy other than to compel specific performance of this Certificate. The Dissemination Agent may rely and shall be protected in acting or refraining from acting upon any written direction from the City or an opinion of Bond Counsel. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent or the Trustee and payment of the Certificates.

Section 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriters and holders and beneficial owners from time to time of the Certificates, and shall create no rights in any other person or entity.

Section 13. Fees and Expenses.

(a) The Dissemination Agent shall be entitled to payment and reimbursement from the City for its services and all advances, counsel fees and other expenses reasonably made and incurred by the Dissemination Agent.

(b) The Dissemination Agent may rely on and shall be protected in acting and refraining from acting upon any direction from the City or an opinion of nationally recognized bond counsel.

Section 14. Alternative Filing Location. Any filing under this Disclosure Certificate may be made solely by transmitting such filing to the Texas Municipal Advisory Council (the "MAC") as provided at http:/ /www.disclosureusa.org, unless the United States Securities and Exchange Commission has withdrawn the interpretive advice in its letter to the MAC, dated September 7, 2004.

Date: [Closing Date]

CITY OF FREMONT

BY--------~~~-------------­City Manager

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Name of Issuer:

Name of Issue:

EXHIBIT A

NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT

City of Fremont

Certificates of Participation (2008 Refinancing Project) Evidencing Direct, Undivided Fractional Interests of the Owners Thereof in Lease Payments to be made by the City of Fremont (Alameda County, California), as the Rental for Certain Property Pursuant to a Lease Agreement with the Fremont Public Financing Authority

Date of Issuance: [Closing Date]

NOTICE IS HEREBY GIVEN that the Issuer has not provided an Annual Report with respect to the above-named Certificates as required by Section 11.08 of the Trust Agreement dated as of September 1, 2008, by and among The Bank of New York Mellon Trust Company, N.A., as trustee, the Issuer and the Fremont Public Financing Authority. The Issuer anticipates that the Annual Report will be filed by ______ _

Dated: _______ _

cc: Trustee

CITY OF FREMONT

By __________________________ __

Title----------------

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