Loading...
HomeMy WebLinkAboutMINUTES - 10162007 - SD.5 TO: BOARD OF SUPERVISORS Contra FROM: JOHN CULLEN, COUNTY ADMINISTRATOR Costa O ;i16`�dd1, •� DATE: OCTOBER 16, 2007 :, _ :� �Osr"J-COUi"� �ti V O U n t1 SUBJECT: FISCAL YEAR 2007-2008 TAX AND REVENUE � �• ANTICIPATION NOTES (TRANS) SPECIFIC REQUEST(S)OR RECOMMENDATION(S)&BACKGROUND AND JUSTIFICATION RECOMMENDATIONS: CONSIDER adoption of Resolution No. 2007/552 authorizing the issuance and sale of 2007-2008 Tax and Revenue Anticipation Notes (TRANs) not to exceed $200,000,000; approving the forms and distribution of a Notice of Intention to Sell, an Official Notice of Sale, a Continuing Disclosure Certificate, and an Official Statement; and authorizing the County Administrator, or designee, to award bids and to take any other necessary actions to execute the sale and issuance of said Notes. FISCAL IMPACT Tax and Revenue Anticipation Notes are a cash management tool used to eliminate/reduce the need for inter-fund and/or intra-fund borrowing. Reducing and/or eliminating the need for inter-fund and/or intra- fund borrowing reduces the likelihood other County funds will experience cash flow disruption. BACKGROUND Historically, the County has issued Tax and Revenue Anticipation Notes to meet General Fund cash requirements during periods in a fiscal year when receipt of anticipated revenues lags behind expenditures. Each year, the County Auditor-Controller develops a cash flow projection for the County General Fund, showing the expected levels of expenditures and revenues for each accounting period. Typically, General Fund expenditures exceed revenues by the end of the first half of each fiscal year, as the County incurs expenses more rapidly than it receives revenues that are anticipated during the course of the year. This cash flow shortfall typically reaches its peak prior to the due date for the first installment of property taxes in early December. TRANS, which are a short-term debt instrument, allow the County to have sufficient cash on hand to pay General Fund expenses prior to the receipt of anticipated revenues. For FY 2007-08, the County will seek to issue TRANS in an amount not to exceed $200,000,000, based on the cash flow analysis prepared by the Auditor-Controller's Office. The notes will mature not more than 13 months after the date of issue. The Federal Tax Code allows the County to invest the proceeds from TRANS (and subsequent pledged Repayment Fund). Such amounts held in the Repayment Fund shall be invested as permitted by Section 53601 and Section 53635 of the California Government Code as defined on pages 6 and 7 of the attached Resolution. This investment income will help the County to offset the interest cost of the TRANS. CONTINUED ON ATTACHMENT: X YES SIGNATURE: ----------f---- ------------------------------------------------------------------------------------------------------------------ -- --------------------------------------- ✓ OMMENDATION OF COUNTY ADMINISTRATOR RECOMMENDATION OF BO RD COMMITTEE //APPROVE OTHER r SIGNATURE(S): ------------------------- --- ...._------------------------- --------- --------------------------------- ACTION OF BOAPN 0 APPROVE AS RECOMMENDED OTHER VOTE OF SUPERVISORS I HEREBY CERTIFY THAT THIS IS A TRUE AND CORRECT COPY OF AN ACTION TAKEN ANIMOUS(ABSENT ) AND ENTERED ON THE MINUTES OF THE BOARD OF SUPERVISORS ON THE DATE AYES:' NOES: _ SHOWN. ABSENT: ABSTAIN: ATTESTED 0 � " ' "�� CONTACT: Lisa Driscoll 335-1023 JOHN CULLEN,CLERK OF THE BOARD OF � SUPERVISORS AND COUNTY ADMINISTRATOR CC: Lisa Driscoll,County Administration Bill Pollacek,Treasurer-Tax Collector Steve Ybarra,Auditor-Controller BY PUTY BOARD OF SUPERVISORS OF THE COUNTY OF CONTRA COSTA RESOLUTION NO. 2007/552 RESOLUTION AUTHORIZING THE ISSUANCE AND SALE OF NOT TO EXCEED $200,000,000 COUNTY OF CONTRA COSTA, CALIFORNIA, 2007-2008 TAX AND REVENUE ANTICIPATION NOTES; APPROVING THE FORMS OF AND DIRECTING THE DISTRIBUTION OF A NOTICE OF INTENTION TO SELL, AN OFFICIAL NOTICE OF SALE, AN OFFICIAL STATEMENT AND A CONTINUING DISCLOSURE CERTIFICATE; DELEGATING TO COUNTY ADMINISTRATOR OR HIS DESIGNEE AUTHORIZATION TO AWARD BIDS FOR SAID NOTES; AND AUTHORIZING TAKING OF NECESSARY ACTIONS AND EXECUTION OF NECESSARY DOCUMENTS WHEREAS, pursuant to Sections 53850 et seq. of the Government Code of the State of California(the '*Government Code"), this Board of Supervisors (the "Board") has found and determined that the sum of not to exceed Two Hundred Million Dollars ($200,000,000) is needed for the requirements of the County of Contra Costa(the "County") to satisfy obligations payable from the general fund of the County (the "General Fund") and that it is necessary that said sum be borrowed for such purpose at this time by the issuance of temporary notes (the "Notes")therefor in anticipation of the receipt of taxes, revenue and other moneys to be received by the County for the General Fund of the County allocable to Fiscal Year 2007-2008; WHEREAS, it appears, and the Board hereby finds and determines, that said sum of Two Hundred Million Dollars ($200,000,000) when added to the interest estimated to be payable thereon, does not exceed eighty-five percent (85%) of the estimated amount of the uncollected taxes, income, revenue, cash receipts and other moneys of the County for the General Fund of the County attributable to Fiscal Year 2007-2008 and available for the payment of the principal of and interest on the Notes; WHEREAS, no money has heretofore been borrowed by the County through the issuance of any temporary notes in anticipation of the receipt of, or payable or secured by, taxes, income, revenue, cash receipts or other moneys of the County received or accrued during or allocable to Fiscal Year 2007-2008. WHEREAS, pursuant to Section 53856 of the Government Code, certain revenues which will be received by the County for the General Fund and attributable to Fiscal Year 2007-2008 can be pledged for the payment of the principal of and interest on the Notes; WHEREAS, the County wishes to authorize the issuance of one or more series of the Notes in an aggregate amount not to exceed $200,000,000; WHEREAS, the Notes-shall be sold to the highest bidder or bidders pursuant to a competitive sale to be held on November 7, 2007 or on.such earlier or later date as is established OHS Wcst:2602996913 h by the County Administrator of the County (the "County Administrator") in accordance with the terms of the Official Notice of Sale for the Notes; WHEREAS, an Official Statement describing the Notes andlan Official Notice of Sale for the sale of the Notes will be distributed to potential purchasers of the Notes and a Notice of Intention to Sell Notes will be published in THE BOND BUYER; WHEREAS, this Board has been presented with the form of the Preliminary Official Statement and the other documents hereinafter referred to, are on file with Clerk of the Board, and the Board has examined and approved the form of each document and desires to authorize and direct the execution of such documents and the issuance of the Notes; and WHEREAS, the County has full legal right, power and authority under the Constitution and the laws of the State of California to enter into the transactions hereinafter authorized; NOW THEREFORE, BE IT RESOLVED by the Board of Supervisors of the County of Contra Costa, as follows: Section 1. Recitals. The foregoing recitals are true and correct and this Board hereby so finds and determines. Section 2. Authorization and Issuance. (A) Solely for the purpose of anticipating taxes, income, revenues, cash receipts and other moneys to be received by the County for the General Fund of the County allocable to Fiscal Year 2007-2008, and not pursuant to any common plan of financing, the County hereby determines to and shall borrow the aggregate principal sum of not to exceed Two Hundred Million Dollars ($200,000,000), by the issuance of temporary notes in one or more series under Sections 53850 et seq. of the Government Code, designated the "County of Contra Costa, California, 2007-2008 Tax and Revenue Anticipation Notes." A first series of Notes labeled "Series A" (the "Series A Notes") shall be issued pursuant hereto in the aggregate principal amount of not to exceed $200,000,000. A second series of Notes labeled "Series B" (the "Series B Notes") may hereafter be issued prior to January 1, 2008, in an amount not to exceed the difference between $200,000,000 and the principal amount of the Series A Notes. The Notes of each series shall be payable on a parity with each other. (B) The Series A Notes shall be initially issued and registered as provided in Section 9 hereof and otherwise shall be in the denominations of$5,000 or any integral multiple thereof, and shall be dated the date of issuance thereof, shall mature (without option of prior redemption) not more than thirteen (13) months thereafter, and shall bear interest, payable at least one year from the date of issuance and at maturity and computed on the basis of a 360-day year composed of twelve 30-day months, at the rate per annum determined in accordance with this Resolution. (C) Interest due on the Notes, prior to the maturity thereof, shall be payable to the person in whose name such Note is registered on the registration books of the County, maintained by the Treasurer-Tax Collector of the County, as initial paying agent for the Notes i 01 IS West:260299691.3 2 (the "Paying Agent"), as of the close of business on the 1 st day of the calendar month immediately preceding the interest payment date or such other record date as shall be specified in the executed Notes (the "Record Date"), such interest to be paid by check mailed to such registered owner. Both the principal of the Notes and interest due on the Notes at maturity shall be payable in lawful money of the United States of America, only to the registered owners of the Notes upon surrender thereof at the office of the Paying Agent in Martinez, California upon the maturity thereof. No interest shall be payable on any Note for any period after maturity during which the registered owner thereof fails to properly present such Note for payment. (D) The Series B Notes shall be dated the date of issuance thereof, shall inature (without option of prior redemption) not more than thirteen (13) months thereafter and shall bear interest payable at least one year from the date of issuance and at maturity computed on the basis of a 360-day year composed of twelve 30-day months at the rate or rates determined in accordance with this Resolution. The issuance of the Series B Notes shall be subject to the following conditions: (l) Receipt of confirmation from Moody's Investors Service ("Moody's") and Standard & Poor's Ratings Service ("S&P") (each a "Rating Agency") (if such respective rating agency rated the Series A Notes) that the issuance of the Series B Notes will not cause a reduction or withdrawal in such Rating Agency's rating on the Series A Notes; and (2) Receipt of an opinion of Bond Counsel to the effect that the interest on the Series B Notes is excludable from gross income for federal income tax purposes. (E) At any time after the sale of a series of the Notes, the County shall execute the Notes of such series for issuance hereunder and shall deliver them to the Paying Agent, and thereupon such Notes shall be authenticated and delivered by the Paying Agent to the purchaser thereof upon the written request of the County and upon receipt of payment therefor from the purchaser thereof.. Section 3. Sale of Notes. The proposed form of the Official Notice of Sale for the Series A Notes, in substantially the form presented to this meeting (a copy of which is on file with the Clerk of the Board), is hereby approved and adopted as the Official Notice of Sale for the Series A Notes. The County Administrator is hereby authorized and directed, for and in the name of and on behalf of the County, to execute and deliver such Official Notice of Sale, with such changes, additions, completions and corrections therein as the County Administrator shall require or approve, including specifying the term of the Series A Notes and the interest payment dates therefor, such approval to be conclusively evidenced by the execution and delivery thereof. All of the Series A Notes shall be offered for public sale in accordance with the Official Notice of Sale. Tamalpais Advisors, Inc. (the "Financial Advisor") is hereby authorized and directed to cause to be delivered to prospective bidders for the Notes copies of said Official Notice of Sale, subject to such changes, additions and completions as may be acceptable to the County Administrator. The proposed form of the Notice of Intention to Sell Notes, in substantially the form presented to this meeting (a copy of which is on file with the Clerk of the Board), is hereby 01i West:260299691.3 3 approved. The County Administrator is hereby directed to cause said Notice of Intention to Sell Notes to be published once, no'later than 5 days before the date of sale of the Notes, in THE BOND BUYER, a financial publication generally circulated throughout the State of California. Electronic bids shall be received by the County Administrator or his designee up to the hour of 9:00 a.m. California time on November 7, 2007, or on such earlier or later date or time as determined by the County Administrator as set forth in the Official Notice of Sale for the purchase of the Series A Notes, for immediately available funds at not less than their principal amount and accrued interest thereon to the date of their delivery, the interest rate or rates (which shall not exceed 12% per annum) to be designated in the bid or bids, with the County Administrator reserving the right to reject any and all bids, in accordance with the terms and conditions of said Official Notice of Sale. The County Administrator is hereby authorized to determine whether to accept partial bids in increments of a specified denominational amount, such as $5,000,000, and to award the Series A Notes to the highest responsible bidder or bidders resulting in the lowest true interest cost to the County or to reject any or all bids. If the Series A Notes are awarded to more than one bidder and at different rates of interest, each incremental amount of Series A Notes of the same interest rate shall be given the same designation with the number of designations equal to the number of different interest rates. The County Administrator may, in his sole discretion, cancel the public sale of the Series A Notes and negotiate for the sale of the Series A Notes with an underwriter or underwriters, and enter into an agreement for the purchase of the Notes by said underwriter or underwriters, upon such terms and conditions as he shall deem appropriate. The County Administrator and the Senior Deputy County Administrator/Debt Manager are hereby authorized, upon a determination it is in the best interest of the County, to sell the Series B Notes prior to January 1, 2008, by negotiated or public sale at not less than the principal amount thereof, which principal amount shall not exceed the difference between $200,000,000 and the principal amount of the Series A Notes, and at an interest rate or rates not to exceed 12%per annum. Section 4. Disposition of Proceeds of Notes. The County shall, immediately upon receiving the proceeds of the sale of the Notes, place in the County General Fund maintained in the County Treasury all amounts received from such sale. Such amounts held in the County General Fund shall be invested as permitted by Section 53601 or Section 53635 of the Government Code or in the Permitted Investments identified in Section 6(C); provided that no such investments shall consist of reverse repurchase agreements. Such amounts may be commingled with other funds of the County. Amounts in the County General Fund attributable to the sale of the Notes shall be withdrawn and expended by the County for any purpose for which the County is authorized to expend funds from the General Fund of the County, but (except for costs related to the issuance of the Notes) only after exhausting funds otherwise available for such purposes (which are not restricted funds), and only to the extent that on any given day such other funds are not then available, and for purposes of this section, otherwise available funds excludes amounts that are held or set aside in a reasonable working capital reserve (as described in the tax certificate of the County delivered upon issuance of the Notes and, in any event, not exceeding five percent (5%) OI-IS West:260299691.3 4 i of the County's total working capital expenditures from its available funds in Fiscal Year 2006-2007). If on the date that is six months from the date of issuance of a series of the Notes all amounts attributable to the proceeds of the Notes of such series (including investment earnings thereon) have not been so expended, the County shall promptly notify Orrick, Herrington & Sutcliffe LLP("Bond Counsel") and, to the extent of its power and authority, comply with the instructions from Bond Counsel as to the means of satisfying the rebate requirements of Section 148 of the Internal Revenue Code of 1986 (the "Code"). Section 5. Source of Payment. (A) The principal of and interest on the Notes shall be payable from taxes, income, revenue, cash receipts and other moneys which are received by the County for the General Fund for the Fiscal Year 2007-2008 and which are lawfully available for the payment of current expenses and other obligations of the County (the "Unrestricted Revenues"). (B) As security for the payment of the principal of and interest on the Notes, the County hereby pledges to deposit in trust in a special fund established by the County Auditor-Controller and designated as the '`2007-2008 Tax and Revenue Anticipation Note Repayment Fund" (the .'Repayment Fund") (i) an amount equal to forty percent (40%) of the aggregate principal amount of the Notes from the first Unrestricted Revenues received by the County during the accounting period commencing December 13, 2007 and ending January 11, 2008, inclusive (the "First Pledge Period"), (ii) an amount equal to twenty percent (20%) of the principal amount of Notes from the first Unrestricted Revenues received by the County during the accounting period commencing March 13, 2008 and ending April 11, 2008, inclusive (the "Second Pledge Period"), (iii) an amount equal to twenty percent (20%) of the principal amount of Notes from the first Unrestricted Revenues received by the County during the accounting period commencing April 12, 2008 and ending May 12, 2008, inclusive (the "Third Pledge Period"), and (iv) an amount equal to twenty percent (20%) of the principal amount of the Notes from the first Unrestricted Revenues received by the County during the accounting period commencing May 13, 2008 and ending June 11, 2008 , inclusive (the "Fourth Pledge Period") together with an amount sufficient (net of anticipated earnings on moneys in the Repayment Fund) (x) to satisfy and make up any deficiency in the Repayment Fund with respect to any prior Pledge Period and (y) to pay the interest on the Notes due on and prior to maturity. The amounts pledged by the County for deposit into the Repayment Fund from the Unrestricted Revenues received during each indicated accounting period, which accounting periods are subject to change at the discretion of the County Administrator, are hereinafter called the "Pledged Revenues." The County Administrator is hereby authorized upon a determination that it is in the best interests of the County to adjust the Pledge Periods and percentages and to set forth the definitive Pledge Periods and percentages in the Official Notice of Sale or purchase contract for the Notes. (C) In the event that there have been insufficient Unrestricted Revenues received by the County by the third business day prior to the end of any such Pledge Period to permit the deposit into the Repayment Fund of the full amount of the Pledged Revenues required to be deposited with respect to such Pledge Period, then the amount of any deficiency in the Repayment Fund shall be satisfied and made up from any other moneys of the County lawfully available for the payment of the principal of the Notes and the interest thereon (all as provided in OHS West:260299691.3 5 Sections 53856 and 53857 of the Government Code) (the "Other Pledged Moneys") on such date or thereafter on a daily basis, when and as such Pledged Revenues and Other Pledged Moneys are received by the County. Section 6. Pledged Revenues. (A) The Pledged Revenues shall be deposited by the Treasurer-Tax Collector of the County (the "Treasurer") in the Repayment Fund on or prior to the last business day of each respective Pledge Period, and applied as directed in this Resolution; and the Other Pledged Moneys, if any, shall be deposited by the Treasurer in the Repayment Fund on the last business day of such Pledge Period and on each business day thereafter, until the full amount of the moneys required by Section 5(B) has been so deposited in the Repayment Fund; provided that, if on the date that is six months from the date of issuance of a series of the Notes all amounts attributable to the proceeds of the Notes of such series (including investment earnings thereon) have not been expended in accordance with Section 4, the amounts to be deposited in the Repayment Fund during the period in which received shall be deposited as soon as received. The principal of and interest on the Notes constitute a first lien and charge on, and shall be payable from, moneys in the Repayment Fund. Moneys in the Repayment Fund shall be applied only as hereinafter in this Section 6 provided. (B) The Treasurer shall use the moneys in the Repayment Fund on the respective interest payment dates to pay interest on the Notes then due and on the respective maturity dates of the Notes to pay the principal of and interest on the Notes then due. Any moneys remaining in the Repayment Fund after all such payments, or after provision for such payments have been made, shall be transferred to the General Fund of the County. If for any reason amounts in the Repayment Fund are insufficient to pay the Notes in full, such amounts shall be applied pro rata to the payment of each series of Notes based on the total principal of and interest payable upon the Notes at the respective maturities thereof, taking into account anticipated earnings to be received on amounts in the Repayment Fund prior to the final maturity date of the Notes. (C) Moneys in the Repayment Fund shall be invested in Permitted Investments as defined below, which will, as nearly as practicable, mature on or before the dates on which such money is anticipated to be needed for disbursement hereunder. The proceeds of any such investments shall be retained in the Repayment Fund until payment of principal of and interest on the Notes (or provision therefor) has been made in accordance with paragraph (B), at which time any excess amount shall be transferred to the General Fund of the County. (D) Permitted Investments mean any of the following: (1) United States Treasury notes, bonds, bills or certificates of indebtedness, or those for which the full faith and credit of the United States are pledged for the payment of principal and interest. (2) Obligations of.instrumentalities or agencies of the United States of America limited to the following: (a) the Federal Home Loan Bank Board (FHLB); (b) the Federal Home Loan Mortgage Corporation (FHLMC); OHS West:260299691.3 6 (c) the Federal National Mortgage Association (FNMA); (d) Federal Farm Credit Bank (FFCB); (e) Government National Mortgage Association (GNMA); (f) Student Loan Marketing Association (SLMA); (g) Federal Agricultural Mortgage Association and (h) guaranteed portions of Small Business Administration (SBA) notes. (3) Bills of exchange or time drafts drawn on and accepted by a commercial bank, otherwise known as bankers acceptances. Purchases of bankers acceptances may not exceed a maturity of 180 days. The financial institution must have a minimum short-term rating of"P-1" and "A-1" by Moody's and S&P, respectively, and a long-term rating of no less than "A". (4) Commercial paper of"prime" quality of the highest ranking or of the highest letter and numerical rating as provided for by Moody's ("P-1") or S&P ("A-l"). Eligible paper is further limited to issuing corporations that are organized and operating within the United States and having total assets in excess of five hundred million dollars ($500,000,000). Purchases of eligible commercial paper may not exceed a maturity of 270 days. (5) Negotiable certificates of deposits issued by a nationally or state-chartered bank or a state or federal association (as defined by Section 5102 of the California Financial Code) or by a state-licensed branch of a foreign bank in each case which has, or which is a subsidiary of a parent company which has, the highest letter and numerical rating from Moody's ("P-1") and S&P ("A-1"), respectively. (6) Investments in repurchase agreements of any securities listed in (1) through (4) above. Investments in repurchase agreements may be made with financial institutions which are rated in one of the two highest long-term rating categories by Moody's and S&P, when the term of the agreement does not exceed 30 days and are fully secured at or greater than 102% of the market value plus accrued interest by obligations of the United States Government, its agencies and instrumentalities, in accordance with number (2) above. (7) Money market funds rated at least "Aa" by Moody's and "AAm" or "AAm-G"by S&P. (8) Forward purchase and delivery agreements (i) the securities delivered under which are described in Section (1) through (4) above, and (ii) entered into with, or the obligations of which are guaranteed by, a domestic bank, financial institution, broker, dealer or insurance company the financial capacity to honor its senior obligations of which is rated at least "Aa3" by Moody's and"AA-" by S&P. OHS west:260299691.3 7 (9) Investment agreements with, or the obligations of which are guaranteed by, (a) a domestic bank, financial institution or insurance company the financial capacity to honor its senior obligations of which is rated at least "Aa3" by Moody's and "AA-"by S&P; or(b) a foreign bank the long-term debt of which is rated at least "Aa')" by Moody's and "AA-" by S&P (each "Qualified Provider"); provided, that, by the terms of the investment agreement: (i) if for the Repayment Fund, interest and principal payments are to be made to the Paying Agent at times and in amounts as necessary to pay debt service on the Notes; (ii) if for the proceeds of the Notes, the invested funds are available for withdrawal without penalty or premium, at any time upon not more than seven days' prior notice (which notice may be amended or withdrawn at any time prior to the specified withdrawal date); provided, that, the Paying Agent shall give notice in accordance with the terms of the investment agreement so as to receive funds thereunder with no penalty or premium paid.- (iii) aid;(iii) the investment agreement shall state that it is the unconditional and general obligation of, and is not subordinated to any other obligation of, the provider thereof, (iv) a fixed guaranteed rate of interest is to be paid on invested funds and all future deposits, if any, required to be made to such funds; (v) the term of the investment agreement shall not exceed the term of the Notes; (vi) the County or the Paying Agent receives the opinion of domestic counsel (which opinion shall be addressed to the County and the Paying Agent) that such investment agreement is legal, valid, binding and enforceable upon the provider in accordance with its terms; (vii) the investment agreement shall provide that if during its term the provider's (or, if guaranteed, the guarantor's) rating by either Moody's or S&P falls below"Aa3" or"AA-", respectively, the provider must within 10 business days assign the investment agreement to a Qualified Provider reasonably acceptable to the County or collateralize the investment agreement by delivering or transferring in accordance with applicable State and federal laws (other than by means of entries on the provider's books) to the County, the Paying Agent or a third party acting solely as agent therefor United States Treasury and Agency Obligations which are free and clear of any third-party liens or claims at such collateral levels and valued at such frequencies as shall be necessary to maintain the highest short-term ratings on the Notes by Moody's and S&P. (10) Deposits in the State of California Treasurer's Local Agency Investment Fund (LAIF). OHS Wcst:260299691.3 8 (11) Shares of beneficial interest issued by the Investment Trust of California (Ca1TRUST) pursuant to California Government Code Section 6509.7 and authorized for local agency investment pursuant to California Government Code Section 53601(o). (12) The Contra Costa County Treasurer's Investment Pool. Section 7. Execution of Notes. The Treasurer or his designee is hereby authorized to execute the Notes by use of his manual or facsimile signature, and the Clerk of the Board of Supervisors of the County (the "Clerk of the Board") or one of his assistants is hereby authorized to countersign, by manual or facsimile signature, the Notes and to affix the seal of the County thereto by impressing the seal or by imprinting a facsimile of the seal thereon. Said officers are hereby authorized to cause the blank spaces in Exhibit A to be filled in as may be appropriate and to deliver the Notes to the respective purchasers thereof. In the case of Notes executed by facsimile signature of both the Treasurer and the Clerk of the Board, the Notes shall not be valid unless and until the Paying Agent or his designee shall have manually authenticated such Notes. In case any officer whose signature appears on the Notes shall cease to be such officer before the delivery of the Notes to the purchaser thereof, such signature shall nevertheless be valid and sufficient for all purposes as if such officer had remained in office until such delivery of the Notes. Section 8. Form of Notes and Certificate of Authentication and Registration. The Notes shall be issued in fully registered form without coupons and the Notes and the Certificate of Authentication and Registration shall be substantially in the form and substance set forth in Exhibit A attached hereto and by reference incorporated herein, the blanks in said form to be filled in with appropriate words and figures. Section 9. Use of Depository: Registration, Exchange and Transfer. (A) The Depository Trust Company,New York, New York, is hereby appointed depository for the Notes. The Depository Trust Company shall act as depository pursuant to the Blanket Issuer Letter of Representations on file with the Depository Trust Company. The Notes shall be initially issued and registered in the name of"Cede & Co.," as nominee of The Depository Trust Company, New York, New York and shall be evidenced by a single Note. Registered ownership of each Note, or any portion thereof, may not thereafter be transferred except as set forth in Section 9(B). (B) The Notes shall be initially issued and registered as provided in Section (A) hereof. Registered ownership of the Notes, or any portions thereof, may not thereafter be transferred except: (i) to any successor of Cede & Co., as nominee of The Depository I-rust Company, or its nominee, or of any substitute depository designated pursuant to clause (ii) of this subsection (B) ("Substitute Depository"); provided that any successor of Cede & Co., as nominee of The Depository Trust Company or Substitute Depository, shall be qualified under any applicable laws to provide the service proposed to be provided by it; OHS Wesl:260299691.3 9 r (ii) to any Substitute Depository not objected to by the Treasurer, upon (1) the resignation of The Depository Trust Company or its successor (or any Substitute Depository or its successor) from its functions as depository, or (2) determination by the Treasurer to substitute another depository for The Depository Trust Company (or its successor) because the Depository Trust Company (or its successor) is no longer able to carry out its functions as depository; provided that any such Substitute Depository shall be qualified under any applicable laws to provide the services proposed to be provided by it; or (iii) to any person as provided below, upon (1) the resignation of The Depository Trust Company or its successor(or any Substitute Depository or its successor) from its functions as depository, or (2) a determination by the Treasurer to discontinue using The Depository Trust Company or a depository. (C) In the case of any transfer pursuant to clause (i) or clause(ii) of subsection (B) of this Section , upon receipt of all outstanding Notes of each series by the Paying Agent (together, in the case of a successor paying agent appointed by the County pursuant to Section 12 hereof, with a written request of the Treasurer to such successor paying agent designating the Substitute Depository), a single new Note for each series, which the County shall prepare or cause to be prepared, shall be executed and delivered, registered in the name of any such successor to Cede & Co. or such Substitute Depository, or their respective nominees, as the case may be, all as specified by the Treasurer or, in the case of a successor paying agent appointed by the County pursuant to Section 12 hereof, as specified in the written request of the Treasurer. In the case of any transfer pursuant to clause (iii) of Subsection (B) of this Section 9 upon receipt of all outstanding Notes by the Paying Agent (together, in the case of a successor paying agent appointed by the County pursuant to Section 12 hereof, with a written request of the Treasurer to such successor paying agent), new Notes, which the County shall prepare or cause to be prepared, shall be executed and delivered in such denominations and registered in the names of such persons as specified by the Treasurer or, in the case of a successor paying agent appointed by the County pursuant to Section 12 hereof, as are requested in such written request of the Treasurer, subject to the limitations of this Section 9, provided that the Paying Agent shall deliver such new Notes as soon as practicable. (D) The County and the Paying Agent shall be entitled to treat the person in whose name any Note is registered as the owner thereof for all purposes of the Resolution and for purposes of payment of principal of and interest on such Note, notwithstanding any notice to the contrary received by the Paying Agent or the County; and the County and the Paying Agent shall not have responsibility for transmitting payments to, communicating with, notifying, or otherwise dealing with any beneficial owners of the Notes. Neither the County nor the Paying Agent shall have any responsibility or obligation, legal or otherwise, to any such beneficial owners or to any other party, including The Depository Trust Company or its successor (or Substitute Depository or its successor), except to the owner of any Notes, and the Paying Agent may rely conclusively on its records as to the identity of the owners of the Notes. (E) Notwithstanding any other provision of this Resolution and so long as all outstanding Notes are registered in'the name of Cede & Co. or its registered assigns, the County and the Paying Agent shall cooperate with Cede & Co. or its registered assigns, as sole registered owner, in effecting payment of the principal of and interest on the Notes by arranging for OHS West:260299691.3 10 payment in such manner that funds for such payments are properly identified and are made available on the date they are due all in accordance with the Blanket Issuer Letter of Representations, the provisions of which the Paying Agent may rely upon to implement the foregoing procedures notwithstanding any inconsistent provisions herein. (F) In the case of any transfer pursuant to clause (iii) of subsection (B) of this Section, any Note may, in accordance with its terms, be transferred or exchanged for a like aggregate principal amount in authorized denominations of the same series, upon the books required to be kept by the Paying Agent pursuant to the provisions hereof, by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Note for cancellation, and, in the case of a transfer, accompanied by delivery of a written instrument of transfer, duly executed and in form approved by the Paying Agent. Whenever any Note shall be surrendered for transfer or exchange, the County shall execute and the Paying Agent shall authenticate, if required, and deliver a new Note or Notes of the same series of authorized denominations, for a like aggregate principal amount. The Paying Agent shall require the owner requesting such transfer or exchange to pay any tax or other governmental charge required to be paid with respect to such transfer or exchange. (G) The Paying Agent will keep or cause to be kept sufficient books for the registration and transfer of the Notes, which shall at all times be open to inspection by the County. Upon presentation for such purpose, the Paying Agent shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on such books, Notes as hereinbefore provided. (H) If any Note shall become mutilated, the County, at the expense of the owner of such Note, shall execute, and the Paying Agent shall thereupon authenticate, if required, and deliver a new Note of like series, tenor and number in exchange and substitution for the Note so mutilated, but only upon surrender to the Paying Agent of the Note so mutilated. Every mutilated Note so surrendered to the Paying Agent shall be cancelled by the Paying Agent and delivered to, or upon the order of, the County. If any Note shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the County and the Paying Agent and, if such evidence be satisfactory to both and indemnity satisfactory to them shall be given, the County, at the expense of the owner, shall execute, and the Paying Agent shall thereupon authenticate, if required, and deliver a new Note of like series, tenor and number in lieu of and in substitution for the Note so lost, destroyed or stolen (or if any such Note shall have matured or shall be about to mature, instead of issuing a substitute Note, the Paying Agent may pay the same without surrender thereof). The Paying Agent may require payment by the registered owner of a Note of a sum not exceeding the actual cost of preparing each new Note issued pursuant to this paragraph and of the expenses which may be incurred by the County and the Paying Agent. Any Note issued under these provisions in lieu of any Note alleged to be lost, destroyed or stolen shall constitute an original additional contractual obligation on the part of the County whether or not the Note so alleged to be lost, destroyed or stolen be, at any time, enforceable by anyone, and shall be entitled to the benefits of this Resolution with all other Notes secured by this Resolution. All Notes surrendered for payment or registration of transfer, if surrendered to any person other than the Paying Agent, shall be delivered to the Paying Agent and shall be OHS West:260299691.3 11 promptly cancelled by the Paying Agent. The County may at any time deliver to the Paying Agent for cancellation any Notes previously authenticated and delivered hereunder which the County may have acquired in any manner whatsoever, and all Notes so delivered shall promptly be cancelled by the Paying Agent. No Note shall be authenticated in lieu of or in exchange for any Notes cancelled as provided herein, except as expressly permitted hereunder. All cancelled Notes held by the Paying Agent shall be disposed of as directed by the County. Section 10. General Covenants. It is hereby covenanted and warranted by the Board that all representations and recitals contained in this Resolution are true and correct and that the Board and the County, and the appropriate officials thereof, have duly taken all proceedings necessary to be taken by them, and will take any additional proceedings necessary to be taken by them, for the levy, collection and enforcement of the taxes, income, revenue, cash receipts and other moneys pledged hereunder in accordance with law and for carrying out the provisions of this Resolution and the Notes and shall cause to be paid in accordance with their terms the principal of and interest on the Notes. The County hereby covenants to deposit funds in the Repayment Fund at the times and in the amounts specified herein to provide sufficient moneys to pay the principal of and interest on the Notes on the day or days on which they mature. Section 11. Tax Covenants; Rebate Fund. (A) The County hereby covenants that it will not take any action, or fail to take any action, if such action or failure to take such action would adversely affect the exclusion from gross income of the interest payable on the Notes under Section 103 of the Code. Without limiting the generality of the foregoing, the County hereby covenants that it will comply with the requirements of the Tax Certificate of the County with respect to the Notes (the "Tax Certificate"), to be entered into by the County as of the date of issuance of the Notes. The provisions of this Section 11 shall survive payment in full or defeasance of the Notes. (B) The County covenants that it shall make or cause to be made all calculations in a reasonable and prudent fashion relating to any rebate of excess investment earnings on the proceeds of the Notes due to the United States Treasury, shall segregate and set aside from lawfully available sources the amount such calculations may indicate may be required to be paid to the United States Treasury and shall otherwise at all times do and perform all acts and things necessary and within its power and authority, including complying with each applicable requirement of Section 103 and Sections 141 through 150 of the Code and complying with the instructions of Bond Counsel referred to in Section 4 hereof, to assure that interest paid on the Notes shall, for the purposes of federal income taxes and California personal income taxation, be excludable from the gross income of the recipients thereof and exempt from such taxation. As part of the performance of the covenant contained in the preceding sentence, promptly after six months from the date of the issuance of each series of the Notes, the County will reasonably and prudently calculate the amount of the Note proceeds of such series which have been expended, with a view to determining whether or not the County has met the requirements of Section 148(f)(4)(B) of the Code with respect to the Notes of such series, and if it has not met such requirements, it will reasonably and prudently calculate or cause to be calculated the amount, if any, of investment earnings which must be rebated to the United States OHS West:260299691.3 12 and will immediately set aside, from revenues attributable to the 2007-2008 Fiscal Year or, to the extent not available from such revenues, from any other moneys lawfully available, the amount of any such rebate in the Fund referred to in paragraph (C) of this Section 11. (C) If funds are required to be deposited therein, the County Auditor- Controller shall establish and maintain a fund separate from any other fund established and maintained hereunder designated as the "2007-2008 Tax and Revenue Anticipation Note Rebate Fund". There shall be deposited in the Rebate Fund such amounts as are required to be deposited therein in accordance with the written instructions from Bond Counsel pursuant to Section 4 hereof. (D) Notwithstanding any other provision of this Resolution to the contrary, upon the County's failure to observe, or refusal to comply with, the covenants contained in this Section, no one other than the owners or former owners of the Notes shall be entitled to exercise any right or remedy under this Resolution on the basis of the County's failure to observe, or refusal to comply with, such covenants. (E) Notwithstanding any provision of this section, if the County shall provide to the Paying Agent an opinion of Bond Counsel that any specified action required under this section is no longer required or that some further or different action is required to maintain the exclusion from gross income for federal income tax purposes of interest on the Notes, the Paying Agent and the County may conclusively rely on such opinion in complying with the requirements of this section, and the covenants hereunder shall be deemed to be modified to that extent. Section 12. Pang A ent. The Treasurer is hereby appointed as Paying Agent for the Notes. The County hereby directs and authorizes the payment by the Paying Agent of the interest on and principal of the Notes when such become due and payable, from the Repayment Fund in the manner set forth herein. .Payment of the Notes shall be in accordance with the terms of the Notes and this Resolution. This appointment shall not preclude the County from appointing a financial institution to act as Paying Agent or one or more successors thereto, all without notice to or the consent of the registered owners of the Notes. Any such successor paying agent shall be or shall have co-paying agent relationships with one or more banks or trust companies with a minimum of$500 million in capital and with offices in New York, New York, Los Angeles, California, or San Francisco, California. The Paying Agent is also appointed as registrar and upon the request of any registered owner is authorized to record the transfer or exchange of Notes in accordance with the provisions hereof. Section 13. Authorization of Preliminary Official Statement and Official Statement. The proposed form of preliminary official statement (the "Preliminary Official Statement") relating to the Notes on file with the Clerk of the Board, is hereby approved with such changes, additions, completion and corrections as the County Administrator may approve. Such Preliminary Official Statement, together with any supplements thereto, shall be in form OHS West:260299691.3 13 "deemed final" by the County for purposes of Rule 15c2-12, promulgated by the Securities and Exchange Commission, but is subject to revision, amendment and completion in a final Official Statement(the "Official Statement"). The Official Statement in substantially said form is hereby authorized and approved, with such changes therein as the County Administrator may approve, which approval shall be conclusively evidenced by execution by the County Administrator of the Official Statement and delivery thereof to the purchaser of the Notes. The County Administrator or his designee is hereby authorized and directed, for and in the name and on behalf of the County, to execute a certificate confirming that the Preliminary Official Statement has been "deemed final" by the County for purposes of Securities and Exchange Commission Rule l 5c2-12 and to deliver to Tamalpais Advisors Inc. (the "Financial Advisor") the Preliminary Official Statement. The Financial Advisor is hereby authorized to distribute copies of the Preliminary Official Statement to persons who may be interested in the purchase of the Notes and is directed to deliver copies of the Official Statement to the purchasers of the Notes. Section 14. Continuing Disclosure. The proposed form of the Continuing Disclosure Certificate, in substantially the form presented to this meeting (a copy of which is on file with the Clerk of the Board) is hereby approved. The Treasurer and the County Administrator are hereby authorized to execute the Continuing Disclosure Certificate on behalf of the County with such changes, additions and completions as such officer executing such certificates shall approve and containing such covenants of the County as shall be necessary to comply with the requirements of Securities and Exchange Commission Rule 15c2-12. The County hereby covenants and agrees that it will comply with and carry out all of the provisions of such Continuing Disclosure Certificate. Section 15. Approval of Actions. All actions heretofore taken by the officers and agents of the County or the Board with respect to the sale and issuance of the Notes are hereby approved, confirmed and ratified, and the officers of the County and the Board are hereby authorized and directed, for and in the name and on behalf of the County, to do any and all things and take any and all actions and execute any and all certificates, agreements and other documents which they, or any of them, may deem necessary or advisable in order to consummate the lawful issuance and delivery of the Notes in accordance with this Resolution. Section 16. Proceedings Constitute Contract. The provisions of the Notes and of this Resolution shall constitute a contract between the County and the registered owners of the Notes, and such provisions shall be enforceable by mandamus or any other appropriate suit, action or proceeding at law or in equity in any court of competent jurisdiction, and, upon issuance of the Notes, shall be irrepealable. Section 17. Severability. If any one or more of the agreements, conditions, covenants or terms contained herein required to be observed or performed by or on the part of the Board shall be contrary to law, then such agreement or agreements, such condition or conditions, such covenant or covenants or such term or terms shall be null and void and shall be deemed severable from the remaining agreements, conditions, covenants and terms hereof and shall in no way affect the validity hereof or of the Notes, and the owners of the Notes shall retain all the benefit, protection and security afforded to them hereunder and under all provisions of applicable law. The Board hereby declares that it would have adopted this Resolution and each and every other section, paragraph, subdivision, sentence, clause and phrase hereof and would 0145 west:260299691.3 14 have authorized the issuance of the Notes pursuant hereto irrespective of the fact that any one or more of the sections, paragraphs, subdivisions, sentences, clauses or phrases hereof or the application thereof to any person or circumstance may be held to be unconstitutional, unenforceable or invalid. OHS West:260299691.3 15 PASSED AND ADOPTED BY THE BOARD OF SUPERVISORS OF THE COUNTY OF ..COO``NTRA COSTA this 16th day of October, 2007 by the following vote: AYES: T\-C NOES: �((4 'M SL/ ABSENT: COUN4FCRA COSTA By: of the Board upervisors [Sea]] ATTEST: John B. Cullen, Clerk of the Board of Supervisors and County Administrator By O (LtA-� Deputy Clerk of the Board of Supervisors oFis wcst:260299691.3 16 EXHIBIT A REGISTERED REGISTERED No. R- $ COUNTY OF CONTRA COSTA, CALIFORNIA, 2007-2008 TAX AND REVENUE ANTICIPATION NOTE, SERIES [A/B] Rate of Interest: Note Date: Maturity Date: CUSIP No.: Registered Owner: CEDE & CO. Principal Amount: DOLLARS FOR VALUE RECEIVED, the County of Contra Costa(the "County"), State of California, acknowledges itself indebted to and promises to pay to the Registered Owner identified above, or registered assigns, the Principal Amount specified above, in lawful money of the United States of America, on the Maturity Date specified above, together with interest thereon payable [on and] at the maturity thereof at the Rate of Interest per annum set forth above (computed on the basis of a 360-day year composed of twelve 30-day months) in like lawful money from the Note Date specified above until payment in full of said principal sum. Interest on this Note, due on [November 14, 2008], shall be paid to the person in whose name this Note is registered as of the close of business on the 1 st day of the calendar month immediately preceding the interest payment date by check mailed to such registered owner. The principal of and interest on this Note shall be payable only to the registered owner hereof upon surrender of this Note at the office of the Treasurer-Tax Collector of the County, as paying agent (together with any successor appointed by the County, the "Paying Agent") as the same shall fall due; provided, however, that no interest shall be payable for any period after maturity during which the registered owner hereof fails to properly present this Note for payment. It is hereby certified, recited and declared that this Note is one of a series of Notes of the Series specified above issued in the aggregate principal amount of$ and is part of an authorized issue of Notes entitled "County of Contra Costa, California, 2007-2008 Tax and Revenue Anticipation Notes" (the "Notes"), authorized in the aggregate principal amount of Dollars ($ ), all of like tenor, made, executed and given pursuant to the authority of Article 7.6 (commencing with Section 53850) of Chapter 4, Part 1, Division 2, Title 5 of the California Government Code and all laws amendatory thereof or supplemental thereto, and under and pursuant to the provisions of a Resolution of the Board of Supervisors of the County adopted on , 2007 (herein called the "Resolution"), OHS West:260299691.3 A-1 authorizing the issuance of the Notes; and that all acts, conditions and things required to exist, happen and be performed precedent to and in the issuance of this Note have existed, happened and been performed in regular and due time, form and manner as required by law, and that this Note, together with all other indebtedness and obligations of the County, does not exceed any limit prescribed by the Constitution or statutes of the State of California. The Notes of each series shall be payable on a parity with each other. The principal of and interest on the Notes shall be payable from taxes, income, revenue, cash receipts and other moneys which are received by the County for the General Fund of the County for the Fiscal Year 2007-2008 and which are lawfully available for the payment of current expenses and other obligations of the County (the "Unrestricted Revenues"). As security for the payment of the principal of and interest on the Notes, the County has pledged to deposit in the Repayment Fund (as defined in the Resolution): (i) an amount equal to forty percent (40%) of the aggregate principal amount of the Notes from the first Unrestricted Revenues received by the County during the accounting period commencing December 13, 2007 and ending January 11, 2008, inclusive (the "First Pledge Period"), (ii) an amount equal to twenty percent (20%) of the principal amount of Notes from the first Unrestricted Revenues received by the County during the accounting period commencing March 13, 2008 and ending April 11, 2008, inclusive (the "Second Pledge Period"), (iii) an amount equal to twenty percent (20%) of the principal amount of Notes from the first Unrestricted Revenues received by the County during the accounting period commencing April 12, 2008 and ending May 12, 2008, inclusive (the "Third Pledge Period"), and (iv) an amount equal to twenty percent (20%) of the principal amount of the Notes from the first Unrestricted Revenues received by the County during the accounting period commencing May 13, 2008 and ending June 11, 2008, inclusive (the "Fourth Pledge Period") together with an amount sufficient (net of anticipated earnings on moneys in the Repayment Fund) (x) to satisfy and make up any deficiency in the Repayment Fund with respect to any prior Pledge Period and (y) to pay the interest on the Notes due on and prior to maturity (such pledged amounts being hereinafter called the "Pledged Revenues"). In the event that there are insufficient Pledged Revenues received by the County by the third business day prior to the end of any such Pledge Period to permit the deposit into the Repayment Fund of the full amount of the aforesaid moneys to be deposited, then the amount of any deficiency in the Repayment Fund shall. be satisfied and made up from any other moneys of the County lawfully available for the payment of the principal of and interest on the Notes (such other pledged moneys being hereinafter called the "Other Pledged Moneys"). The principal of and interest on the Notes shall constitute a first lien and charge on, and shall be payable from, moneys in the Repayment Fund. This Note is transferable by the registered owner hereof in person or by such owner's attorney duly authorized in writing at the office of the .Paying Agent, but only in the manner, subject to the limitations and upon payment of the charges provided in the Resolution, and upon surrender and cancellation of this Note. Upon such transfer a new Note or Notes of authorized denominations and for the same aggregate principal amount will be issued to the transferees in exchange herefor. The County and the Paying Agent may deem and treat the registered owner hereof as the absolute owner hereof for the purpose of receiving payment of or on account of principal hereof and interest due hereon and for all other purposes, and neither the County nor the Paying Agent shall be affected by any notice to the contrary. OHS West:260299691.3 A-2 L&J DRAFT CONTINUING DISCLOSURE CERTIFICATE COUNTY OF CONTRA COSTA,CALIFORNIA 2007-08 TAX AND REVENUE ANTICIPATION NOTES, SERIES A This Continuing Disclosure Certificate(the "Disclosure Certificate") is executed and delivered by the County of Contra Costa, California (the "County") in connection with the issuance of$_,_,000* aggregate principal amount of its County of Contra Costa, California 2007-08 Tax and Revenue Anticipation Notes, Series A (the "Notes") pursuant to Resolution.authorizing the issuance of the Notes adopted by the Board of Supervisors of the County on October 16, 2006 (the "Resolution"); and in connection therewith the County covenants and agrees as follows: SECTION 1. Purpose of the Disclosure Certificate. The Disclosure Certificate is being executed and delivered by the County for the benefit of the Holders (defined below) of the Notes and in order to assist the Underwriters of the Notes in complying with S.E.C. Rule 15c2-12. SECTION 2. Definitions. In addition to the definitions set forth above and in the Resolution, which apply to any capitalized term used in the Disclosure Certificate unless otherwise defined herein, the following capitalized terms shall have the following meanings: "Beneficial Owner" shall mean any person which has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Note or Notes, including persons holding Notes through nominees or depositories. "DAC" shall mean Digital Assurance Certification LLC, who has been designated in writing by the County to serve as dissemination agent in connection with various long-term debt issuances. "Holders" shall mean either the registered owners of the Notes,or, if the Notes are registered in the name of The Depository Trust Company or another recognized depository, any Beneficial Owner or applicable participant in its depository system. "Listed Event"shall mean any of the events listed in Section 3(a) of the Disclosure Certificate. "National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. The National Repositories currently approved by the Securities and Exchange Commission can be found at the following website: http://www.sec.gov/info/municipal/nrmsir.htm. "Purchasers". the original purchasers of the Notes, if any, required to comply with the Rule in connection with the offering of the Notes. "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. 07038\cdc-I "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 the Disclosure Certificate, there is no State Repository. "Tax-exempt" shall!mean that interest on the Notes is excluded from gross income for federal income tax purposes, whether or not such interest is includable as an item of tax preference or otherwise includable directly or indirectly for purposes of calculating any other tax liability, including any alternative minimum tax or environmental tax. SECTION 3. Reporting of Listed Events. (a) Pursuant to the provisions of this section, to the extent applicable, the County shall give notice of the occurrence of any of the following events with respect to the Notes, if material: (i) principal and interest payment delinquencies. non-payment related defaults. (iii) modifications to the rights of the Holders. (iv) . optional, contingent or unscheduled note calls. (v) defeasances. (vi) rating changes. (vii) adverse tax opinions or events adversely affecting the tax-exempt status of the Notes. (viii); unscheduled draws on the debt service reserves reflecting financial difficulties. (ix) unscheduled draws on the credit enhancements reflecting financial difficulties. (x) substitution of the credit or liquidity providers or their failure to perform. (xi) release, substitution or sale of property securing repayment of the Notes. (b) Whenever the County obtains knowledge of the occurrence of a Listed Event, the County shall as soon as possible determine if the occurrence of such event would be material. (c) If the County! determines that the occurrence of a Listed Event would be material, the County shall promptly file a notice of such occurrence with each Repository. (d) Notwithstanding any other provision of this Continuing Disclosure Certificate, the County reserves the right to make any of.the aforementioned filings through DAC. SECTION '4. Termination of Reporting Obligation. The County's obligations under. the Disclosure Certificate shall terminate upon the defeasance, prior redemption or payment in full of all of the Notes. 0703 8\cdc-1 2 SECTION 5. Additional Information: Nothing in the Disclosure Certificate shall be deemed to prevent the County from disseminating any other information, using the means of dissemination set forth in the Disclosure Certificate or any other means of communication, or including any other information in any notice of occurrence of a Listed Event, in addition to that which is required by the Disclosure Certificate. If the County chooses to include any information in any notice of occurrence of a Listed Event in addition to that which is specifically required by the Disclosure Certificate, the County shall have no obligation under the Disclosure Certificate to update such information or include it in any future notice of occurrence of a Listed Event. SECTION 6. Default. In the event of a failure of the County to comply with any provision of the Disclosure Certificate, the Underwriters or any Holder may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the County to comply.with its obligations under the Disclosure Certificate; provided, that the sole remedy under the Disclosure Certificate in the!event of any failure of the County to comply with the Disclosure Certificate shall be an action to compel performance hereunder. SECTION 7. Beneficiaries. The Disclosure Certificate shall inure solely to the benefit of the County, the Purchasers and the Holders, and shall create no rights in any other person or entity. Dated: '� , 2007. COUNTY OF CONTRA COSTA By: -- -- John B. Cullen County Administrator and Clerk of the Board of Supervisors 07038\cdc-1 3 APPENDIX G DTC AND THE BOOK-ENTRY ONLY SYSTEM The information in this Appendix G concerning The Depository Trust Company, New York, New York ("DTC') and DTC's book-entry system has been obtained from DTC and the County takes no responsibility for the completeness or accuracy thereof. The County cannot and does not give any assurances that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest or principal with respect to the Notes, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Notes, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Notes, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current "Rules" applicable to DTC are on file with the Securities and Exchange Commission and the current "Procedures" of DTC to be followed in dealing with DTC Participants are onfile with DTC. The Depository Trust Company ("DTC"), New York,NY, will act as securities depository for the Notes. The Notes will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered security certificate will be issued for each maturity of the Notes, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a `'clearing corporation" within the meaning of the New York Uniform Commercial Code, and a"clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2.2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust& Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation, and Emerging Markets Clearing Corporation, (respectively, "NSCC", "FICC" and "EMCC", also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about,DTC can be found at www.dtcc.com and www.dtc.org. Purchases of the Notes under the DTC system must be made by or through Direct Participants, which will receive a credit for the Notes on DTC's records. The ownership interest of each actual purchaser of each Note ("Beneficial Owner") is in turn to be recorded on-the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the 07038\pos-3 G-1 Notes are to be.accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Notes, except in the event that use of the book-entry system for the Notes is discontinued. . To facilitate subsequent transfers, all Notes deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested -by an authorized representative of DTC. The deposit of the Notes 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 Notes; DTC's records reflect only the identity of the Direct Participants to whose accounts such Notes are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the Notes may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Notes, such as redemptions, tenders, defaults, and proposed amendments to the Indenture. For example, Beneficial Owners of the Notes may wish to ascertain that the nominee holding the Notes 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. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Notes unless authorized by a Direct Participant in accordance with DTC'.s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Notes are credited on the record date (identified in a listing attached to the Omnibus Proxy). Payments of principal of and interest evidenced by the Notes will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the County, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with.securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC (nor its nominee), the County, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal of and interest evidenced by the Notes to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the County, 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. AS LONG AS A BOOK-ENTRY ONLY SYSTEM IS USED FOR THE NOTES, THE COUNTY WILL SEND NOTICES TO HOLDERS ONLY TO DTC. ANY FAILURE OF DTC TO ADVISE ANY PARTICIPANT, OR OF ANY PARTICIPANT TO NOTIFY ANY BENEFICIAL OWNER, OF ANY NOTICE AND ITS CONTENT OR EFFECT WILL NOT AFFECT THE VALIDITY OR SUFFICIENCY OF THE PROCEEDINGS RELATING TO ANY OTHER ACTION PREMISED ON SUCH NOTICE. 07038\pos-3 G-2 r THE COUNTY HAS NO RESPONSIBILITY OR LIABILITY FOR ANY ASPECT OF THE RECORDS RELATING TO OR PAYMENTS MADE ON ACCOUNT OF BENEFICIAL OWNERSHIP, OR FOR MAINTAINING, SUPERVISING OR REVIEWING ANY RECORDS RELATING TO BENEFICIAL OWNERSHIP OF INTERESTS IN THE NOTES. THE COUNTY CANNOT AND DOES NOT GIVE ANY ASSURANCES THAT DTC WILL DISTRIBUTE PAYMENTS WITH RESPECT TO THE NOTES RECEIVED BY DTC TO DTC PARTICIPANTS OR THAT THE PARTICIPANTS OR OTHERS WILL DISTRIBUTE PAYMENTS WITH RESPECT TO THE NOTES RECEIVED TO THE BENEFICIAL OWNERS, OR THAT THEY WILL DO SO ON A TIMELY BASIS OR WILL SERVE AND ACT IN THE MANNER DESCRIBED IN THIS OFFICIAL STATEMENT. THE COUNTY IS NOT RESPONSIBLE OR LIABLE FOR THE FAILURE OF DTC OR ANY PARTICIPANT TO MAKE ANY PAYMENT WITH RESPECT TO THE NOTES OR AN ERROR OR DELAY RELATING THERETO. 07038\pos-3 G-3 APPENDIX F FORM OF CONTINUING DISCLOSURE CERTIFICATE COUNTY OF CONTRA COSTA, CALIFORNIA 2007-08 TAX AND REVENUE ANTICIPATION NOTES, SERIES A This Continuing Disclosure Certificate (the "Disclosure Certificate") is executed and delivered by the County of Contra Costa, California (the "County") in connection with the issuance of$_,_,000* aggregate principal amount of its County of Contra Costa, California 2007-08 Tax and Revenue Anticipation Notes, Series A (the "Notes") pursuant.to Resolution authorizing the issuance of the Notes adopted by the Board of Supervisors of the County on October 16, 2006 (the "Resolution"); and in connection therewith the County covenants and agrees as follows: SECTION 1. Purpose of'the Disclosure Certificate. The Disclosure Certificate is being executed and delivered by the County for the benefit of the Holders (defined below) of the Notes and in order to assist the Underwriters of the Notes in complying with S.E.C. Rule 15c2-12. SECTION 2. Definitions. In addition to the definitions set forth above and in the Resolution, which apply to any capitalized term used in the Disclosure Certificate unless otherwise defined herein, the following capitalized terms shall have the following meanings: "Beneficial Owner" shall mean any person which has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Note or Notes, including persons holding Notes through nominees or depositories. "DAC" shall mean Digital Assurance Certification LLC, who has been designated in writing by the County to serve as dissemination agent in connection with various long-term debt issuances. "Holders" shall mean either the registered owners of the Notes, or, if the Notes are registered in the name of The Depository Trust Company or another recognized depository, any Beneficial Owner or applicable participant in its depository system. "Listed Event" shall mean any of the events listed in Section 3(a)of the Disclosure Certificate. "National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. The National Repositories currently approved by the Securities and Exchange Commission can be found at the following website: http://www.sec.gov/info/municipal/nrmsir.htm. "Purchasers" the original purchasers of the Notes, if any, required to comply with the Rule in connection with the offering of the Notes. "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. 07038\pus-3 F-I "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 the Disclosure Certificate, there is no State Repository. "Tax-exempt" shall mean that interest on the Notes is excluded from gross income for federal income tax purposes, whether or not such interest is includable as an item of tax preference or otherwise includable directly or indirectly for purposes of calculating any other tax liability, including any alternative minimum tax or environmental tax. SECTION 3. Reporting of Listed Events. (a) Pursuant to the provisions of this section, to the extent applicable, the County shall give notice of the occurrence of any of the following events with respect to the Notes, if material: (i) principal and interest payment delinquencies. (ii) non-payment related defaults. (iii) modifications to the rights of the Holders. (iv) optional, contingent or unscheduled note calls. (v) defeasances. (vi) rating changes. (vii) adverse tax opinions or events adversely affecting the tax-exempt status of the Notes. (viii) unscheduled draws on the debt service reserves reflecting financial difficulties. (ix) unscheduled draws on the credit enhancements reflecting financial difficulties. (x) substitution of the credit or liquidity providers or their failure to perform. (xi) release, substitution or sale of property securing repayment of the Notes. (b) Whenever the County obtains knowledge of the occurrence of a Listed Event, the County shall as soon as possible determine if the occurrence of such event would be material. (c) If the County determines that the occurrence of a Listed Event would be material, the County shall promptly file a notice of such occurrence with each Repository. (d) Notwithstanding any other provision of this Continuing Disclosure Certificate, the County reserves the right to make any of the aforementioned filings through DAC. SECTION 4. 'Termination of Reporting Obligation. The County's obligations under the Disclosure Certificate shall terminate upon the defeasance, prior redemption or payment in full of all of the Notes. 07038\pos-3 F-2 SECTION 5. Additional Information. Nothing in the Disclosure Certificate shall be deemed to prevent the County from disseminating any other information, using the means of dissemination set forth in the Disclosure Certificate or any other means of communication, or including any other information in any notice of occurrence of a Listed Event, in addition to that which is required by the Disclosure Certificate. If the County chooses to include any information in any notice of occurrence of a Listed Event in addition to that which is specifically required by the Disclosure Certificate, the County shall have no obligation under the Disclosure Certificate to update such information or include it in any future notice of occurrence of a Listed Event. SECTION 6. Default. In the event of a failure of the County to comply with any provision of the Disclosure Certificate, the Underwriters or any Holder may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the County to comply with its obligations under the Disclosure Certificate; provided, that the sole remedy under the Disclosure Certificate in the event of any failure of the County to comply with the Disclosure Certificate shall be an action to compel performance hereunder. SECTION 7. Beneficiaries. The Disclosure Certificate shall inure solely to the benefit of the County,the Purchasers and the Holders, and shall create no rights in any other person or entity. Dated: 0 , 2007. COUNTY OF CONTRA COSTA oc By: John B. Cullen County Administrator and Clerk of the Board of Supervisors 07038\pos-3 F-3 APPENDIX E EXCERPTS' FROM THE AUDITED FINANCIAL STATEMENTS OF THE COUNTY FOR THE FISCAL YEAR ENDED JUNE 30,2006 + Includes all material listed on the County's Comprehensive Annual Financial Report's Table of Contents through Schedule of Revenues, Expenditures and Changes in Fund Balance—Budget and Actual—General Fund for the Fiscal Year Ended June 30,2006. 07038\pos-3 E-1 APPENDIX D PROPOSED FORM OF OPINION OF BOND COUNSEL (TO COME] Upon delivery of the Notes in definitive form, Orrick, Herrington & Sutcliffe LLP, San Francisco, California, Bond Counsel to the County of Contra Costa, proposes to render its final approving opinion with respect to such Notes in substantially the following form: [Date] Board of Supervisors County of Contra Costa Martinez,California Re: County of Contra Costa,California 2007-08 Tax and Revenue Anticipation Notes, Series A (Final Opinion) 07038\pos-3 D-1 The County is located in the region east of the San Francisco Bay known as the "East Bay," which also includes the County of Alameda. The following Table-A-3 provides a listing of major employers headquartered or located in the County and their employment levels. Table A-3 MAJOR EMPLOYERS IN THE EAST BAY WITH EMPLOYEES IN THE COUNTV0) Primary Location Firm in County Product or Service Employment SBC Communications Inc. San Ramon Telecommunications 10,600 U.S. Postal Service Countywide Postal Services 10,000 Chevron/Corp.(1) Countywide Energy,Oil&Gas 3,000 County of Contra Costa(2) Martinez County Government 8,381 Safeway Countywide Supermarkets 7,922 Bank of America Countywide Banking 7,081 Bio-Rad Laboratories Inc. Hercules Biotech tests 5,200 John Muir/Mt. Diablo Health System Walnut Creek Health Care 4,900 Kaiser Permanente Medical Center(2) Walnut Creek,Martinez Health Care 4,730 Lucky Stores Countywide Supermarkets 4,631 Wells Fargo&Co. Countywide Banking 4,000 AT&T Countywide Telecommunications 4,000 Mt. Diablo Unified School District('-) Concord K-12 Education 3,385 West Contra Costa Unified School District('-) Richmond K-12 Education 3,360 Coopervision/Ocular Sciences Inc. Concord Contact lenses 3,144 Pacific Gas& Electric Countywide Gas& Electric Service 3,000 Longs Drug Stores(2) Walnut Creek Retail Drug Stores 2,900 San Ramon Valley Unified School District Danville K-12 Education 2,280 Contra Costa Newspapers') Walnut Creek Newspaper Publishing 1,417 Round Table Franchise Corp. Countywide Pizza Restaurants 1,230 Tosco Martinez Oil Refinery 1,200 Hill Physicians Med. Group Countywide Health Care 1,050 USS Posco Industries Pittsburg Steel Manufacturing 1,000 Shell Martinez Refining Co. (Equilon) Martinez Oil Refinery 930 (1) Sources: East Bay Business Times, Book of Lists, 2007 and San Francisco Business Times, Book of Lists, 2007. Data is for the reported entity's latest fiscal year. (2) Headquartered in the County. Effective Buying Income Personal Income The United State Department of Commerce, Bureau of Economic Analysis (the "BEA") produces economic accounts statistics that enable government and business decision-makers, researchers, and the public to follow and understand the performance of the national economy. The BEA defines "personal income" as income received by persons from all sources, including income received from participation in production as well as from government and business transfer payments. Personal income represents the sum of compensation of employees (received), supplements to wages and salaries, proprietors' income with inventory valuation adjustment and capital consumption adjustment (CCAdj), rental income of;persons with CCAdj, personal income receipts on assets, and personal current transfer receipts, less contributions for government social insurance. Per capita personal income is calculated as the personal income divided by the resident population based upon the Census Bureau's annual midyear population estimates. 07038\pus-3 A-5 Table A-4 below presents the latest available total income and median household effective buying income for the County, the State and the nation for the calendar years 2001 through 2005. Table A-4 COUNTY OF CONTRA COSTA PERSONAL INCOME CALENDAR YEARS 2001 THROUGH 2005 Per Capita Personal Income Personal Income Year and Area (millions of dollars) dollars 2005 County $49,475 $48,618 State 1,332,919 36,936 United States 10,220,942 34,495 2004 County 47,336 46,995 State 1,262,306 35,380 United States 9,716,351 . 33,050 2003 County 44,177 44,213 State 1,184,265 33,469 United States 9,150,320 31,484 2002 County 43,305 43,786 State 1,147,716 32,769 United States 8,872,871 30,810 2001 County 43,472 44,490 State 1,135,304 32,859 United States 8,716,992. 30,472 Source: U.S. Department of Commerce,Bureau of Economic Analysis. 07038\pus-3 A-6 Commercial Activity Commercial activity comprises an important part of the County's economy, with taxable transactions totaling approximately $13.4 billion in 2005, the most recent year for which complete annual data is available. Presented in Table A-5 below is a summary of taxable transactions in the County since 2001. Table A-5 COUNTY OF CONTRA COSTA TAXABLE TRANSACTIONS 2001 To 20051 ($IN 000'S) 2001 2002 2003 2004 2005' Apparel Stores $346,190 $357,690 $377,571 $411,121 $451,401 General Merchandise Stores 1,683,803 1,684,336 1,720,973 1,794,677 1,840,754 Specialty Stores 1,229,075 1,307,403 1,241,320 1,313,316 1,339,013 Food Stores 583,947 584,948 589,826 596,922 607,168 Packaged Liquor Stores 68,428 70,304 70,956 75,410 78,796 Eating and Drinking Places 878,955 903,540 928,874 994,733 1,049,124 Home Furnishings and Appliances 467,402 473,024 486,829 502,711 483,977 Building Materials and Farm Implements 850,622 876,203 925,708 1,080,813 1,092,471 Service Stations 792,340 747,291 763,870 921,731 1,043,848 Automotive and Vehicle Dealers, Parts and Supplies 1,959,801 1,952,583 1,832,891 1,899,369 1,857,918 Total Retail Outlets 8,942,822 9,044,346 9,025,114 9,697,365 10,072,084 Business and Personal Services 540,959 517,165 512,140 506,336 524,750 All Other Outlets 2,772,940 2,597,913 2,686,041 2,786,837 2,883,241 TOTAI.ALL OUTLETS $12,256,721 $12,159,424 $12,223,295 $12,990,538 $13,480,075 Most recent annual data available. Source: State Board of Equalization. Much of the County's commercial activity is concentrated in central business districts of its cities and unincorporated towns. Regional shopping centers, numerous smaller centers and several "big box" warehouse stores serve County residents. The County is served by all major banks including Bank of America and Wells Fargo Bank. In addition there are numerous local banks and branches of smaller California and foreign banks. There are over 30 savings and loan associations in the County, including Washington Mutual, World Savings and California Federal. Construction Activity The value of residential building activity decreased by 4.83% in Fiscal Year 2006-07 from Fiscal Year 2005-06 levels. The decrease was due to a sharp decline in building permits issued for the construction of single family homes. The following Table A-6 provides a summary of residential building permit valuations and number of new dwelling units authorized in the County since Calendar Year 2002. 07038\pos-3 A-7 Table A-6 COUNTY OF CONTRA COSTA RESIDENTIAL BUILDING PERMIT VALUATIONS CALENDAR YEARS 2002 THROUGH 2006 Valuation ($ in thousands) Number of New Dwelling Units Calendar Residential Single Multiple Year New Family Family Total 2002 $1,219,608 5,076 729 5,805 2003 1,263,360 4,965 1,930 6,895 2004 1,113,572 4,222 1,261 5,483 2005 1,525,515 5,452 860 6,312 2006 1,451,818 3,310 1,178 4,488 Source: Construction Industry Research Board. An approximately 5,979 acre development located east of the City of San Ramon will add 11,000 new homes in the County. The development known as "Dougherty Valley" is being constructed in nine phases with complete buildout in 2015. All phases of construction of Dougherty Valley have been approved by the County. To date, approximately 8,900 homes have been constructed, as well as the 2,200 student Dougherty Valley High School which opened in fall 2007 for grades nine and 10, a 900-student middle school and two 720-student elementary schools. In November 2004, County voters approved Measure J, which extended '/2 percent transportation sales tax program within the County. Measure J included'a continuation of the Growth Management Program (the "GMP'') originally approved under the transportation sales tax, known as "Measure C- 1988," and it carried forward six of eight compliance requirements from the existing Measure C GMP. Measure J also added a new requirement that local jurisdictions adopt a voter-approved Urban Limit Line. In order to remain eligible to receive the 18% Local Street Maintenance and Improvement Funds and the 5% Transportation for Livable Communities funds under Measure J, each jurisdiction is required to have a voter-approved Urban Limit Line. On Julv 25, 2006 the Board of Supervisors approved a resolution calling for an election on November 7, 2006, that asked voters to: (i) extend the term of the County's Urban Lit-nit Line to the Year 2026; (ii) require voter approval to expand the Urban Limit Line by more than 30 acres; (iii) adopt a new Urban Limit Line Map; and, (iv) establish new review procedures. The matter known as "Measure L" was approved by the voters of the County at the November 7, 2006 General Election by a 63% margin. On April 3, 2007, the County received a letter from the Contra Costa Transportation Authority acknowledging that through the passage of Measure L, the County had a voter-approved Urban Limit Line in compliance with the GMP under Measure J. To date, the County, and the cities of Antioch, Pittsburg and San Ramon each have voter-approved Urban Limit Lines in compliance the Measure C GMP. Transportation Availability of a broad transportation network has been one of the major factors in the County's economic and population growth. Interstate 80 connects the western portion of the County to San Francisco and the central portion of the County to Sacramento and points north via Interstate 5, the major north-south highway from Mexico to Canada. Interstate 680 connects the central County communities to the rest of the Bay Area and portions of the Central Valley of the State via State Routes 4 and 24, the County's major east-west arteries. 07038\pos-3 A-8 Caltrans is currently widening Interstate 80 in the western portion of the County at a cost of approximately $200 million. Caltrans completed construction of the Alfred Zampa Memorial span across the Carquinez Strait in 2003 on Interstate Highway 80; and constructed a new five lane bridge, with nine toll booths, over the Benicia—Martinez Bridge on Interstate Highway 680 at a cost of approximately $1.3 billion. The Benicia—Martinez Bridge project was completed and opened for traffic on August 26, 2007. Ground transportation is available to County residents from the following service providers: • Central Contra Costa Transit Authority provides local bus service to the central area of the County including Walnut Creek,Pleasant Hill and Concord. • BART connects the County to Alameda County, San Francisco, including the San Francisco International Airport, and Daly City and Colma in San Mateo County with two main lines, one from the San Francisco area to Richmond and the other to the Concord/Walnut Creek/Pittsburg/Bay Point area. BART has 43 stations and 104 miles of roadway in its system. • AC Transit, provides local bus service and connects Contra Costa communities to San Francisco and Oakland. • Other bus service is provided by Greyhound. • Commuter rail service is provided by the Capital Corridor, with daily runs between the Bay Area and Sacramento that stop at the intermodal facility in Martinez, the County seat. • The Santa Fe and Union Pacific Railroads' main lines serve the County, both in the industrial coastal areas.and the inland farm section. Commercial water transportation and docking facilities are available through a number of port and marina locations in the County. The Port of Richmond on San Francisco Bay and several privately owned industrial docks on both San Pablo and Suisun Bays serve the heavy industry located in the area. The Port of Richmond, owned and operated by the City of Richmond, is comprised of seven city owned terminals, five dry docks and I I privately owned terminals, covers approximately 202 acres and handles more than 20 million metric tons of general, liquid and dry bulk commodities annually. The majority of the shipments are bulk liquids, primarily petroleum, petroleum products, chemicals and petrochemicals, coconut and other vegetable oils, tallow and molasses. Automobiles, agriculture vehicles, steel products, scrap metals and other diversified bulk cargo are a significant part of the business of the Port. Major scheduled airline passenger and freight transportation for County residents is available at either Oakland or San Francisco International Airports, located about 20 and 30 miles, respectively, from the County. In addition there are two general aviation fields, one located in Byron and the other in Concord. Environmental Control Services Water. The East Bay Municipal Utilities District ("EBMUD") and the Contra Costa County Water District("CCCWD") supply water to the County. With EBMUD supplies water to the western part of the County, including Alamo, Crockett, Danville, Diablo, Hercules, Lafayette, Moraga, Orinda, Pinole, portions of Pleasant Hill, Richmond, Rodeo, San Pablo, San Ramon Selby and portions of Walnut Creek. Approximately 89% of its supply is from the Mokelumne River watershed stored at the 69.4 billion gallon capacity Pardee Dam in Ione, California. EBMUD is entitled to 325 million gallons per day under a contract with the State Water Resources Control Board, plus an additional 119 million gallons per day in 07038\pos-3 A-9 a single dry year under a contract with the U.S. Water and Power Resources Service (formerly the U.S. Bureau of Reclamation). CCCWD obtains its water from the Sacramento-San Joaquin Delta and serves approximately 500,000 customers in the central and eastern part of the County, including Antioch, Bay Point, Clayton, Clyde, Concord, Martinez, Oakley, portions of Pleasant Hill, Pittsburg and portions of Walnut Creek. It is entitled under a contract with the U.S. Water and Power Resources Service to purchase 195,000 acre- feet per year. Water purchased by CCCWD has ranged between 80,000 and 110,000 acre-feet annually. In addition,a number of industrial users and several municipalities draw water directly from the San Joaquin River under their own riparian rights, so that actual water usage in the service area averages about 125,000 acre-feet annually. To provide expanded water storage capacity, CCCWD constructed the Los Vaqueros Reservoir with a capacity of 100,000 acre-feet south of the City of Antioch. In spring 2004, the voters within CCCWD approved. the preparation of an economic analysis, a technical feasibility report and environmental review to expand the reservoir. It is expected that a draft feasibility report and an environmental impact statement/environmental impact report will be completed in early 2008. Sewer. Sewer services in the County are provided by approximately 20 sanitation districts and municipalities. Federal and State environmental requirements, plus grant money available from these two sources, resulted in upgrading, expanding and/or building new facilities by approximately 14 agencies. Flood Control. The Contra Costa County Flood Control and Water Conservation District (the "District") has been in operation since 1951 to plan, build, and operate flood control projects in unincorporated areas of the County except for the Delta area on its eastern border. The Delta is interspersed with inland waterways that fall under the jurisdiction of the U.S. Army Corps of Engineers and the State Department of Water Resources. The District is responsible for meeting requirements set forth by the Environmental Protection Agency ("EPA") with respect to addressing potential pollutants in nonspecific groundwater runoff. The County is not presently able to estimate the cost of compliance with EPA requirements, although such costs may be significant. Education and Health Services Education. Public school education in the County is available through nine elementary school districts, two high school districts and seven unified school districts. As of Fiscal Year 2006-07, these districts provided 146 elementary schools, 43 middle, junior high and intermediate schools, seven alternative. schools, 30 high schools, 20 continuation schools, six community day, juvenile court and a number of preschools, eight adult schools, and six special education facilities. In addition, there are 81 private schools with six or more students in the County. School enrollment for Fiscal Year 2006-07 numbered approximately 166,100 students in public schools and approximately 10,400 in regular graded private schools. Higher.education is available in the County through a combination of two-year community colleges and four-year colleges, including the Contra Costa County Community College District which has campuses in Richmond, Pleasant Hill and Pittsburg; California State University East Bay (formerly California State University Hayward) which operates a branch campus, called Contra Costa Center, in the City of Concord where late afternoon and evening classes in business, education and liberal arts are offered; and St. Mary's College of California, a four-year private institution, located on a 100-acre campus in Moraga. Also located within the County is the John F. Kennedy University with campuses in Pleasant Hill and Pittsburg and the UC Berkeley Extension Contra Costa Center in San Ramon. Health Services. There are 12 privately operated hospitals and one public hospital in the County, with a combined total of approximately 1,900 beds. The major public hospital is the Contra Costa Regional Medical Center located in Martinez. See also "—Contra Costa Regional Medical Center." Four of the private hospitals are run by Kaiser,the largest health maintenance organization in the United States. 07038\pos-3 A-10 Kaiser has opened'a new hospital in Richmond with new critical care beds, surgical suites and a.full service emergency department. The Walnut Creek-based John Muir/Mt. Diablo Health System operates hospitals at its Walnut Creek and Concord Campuses and outpatient services at its Brentwood Campus and in Rossmoor. Doctors Medical Center. Doctors Medical Center is operated by the West Contra Costa Health Care District (the "Health Care District"). This 247 bed facility is located in the western portion of the County, which has a population of approximately 250,000, a large portion of whom are low income. Doctors Medical Center provides medical services to the general public and is a critical component of the County Emergency Medical Services system. In September 2006, the Health Care District declared a financial emergency and authorized the filing of a bankruptcy petition in an effort to keep the hospital open. On September 19, 2006 and September 26, 2006 the Board of Supervisors received updates from the Health Care District regarding possible closure of the hospital. On October 1, 2006 the Health Care District filed a voluntary petition for Chapter 9 bankruptcy protection. On October 31, 2006, the Board of Supervisors approved the general structure of a recovery plan (the "Recovery Plan") to maintain services at Doctors Medical Center. The participants in the Recovery Plan are the County, the Health Care District, the physician groups that independently admit patients to the hospital,the State and the bankruptcy court, all of whom approved the general structure. The Recovery Plan, in part, includes: (i)execution of a joint powers financing agreement between the County and Doctors Medical Center to establish a joint management board on which the County will have majority representation; (ii) execution of an agreement between the County and the Health Care District for the temporary transfer, in installments, from the County General Fund, through June 30, 2007 of up to $10 million to the State's General Fund, which funds will be matched by the federal government and used by the State to provide enhanced Medi-Cal payments to Doctors Medical Center; and (iii) annual reallocation of approximately $2.5 million of ad valorem property tax revenues that would otherwise be allocated to the Health Care District in each of four successive years commencing with the Fiscal Year beginning July 1, 2007, to the County, to repay the County's transfer discussed in (ii) above. On February 5, 2007 the board of directors of the Health Care District unanimously approved the creation of a joint powers authority. On February 6, 2007 the Board of Supervisors unanimously approved the creation of the joint powers authority. The County is permitted to end its participation in the joint powers authority at any time with 90 days notice. The Doctors Medical Center Management Authority (the "Medical Center JPA"), a joint powers authority, was organized pursuant to a Joint Exercise of Powers Agreement entered into in February 2007, between the County and the Healthcare District. The Medical Center JPA is governed by a seven member board of directors comprised of two members from the Healthcare District, one affiliated physician representing the Doctors Medical Center medical staff and four members representing the County. The County members of the Medical Center JPA are the Director of County Health Services, the Chief Financial Officer of County Health Services and two members from the Board of Supervisors. The Medical Center JPA is working with Wellspring Management Services, LLC, formerly known as Speltz & Wells LLC and wholly-owned by Huron Consulting Group ("Wellspring"), to develop a profitability analysis of existing services and potential operating models to reduce annual operating losses. The Recovery Plan was executed by each participant. If the Recovery Plan is not successful and Doctors Medical.Center is closed, demand at the County public hospital (described below) and other hospitals in the area is expected to increase. As of June 30, 2007, the County had transferred all $10 million to the State's General Fund. Three million was transferred on November 3, 2006, $3 million on December 5, 2006 and $4 million on February 15, 2007. 07038\pos-3 A-] I The Medical. Center JPA has been meeting regularly since its organization in February 2007. Following review and discussion of the detailed financial .reports and planning options prepared by Wellspring, a full status report was presented to the Board of Supervisors on June 26, 2007. The status report outlined the business plan and options, the need for operational improvement, and the requirement for securing near term incremental funding of $10 million by January. 2008. On August 18, 2007, $5 million in near-ter►n incremental funding was secured through State financing and the remaining $5 million is still being pursued. Although major progress has been made in stabilizing Doctors Medical Center and reducing the monthly losses, its long term future financial viability is uncertain. The County is unable to predict the eventual impact that a future closure of Doctors Medical Center, if it occurs, would have on the financial condition of the County. Contra Costa Regional Medical Center. The public hospital is Contra Costa Regional Medical Center ("CCRMC"), a 164-bed facility that the County rebuilt and re-opened to the public in 1998 on the existing campus in Martinez. Since reconstruction of the hospital in 1998, the County completed a public health/clinical laboratory in 2001 on the CCRMC campus, converted the former Los Medanos Hospital into the Pittsburg Health Center, completed construction of an ambulatory care clinic on the campus of CCRMC, expanded clinics in Antioch, Concord and Brentwood, and is in process of replacing a clinic in Richmond and constructing expansions to the clinics at the CCRMC campus and at the Pittsburg Health Center. 07038\pos-3 A-12 OFFICIAL NOTICE OF SALE COUNTY OF CONTRA COSTA STATE OF CALIFORNIA $_,000,000" 2007-2008 TAX AND REVENUE ANTICIPATION NOTES, SERIES A DATE OF SALE WEDNESDAY,NOVEMBER 7, 2007 9:00 A.M.. LOCAL TIME BIDS TO BE RECEIVED EXCLUSIVELY VIA PARITY * Preliminary, subject to change. ORIS West:260299703.2 OFFICIAL NOTICE OF SALE $ ,000,000* COUNTY OF CONTRA COSTA, CALIFORNIA 2007-2008 TAX AND REVENUE ANTICIPATION NOTES, SERIES A NOTICE IS HEREBY GIVEN that electronic unconditional proposals will be received by the County of Contra Costa (the "County") up to the time specified below for the purchase of $_,000,000# principal amount of County of Contra Costa 2007-2008 Tax and Revenue Anticipation Notes, Series A (the "Notes"). Proposals may only be submitted electronically through i-Deal LLC's Parity ("PARITY") electronic bid submission system. No other method of bid submission will be accepted. DATE AND TIME OF SALE: 9:00 a.m. Pacific time on Wednesday, November 7, 2007, or at such later date and/or other time as shall be established by the County Administrator of the County or his designee (the "County Administrator") and announced through Thomson Municipal News no later than 1:00 p.m., Pacific time, on the business day prior to the day proposals are to be received. If no legal proposals are received for the Notes on November 7; 2007 (or such other date as is communicated by Thomson Municipal News) at the time specified, proposals will be received at such time specified on such other date as shall be designated by Thomson Municipal News. As an accommodation to Proposers, telephonic notice of the postponement of the sale time and/or date will be given to any Proposer requesting such notice by request directed to the County's Financial Advisor, Tamalpais Advisors, Inc., 3030 Bridgeway, Suite 340, Sausalito, California 94965; Attn. Jean Buckley (Phone (415) 331-4473). Failure of any Proposer to receive such telephonic notice shall not affect the legality of the sale. CHANGES 1N TERMS OF NOTES: The County reserves the right to change the terms of the Notes set forth in this Notice so long as Proposers are alerted to any changes by announcement through Thomson Municipal News no later than 1:00 p.m., Pacific time, on the business day prior to the day proposals are to be received. The Notes will be issued pursuant to a Resolution (the "Resolution") adopted by the County on October 16, 2007. A copy of the Resolution will be furnished to any interested Proposer upon request to the Senior Deputy County Administrator/Debt Manager, County of Contra Costa, 651 Pine Street, 10`h Floor, Martinez, CA 94553-0063, (925) 335-1023, Attn: Lisa Driscoll. Preliminary, subject to change. 01 IS Wcst:260299703.2 BOOK-ENTRY ONLY: The Notes shall be issued in registered form by means of a book-entry system with no distribution of note certificates made to the public. One or more Note certificates representing the Note issue will be issued to The Depository Trust Company, New York, New York ("DTC''), registered in the name of Cede & Co., its nominee. The book- entry system will evidence ownership interests in the Notes in the denominations of $5,000 or any integral multiple thereof, with transfers of ownership effected on the records of DTC. PAYMENT OF DTC FEES: The bidders for the Notes whose proposals are accepted by the County (the "Accepted Proposer(s)"), will be responsible for submitting all requisite documents to DTC for DTC-eligibility purposes. In addition, the Accepted Proposer(s) of the Notes will be responsible for payment of all fees charged by DTC. NOTE TERMS: The Notes will be dated the date of issuance thereof(expected to be November 15, 2007), will pay interest on November 14, 2008 and at the maturity thereof and will mature on December 5, 2008. PREPAYMENT: The Notes are not subject to prepayment prior to maturity. PURPOSE: The proceeds of the sale of the Notes will provide moneys to help meet current (Fiscal Year 2007-2008) County expenditures, including current expenses, capital expenditures and the discharge of other obligations or indebtedness of the County. ADDITIONAL NOTES: The County has authorized the issuance of additional notes (the "Series B Notes") payable on a parity with the Series A Notes and which in aggregate with the principal amount of the Series A Notes are not to exceed $_.000,000. SECURITY: The principal amount of the Notes and Series B Notes, together with interest thereon, shall be payable from taxes, income, revenue, cash receipts and other moneys which are received by the County for the General Fund of the County attributable to Fiscal Year 2007-2008 and which are lawfully available for the payment of current expenses and other obligations of the County (the "Unrestricted Revenues"). The Notes and Series B Notes are secured by the County's pledge to deposit in trust in a special fund designated as the "2007-2008 Tax and Revenue Anticipation Note Repayment Fund" (the "Repayment Fund") specific amounts on specif c dates, which dates are subject to change at the discretion of the County. Proposers are referred to the Resolution and the Preliminary Official Statement for further information. CONTINUING DISCLOSURE: The County will deliver to the Accepted Proposer(s) a Continuing Disclosure Certificate in connection with the issuance of the Notes in which, among other things, the County covenants to provide notice of certain material events to nationally recognized municipal securities information depositories. The County has never failed in any material respect to comply with its obligations regarding continuing disclosure. All of the County's currently required continuing disclosure filings can be obtained on the website of Digital Assurance Certification: www.dacbond.com. LEGAL OPINION -- DISCLOSURE COUNSEL: The Accepted Proposer(s) will receive a disclosure opinion from Lofton & Jennings, San Francisco, California regarding the Official Statement. OI-IS West:260299703.2 2 LEGAL OPINION -- TAX EXEMPT STATUS: The Notes will be issued subject to the legal opinion of Orrick, Herrington & Sutcliffe LLP, San Francisco, California ("Bond Counsel"), approving the validity of the Notes and stating that, in the opinion of Bond Counsel, based on an analysis of existing laws, regulations, rulings, and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Notes is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. A copy of the proposed opinion of Bond Counsel is set forth in Appendix D of the Preliminary Official Statement. FORM OF PROPOSAL -- NO DISCOUNT: The proposals may be for all or part (in increments of$5,000,000) of the Notes hereby offered for sale. Proposals for less than all of the issue are required to be made in increments of $5,000,000, and no proposal for less than $5,000,000 principal amount of Notes will be entertained. Awards will be made in increments of $5,000,000 up to $_,000,000. Each proposal shall state the purchase price, which shall not be less than par, and the interest rate, which shall not exceed 12% per annum, and must be delivered by electronic transmission, as described below, and received by the time specified above. Each proposal must be in accordance with the terms and conditions set forth in this Official Notice of Sale. FORM OF BID: A prescribed bid form ("Bid Form") for the Notes will be available electronically via PARITY. Each bid for the Notes must be submitted electronically via PARITY pursuant to the prescribed version of the Bid Form posted thereon. For purposes of submitting all bids, the time as maintained on PARITY shall constitute the official time. WARNINGS REGARDING ELECTRONIC BIDS: NEITHER THE COUNTY NOR THE FINANCIAL ADVISOR NOR BOND COUNSEL SHALL BE RESPONSIBLE FOR, AND THE PROPOSER EXPRESSLY ASSUMES THE RISK FOR, ANY INCOMPLETE, INACCURATE OR UNTIMELY BID SUBMITTED VIA PARITY BY SUCH PROPOSER, INCLUDING, WITHOUT LIMITATION, BY REASON OF GARBLED TRANSMISSION, MECHANICAL FAILURE, ENGAGED TELEPHONE OR TELECOMMUNICATIONS LINES, OR ANY OTHER CA USE ARISING FROM DELI VERY VIA PARITY. All bids which are submitted electronically via PARITY pursuant to the procedures described below shall be deemed to constitute a bid for purchase of the Notes (each a "Bid") and shall be deemed to incorporate by reference all of the terms and conditions of this Official Notice of Sale. The submission of a Bid electronically via PARITY shall constitute and be deemed the Proposer's signature on the Bid Form. PROCEDURES REGARDING ELECTRONIC BIDDING: Bids may be submitted electronically via PARITY in accordance with this Official Notice of Sale, until 9:00 a.m., Pacific Time, November 7, 2007, but no Bid will be received after the time for receiving bids specified above. To the extent any instructions or directions set forth on PARITY conflict with this Official Notice of Sale, the terms of this Oficial Notice of Sale shall control. For further information about PARITY, potential bidders may contact PARITY at (212) 806-8304 or the * Preliminary, subject to change. 01IS West:260299703.2 3 County's Financial Advisor. In the event that a Bid for the Notes is submitted via PARITY, the Proposer further agrees that: 1. If a Bid submitted electronically by PARITY is accepted by the County, the terms of the Bid Form and this Official Notice of Sale and the information that is electronically transmitted through PARITY shall form a contract and the Accepted Proposer(s) shall be bound by the terms of such contract. 2. PARITY is not an agent of the County, and the County shall have no liability whatsoever based on any Proposer's use of PARITY, including but not limited to any failure by PARITY to correctly or timely transmit information provided by the County or information provided by the Proposer. 3. The County may choose to discontinue use of electronic bidding via PARITY by issuing a notification to such effect via Thomson Municipal News no later than 1:00 p.m. (Pacific Time) on the last business day prior to the date of sale. 4. Once the Bids are communicated electronically via PARITY to the County as described above, each Bid shall be deemed to be an irrevocable offer to purchase the Notes on the terms provided in this Official Notice of Sale. 5. Each Proposer choosing to submit a Bid shall be solely responsible to make necessary arrangements to access PARITY for purposes of submitting its Bid in a timely manner and in compliance with this Official Notice of Sale. The County shall have no duty or obligation to undertake such registration to bid for any prospective Proposer or to provide or assure such access to any qualified prospective Proposer, and the County shall not be responsible for a bidder's failure to register to bid or for proper operation of, or have any liability for any delays or interruptions of, or any damages caused by, PARITY. The County is using PARITY as a communication mechanism, and not as the County's agent, to conduct the electronic bidding for the Notes. By using PARITY, each Proposer agrees to hold the County harmless for any harm or damages caused to such bidder in connection with its use of PARITY for bidding on the Notes. No Bid received after the deadline shall be considered. In any case, each Bid must be in accordance with the ternis and conditions set forth in this Official Notice of Sale. INTEREST RATE: Interest with respect to the Notes is computed on the basis of a 360-day year and a 30-day month and accrues from the date of issuance of the Notes. Interest on the Notes is payable on November 14, 2008 and at the maturity of the Notes. Interest due on the Notes, prior to the maturity thereof, shall be payable to the person in whose name such Note is registered on the registration books, maintained by the Paying Agent, as of the close of business on November 1, 2008 (the "Record Date"). In connection with the proposal submitted for the Notes, (1) each Proposer must propose an interest rate in multiples of 1/20 or 1/8 percent; which rate shall not exceed 12% per annum; (2) interest with respect to a Note shall be computed from the date of issuance thereof(expected to be November 15, 2007), payable on November 14, 2008, and at maturity on December 5, 2008, at the interest rate specified in the proposal; (3) the same interest rate shall apply to all Notes (with respect to the $5,000,000 increments specified in the proposal); and (4) any premium must be paid as part of the purchase \ 01-IS West:260299703.2 4 11 price, and no proposal will be accepted which contemplates the waiver of any interest or other concession by the Proposer as a substitute for payment in full of the purchase price. BEST PROPOSAL: Unless all Bids are rejected, the Notes will be awarded to the best responsible Proposer(s), considering the rate specified and the premium offered, if any, in increments of$5,000,000 until all $_,000,000* of Notes have been awarded. Therefore, a Proposer may be awarded Notes in an amount which is less than that requested by such Proposer. The Notes will be awarded to the Proposers whose proposals represent the lowest true interest cost to the County, considering the interest rate specified and the premium offered, if any. The true interest cost will be that nominal annual discount rate which, when compounded semiannually and when used to discount all payments of principal and interest payable on the Notes at the rate specified in the proposal to the delivery date of the Notes, results in the amount equal to the purchase price, which is the principal amount of the Notes plus the amount of any premium offered. In the event that two or more Proposers offer proposals for the Notes at the same lowest true interest cost, the first Bid submitted, as determined by reference to the time displayed on PARITY, shall be awarded such Notes. PRINCIPAL AMOUNT: The County reserves the right following receipt of proposals and determination of the winning proposals to decrease the principal amount of the Notes by not more than 10%. In such event, the County will award such lesser amount of Notes and the purchase price of the Accepted Proposer(s) will be proportionally reduced or the proposals less advantageous to the County will not be accepted or will be accepted in a lesser amount. RIGHT OF REJECTION: The County reserves the right, in its sole discretion, to reject any and all proposals and to waive any irregularity or informality in any proposal. PROMPT AWARD: The County Administrator or his designee will take action awarding the Notes or rejecting all proposals not later than thirty (30) hours after the expiration of the time herein prescribed for the receipt of proposals, unless such period for award is waived by the Accepted Proposer(s). Notice of the award will be given promptly to the successful Proposer(s). Each electronically submitted successful Proposal and its corresponding written award by the County Administrator or his designee shall constitute an executed contract for purchase of the Notes between each Accepted Proposer and the County. DELIVERY AND PAYMENT: Delivery of the Notes through DTC is expected to be made to the Accepted Proposer(s) on or about November 15, 2007. Payment for the Notes must be made in Federal Reserve Bank funds or other immediately available funds. Any expense in providing immediately available funds, whether by transfer of Federal Reserve Bank funds or otherwise, shall be borne by the Accepted Proposer(s). CUSIP NUMBERS: It is anticipated that CUSIP numbers will be printed on the Notes, but neither failure to print such numbers on any Note nor any error with respect thereto shall constitute cause for a failure or refusal by the purchaser thereof to accept delivery of and pay for the Notes in accordance with the terns of this Official Notice of Sale. All expenses ill Preliminary, subject to change. OHS West:260299703.2 5 relation to the printing of CUSIP numbers on the Notes shall be paid for by the County; provided, however, that the CUSIP Service Bureau charge for the assignment of said numbers shall be the responsibility of and shall be paid for by the Accepted Proposer(s). CERTIFICATE REGARDING REOFFERING PRICE: No later than two hours after award of the Notes and upon the delivery date of the Notes, the Accepted Proposer(s) must submit to the County a certificate or certificates regarding the reoffering price of the Notes in the form attached hereto as Exhibit A. RIGHT OF CANCELLATION: The Accepted Proposer(s) shall have the right, at its/their option, to cancel the contract of purchase if the County shall fail to execute the Notes and tender the same on or before forty-five (45) days after the award thereof. NO GOOD FAITH DEPOSIT REQUIRED: No Good Faith Deposit will be required. STATEMENT OF TRUE INTEREST COST: Each Proposer is requested, but is not required, to state in its proposal the true interest cost in dollars, which shall be considered as informative only and not binding. OFFICIAL STATEMENT: The County will approve a Preliminary Official Statement relating to the Notes, which the County will certify to be "deemed final" as of its date for purposes of SEC Rule 15c2-12, except for the omission of certain pricing and related information, and has authorized the use of the final Official Statement in connection with the sale of the Notes. Up to fifty (50) copies of the final Official Statement per $50 million of Notes purchased will be supplied within seven (7) business days from the date of sale of the Notes to the purchaser(s) of the Notes for this purpose at the expense of the County. RESALE IN OTHER STATES: The Accepted Proposer(s) will assume responsibility for taking any action necessary to qualify the Notes for offer and sale in jurisdictions other than California, and for complying with the laws of all jurisdictions on resale of the Notes, and shall indemnify and hold harmless the County and its officials and supervisors from any loss or damage resulting from any failure to comply with any such law. CALIFORNIA DEBT AND INVESTMENT ADVISORY COMMISSION: Each Accepted Proposer will be required, pursuant to State law (California Government Code Section 8856), to pay any fees of the California Debt and Investment Advisory Commission ("CDIAC"). CDIAC will invoice each Accepted Proposer(s) directly for any such fees. RATINGS IN EFFECT: Each proposal will be understood to be conditioned upon their being in place at the date of delivery of the Notes a rating or ratings at least as high as the rating or ratings, if any, as were in place with respect to the Notes at the time fixed for receiving proposals. CHANGE IN TAX-EXEMPT STATUS: At any time before the Notes are tendered for delivery, the Accepted Proposer(s) may disaffirm and withdraw its proposal if the interest received by private holders of obligations of the same type and character as the Notes (as determined by Bond Counsel) shall be declared to be includable in gross income under present OHS West:260299703.2 6 federal income tax laws, either by a federal court, or by legislation enacted subsequent to the date of this Official Notice of Sale. CLOSING DOCUMENTS: Each proposal will be understood to be conditioned upon the County's furnishing to the Accepted Proposer(s), without charge, concurrently with payment and delivery of the Notes, the following closing papers, each dated the date of such delivery: (a) Legal Opinion: The legal opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel, described in this Official Notice of Sale under the heading "Legal Opinion -- Tax Exempt Status." (b) No Litigation Certificate: A certificate of the County that there is no litigation pending concerning the validity of the Notes, the existence of the County or the entitlement of the County Officers thereof to their respective offices except as set forth in the Official Statement. (c) Certificate Regarding Official Statement: A certificate of an official of the County stating that as of the date thereof, to the best of the knowledge and belief of said official, the Official Statement (excluding information on DTC) does not contain an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. (d) Receipt of the County: A receipt of the County showing that the purchase price of the Notes has been received by the County. (e) Disclosure Opinion: The legal opinion of Lofton & Jennings, Disclosure Counsel, described in this Official Notice of Sale under the heading "Legal Opinion - Disclosure Counsel.'' (f) Continuing Disclosure Certificate: The Certificate described in this Official Notice of Sale under the heading "Continuing Disclosure." 01is West:260299703.2 7 ADDITIONAL INFORMATION: An electronic copy of the Preliminary Official Statement and any other information concerning the proposed financing will be furnished upon request to either the financial advisor, Tamalpais Advisors, Inc., 3030 Bridgeway, Suite 340, Sausalito, California 94965, (415) 331-447'), or to the Senior Deputy County Administrator/Debt Manager of the County, (925) 335-1023. Dated: Octoberl V, 2007. COJJNTV ()F CONTRA COSTA By- — John B. Cullen County Administrator and Clerk of the Board of Supervisors OHS West:260299703.2 8 EXHIBIT A FORM OF CERTIFICATE OF PURCHASER AS T O INITIAL REOFFERING PRICE AND OTHER MATTERS [PURCHASER] has acted as the underwriter of$ principal amount of County of Contra Costa, California 2007-2008 Tax and Revenue Anticipation Notes, Series A (the "Notes"), and hereby certifies and represents the following: L As of November 7, 2007 (the "Sale Date"), we had offered or reasonably expected to offer the Notes that we are underwriting to the general public (excluding bond houses, brokers, or similar persons acting in the capacity of underwriters or wholesalers) in a bona fide public offering at % of the principal amount thereof to yield %. 2. The issue price of the Notes listed.in paragraph 1 above does not exceed the fair market price and the issue yield is not lower than the market yield as of the Sale Date. 3. As of the date hereof, all of the Notes that we are underwriting have actually been offered to the general public at % of the principal amount thereof and at least 10% of the Notes actually have been sold to the general public at such price. 4. None of the Notes (a) were initially offered at one price to the general public and at a discount from that price to institutions or other investors, (b) have actually been sold, as of the date hereof, at a discount to institutional or other investors, or (c) were initially only offered and sold to persons other than members of the general public (but excluding intermediaries). Dated: 32007. [PURCHASER] By Authorized Representative ORIS West260299703.2 CLERK'S CERTIFICATE The undersigned Chief Clerk of the Board of Supervisors of the County of Contra Costa, hereby certifies as follows: The foregoing is a full, true and correct copy of a resolution duly adopted at a regular meeting of the Board of Supervisors of said County duly and regularly and legally held at the regular meeting place thereof on IO (O , 2007, of which meeting all of the members of the Board of Supervisors of said Coun y Ad due notice and at which a majority thereof were present. At said meeting said resolution was adopted by the following vote: Ayes: Noes: Absent: I have carefully compared the same with the original resolution on file and of record in my office and the foregoing is a full, true and correct copy of the original resolution adopted at said meeting and entered in said minutes. I further certify that an agenda of said meeting was posted at least 72 hours prior to the date of the meeting in a place in the City of Martinez, California, freely accessible to members of the public and that a short description of said resolution appeared on said agenda. Said resolution has not been amended, modified or rescinded since the date of its adoption, and the same is now in full force and effect. Dated: Chie Cle the Board of Supe visors County of Contra Costa [Seal] OHS West:260299691.3 i NOTICE OF INTENTION TO SELL NOTES NOT TO EXCEED $ 000,000 COUNTY OF CONTRA COSTA, CALIFORNIA 2007-2008 TAX AND REVENUE ANTICIPATION NOTES, SERIES A NOTICE IS HEREBY GIVEN that the County of Contra Costa, California (the "County"), intends to receive electronic bids through the PARITY electronic bid submission system for the sale of the above Notes on Wednesday, November 7, 2007, at the hour of 9:00 a.m., Pacific time (or on such other date and time as may be determined by the County as provided below). NOTICE IS HEREBY FURTHER GIVEN that the Notes will be offered for public sale subject to all the terms and conditions of the Official Notice of Sale for the Notes, as set forth in the Preliminary Official Statement relating to the Notes. When available, an electronic copy of the Preliminary Official Statement can be obtained at the PARITY© website at www.i-dealprospeclus.com or upon request to Tamalpais Advisors, Inc., 3030 Bridgeway, Suite 340, Sausalito, California 94965, Financial Advisor to the County (telephone (415) 331- 4473, fax (415) 331-4479), and email: jbuckley@tamadvisors.com. Any sale date, time and terms of the Notes may be changed by the County by notice thereof through Thomson Municipal News, no later than 1:00 p.m., Pacific time, on the business day prior to the then-scheduled date for receipt of bids or on such date if no legal bid or bids are received. Legal Opinion: Orrick, Herrington & Sutcliffe LLP, San Francisco, California. Dated: October 24, 2007. /s/John B. Cullen County Administrator and Clerk of the Board of Supervisors, County of Contra Costa, State of California OIiS West:2603 00 739.4 This Note shall not be valid or become obligatory for any purpose until the Certificate of Authentication and Registration hereon shall have been signed by the Paying Agent. 0I4S Wcst260299691.3 A-3 IN WITNESS WHEREOF, the County of Contra Costa has caused this Note to be executed by the manual or facsimile signature of its Treasurer-Tax Collector and countersigned by the manual or facsimile signature of the Clerk of its Board of Supervisors and caused the official seal of its Board of Supervisors to be impressed hereon, all as of the Note Date specified above. COUNTY OF CONTRA COSTA By Tr rse Tax Collector (SEAL) Countersigned: O ( County Administrator and Clerk of the Board of Supervisors [FORM OF CERTIFICATE OF AUTHENTICATION AND REGISTRATION] This Note is one of the Notes described in the within-mentioned Resolution, which Note has been authenticated and registered on the date set forth below. Date of Authentication and Registration: By Trea u r- ax Collector of the CQumfy of Contra Costa OHS West:260299691.3 A-4 APPENDIX A GENERAL COUNTY ECONOMIC AND DEMOGRAPHIC INFORMATION General The County of Contra Costa, California (the "County") was incorporated in 1850 as one of the original 27 counties of the State of California (the "State"), with the City of Martinez as the County seat. It is one of the nine counties in the San Francisco-Oakland Bay Area. The County covers about 733 square miles and extends from the northeastern shore of the San Francisco Bay easterly about 50 miles to San Joaquin County. The County is bordered on the south and west by Alameda County and on the north by the Suisun and San Pablo Bays. The western and northern shorelines are highly industrialized, while the interior sections are suburban/residential, commercial and light industrial. The County contains 19 incorporated cities, including Richmond in the west, Antioch in the northeast, and Concord in the middle. A large part of the County is served by the San Francisco Bay Area Rapid Transit District ("BART"), which has enabled the expansion of both residential and commercial development throughout much of the County. In addition, economic development along the Interstate 680 corridor in the County has been substantial and has accounted for significant job creation in the Cities of Concord, Walnut Creek and San Ramon. County Government The County has a general law form of government. A five-member Board of Supervisors, each member of which is elected to a four-year term, serves as the County's legislative body. Also elected are the County Assessor, Auditor-Controller, Clerk-Recorder, District Attorney-Public Administrator, Sheriff-Coroner and Treasurer-Tax Collector. A County Administrator appointed by the Board of Supervisors. runs the day-to-day business of the County. The current County Administrator is John B. Cullen. Brief resumes of key County officials is set forth below. John B. Cu/len, County Administrator. Mr. Cullen was appointed County Administrator by the Board of Supervisors in March 2006 and is responsible for the overall administration of County government. Prior to his appointment, he was the Director of the Employment and Human Services Department at the County from 1995 to 2006. Mr. Cullen has worked in the County since 1995 and in the public sector since 1974. He received a Bachelors degree in Social Welfare and a Masters in Social Work from the California State University at Fresno. Mr. Cullen is a member of the County Administrative Officers Association of California, the National Association of Counties, the Private Industry Council, Workforce Development Board,the Contra Costa Council Economic Partnership, and a founding member of the Contra Costa Children and Families Commission. Under his direction, County departments have been recognized by the Ford Foundation for Innovations in Government, the National Association of Counties, the County Supervisors Association, Vice President Gore's Reinventing Government Program and the Board of Supervisors. Stephen J. Ybarra, Auditor-Controller. Mr. Ybarra was appointed Auditor-Controller of the County by the Board of Supervisors on June 1, 2004 and was reelected by the voters in 2006. Prior to his appointment in 2004, he was the Assistant Auditor-Controller of the County. Mr. Ybarra has worked for the County for more than 34 years. He received a Bachelor of Science degree in business administration with a concentration in accounting from the California State University, Sacramento. Mr. Ybarra is a. Certified Government Financial Manager, an active member of the State Association of the County Auditors, a member of the Government Finance.Officer's Association and the Association of Government Accountants, a member of the Board of Directors of the Contra Costa County Federal Credit Union and 07038\pos-3 A-1 serves on the County's Deferred Compensation Advisory Committee. Mr. Ybarra is a former chair of the Bay Area's Committee of County Auditors, a former president of the State Association of County Auditors Property Tax Managers and served as a member on the State Association's Property Tax Shift Guidelines Committee. William J. Pollacek, Treasurer-Tax Collector. Mr. Pollacek was elected Treasurer-Tax Collector in June 1998 and has been reelected two times, most recently in June 2006. Prior to his election in 1998, he was City Treasurer for the City of Martinez. Mr. Pollacek received a Bachelors degree from San Jose State University and Masters degree in Business Administration from California State University at Fullerton, and earned a Certificate in Advanced Investment Management from The Wharton School at the University of Pennsylvania and a Certificate in Public Treasury Management from the University of Southern California. Mr. Pollacek also serves on the Contra Costa County Employees' Retirement Association Board of Trustees and is a founding Trustee of CalTRUST, an investment trust established by public agencies in the State for the purpose of pooling and investing local agency funds. Population The County is the ninth most populous county in California, with its population reaching approximately 1042,341 .as of January 1, 2007. This represents an increase of approximately 4.7% compared to the County's population as of January 1, 2003. The availability of rapid transit, close proximity to major employment hubs in San Francisco and Oakland, and relatively affordable existing and new housing have combined to attract more residents to the County over the past decade. While population grew in every city in the County, population growth since 2000 has been strongest in unincorporated areas as well as in Antioch, Brentwood, Hercules, Oakley, Pittsburg and San Ramon. (Remainder of this Page Intentionally Left Blank) 07038\pos-3 A-2 The following is a summary of the County's population levels since 2003. Table A-1 COUNTY OF CONTRA COSTA POPULATION(t) (AS OF JANUARY 1) 2003 2004 2005 2006 2007") Antioch 99,244 100,892 100,714 100,163 100,150 Brentwood 34,125 38,442 42,108 45,974 48,907 Clayton 10,976 11,024 .10,947 10,841 10,781 Concord 124,683 125,204 125,025 123,969 123,519 Danville 43,192 43,372 43,131 42,719 42,601 El Cerrito 23,518 23,468 23,328 ,23,289 23,194 Hercules 20,478 21,770 23,282 23,647 23,975 Lafayette 24,389 24,371 24,326 24,003 23,953 Martinez 36,872 36,910 36,698 36,306 36,179 Moraga 16,505 16,487 16,387 16,223 16,165 Oakley 27,733 28,455 29,068 29,485 31,906 Orinda 17.,822 17,813 17,738 17,557 17,517 Pinole 19,521 19,600 19,541 19,315 19,234 Pittsburg .61,036 61,665 62,398 62,492 63,004 Pleasant Hill 33,659 33,718 33,528 33,203 33,117 Richmond 101,332 101,960 102,677 102,676 103,828 San Pablo 30,786 31,124 31,241 30,977 30,965 San Ramon 47,035 48,755 50,855 56,505 58,035 Walnut Creek 65,962 66,333 66,283 65,603 65,384 SUBTOTAL 157,213 157,636 161,199 165,785 169,927 Balance of County 838,868 851,363 859,185 864,947 872,414 TOTAL 996,081 1,008,999 1,020,384 1,030,732 1,042,341 California 35,691,534 36,252,878 36,743,186 37,195,240 37,662,518 (1) Totals may not equal sums due to independent rounding. (2) Preliminary. Source: State Department of Finance,Table 2: E-4 Population Estimates for Cities,Counties and State,2001-2007 with 2000 DRU Benchmark. 07038\pos-3 A-3 Industry and Employment As shown below, the County's civilian labor force was 518.5 million in 2006. With average 2006 unemployment rates of 4.3% and 4.9% for the County and the State, respectively, the County has achieved a lower unemployment rate than the State in each of the past five years. Table A-2 COUNTY OF CONTRA COSTA EMPLOYMENT AND UNEMPLOYMENT OF RESIDENT LABOR FORCE WAGE AND SALARY EMPLOYMENT BY INDUSTRY ANNUAL AVERAGES(IN THOUSANDS) 2002 2003 2004 2005 2006 County Civilian Labor Force(1) 513.7 512.7 512.5 516.1 518.5 Employment 484.3 481.4 484.6 491.0 496.3 Unemployment 29.4 31.3 27.9 25.1 22.2 Unemployment Rate: County 5.7% 6.1% 5.4% 4.9% - 4.3% State of California 6.7% 6.8% 6.2% 5.4% 4.9% Wage and Salary Employment('`) 2002 2003 2004 2005 2006 13) Agriculture 2.1 2.0 0.8 0.9 Mining and Construction 28.0 27.5 29.0 30.8 Manufacturing 21.9 20.6 20.6 19.8 Wholesale Trade 10.1 9.3 9.0 8.8 Retail Trade 43.4 42.2 43.4 44.2 Transportation and Public Utilities 9.3 7.9 7.5 7.4 Information 16.0 13.8 14.0 13.3 Finance, Insurance, and Real Estate 30.8 32.4 32.6 34.3 Professional and Business Services 48.0 45.1 45.9 47.0 Education and Health Services 40.3 40.4 41.0 41.1 Leisure and Hospitality 29.1 29.8 30.3 31.5 Other Services 13.6 13.3 13.9 14.1 Government 50.5 50.2 49.3 50.8 TO-I-AL 343.2 334.3 337.3 344.0 (1) Based on place of residence. (2) Based on place of work. (3) Wage and Salary Employment data for 2006 is not yet available. (4) ""Total"may not be precise due to independent rounding. Source: State of California, Employment Development Department, and Labor Market Information Division, March 2004 benchmark. Major Employers Major industries in the County include petroleum refining, telecommunications, financial and retail services, steel manufacturing, prefabricated metals, chemicals, electronic equipment, paper products and food processing. Most of the County's heavy manufacturing is located along the County's northern boundary fronting on the Suisun Bay and San Pablo Bay leading to San Francisco Bay and the Pacific Ocean. 07038\pos-3 A-4 [FORM OF ASSIGNMENT] For value received the undersigned do(es) hereby sell, assign and transfer unto (insert Social Security Number or taxpayer identification number) the within-mentioned registered Note and hereby irrevocably constitute(s) and appoint(s) attorney, to transfer the same on the books of the Trustee with full power of substitution in the premises. Dated: Signature NOTE: The signature to the assignment must correspond to the name as written on the face of this Note in every particular, without any alteration or change whatsoever. Signature Guaranteed By: NOTE: The signature to the assignment must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company. [FORM OF DTC LEGEND] Unless the certificate is presented by an authorized representative of The Depository Trust Company to the issuer or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL, since the registered owner hereof, Cede & Co., has an interest herein. 01IS West:260299691.3 A-5 LR J DRAFT O 10/09/07 PRELIMINARY OFFICIAL STATEMENT DATED OCTOBER_,2007 NEW ISSUE-BOOK ENTRY ONLY RATINGS: Moody's: Standard & Poor's: In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the County, based upon existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Notes is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. In the further opinion of Bond Counsel, interest on the Notes is not a specific preference item for purposes of the federal individual or corporate alternative minitnum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Notes. See "TAX M4TTERS. " $_,_,000* COUNTY OF CONTRA COSTA, CALIFORNIA -y, 2007-08 TAX AND REVENUE ANTICIPATION NOTES, SERIES A = CUSIP NO.: Dated: Date of Delivery Due: December 5, 2008 The County of Contra Costa, California (the "County").2007-08 Tax and Revenue Anticipation Notes, Series A (the "Notes") are being issued to finance the seasonal cash flow requirements of the County during the fiscal year ending June 30, 2008. The Notes will be issued as fixed-rate notes in fully registered form. The Notes, when issued, will be registered in the name of Cede & Co., as nominee for The Depository Trust Company ("DTC"), New York, New York, which will act as securities depository for the Notes. Purchases of the Notes will be made only through DTC Participants under the book-entry system maintained by DTC in denominations of$5,000 or any integral multiple thereof. Purchasers will not receive certificates representing their ownership interest in the Notes purchased. The Notes will be dated the date of delivery thereof and will not be subject to redemption prior to maturity. The Notes will bear interest at a fixed rate per annum from their dated date. Interest on the Notes is payable on November 14, 2008 and at maturity. In accordance with California law, the Notes are general obligations of the County, but are payable only out of the taxes, income, revenue, cash receipts and other General Fund moneys of the County attributable to the Fiscal Year 2007-08 and legally available for payment thereof. The Notes are equally and ratably secured by a pledge of certain unrestricted taxes, income, revenue, cash receipts and other moneys. The County is not authorized to levy or collect any tax for the repayment of the Notes. See"TH1:NO'r1_S—Security for the Notes." This cover page contains certain information for quick reference only and is not a summary of the transaction. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. The Notes are offered when, cis and if issued by the County and accepted by the purchaser(s), subject to the approval of validity by Orrick, Herrington & Sutcliffe LLP, San Francisco, California, Bond Counsel. Certain other legal matters will be passed upon for the County by County Counsel and by Lofton & Jennings, San Francisco, California, Disclosure Counsel. It is expected that the Notes will be available through the facilities of DTC in New York, New York for delivery on or about November 15, 2007. BIDS WILL BE RECEIVED ELECTRONICALLY THROUGH PARITY©ON WEDNESDAY,NOVEMBER 7,2007 @ 9:00 A.M. CALIFORNIA TIME. SEE APPENDIX H—"OFFICIAL NOTICE OF SALE." Dated: , 2007 * Preliminary,subject to change. No dealer, broker, salesperson or other person has been authorized by the County to give any information or to make any representations, other than those contained herein, in connection with the offering of the Notes and, if given or made, such information or representations must not be relied upon. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy the Notes nor shall there be any sale of the Notes by any person in any jurisdiction in which or to any person to whom it is unlawful to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers of the Notes. Estimates and opinions are included and should not be interpreted as statements of fact. Summaries of documents do not purport to be completestatements of their provisions. The infonnation and expressions.of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the County since the date hereof. IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE COUNTY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS OFFICIAL STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The Notes have not been registered with the Securities and Exchange Commission by reason of the provisions of Section 3(a)(2)of the Securities Act of 1933, as amended. The registration or qualification of the Notes in accordance with applicable provisions of Securities Laws of the states in which these Notes have been registered or qualified, and the exemption from registration or qualification in other states, shall not be regarded as a recommendation thereof. Neither these states nor any of their agencies have passed upon the merits of the securities or the accuracy or completeness of this Official Statement. Any representation to the contrary may be a criminal offense. Certain statements in this Official Statement, which may be identified by the use of such terms as plan, project, expect, estimate, budget or other similar words, constitute forward-looking statements. Such forward-looking statements include, but are not limited to, statements contained in APPENDIX B—"COUNTY FINANCIAL INFORMA'T'ION." Such forward-looking statements refer to the achievement of certain results or other expectations or performance which involved known and unknown risks, uncertainties and other factors. These risks, uncertainties and other factors may cause actual results, performance or achievements to be materially different from any projected results, performance or achievements described or implied by such forward-looking statements. The County does not plan to issue updates or revisions to such forward-looking statements if or when its expectations, or events, conditions or circumstances on which such statements are based, occur, or if actual results, performance or achievements are materially different from any results, performance or achievements described or implied by such forward-looking statements. IN CONNECTION WITH THIS OFFERING, THE PURCHASER(S) MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER(S) MAY OFFER AND SELL THE NOTES TO.CERTAIN DEALERS AND BANKS AT PRICES LOWER THAN THE INITIAL PUBLIC OFFERING PRICE STATED ON THE COVER PAGE HEREOF AND SAID PUBLIC OFFERING PRICE MAY BE CHANGED FROM TIME TO TIME BY THE PURCHASER(S). This Preliminary Official Statement and the information contained herein is in a form deemed final by the County for the purposes of Rule 15c2-12 promulgated under the Securities Exchange Act of 1934, as amended (expect for the omission of certain information permitted to be omitted under paragraph (b)(1) of Rule 15c2-12. However, the information herein is subject to revision, completion or amendment in a final Official Statement. 0703 8\pus-3 TABLE OF CONTENTS Paae Page INTRODUCTION ................................................ 1 Article XIII C and Article XIII D of the COUNTY OF CONTRA COSTA CASH California Constitution...................................20 MANAGEMENT PROGRAM............................. 1 Proposition 62................................................21 CONTINUING DISCLOSURE.............................2 Proposition 1 A 21 THE NOTES.........................................................3 Future Initiatives............................................22 General....................................'.........................3 COUNTY INFORMATION ...............................22 Authority for Issuance.....................................3 TAX MATTERS.................................................23 Purpose of Issue...............................................3 LEGAL MATTERS............................................24 Security for the Notes......................................4 LEGALITY FOR INVESTMENT 1N Lien in Bankruptcy..........................................5 CALIFORNIA.....................................................25 Investment of the Repayment Fund.................5 FINANCIAL ADVISOR.....................................25 Available Sources of Payment.........................5 RATINGS ...........................................................25 Cash Flow Projections.....................................6 NO MATERIAL LITIGATION..........................25 CONTRA COSTA COUNTY TREASURER'S SALE OF THE NOTES.......................................26 INVESTMENT POOL........................................ 12 ADDITIONAL INFORMATION .......................26 SUMMARY OF CERTAIN PROVISIONS OF THE RESOLUTION.... 14 APPENDIX A— GENERAL COUNTY ECONOMIC ....................................... Resolution to Constitute Contract.................. 14 AND DEMOGRAPHIC Representations and Covenants of the INFORMATION ........................A-1 County............................................................ 14 APPENDIX B— COUNTY FINANCIAL Paying Agent and Note Registrar.................. 15 INFORMATION.........................B-1 Exchange and Transfer of the Notes.............. 15 APPENDIX C— SUMMARY OF THE COUNTY Permitted Investments.................................... 15 INVESTMENT POLICY C-1 CERTAIN RISK FACTORS............................... 17 APPENDIX D— PROPOSED FORM OF OPINION County Financial Stress 17 OF BOND COUNSEL ................D-1 Pension Plan and Other Post Employment APPENDIX E— EXCERPTS FROM"THE AUDITED Benefits.......................................................... 18 FINANCIAL STATEMENTS OF State Financial Condition............................... 18 THE COUNTY FOR THE FISCAL CONSTITUTIONAL AND STATUTORY YEAR ENDED JUNE 30,2006... E-1 LIMITATIONS ON TAXES, REVENUES AND APPENDIX F— FORM OF CONTINUING APPROPRIATIONS ... 19 DISCLOSURE CER'T'IFICATE..... F-I ........................................ Article XIII A of the California APPENDIX G— DTC AND THE BOOK-ENTRY Constitution.................................................... 19 ONLY SYSTEM ........................G-1 Legislation Implementing Article XIII A...... 19 APPENDIX H— OFFICIAL NOTICE OF SALE.....H-1 Article XIII B of the California Constitution............................:....:.................. 19 LIST OF TABLES Page TA131-E 1 -ESTIMATED GENERAL FUND UNRESTRICTED REVENUES............................................................6 TABLE 2-GENERAL FUND MID-MONTH END CASH BALANCES AND INTRAFUND BORROWINGCAPACITY................................................................................................................7 TABLE 3 -ACTUAL MONTHLY GENERAL FUND AND TEETER PLAN CASH FLOW........................................8 TABLE 4-ACCOUNTING PERIOD GENERAL FUND AND TEETER PLAN CASH FLOW................................... 10 TABLE 5 - INVESTMENTS HELD BY TYPE OF LOCAL AGENCY.................................................................... 12 TABLE 6-INVESTMENT BY TYPE................................................................................................................ 13 TABLE 7 -MATURITY.DISTRIBUTION.......................................................................................................... 13 TABLE 8- FUNDS ON HAND......................................................................................................................... 14 07038\pos-3 i COUNTY OF CONTRA COSTA,CALIFORNIA BOARD OF SUPERVISORS OF THE COUNTY Mary N. Piepho (District 3) Chair John M. Gioia Gayle B. Uilkema (District 1) (District 2) Susan Bonilla Federal D. Glover (District 4) (District S) COUNTY OFFICIALS John B. Cullen Clerk of'the Board and County Administrator Stephen J. Ybarra William J. Pollacek Auditor-Controller Treasurer-Tax Collector and Paying Agent Silvano Marchesi Gus S. Kramer Stephen L. Weir County Counsel Assessor County Clerk-Recorder SPECIAL SERVICES Orrick, Herrington & Sutcliffe LLP Lofton& Jennings San Francisco, California San Francisco, California Bond Counsel Disclosure Counsel Tamalpais Advisors, Inc. Sausalito, California Financial Advisor 0703 8\pos-3 1 $_,_,000* COUNTY OF CONTRA COSTA,CALIFORNIA 200708 TAX AND REVENUE ANTICIPATION NOTES, SERIES A INTRODUCTION The purpose of this Official Statement, which includes the front cover through the attached Appendices, is to provide certain information concerning the issuance, sale and delivery of $_,_,000* in aggregate principal amount of 2007-08 Tax and Revenue Anticipation Notes, Series A (the "Notes") of the County of Contra Costa, California (the "County"). Issuance of the Notes will provide moneys to help meet current Fiscal Year 2007-08 County General Fund expenditures, including current expenses, capital expenditures and the discharge of other obligations or indebtedness of the County. The Notes are authorized by and are being issued in accordance with Article 7.6, Chapter 4, Part 1, Division 2, Title.5 (commencing with Section 53850) of the Government Code of the State of California (the "Act"), and Resolution No. 2007- adopted by the Board of Supervisors of the County (the "Board of Supervisors") on October 16, 2007 entitled "Resolution Authorizing the Issuance and Sale of Not to Exceed $200,000,000 County of Contra Costa, California 2007-08 Tax and Revenue Anticipation Notes" (the "Resolution"). If circumstances warrant, the County may issue in Fiscal Year 2007-08 an additional series of 2007-08 Tax and Revenue Anticipation Notes(the "Series B Notes") in an amount not to exceed $_,000,000. The Series B Notes, if issued, would be issued prior to January 1, 2008, would have a maturity date not more than 13 months thereafter and no earlier than the maturity date of the Notes, and would be secured by the same security pledge as the Notes. The Notes are issued subject to California Law and the terms and conditions of the Resolution. Pursuant to California law, the Notes and the interest thereon are general obligations of the County payable from and secured by a pledge of unrestricted taxes, income, revenue, cash receipts and other General Fund moneys received by the County attributable to Fiscal Year 2007-08 and lawfully available therefor. See "THE NOTES—Security for the Notes." COUNTY OF CONTRA COSTA CASH MANAGEMENT PROGRAM County General Fund expenditures tend to occur in level amounts throughout the fiscal year. Conversely, receipts have followed an uneven pattern primarily as a result of secured property tax installment delinquency dates concentrated in December and April and as a result of delays in payments from other governmental agencies, the two largest sources of County revenues. As a result, the General Fund cash balance prior to Fiscal Year 1979-80 had typically been negative for most of the year and had been covered by interfund borrowings pursuant to Section 6 of Article XVI of the California Constitution and intrafund borrowings. "Interfund borrowing" is borrowing from specific funds of other governmental entities whose funds are held in the County Treasury. Such borrowing, pursuant to the California Constitution, may not occur after the last Monday in April of each year and shall be repaid before any other obligation of the County. The County does not intend to engage in interfund borrowing for the General Fund nor has it done'so since the implementation of the General Fund cash management program in Fiscal Year 1979-80. "Intrafund borrowing" is borrowing for General Fund purposes against funds held in trust by the County. Because such General Fund intrafund borrowings caused disruptions in the General Fund's management of pooled investments, beginning in Fiscal Year 1979-80 the County has * Preliminary,suhiect to change. 07038\pos-3 generally, but not exclusively, regulated its cash flow by issuing tax and revenue anticipation notes for the General Fund and by using intrafund and/or interfund borrowing, if necessary, only after note proceeds have been exhausted. While the County has utilized intrafund borrowing from time to time, it does not anticipate using intrafund borrowing to cover General Fund cash needs in the remainder of Fiscal Year 2007-08 following delivery of the Notes: On November 21, 2006,the County issued $110,000,000 principal amount of its 2006-07 Tax and Revenue Anticipation Notes, Series A (the "2006-07 Notes"). With the exception of the 2006-07 Notes, which mature on December 11, 2007, all notes previously issued in connection with the County's cash management program were repaid on their respective maturity dates. Funds have been irrevocably deposited in a repayment fund held by the County Treasurer-Tax Collector (the "Treasurer") to fully repay the 2006-07 Notes at maturity. The Notes.represent the twenty-eighth short-term financing program which the County has undertaken to meet its cash flow requirements. The County has never defaulted on the payment of principal of or interest on any of its short-term or long-term obligations. Set forth below is a summary of the County's short-term financing programs since Fiscal Year 1997-98. HISTORY OF COUNTY OF CONTRA COSTA SHORT-TERM FINANCING PROGRAMS SINCE FISCAL YEAR 1997-98 Date of Issuance Principal Amount Maturity Date July 1, 1997 $130,000,000 July 1, 1998 July 1, 1998 107,315,000 October 1, 1999 .July 1, 1999 88,000,000 September 29, 2000 July 3, 2000 55,000,000 October 1, 2001 August 1, 2001 70,000,000 October 4, 2002 October 17, 2002 55,000,000 November 14, 2003 December 8, 2005 100,000,000 December 7, 2006 November 21, 2006 110,000,000 December 11, 2007 CONTINUING DISCLOSURE The County will agree to provide notices, during the time the Notes are outstanding, of the occurrence of certain enumerated events, if material, in accordance with the continuing disclosure certificate to enable the Underwriter to comply with Rule 15c2-12 of the Securities and Exchange Commission (the "Rule"). The specific nature of the notices of material events and certain other terms of the continuing disclosure obligation are described in APPENDIX F—"FORM OF CONTINUING DISCLOSURE CERTIFICATE." Copies of the annual disclosure reports and notices of the occurrence of certain enumerated events, if material, of the County are available at the Digital Assurance Certification LLC website: www.dacbond.com. The County has never failed to comply in any material respect with any prior undertaking under the Rule. 07038\pos-3 2 THE NOTES General The Notes will be issued in fully registered form in the aggregate principal amount of $_,_,000*. When issued, the Notes will be registered in the name of Cede & Co., as nominee for The Depository Trust Company ("DTC''), New York, New York, which will act as securities depository for the Notes. Purchasers will not receive certificates representing their ownership interest in the Notes purchased. See APPENDIX G—"DTC AND THE BOOK-ENTRY ONLY SYSTEM." Beneficial ownership interests in the Notes may be transferred only in accordance with the rules and procedures of DTC. The Notes will be dated the date of issuance thereof and will pay interest on November 14, 2008 and at maturity of the Notes on December 5, 2008. The Notes are not,subject to redemption prior to maturity. Principal of the Notes is payable at maturity. The Notes will be issued in denominations of $5,000.each or any integral multiple thereof ("Authorized Denominations") and will bear interest at the rate per annum set forth on the cover page hereof.. Interest on the Notes will be computed on the basis of twelve 30-day months and a 360-day year. Interest due on the Notes, prior to the maturity thereof, will be payable to the person in whose name such Note is registered on the registration books of the County, maintained by the Treasurer, as initial paying agent(the"Paying Agent")as of November 1, 2008 (the "Record Date'), such interest to be paid by check mailed to such registered owner. Principal and interest payable at maturity will. be payable in immediately available funds, upon presentation and surrender of the Notes at the office of the Paying Agent in Martinez, California. As long as the Notes are held by DTC or a successor securities depository, ownership of the . Notes will be evidenced by book-entry as described in APPENDix G—"DTC AND THE BOOK-ENTRY ONLY SYSTEM." Principal of and interest on the Notes will be payable when due on behalf of the County by the Paying Agent to DTC which will, in turn, remit such principal and interest to its Participants, which will, in turn, remit such principal and interest to the Indirect Participants or Beneficial Owners of the Notes. See APPENDIX G—"DTC AND 711E BOOK-ENTRY ONLY SYSTEM." Authority for Issuance The Notes are issued under the authority of the Act and pursuant to the Resolution and are subject to the terms and conditions of the Act and the Resolution. Purpose of Issue The Notes are being issued to finance the County's General Fund cash flow requirements during Fiscal Year 2007-08 (July 1, 2007 through June 30, 2008). County General Fund expenditures tend to occur in level amounts throughout the Fiscal Year. Conversely, receipts have followed an uneven pattern primarily as a result ofsecured property tax installment delinquency dates in December and April and as a result of delays in payments from other governmental agencies, the two largest sources of County revenues. The proceeds received from the sale of the Notes will allow the County to cover periods of deficits resulting from such uneven flow of revenues and are an alternative to borrowing from County- held pooled income funds. The proceeds of the Notes will be invested in the Contra Costa County Treasurer's Investment Pool (the "County Pool") until expended. See "CONTRA COSTA COUNTY TREASURER'S INVESTMENT POOL." * Preliminary,subject to change. 07038\pos-3 3 Security for the Notes The 2007-08 Tax and Revenue Anticipation Notes issued under the Resolution (in the aggregate principal amount of$_,_,000* for the Notes and up to an aggregate principal amount of$_,000,000 for the Series B Notes) are secured by a pledge of taxes, income, revenue, cash receipts and other moneys which are received by the County for the General Fund for Fiscal Year 2007-08 and which are lawfully available for the payment of current expenses and other obligations of the County (the "Unrestricted Revenues"). As security for the payment of the principal of and interest on the Notes and the Series B Notes,the County pledges to deposit in trust in a special County fund designated as the "2007-08 Tax and Revenue Anticipation Note Repayment Fund" (the "Repayment Fund") (i) an amount equal to forty percent (40%) of the aggregate principal amount of the Notes from the first Unrestricted Revenues received by the County in the accounting period beginning December 31, 2007 and ending January 11, 2008, inclusive (the "First Pledge Period"), (ii) an amount equal to twenty percent (20%) of the principal amount of the Notes from the first Unrestricted Revenues received by the County during the accounting period beginning March 13, 2008 and ending April 11, 2008, inclusive (the "Second Pledge Period"), (iii) an amount equal to twenty (20%) of the principal amount of the Notes from the first Unrestricted Revenues received by the County during the accounting period commencing April 12, 2008 and ending May 12, 2008, inclusive (the "Third Pledge Period"), and (iv) an amount equal to twenty (20%) of the principal amount of the Notes from the first Unrestricted Revenues received by the County during the accounting period commencing May 13, 2008 and ending June 11, 2008, inclusive (the "Fourth Pledge Period") together with an amount sufficient (net of anticipated earnings on moneys in the Repayment Fund) to satisfy and make up any deficiency in the Repayment Fund with respect to any prior Pledge Period and to pay the interest on the Notes due on and prior to maturity. Accordingly, pursuant to Section 53856 of the Government Code of the State of California (the "Government Code"), the principal of the Notes and the Series B Notes and the interest thereon are a first lien and charge against, and are payable from, such pledged moneys. In addition to such pledged moneys, pursuant to Section 53857 of the Government Code, the Notes are general obligations of the County, and, to the extent not paid from Unrestricted Revenues of the County pledged for the payment thereof, shall be paid with interest thereon only from any other moneys of the County lawfully available therefor. The County is not authorized to levy or collect any tax for the repayment of the Notes or the Series B Notes. In accordance with the terms of the Resolution, if insufficient Unrestricted Revenues are received by the County by the third business day prior to the end of any pledge period to permit deposit into the Repayment Fund of the full amount of the pledged revenues required to be deposited with respect to such pledge period, then the amount of any deficiency in the Repayment Fund is required to be satisfied and made up from any other moneys of the County lawfully available for the payment of the principal of the Notes and the interest thereon, as provided in Sections 53856 and 53857 of the Government Code, on such date or thereafter on a daily basis, when and as such pledged revenues and other pledged moneys are received by the County. The Resolution provides that such amounts may not be used for any other purpose and may be invested only in Permitted Investments. See "—Investment of the Repayment Fund" and "SUMMARY OF CERTAIN PROVISIONS OF THE RESOLUTION—Permitted Investments." If for any reason amounts in the Repayment Fund are insufficient to pay both the Notes and the Series B Notes in full, such amounts shall be applied pro rata to the payment of the Notes and the Series B Notes based on the total principal of and interest payable upon the Notes and the Series B Notes at the respective maturities thereof, taking into account anticipated earnings to be received on amounts in the Repayment Fund prior to the final maturity dates thereof. As more particularly described under "COUNTY OF CONTRA COSTA CASH MANAGEMENT PROGRAM," the County may, under certain circumstances, undertake interfund or intrafund borrowing to fund shortages in the General Fund. While the County does not expect to utilize any such interfund or intrafund borrowing during the remainder of Fiscal Year 2007-08, Section 6 of Article XVI of the 07038\pos-3 4 California Constitution requires that any such borrowing be repaid from revenues before any other obligation of the County (including the Notes) is paid from such revenues. Lien in Bankruptcy On January 24, 1996, the United States Bankruptcy Court for the Central District of California held in the case of County of Orange v. Merrill Lynch that a State statute providing for a priority of distribution of property held in trust conflicted with, and was preempted by, federal bankruptcy law. In that case, the court addressed the priority of the disposition of moneys held in a county investment pool upon bankruptcy of the county, but did not directly address the State statute that provides for the lien in favor of holders of tax and revenue anticipation notes. The County will, at all times from the collection of such amounts until such amounts are paid, be in possession of the taxes and other revenues that will be set aside in the Repayment Fund and pledged to repay the Notes. The Repayment Fund may be invested in the County Pool. In the event of a petition for the adjustment of debts of the County under Chapter 9 of the federal bankruptcy code, a court might hold that the owners of the Notes (the"Owners") do not have a valid and/or prior lien on Repayment Fund amounts deposited in the County Pool and may not provide the Owners with a priority interest in such amounts. In that circumstance, unless the Owners could "trace" the funds from the Repayment Fund that have been deposited in the County Pool, the Owners would be unsecured (rather than secured) creditors of the County. There can be no assurance that the Owners could successfully so "trace"the pledged taxes and other revenues. Investment of the Repayment Fund Moneys in the Repayment Fund will be invested in one or more instruments of the types included in Permitted Investments. See "SUMMARY OF CERTAIN PROVISIONS OF THE RESOLUTION—Permitted Investments." The proceeds of any such investments shall be retained in the Repayment Fund until payment of principal of and interest on the Notes and the Series B Notes (or provision therefor) has been made, at which time any excess amount shall be deposited by the Treasurer in the General Fund of the County. Available Sources of Payment The Notes, in accordance with California law, are general obligations of the County, but are payable only out of the unrestricted taxes, income, revenue, cash receipts and other moneys received for the General Fund of the County attributable to Fiscal Year 2007-08 and legally available for payment thereof. Under the Act, no obligations, including the Notes, may be issued thereunder if the principal thereof and interest thereon exceeds 85% of the estimated amount of the then-uncollected taxes, income, revenue, cash receipts and other money's which will be available for payment of such principal and interest. The principal amount of Notes and interest thereon equals $ million which represents approximately_% of the estimated sources available for payment of the Notes. The County estimates that the total moneys available for payment of the Notes and the Series B Notes will be in excess of $ million as indicated in the table that follows. Except for pledged amounts, these moneys will be expended during the remainder of the Fiscal Year 2007-08, and no assurance can be given that any moneys, other than the pledged amounts, will be available to pay the Notes, the Series B Notes and the interest thereon. For detailed information regarding estimated debt service coverage at each respective pledge period for the Notes, see Table 4—"County of Contra Costa Accounting Period General Fund and Teeter Plan Cash Flow, Fiscal Year 2007-08." 07038\pos-3 5 Table 1 COUNTY OF CONTRA COSTA ESTIMATED GENERAL FUND UNRESTRICTED REVENUES 1,2007 THROUGH JUNE 30,20081'1 Amount Sources ($ in 000's) Estimated Unrestricted Available Cash Balance at 1, 2007 Property Taxes Other Taxes Licenses, Permits and Franchises Fines, Forfeitures and Penalties Use of Money and Property Aid from Other Governmental Agencies Charges for Current Services Other Unrestricted Revenue Total Less amount pledged for payment of the Notes and Series B Notes(2) Net Total in excess of pledged revenues II) Reflects revenues set forth in the Fiscal Year 2007-08 Adopted Budget which was approved on 2007; such revenues are presented in Table 4—"Accounting Period General Fund and Teeter Plan Cash Flow, Fiscal Year 2007-08," with the amounts in Table 1 reflecting revenues from 1, 2007 through the accounting period ending June 30,2008. (2) Based on $ million aggregate principal amount of Notes and Series B Notes plus an amount equal to interest thereon calculated at the rate of %per annum,assuming delivery on November 15,2007. Source: County Auditor-Controller. Cash Flow Projections The Auditor-Controller of the County (the "Auditor-Controller") has prepared the following three-year summary of month-end cash balances in the combined unrestricted and restricted portions of the General Fund. The County's historical and projected fiscal year end balances in funds with which it may undertake intrafund borrowing ("Intrafund Borrowing Capacity") is also presented. On the subsequent pages is a detailed presentation of the Fiscal Year 2007-08 General Fund cash flow and of the projected cash flow for Fiscal Year 2007-08 for the combined unrestricted and restricted portions of the General Fund. The cash flow projections are based on the Fiscal Year 2007-08 Adopted Budget. See APPFNDIX B_"COUNTY FINANCIAL INFORMATION—Recent County General Fund Budgets." A maximum cumulative cash flow deficit of approximately $ million is anticipated to occur in the unrestricted portion of the General Fund in 200_. Taking into account: (a) any unrestricted monies that are expected to be available from sources other than the General Fund to address the projected deficit and (b) the likelihood that the projected cash flows are susceptible to forecast error, the County has elected to issue the Notes in an amount that is equal to approximately _% of its projected maximum cumulative cash flow deficit. 07038\pos-3 6 The estimates of amounts and timing of receipts and disbursements in the cash flow tables are based on certain assumptions and should not be construed as statements of fact. The assumptions are based on present circumstances and currently available information and are believed to be reasonable. The assumptions may be affected by numerous factors and there can be no assurance that such estimates will be achieved. Table 2 COUNTY OF CONTRA COSTA GENERAL FUND ACCOUNTING PERIOD END CASH BALANCES AND INTRAFUND BORROWING CAPACITY") FISCAL YEARS 2004-05 THROUGH 2006-07 ($ in thousands) Accounting Period(2) 2004-05 2005-06 2006-07 1 $(49,599) $(54,146) -$(50,116) 2 (70,862) (79,924) (55,664) 3 (99,341) (87,327) (84,672) 4 (92,073) (96,090) (97,822) 5 (130,199) (20,226) (3)926) 6 (64,477) 1,936 67,698 7 (14,447) 50,193 42,227 8 (26,254) 46,257 31,401 9 (20,343) 48,879 24,889 10 28,962 39,767 9,300 11 57,217 43,085 45,477 12 95,686 . 121,895 94,402 INTRAFUND BORROWING CAPACITY 490,629 530,661 (1) The County did not issue notes in Fiscal Year 2004-05. Period-end balances in Fiscal Year 2005-06 include the effects of the deposit of$100 million of proceeds from the 2005-06 Notes that matured December 7, 2006,and intrafund borrowing net of deposits to the repayment funds relating to such short-term notes. Period-End balances in Fiscal Year 2006-07 include the effects of the deposit of$110 million of proceeds from the 2006-07 Notes that mature on December H, 2007 and intrafund borrowing net of deposits to the repayment of funds relating to such short-term notes. See"COUNTY OF CONTRA COSTA CASH MANAGEMENT PROGRAM." "intrafund Borrowing Capacity"reflects borrowable balances as of June 30th of each Fiscal Year. (2)The County utilizes a twelve-period accounting system, with the first period beginning on July I and ending in the middle of August. The subsequent periods end in mid-September, mid-October and so forth until mid-June. The final accounting period runs from mid-June to the end of the Fiscal Year at June 30. 07038\pos-3 7 Table 3 COUNTY OF CONTRA COSTA ACTUAL ACCOUNTING PERIOD GENERAL FUND AND TEETER PLAN CASH FLOW FISCAL YEAR 2006-07 ($ in thousands) Aug 11 Sep 13 Oct 11 Nov 13 Dec 12 ACCOUNTING PERIOD ENDING 2006 2006 2006 2006 2006 BEGINNING BALANCE $121,895 ($50,116) ($55,664) ($84,672) ($97,822) RECEIPTS: Property Taxes - - - - - Teeter Plan Redemptions $3,999 $3,652 $2,646 $3,161 $2,216 Other Taxes - 798 1,784 2,458 1,832 Licenses 2,289 9,342 852 2,188 1,196 Fines& Forfeitures 43 171 488 450 652 Use of Money - 123 228 554 248 Intergovernmental 57,196 19,420 43,668 55,824 56,774 Charges Current Services - 33,603 16,535 20,341 14,908 Other Revenue 764 9,987 6,692 7,232 4,133 Accrued Revenue 96,156 2,423 - - 101 Notes Sold - - - - 110,000 Intra Fund Borrow - - - - Other Available Funds 925 - - - 1,233 TOTAL RECEIPTS $161,372 $79,519 $72,893 $92,208 $193,293 DISBURSEMENTS: General Government $29,316 $8,232 $12,369 $13,638 $17,064 Public Protection 87,679 22,192 27,387 25,271 25,538 Health & Sanitation 25,749 17,263 22,439 20,322 17,308 Public Assistance 55,707 29,116 29,439 34,399 32,871 Education 4,022 1,989 2,163 2,183 2,046 Public Ways 11,223 5,364 8,104 9,545 4,570 Accrued Expense 85,373 911 - - - Interest Exp- Notes - - - - - Notes: Principal Repay - -IF Borrow Repay - - - - - Teeter Plan Buy-Out/Advances 34,314 - - - - Other Disbursements - - - - - TOTAL DISBURSEMENTS $333,383 $85,067 $101,901 $105,358 $99,397 ENDING BALANCE ($50,116) ($55,664) ($84,672) ($97,822) ($3,926) 07038\pos-3 8 Jan 11 Feb 12 Mar 12 Apr 11 May 11 Jun 12 Jun 30 Total 2007 2007 2007 2007 2007 2007 2007 2006-07 ($3,926) $67,698 $42,227 $31,401 $24,889 $9,300 $45,477 $121,895 $87,548 $46,337 $1,052 $1,639 $72,754 $46,381 $35,783 $291,494 2,065 2,068 2,173 1,684 1,525 1,823 1,291 28,303 2,291 4,195 893 2,430 1,037 3,475 1,206 22,399 2,044 2,925 1,256 7,068 3,203 1,295 1,636 35,294 444 383 616 400 668 414 108 4,837 95 . 8,622 194 58 4,021 257 3,775 18,175 49,333 32,581 48,880 62,139 51,700 57,080 43,066 577,661 16,206 17,841 23,514 17,889 27,279 14,343 7,819 210,278 6,416 7,535 8,810 6,697 10,153 8,314 2,76 79,509 - - - - - - - 98,6890 - - 110,000 - - - 2,158 . $166,442 $122,487 $87,388 $100,004 $172,340 $133,382 $97,460 $1,478,788 $9,404 $14,1 16 $12,980. $13,048 $32,902 $12,394 $15,991 $191,454 28,009 23,584 23,298 28,250 26,487 24,101 3,295 345,091 17,610 13,151 22,188 19,506 25,757 18,780 11,557 231,630 33,755 32,505 31,823 32,540 35,449 28,772 14,370 390,746 1,648 2,027 1,863 2,291 1,750 1,858 671 24,511 4,392 7,575 6,062 10,881 5,358 11,300 2,651 87,025 - - - - - - - 86,284 - - - 5,226 - - 5,226 55,000 - - 55,000 - - 110,000 34,314 $94,818 $147,958 $98,214 $106,516 $187,929 $97,205 $48,535 $1,506,281 $67,698 $42,227 $31,401 $24,889 $9,300 $45,477 $94,402 $94,402 07038\pos-3 9 Table 4 COUNTY OF CONTRA COSTA ACCOUNTING PERIOD GENERAL FUND AND TEETER PLAN CASH FLOW FISCAL YEAR 2007-08 ($ in thousands) Actual Actual Proj. Proj. Proj. Proj. ACCOUNTING PERIOD ENDING Aug 13 Sep 13 Oct 11 Nov 13 Dec 12 Jan 11 2007 2007 2007 2007 2007 2008 BEGINNING BALANCE $94,402 ($157,125) ($148,470) ($168,448) ($169,239) ($5,598) RECEIPTS: Property Taxes - - - - - $92,278 Teeter Plan Redemptions $5,048 $6,172 $9,643 $11,520 $8,076 7,526 Other Taxes - 589 2,123 2,926 2,181 2,727 Licenses 6,037 1,161 861 2,212 1,209 2,066 Fines& Forfeitures 48 426 1,513 1,395 2,021 1,376 Use of Money. - - 182 443 198 76 Intergovernmental 32,774 48,431 48,217 61,640 62,688 54,472 Charges Current Services 14,341 14,995 16,096 19,802 14,513 15,776 Other Revenue 6,113 6,563 8,890 9,608 5,491 8,524 Accrued Revenue 88,039 34,198 - - 101 - Notes Sold - 167 - - 170,000 - Intrafund Borrowing - - - - - - Other Available Funds 2,936 - - - - - TOTAL RECEIPTS $155,336 $112,702 $87,525 $109,546 $266,478 $184,821 DISBURSEMENTS: General Government $30,693 $4,988 $9,122 $10,058 $12,470 $6,935 Public Protection 96,288 27,015 32,504 29,993 30,377 33,243 Health & Sanitation 28,907 19,863 24,220 21,935 18,785 19,008 Public Assistance 62,519 32,557 29,341 34,284 33,108 33,642 Education 4,577 2,094 2,607 2,631 2,435 1,986 Public Ways 13,202 9,530 9,709 11,436 5,662 5,262 Accrued Expense 92,053 - - - - - Interest Exp- Notes - - - - - - Notes: Principal Repay - - - - - 68,000 .I1 121 IF Borrow Repay - - - - - - Teeter Plan Buy-Out/Advances 78,624 - - - - - Other Disbursements - 8,000 - - - - TOTAL DISBURSEMENTS $406,863 $104,047 $107,503 $110,337 $102,837 $168,076 ENDING BALANCE ($157,125) ($148,470) ($168,448) ($169,239) ($5,598) $11,147 TRANS REPAYMENT FUND Beginning Balance $0 $0 $0 $0 $0 $0 Receipts 0 8,000 0 0 0 68,000 Disbursements 0 0 0 0 0 0 Ending Balance . $0 $8,000 $0 $0 $0 $68,000 (1) Monthly General Fund ending balance covers the January segregation_times,the April segregation_times,the May segregation times and the June segregation times. (2) Assuming estimated intratuttd-browing capacity of $_ million, the monthly General Fund ending balance including intrafund borrowing capacity covers the January segregation_times,the April segregation_times,the May segregation_times and the June segregation_tames. (3) An initial interest payment on the Notes will be disbursed on 2008 and a final interest payment and principal of the Notes will be disbursed on 2008,the maturity date of the Notes. 07038\pos-3 10 Proj, Proj. Proj. Proj. Proj. Proj. Feb 12 Mar 12 Apr 11 May 12 Jun 1 I Jun 30 Total 2008 2008 2008 2008 2008 2008 2007-08 $11,147 $50,397 $49,991 $17,668 $45,437 $52,667 $94,402 $48,841 $1,109 $1,728 $76,685 $48,887 $37,716 $307,244 7,537 7,919 6,137 5,558 6,644 4,706 86,486 4,993 1,603 2,892 1,234 4,136 1,435 26,299 2,957 1,270 7,144 3,238 1,309 1,654 31,118 1,187 1,909 1,240 2,071 1,283 335 14,804 6,892 155 46 3,214 205 3,018 14,429 35,975 53,972 68,612 57,086 63,026 47,552 634,445 17,368 22,890 17,415 26,556 13,963 7,612 201,327 10,010 11,704 8,897 13,488 11,045 3,688 104,021 - - - 0 0 122,338 - - - - - - 170,167 - - - - - - 2,936 $135,760 $101,991 $114,111 $189,130 $150,498 $107,716 $1,715,614 $10,410 $9,572 $9,622 $24,264 $9,140 $11,793 $149,067 27,991 27,651 33,529 31,436 28,604 3,911 402,542 14,195 23,949 21,055 27,802 20,271 12,474 252,464 32,396 31,717 32,431 35,331 28,676 14,322 400,324 2,443 2,245 2,761 2,109 2,239 809 28,936 9,075 7,263 13,036 6,419 13,538 3,176 107,308 - - - - - - 92,053 - - - - 6,800 11)'121 - 6,800 - 34,000 (i)'(z1 34,000 (1�'�2� 34,000 '(�I - 170,000 - - - - - - 78,624 - - - 8,000 $96,510 $102,397 $146,434 $161,361 $143,268 $46,485 $1,696;1 18 $50,397 $49,991 $17,668 $45,437 $52,667 $113,898 $113,898 $68,000 $68,000 $68,000 $102,000 $102,000 $102,000 $0 0 0 0 34,000 0 0 102,000 0 0 0 0 0 0 102,000 131 $68,000 $68,000 $68,000 $102,000 $102,000 $102,000 $0 (1) Monthly General Fund ending balance covers the January segregation_times,the April segregation-times,the May segregation times and the June segregation times. (2) Assuming estimated intrafund�rowing capacity of $_ million, the monthly General fund ending balance including intrafund borrowing capacity covers the January segregation_times,the April segregation_times,the May segregation_times and the June segregation_times. (3) An initial interest payment on the Notes will be disbursed on ,2008 and a final interest payment and principal of the Notes will be disbursed on 2008,the maturity date of the Notes. 07038\pos-3 1 1 CONTRA COSTA COUNTY TREASURER'S INVESTMENT POOL State law requires that all moneys of the County, County school districts, and certain special districts in the County be held in the County Treasury by the Treasurer. The Treasurer has authority to implement and oversee the investment of such funds in the County Pool in accordance with Section 53600 et seq. of the Government Code. The Treasurer accepts funds only from agencies located within the County. The moneys on deposit are predominantly derived from local government revenues consisting of property taxes, State and federal funding and other fees and charges. As of June 30, 2007, there were 42 participants in the County Pool, the largest being the County. The County, County agencies, and school and community college districts(who are required by State law to be members of the County Pool) represented an aggregate of approximately 88.2% of the County Pool's investments as of June 30, 2007. The Contra Costa County Investment Policy (the "Policy") governs the County's investments in the County Pool. The Policy has historically been more restrictive than that mandated under the Government Code. Although the Policy permits reverse repurchase agreements between the County and primary dealers with the Federal Reserve Bank of New York, the County currently does not intend to engage in such transactions. The County has an oversight committee (the "Treasury Oversight Committee") that meets quarterly to monitor and report on all investment activities of the Treasurer's Office. The current Policy was revised by the Treasury Oversight Committee, submitted by the Treasurer and approved by the Board of Supervisors on September 11, 2007. All funds of the County and investment activities are governed by the Policy, which sets forth the following primary objectives, in order of priority: 1. Preservation of capital. 2. Liquidity i.e. funds shall be invested only until the date of anticipated need or for a lesser period. 3. Yield i.e. generation of a favorable return on investment without compromise of the first two objectives. For a summary of the Policy, see APPENDIX C—"SUMMARY OF THE COUNTY INVESTMENT POLICY." As of June 30, 2007, investments in the County Pool were held for the following local agencies in the indicated amounts: Table 5 CONTRA COSTA COUNTY INVESTMENT POOL INVESTMENTS HELD BY TYPE OF LOCAL AGENCY (AS OF JUNE 30,2007) Number Percent of Local Agency Par Value(l) of Total") Agencies County of Contra Costa and Agencies $844,234,542 36.02% 1 School Districts 1,111,479,201 47.43 19 Community College District 111,183,344 4.74 1 Other Public Agenciest'`' 276,679,335 11.81 21 TOTAL $2,343,576,423 100.00% 42 Column does not total due to independent rounding. Includes Sanitation,Fire and Transportation Authorities,and two Joint Power Authorities are the only voluntary participants in the Pool. All other participants are required by State law to be members of the County Pool. 07038\pos-3 12 As of June 30, 2007, the Pool had approximately 30.5% of its assets invested in U.S. Treasury and federal agency securities. Another approximately 63.5% of the Pool's assets were invested in cash and highly liquid short-term money market instruments (repurchase agreements, certificates'of deposit, bankers' acceptances, and commercial paper). As of June 30, 2007, the detailed composition, cost, and market value of the Pool were as follows: Table 6 CONTRA COSTA COUNTY INVESTMENT POOL INVESTMENT BY TYPE As OF JUNE 30 2007 Market Value Type of Investment Cost' Amount % of Total Cash $68,453,885 $68,453,885 2.92% U.S. Treasuries 27,639,000 27,276.066 1.17 U.S. Agencies—Federal, State and Local 688,833,653 687,050,890 29.36 Money Market 1,417,837,077 1,416,515,807 60.52 Other 140.812,807 141,091.689 6.03 TOTAL $2,343,576,423 $2,340,388,338 100.00% t Column does not total due to independent rounding. The Pool is highly liquid, with approximately 92.5% of the portfolio having a maturity of less than one year and an average .weighted days to maturity of 86.5 days. The maturity distribution of the Pool's portfolio as of June 30, 2007 is presented in the following table. Table 7 CONTRA COSTA COUNTY INVESTMENT POOL MATURITY DISTRIBUTION AS OF JUNE 30,2007 Amount % of Term to Maturity (Cost Basis)t Total Less than 1 year $2,167,557,844 92.49% 1 to 2 years 112,787,000 4.81 2+years to 3 years 48,671,501 2.08 3+years to 4 years 8,891,077 0.38 4+years to 5 years 5,669,000 0.24 TOTAL $2,343,576,423 100.00% t Column does not total due to independent rounding. 07038\pos-3 13 The mix of investments is designed to ensure that sufficient liquid funds are available to meet disbursement requirements. Funds on hand at the end of each of the past five fiscal years in excess of disbursement requirements were as follows: Table 8 CONTRA COSTA COUNTY INVESTMENT POOL FUNDS ON HAND Quarter Ending Available Funds June 30 ($ in millions) 2003 $1,860 2004 1,844 2005 2,038 2006 2,429 2007 2,344 As of the quarter ended June 30, 2007, the County had funds on hand in the amount of$2.344 billion, compared to $2.429 billion in funds on hand for the quarter ended June 30, 2006. SUMMARY OF CERTAIN PROVISIONS OF THE RESOLUTION The following is a summary of certain provisions of the Resolution. This summary is not to be considered a full statement of the terms of the Resolution and accordingly is qualified by reference thereto and is subject to the full text thereof. Except as otherwise defined herein, capitalized terms-used in this Official Statement without definition have the respective meanings set forth in the Resolution. Resolution to Constitute Contract The provisions of the Notes and of the Resolution constitute a contract between the County and the registered owners of.the Notes and the Series B Notes and such provisions may be enforceable by mandamus or any other appropriate suit, action or proceeding at law or in equity in any court of competent jurisdiction, and,.upon issuance of the Notes, will be irrepealable. See "THE NOTES—Lien in Bankruptcy." Representations and Covenants of the County The County has determined and represents in the Resolution that with respect to Fiscal Year 2007-08, the amount of $200,000,000 (the maximum authorized principal amount of the Notes) when added to the interest estimated to be payable thereon, does not exceed 85% of the estimated amount of the uncollected taxes, income, revenue, cash receipts, and other moneys of the County for the General Fund of the County attributable to Fiscal Year 2007-08 and be available for the payment of the principal of and the interest on the Notes and the Series B Notes. In order to maintain the exclusion from gross income for federal.income tax purposes of interest on the Notes, the County covenants to comply with each applicable requirement of the Internal Revenue . Code of 1986, as amended, necessary to maintain the exclusion of interest on the Notes from gross income for federal income tax purposes and the County.agrees to comply with the requirements of the Tax Certificate of the County as such Tax Certificate may be amended from time to time. The County further covenants that it will make all calculations relating to any rebate of excess investment earnings on the Note proceeds due to the United States Department of the Treasury in a reasonable and prudent 07038\pos-3 14 fashion and will segregate and set aside the amounts such calculations indicate may be required to be paid to the United States Department of the Treasury from revenues attributable to the 2007-08 Fiscal Year or from any other lawfully available moneys. See"TAX MATTERS." Notwithstanding any other provision of the Resolution to the contrary, upon the County's failure to observe, or refusal to comply with, the foregoing tax covenants, no one other than the owners or former owners of the Notes and the Series B Notes will be entitled to exercise any right or remedy with respect to such covenants under the Resolution. Paying Agent and Note Registrar The Treasurer will initially act as Paying Agent and as Note Registrar for the Notes. This appointment does not preclude the County from appointing a financial institution to act as Paying:Agent. Any such successor Paying Agent will be or have co-paying agent relationships with one or more banks or trust companies with a minimum of$100 million in capital located in New York, New York or Los Angeles, California or San Francisco, California. Exchange and Transfer of the Notes The registered owners of the Notes which are evidenced by registered certificates may transfer such Notes upon the books maintained by the Note Registrar, but only in accordance with the Resolution. The County and any Paying Agent may deem and treat the registered owner of any Note as the absolute owner of such Note, regardless of whether such Note is overdue, for the purpose of receiving payment thereof and for all other purposes, and all such payments so made to any such registered owner upon his or her order will satisfy and discharge the liability upon such Note to the extent of the sum or sums so paid, and neither the County nor any Paying Agent will be affected by any notice to the contrary. Cede & Co., as nominee of DTC, or such other nominee of DTC or any successor securities depository or the nominee thereof, will be the registered owner of the Notes as long as the beneficial ownership of the Notes is held in book-entry form in the records of such securities depository. See APPENDIX G—'-`DTC AND THE BOOK-ENTRY ONLY SYSTEM." Permitted Investments Moneys on deposit in the Repayment Fund will be retained therein until applied to the payment of the principal of and interest on the Notes. Such amounts may not be used for any other purposes, although they may be invested in Permitted Investments, which will, as nearly as practicable, mature on or before the dates on which such money is anticipated to be required to pay principal of or interest on the Notes. The Resolution specifically designates the following investments as Permitted Investments, subject to certain limitations more fully described in the Resolution: (1) United States Treasury notes, bonds, bills or certificates of indebtedness, or those for which the full faith and credit of the United States are pledged for the payment of principal and interest. (2) Obligations of instrumentalities or agencies of the United States of America limited to the following: (a) the Federal Home Loan Bank Board (FHLB); (b) the Federal Home Loan Mortgage Corporation (FHLMC); (c) the Federal National Mortgage Association (FNMA); (d) Federal Farm Credit Bank (FFCB); (e) Government National Mortgage Association (GNMA); (f) Student Loan Marketing Association (SLMA); (g) Federal Agricultural Mortgage Association (FRM); and (h) guaranteed portions of Small Business Administration (SBA) notes. 07038\pos-3 15 (3) Bills of exchange or time drafts drawn on and accepted by a commercial bank, otherwise known as bankers' acceptances. Purchases of bankers' acceptances may not exceed a maturity of 180 days. The financial institution must have a minimum short-terfn rating of "P-1" and "A-1" by Moody's and S&P, respectively, and a long-term rating of no less than"A." (4) Commercial paper of"prime" quality of the highest ranking or of the highest letter and numerical rating ("P-1" or "A-1") as provided for by Moody's or S&P, respectively. Eligible paper is further limited to issuing corporations that are organized and operating within the United States and having total assets in excess of five hundred million dollars ($500,000,000). Such commercial paper may not mature later than 270 days after purchase. (5) Negotiable certificates of deposits issued by a nationally or state-chartered bank or a state or federal association (as defined by Section 5102 of the California Financial Code) or by a state-licensed branch of a foreign bank in each case which has, or which is a subsidiary of a parent company which has, the highest letter and numerical rating from Moody's ("P-1")and S&P("A-1"), respectively. (6) Investments in repurchase agreements of any securities listed in (1) through (4) above. Investments in repurchase agreements may be made with financial institutions, which are rated in one of the two highest long-term rating categories by Moody's and S&P, when the term of the repurchase agreement does not exceed 30 days and are fully secured at or greater than 102% of the market value plus accrued interest by obligations of the United States Government, its agencies and instrumentalities, in accordance with clause (2) above. (7) Money market funds rated at least "Aa" by Moody's and "AAm"or"AAm-G" by S&P. (8) Forward purchase and delivery agreements (i) the securities delivered under which are described in Section (1)through (4) above, and (ii)entered into with, or the obligations of which are guaranteed by, a domestic bank, financial institution, broker, dealer or insurance company the financial capacity to honor its senior obligations of which is rated at least "AO" by Moody's and "AA-" by S&P. (9) Investment agreements with, or the obligations of which are guaranteed by, (a) a domestic bank, financial institution or insurance company the financial capacity to honor its senior obligations of which is rated at least '`Aa3" by Moody's and "AA-" by S&P; or (b) a foreign bank the long-term debt of which is rated at least "Aa3" by Moody's and "AA-" by S&P (each "Qualified Provider"); provided, that, by the terms of the investment agreement: (i) if for the Repayment Fund, interest and principal payments are to be made to the Paying Agent at times and in amounts as necessary to pay debt service on the Notes; (ii) if for the proceeds of the Notes, the invested funds are available for withdrawal without penalty or premium, at any time upon not more than seven days' prior notice (which notice may be amended or withdrawn at any time prior to the specified withdrawal date); provided, that, the Paying Agent shall give notice in accordance with the terms of the investment agreement so as to receive funds thereunder with no penalty or premium paid; 07038\pus-3 16 (iii) the investment agreement shall state that it is the unconditional and general obligation of, and is not subordinated to any other obligation of, the provider thereof, (iv) a fixed guaranteed rate of interest is to be paid on invested funds.and all future deposits, if any, required to be made to such funds; (v) the term of the investment agreement shall not exceed the term of the Notes; (vi) the County or the Paying Agent receives the opinion of domestic counsel (which opinion shall be addressed to .the County and the Paying Agent) that such investment agreement is legal, valid, binding and enforceable upon the provider in accordance with its terms; (vii) the investment agreement shall provide that if during its term the provider's (or, if guaranteed, the guarantor's) rating by either Moody's or S&P falls below "Aa3" or "AA-" respectively, the provider must within 10 business days assign the investment agreement to a Qualified Provider reasonably acceptable to the County or collateralize the investment agreement by delivering or transferring in accordance with applicable state and federal laws (other than by means of entries on the provider's books) to the County, the Paying Agent or a third party acting solely as agent therefor United States Treasury and Agency Obligations which are free and clear of any third-party liens or claims at such collateral levels and valued at such frequencies as shall be necessary to maintain the highest short- term rating on the Notes by Moody's and S&P. (10) Deposits in the State of California Treasurer's Local Agency Investment Fund (LAIF). (11) Shares of beneficial interest issued by the Investment Trust of California (CaITRUST) pursuant to California Government Code Section 6509.7; and authorized for local agency investment pursuant to California Government Code Section 53601(o). (12) The Contra Costa County Treasurer's Investment Pool. CERTAIN RISK FACTORS Described below are certain factors which could-impact the ability of the County to pay debt service on the Notes. See also APPENDIX A—"GENERAL COUNTY ECONOMIC AND DEMOGRAPHIC INFORMATION" and APPENDLI, B—"COUNITY" FINANCIAL I.NFORLATION" for certain financial and other information concerning the County. The following information does not purport to be an exhaustive listing of the risks and other considerations which may be relevant to an investment in the Notes and the order in which they are presented is not intended to reflect the relative important of such risks. There can be no assurance made that other risk factors will not become relevant in the f rture. County Financial Stress A variety of circumstances affecting the County (and other counties in the State) have resulted in significant financial stress on the County over the last few years. Certain of these circumstances are described in Appendix B, and include (i) the financial condition of the State, which resulted in decreased revenues from the State to the County; (ii) significant increases in labor costs of the County, including amounts required to be paid by the County to fund current and future retirement benefits, resulting from the resolution of litigation related thereto as well as renegotiation of labor agreements and enhancement 07038\pos-3 17 of retirement benefits and the resulting impact on the required annual General Fund contribution to its employee pension plan; and (iii) significant increases in employee and retiree health care costs paid by the County. I On May 1, 2007, the Board of Supervisors adopted a budget for the Fiscal Year 2007-08 that provides for approximately $18 million in spending decreases compared to the actual budget for Fiscal Year 2006-07. Pension Plan and Other Post Employment Benefits Pension Plan. The County has experienced significant increases in the amount that it is required to contribute annually to fund retirement benefits since Fiscal Year 2002-03. The required General Fund contributions were approximately $125.1 million in Fiscal Year 2005-06, and approximately $143.6 million in Fiscal Year 2006-07. The required contribution for Fiscal Year 2007-08 is estimated to be approximately $ million. These increases are due to a variety of factors, including changes in existing law regarding the definition of the term "compensation earnable," changes in actuarial assumptions, enhancements to the retirement benefits of employees and market losses and earnings shortfalls in the Contra Costa County Employee's Retirement Association ("CCCERA") investment portfolio. For a description of CCCERA and information regarding the funding status of the pension plan, including the unfunded actuarial accrued liability, and its investment policy, see APPENDIX B— "COUNTY FINANCIAL INFORMATION—Pension Plan." In 1997, the Supreme Court of the State rendered a decision in Ventura County Deputy Sheriff's Association et al. .v. Board of Retirement of Ventura County Employees' Retirement Association, and County of Ventura (Ventura) holding, among other things, that certain items such as vacation buy-back be included in the calculations that determine the amount of retirement benefits a retiree is eligible to receive. Two lawsuits on similar issues were filed against the County by certain retired County employees. These lawsuits were consolidated into one case, Vernon D. Paulson, et al. v. Board of Retirement of the Contra Costa County Employees' Retirement Association, et al. and that case has been settled. The level of future required contributions depends on a variety of factors, including future CCCERA investment portfolio performance and additional changes in retirement benefits. There can be no assurances that the required annual General Fund contribution to CCCERA will not continue to significantly increase, and that such increases will not materially adversely affect the financial condition of the County. For additional information regarding CCCERA see APPENDIX 13—"COUNTY FINANCIAL INFORMATION—Pension Plan"and"—Impact of the Ventura Decision." Post Employment Benefits. In addition to providing retirement benefits, retired employees of the County are allowed to continue participation in medical and dental plans. The cost of retiree health care is recognized when the County,rnakes its contribution on a pay-as-you-go basis. For Fiscal Year 2007-08, the County contribution for the pay-as-you-go cost is estimated to be $30 million. For additional information regarding post employment benefits, including a description of the unfunded actuarial accrued liability, see APPENDIX B—"COUNTY FINANCIAL INFORMATION—Post Employment Benefits." State Financial Condition Approximately 33% of the County's Fiscal Year 2007-08 General Fund Budget consists of payments from the State. Therefore, the finances of the County may be adversely impacted by the financial condition of the State. For information regarding the State budget, see APPENDIX B—"COUNTY FINANCIAL INFORMA'T'ION—State Budget Acts." 07038\pos-3 18 CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES, REVENUES AND APPROPRIATIONS Article XIII A of the California Constitution In 1978, California voters approved Proposition 13, adding Article XIII A to the California Constitution. Article XIII A was subsequently amended on several occasions in various respects. Article X111 A limits the amount of any ad valorem tax on real property to 1% of the full cash value thereof, except that additional ad valorem taxes may be levied to pay debt service on indebtedness approved by the voters prior to July 1, 1978 and on bonded indebtedness for the acquisition or improvement of real property which has been approved on or after July 1, 1978 by two-thirds of the voters voting on such indebtedness and or bonded indebtedness incurred by a school district, community college district or county office of education for the construction, reconstruction, rehabilitation or replacement of school facilities, including the furnishing and equipping of school facilities, or the acquisition or lease of real property for school facilities approved by 55% of the voters voting on the proposition. Article XIII A 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" or thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment." This full cash value may be increased at a rate not to exceed 2% per year to account for inflation. Article X111 A has been amended to permit reduction of the "full cash value" base in the event of declining property values caused by damage, destruction or other factors, and to provide that there would be no increase in the "full cash value" base in the event of reconstruction of property damaged or destroyed in a disaster or in the event of certain transfers to children or spouses or of the elderly or disabled to new residences. Legislation Implementing Article XIII A 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 1% 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. Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the 2% annual adjustment are allocated among the various jurisdictions in the "taxing area" based upon their respective "situs." Any such allocation made to a local agency continues as part of its allocation in future years. Article XIII B of the California Constitution On October 6, 1979, California voters approved Proposition 4, known as the Gann Initiative, which added Article X111 B to the California Constitution. Propositions 98 and 111, approved by the California voters in 1988 and 1990, respectively, substantially modified Article XIII B. The principal effect of Article XIII B is to limit the annual appropriations of the State and any city, county, school district, authority, or other political subdivision of the State to the level of appropriations for the prior fiscal year, as adjusted for changes in the cost of living and population. The initial version of Article XIII B provided that the "base year" for establishing an appropriations limit was the 1978-79 fiscal year, which was then adjusted annually to reflect changes in population, consumer prices and certain increases in the cost of services provided by these public agencies. Proposition 1 I 1 revised the method for making annual adjustments to.the appropriations limit by redefining changes in the cost of living and in population. It also required thatbeginning in Fiscal Year 1990-91 each appropriations limit must be 07038\pos-3 19 recalculated using the actual 1986-87 appropriations limit and making the applicable annual adjustments as if the provisions of Proposition 111 had been in effect. . Appropriations subject to limitations of a local government under Article X111 B include generally any authorization to expend during a fiscal year the proceeds of taxes levied by or for that entity and the proceeds of certain State subventions to that entity, exclusive of refunds of taxes. Proceeds of taxes include, but are not limited to all tax revenues plus the proceeds to an entity of government from (1) regulatory licenses, user charges and user fees (but only to the extent such proceeds exceed the cost of providing the service or regulation), (2) the investment of tax,revenues, and (3) certain subventions received from the State. Article XIII B permits any government entity to change the appropriations limit by a vote of the electors in conformity with statutory and constitutional voting effective for a maximum of four years. As amended by Proposition 111, Article XIII B provides for testing of appropriations limits over consecutive two-year periods. If an entity's revenues in any two-year period exceed the amounts permitted to be spent over such period, the excess has to be returned by revising tax rates or fee schedules over the subsequent two years. As amended by Proposition 98, Article XIII B provides for the payment of a portion of any excess revenues to a fund established to assist in financing certain school needs. Appropriations for"qualified capital outlays"are excluded from the limits of Proposition I 11. For Fiscal Year 2007-08, the County's Article XIII B limit is estimated to be $6,543,895,375 and budgeted appropriations subject to limitation are estimated to be $342,415,213. The County has never exceeded its Article XIII B appropriations limit and does not anticipate having any difficulty in operating within the appropriations limit. Article XIII C and Article XIII D of the California Constitution On November 5, 1996, the voters of the State approved Proposition 218, known as the "Right to Vote on Taxes Act." Proposition 218 adds Articles XIII C and XIII D to the California Constitution and contains a number of interrelated provisions affecting the ability of the County to levy and collect both existing and future taxes, assessments, fees and charges. The interpretation and application of Proposition 218 likely will be determined by the courts with respect to a number of the matters discussed below, and it is not possible at this time to predict with certainty the outcome of such determination. Article XIII C requires that all new local taxes be submitted to the electorate before they become effective. Taxes for general governmental purposes of the County require a majority vote and taxes for specific purposes, even if deposited in the County's General Fund, require a two-thirds vote. Further, any general purpose tax which the County imposed, extended or increased without voter approval after December 31, 1994 may continue to be imposed only if approved by a majority vote in an election which must be held within two years of November 5, 1996. The County believes that no existing County- imposed taxes deposited into its General Fund will be affected by the voter approval requirements of Proposition 218, although as indicated below certain tax levies may be affected by Proposition 62. The voter approval requirements of Proposition 218 reduce the flexibility of the County to raise revenues for the General Fund, and no assurance can be given that the County will be able to impose, extend or increase such taxes in the future to meet increased expenditure needs. Article XIII D also adds several provisions making it generally more difficult for local agencies to levy and maintain fees, charges, and assessments for municipal services and programs. These provisions include, among other things, (i) a prohibition against assessments which exceed the reasonable cost of the proportional special benefit conferred on a parcel, (ii) a requirement that assessments must confer a ".special benefit," as defined in Article XIII D, over and above any general benefits conferred, (iii) a majority protest procedure for assessments which involves the.mailing of notice and a ballot to the record owner of each affected parcel, a public hearing and the tabulation of ballots weighted according to 07038\pos-3 20 the proportional financial obligation of the affected party, and (iv) a prohibition against fees and charges which are used for general governmental services, including police, fire or library services, where the service is available to the public at large in substantially the same manner as it is to property owners. The County estimates that in Fiscal Year 2007-08 it will collect no such fees and assessments. Article Xlll C also removes limitations on the initiative power in matters of reducing 'or repealing local taxes, assessments, fees or charges. No assurance can be given that the voters of the County will not, in.the future, approve an initiative or initiatives which reduce or repeal local taxes, assessments, fees or charges currently comprising a substantial part of the County's General Fund. If such repeal or reduction occurs, the County's ability to repay the Notes and the Series B Notes could be adversely affected. Proposition 62 On September 28, 1995, the California Supreme Court, in the case of Santa Clara County Local Transportation Authority v. Guardino, upheld the constitutionality of Proposition 62. In this case, the court held that a countywide sales tax of one-half of one percent was a special tax that, under Section 53722 of the Government Code, required a two-thirds voter approval. Because the tax received an affirmative vote of only 54.1%, this special tax was found to be invalid. -The decision did not address the question of whether or not it should be applied retroactively. Following the California Supreme Court's decision upholding Proposition 62, several actions were tiled challenging taxes imposed by public agencies since the adoption of Proposition 62, which was passed in November 1986. On June 4, 2001, the California Supreme Court released its decision in one of these cases, Howartl Jarvis Taxpayers Association v: City of La Habra, et al. ("La Habra'). In this case, the.court held that public agency's continued imposition and collection of a tax is an ongoing violation, upon which the statute of limitations period begins anew with each collection. The court also held that, unless another statute or constitutional rule provided differently, the statute of limitations for challenges to taxes subject to Proposition 62 is three years. Accordingly, a challenge to a tax subject to Proposition 62 may only be made for those taxes received within three years of the date the action is brought. The County has no taxes to which Proposition 62 could apply. Proposition 1A The California Constitution and existing statutes give the legislature authority over property taxes, sales taxes and the VLF. The State legislature has authority to change tax rates, the items subject to taxation and the distribution of tax revenues among local governments, schools, and community college districts. The State has used this authority for many purposes, including increasing funding for local services, reducing State costs, reducing taxation, addressing concerns regarding funding for particular local governments, and restructuring local finance. The California Constitution generally requires the State to reimburse the local governments when the State "mandates" a new local program or higher level of service. Due to the ongoing financial difficulties of the State, it has not provided in recent years reimbursements for many mandated costs. In other cases, the State has "suspended" mandates, eliminating both responsibility of the local governments for complying with the mandate and the need for State reimbursements. On November 3, 2004, the voters of the State approved Proposition ]A that amended the . California Constitution to, among other things, reduce the State Legislature's authority over local government revenue sources by placing restrictions on the State's access to local government's property, sales and vehicle license fee revenues. 07038\pos-3 21 Proposition IA generally prohibits the State from shifting to schools or community colleges any share of property tax revenues allocated to a county for any fiscal year under the laws in.effect as of November 3, 2004. The measure also specifies that any change in how property tax revenues are shared among local governments within a county must be approved by two-thirds of both houses of the Legislature (instead of by majority vote). Finally, the measure prohibits the State from reducing the property tax revenues provided to a county as replacement.for the local sales tax revenues redirected to the State and pledged to pay debt service on State deficit-related bonds approved by voters in March 2004. If the State reduces the VLF rate below its current level of 0.65% of the vehicle value, Proposition lA requires the State to provide local governments with equal replacement revenues. Proposition 1 A provides two significant exceptions to the above restrictions regarding sales and property taxes. Fifst, beginning in Fiscal Year 2008-09, the State may shift to schools and community colleges up to 8% of local government property tax revenues if: the Governor proclaims that the shift is needed due to a severe State financial hardship, the legislature approves the shift with a two-thirds vote of both houses and certain other conditions are met. The State must repay local governments for their property tax losses, with interest, within three years. Second, Proposition IA allows the State to approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. Proposition ]A amends the California Constitution to require the State to suspend certain State laws creating mandates in any year that the State does not fully reimburse local governments for their costs to comply with the mandates. Beginning in Fiscal Year 2005-06, if the State does not provide funding for the activity that has been determined to be mandated, the requirement on cities, counties or special districts to abide by the mandate would be suspended. In addition, Proposition 1 A expands the definition of what constitutes a mandate to encompass State action that transfers to cities, counties and special districts financial responsibility for a required program for which the State previously had complete or partial financial responsibility. This provision does not apply to mandates relating to schools or community colleges;or to those mandates relating to employee rights. Proposition l A restricts the State's authority to reallocate local tax revenues to address concerns regarding funding for specific local governments or to restructure local government finance. For example, the State could not enact measures that changed how local sales tax revenues are allocated to cities and counties. In addition, measures that reallocated property taxes among local governments in a county would require approval by two-thirds of the members of each house of the legislature (rather than a majority vote). As a result, Proposition IA could result in fewer changes to local government revenues than otherwise would have been the case. Future Initiatives Article XIII A, Article X111 B, Article X111 C, Article XIII D, and Proposition 62 and ]A, were adopted as measures that qualified for the ballot through California's initiative process. From time to time other initiative measures could be adopted,further affecting the County's finances. COUNTY INFORMATION For a discussion of the economic and demographic profiles of the County, see APPENDIX A— "GLNEI;AL COUNTY ECONOMIC AND DEMOGRAPHIC INFORMATION." For information on the County's finances, see APPENDtx B—"'COUNTY FINANCIAL INFORMATION"and APPENDIX E—"EXCERPTS FROM THE AUDITED FINANCIAL STATEMENTS OF THE COUNTY FOR TIME FISCAL.YEAR ENDED JUNE 30,2006." 0703 S\pos-3 22 TAX MATTERS In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the County ("Bond Counsel"), based on an analysis of existing laws, regulations, rulings, and court decisions; and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Notes is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the "Code") and is exempt from State of California (the "State") personal income taxes. Bond Counsel is of the further opinion that interest on the Notes is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings in calculating federal corporate alternative minimum taxable income. A complete copy of the proposed form of the opinion of Bond Counsel is.set forth in Appendix D hereto. Notes purchased, whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (or, in some case, at their earlier call date) ("Premium Notes") will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of the Notes, like the Premium Notes, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax-exempt interest received, and a beneficial owner's basis in a Premium Note,' will be reduced by the amount of amortizable bond premium properly allocable to such beneficial owner. Noteholders of Premium Notes should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances. The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Notes. The County has made certain representations and has covenanted to comply with certain restrictions designed to insure that interest on the Notes will not be included in federal gross income. Inaccuracy of these representations or failure to comply with these covenants may result in interest on the Notes being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Notes. The opinion of Bond Counsel assumes the accuracy of these representations and compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring) after the date of issuance of the Notes may adversely affect the value of or the tax status of interest on, the Notes. Accordingly, the opinion of Bond Counsel is not intended to, and may not, be relied upon in connection with any such actions,events or matters. One of the covenants of the County referred to above requires the County to reasonably and prudently calculate the amount, if any, of excess investment earnings on the proceeds of the Notes which must be rebated to the United States, to set aside from lawfully available sources sufficient moneys to pay such amounts and to otherwise do all things necessary and within its power and authority to assure that interest on the Notes is excluded from gross income for federal income tax purposes. Under the Code, if the County spends 100% of the proceeds of the Notes within six months after issuance, there is no requirement that there be a rebate of investment profits in order for interest on the Notes to be excluded from gross income for federal income tax purposes. The Code also provides that such proceeds are not deemed spent until all other available moneys (less a reasonable working capital reserve) are spent. The County expects to satisfy this expenditure test or, if it fails to do so, to make any required rebate payments from moneys received or accrued during Fiscal Year 2007-08. To the extent that any rebate cannot be paid from such moneys, the law of California is unclear as to whether such covenant would require the County to pay any such rebate. This would be an issue only if it were determined that the County's calculations of expenditures of Note proceeds or of rebatable arbitrage profits, if any, were incorrect. 07038\pos-3 23 Although Bond Counsel is of the opinion that interest on the Notes is excluded from gross income for federal income tax purposes and is exempt from State personal income taxes, the ownership or disposition of, or the accrual or receipt of interest on, the Notes may otherwise affect a Noteholder's federal, state or local tax liability. The nature and extent of these other tax consequences will depend upon the particular tax status of the Noteholder or the Noteholder's other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences. Future legislation, if enacted into law, or clarification of the Code or court decisions, may cause interest on the Notes to be subject, directly or indirectly, to federal income taxation, or otherwise prevent beneficial owners from realizing the full current benefit of the tax status of such interest. As one example, on May 21, 2007, the United States Supreme Court agreed to hear an appeal from a Kentucky state court which ruled that the United States Constitution prohibited the state from providing a tax exemption for interest on bonds issued by the state and its political subdivisions but taxing interest on obligations issued by other states and their political subdivisions. The introduction or enactment of any such future legislation, or clarification of the Code or court decisions may also affect the market price for, or marketability of, the Notes. Prospective purchasers of the Notes should consult their own tax advisers regarding any pending or proposed federal or state tax legislation, regulations or litigation as to which Bond Counsel expresses no opinion. The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel's judgment as to the proper treatment of the Notes for federal income tax purposes. It is not binding on the IRS or the courts. Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the County, or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. The County has covenanted, however, to comply with the requirements of the Code. Bond Counsel's engagement with respect to the Notes ends with the issuance of the Notes, and, unless separately engaged, Bond Counsel is not obligated to defend the County or the Noteholders regarding the tax-exempt status of the Notes in the event of an audit examination by the IRS. Under current procedures, parties other than the County and its appointed counsel, including the Noteholders, would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax-exempt Notes is difficult, obtaining an independent review of IRS positions with which the County legitimately disagrees, may not be practicable. Any action of the IRS, including but not limited to selection of the Notes for audit, or the course or result of such audit, or an audit of Notes presenting similar tax issues may affect the market price for, or the marketability of, the Notes, and may cause the County or the Noteholders to incur significant expense. LEGAL MATTERS Bond Counsel's engagement is limited to a review of the legal proceedings required for the authorization of the Notes and to rendering the opinion set forth in APPENDIX D hereto. Bond Counsel takes no responsibility for the accuracy, completeness or fairness of this Official Statement. Certain legal matters will be passed upon for the County by the County Counsel and for the County and the purchaser(s) by Lofton & Jennings, San Francisco, California, Disclosure Counsel. Compensation paid to Bond Counsel and Disclosure Counsel is contingent on the sale and delivery of the Notes. 07038\pos-3 24 LEGALITY FOR INVESTMENT IN CALIFORNIA Under provisions of the California Financial Code, the Notes are legal investments for commercial banks in the State to the extent that the Notes, in the informed opinion of the investor bank, are prudent for the investment of funds of its depositors and, under provisions of the California Government Code, are eligible to secure deposits of public moneys in the State. ]FINANCIAL ADVISOR The County has retained Tamalpais Advisors, Inc., Sausalito, California, as Financial Advisor for the sale of the Notes. Tamalpais Advisors, Inc. is an independent financial advisor and is not engaged in the business of underwriting, trading or distributing municipal or other financial securities. Tamalpais Advisors, Inc. takes no responsibility for the accuracy, completeness or fairness of this Official Statement. Compensation paid to the Financial Advisor is contingent on the sale and delivery of the Notes. RATINGS The County has received ratings of "_" from Moody's Investors Service ("Moody's") and from Standard & Poor's Ratings Services, a Division of the McGraw Hill Companies, Inc. ("S&P") on the Notes. Certain information was supplied by the County to the rating agencies to be considered in evaluating the Notes. The ratings issued reflect only the views of the rating agency giving such rating and is not a recommendation to buy sell or hold the Notes. Any explanation of the significance of such ratings may be obtained from the rating agencies at their respective addresses, as follows: Moody's Investors Service, 7 World Trade Center, 250 Greenwich Street,. New York, New York 10007; and Standard & Poor's, 55 Water Street, New York, New York 10041. There is no assurance that any rating will be retained for any given period of time or that the same will not be revised downward or withdrawn entirely by the respective rating agency if in its judgment, circumstances so warrant. Other than as provided in the Continuing Disclosure Certificate, the County undertakes no responsibility either to bring to the attention of the owners of any Notes any downward revision or withdrawal of any rating obtained or to oppose any such revision or withdrawal. Any such downward revision or'withdrawal of the ratings obtained may have an adverse effect on the market price of the Notes. NO MATERIAL LITIGATION No material litigation is pending or threatened against the County concerning the validity of the Notes, and a certificate of the County Counsel to that effect will be furnished to the purchaser at the time of the original delivery of the Notes. The County is not aware of'any litigation pending or threatened against the County questioning the political existence of the County or contesting the County's ability to levy and collect ad valorem taxes or contesting the County's ability to issue and repay the Notes. There are a number of lawsuits and claims pending against the County. The aggregate amount of the uninsured liabilities of the County and the timing of any anticipated payments of judgments which may result from suits and claims will not, in the opinion of the County Counsel and the County Auditor- Controller, materially affect the County's finances or impair its ability to repay the Notes. 07038\pos-3 25 SALE OF THE NOTES The Notes are expected to be sold at competitive bid on November 7, 2007. The Notes will be offered and sold pursuant to the terms of an Official Notice of Sale that all of the Notes will be purchased, if any are purchased, with the obligation of the purchaser(s) to make such purchase being subject to certain terms and conditions set forth in the Official Notice of Sale, including, among others the approval of certain legal matters by Bond Counsel. The purchaser(s) of the Notes will be required to represent to the County that the Notes have been re-offered to the public at the initial offering yield to be shown on the cover page hereof. See APPENDIX W"OFFICIAL NOTICE OF SALE." ADDITIONAL INFORMATION The purpose of this Official Statement is to supply information to prospective purchasers of the Notes. Summaries and explanations of the Notes, the Resolution, and statutes and documents contained herein do not purport to be complete, and reference is made to said documents and statutes .for a full and complete statement of their provisions. This Official Statement is not to be construed as a contract between the County and any purchasers or owners of the Notes. The County regularly prepares a variety of reports, including audits, budgets and related documents, as well as certain monthly activity reports. Any owner of a Note may obtain a copy of any such report, as available, from the County by writing to the Senior Deputy County Administrator/Debt Manager, County Administrator's Office, 651 Pine Street, 10`h Floor, Martinez, California 94553, or by calling 925-335-1023. 07038\pos-3 26 All data contained herein have been taken or constructed from County records and other sources. Appropriate County officials, acting in their official capacity, have reviewed this Official Statement and have determined that as of the date hereof the information contained herein is, to the best of their knowledge and belief,true and correct in all material respects and does not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made herein, in the light of the circumstances under which they are made, not misleading. An appropriate County official will execute a certificate to this effect upon delivery of the Notes. This Official Statement and its distribution have been duly authorized and approved by the Board of Supervisors of the County. COUNTY OF CONTRA COSTA By._ John B. Cullen County Administrator and Clerk of the Board of Supervisors 07038\pos-3 27 APPENDIX B' COUNTY FINANCIAL INFORMATION Introduction California counties administer numerous health and social service programs as the administrative agent of the State and pursuant to State law. Many of these programs have been either wholly or partially funded with State revenues which have been subject each year to the State budget and appropriation process. Currently, the County is required to provide health care to all indigents, administer welfare programs, provide justice facilities (courts and jails) and administer the property tax system and real estate recordings. Due to competing program priorities and the lack of available State funds, some of these programs .have had reduced State support without a corresponding reduction in program responsibilities for county governments. The result has been that the County has increased its contribution to maintain mandated services while optional local services have been reduced. The Board of Supervisors has responded to this trend in part by instituting measures to improve management, thereby reducing costs while increasing productivity and maintaining services with diminished funding. The level of intergovernmental revenues that the County receives from the State in Fiscal Year 2007-08 and in subsequent fiscal years is likely to be affected by the financial condition of the State. State Budgets Currently, approximately 33% of the County's Fiscal Year 2007-08 General Fund Budget consists of payments from the State. The financial condition of the State has an impact on the level of these revenues. In past years the State reduced revenues to counties to help solve the State's budget problems, although Proposition l A provides certain protections to counties. See "CONSTITUTIONAL AND S'T'ATUTORY LIMITATIONS ON TAXES, REVENUES AND APPROPRIATIONS—Proposition IA." The State has also diverted other revenues such as cigarette taxes and trailer coach in lieu taxes from counties to the State. Property tax revenues received by local governments declined more than 50% following passage of Proposition 13 in June 1978. Subsequently, the State Legislature enacted measures to provide for the redistribution of the State's General Fund surplus to local agencies, the reallocation of certain State revenues to local agencies and the assumption of certain governmental functions by the State to assist municipalities to raise revenues. Total local assistance from the State General Fund was budgeted at approximately 75% of General Fund expenditures in recent years, including the effect of implementing reductions in certain aid programs. To the extent the State should be constrained by its Article XIII B appropriations limit, or its obligation to conform to Proposition 98, or other fiscal considerations, the absolute level, or the rate of growth, of State assistance to local governments may be reduced. Any such reductions in State aid could compound the serious fiscal constraints already experienced by many local governments, particularly counties. The following information concerning the State has been obtained from publicly available information on the State Department of Finance, the State Treasurer and the California Legislative Analysts Office websites. The estimates and projections provided below are based upon various assumptions which may be affected by numerous factors, including fixture economic conditions in the State and the nation, and there can be no assurance that the estimates will be achieved. For fi{rther information and discussion of factors underlying the State's projections, see the aforementioned websites. The County believes such information to be reliable, however, the County takes no responsibility as to the accuracy or completeness thereof and has not independently verified such information. 0703 8\pus-3 B-I State Budget Acts Fiscal Year 2006-07. The 2006-07 Budget Act (the "State 2006 Budget Act") was adopted by the Legislature on June 27, 2006 and signed by the Governor on June 30, 2006. The State 2006 Budget Act assumed Fiscal Year 2006-07 revenues of$94.4 billion and expenditures of$101.3 billion, resulting in an operating short-fall of$7 billion, which partly reflected the prepayment of$2.8 billion in budgetary debt obligations, leaving the State General Fund with a year-end reserve of$2 billion, compared to the $9 billion year-end reserve in Fiscal Year 2005-06. The State 2006 Budget Act, among other things, (i)allocated new revenues to K-12 and community college education, increased funding for higher education, and prepaid approximately $2.8 billion in budgetary debt, which was roughly consistent with the Governor's budget revision released on May 13, 2006; (ii) made partial repayments of debt; (ii) funded a budget stabilization account; (iv) made augmentations to health, resources, corrections and local governments (including increased funding for county block grants for California Work Opportunity and Responsibility, Kids, Child Welfare Services, and foster care; additional funding for local law enforcement and local flood control; and largely one-time funding to hospitals to increase patient capacity to meet public health emergencies, such as an avian flu pandemic); and (v) made the first payment of a proposed settlement in the amount of $2.9 billion, which will be paid over six years commencing in Fiscal Year 2007-08, related to a lawsuit- involving school funding. Fiscal Year 2007-08. The 2007-08 Budget Act (the "State 2007 Budget Act") was adopted by the Legislature on August 21, 2007 and signed by the Governor, after using his line item veto authority to reduce State General Fund appropriations by $703 million, on August 24, 2007. The State 2007 Budget Act projects $102.3 billion in budget-year revenues, an increase of 6.5% from Fiscal Year 2006-07; authorizes expenditures of an equal amount (an increase of 0.6% from Fiscal Year 2006-07); and leaves the State General Fund with a year-end reserve of$4.1 billion (the same as assumed for Fiscal Year 2006- 07), comprised of$2.6 billion in the State's Special Fund foe Economic Uncertainties and $1.5 billion in the Budget Stabilization Account, which was established when voters approved Proposition 58 in March 2004. The State 2007 Budget Act proposes a major redirection of transportation funds, reductions in social services, and a variety of other actions to eliminate a significant shortfall in Fiscal Year 2007-08, and includes among other things, (i) increased funding for county Medi-Cal administration costs; (ii) a partial repayment of Proposition 42 transportation suspensions, as required by Proposition IA, that occurred in Fiscal Years 2003-04 and 2004-05; (iii) assumes $1 billion in one-time revenues from the sale of EdFund (the State's nonprofit student loan guaranty agency); and (iv) suspension of a California Work Opportunity and Responsibility .to Kids cost-of-living adjustment (a "COLA") for one year and -permanently delays the State Supplemental Security income/State Supplementary Program COLA for five months. For discussion of Proposition IA, see "CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES, REVENUES AND APPROPRIATIONS—Proposition 1 A." Based on the policies contained in the State 2007 Budget Act, according to the State Legislative Analyst's Office, the nonpartisan fiscal and policy advisor to the State, the State will face operating shortfalls of more than $5 billion in both Fiscal Year 2008-09 and Fiscal Year 2009-10 because many of the solutions enacted in the State 2007 Budget Act are of a one-time nature. The County cannot predict whether the State Legislature will enact future legislation requiring additional or increased future shifts of revenues to the State General Fund, and, if so, the effect such shifts would have on the distribution of future County revenues. 07038\pos-3 B-2 County Budget Process The County is required by State law to adopt a balanced budget by August 30 of each year, although the Board of Supervisors may, by resolution, extend the date on a permanent basis or for a limited period, to October 2. The County's budget process involves a number of steps. First, upon release of the Governor's proposed budget in January, the County Administrator prepares a preliminary forecast of the County's budget based on current year expenditures, the assumptions and projections contained in the Governor's proposed budget and other projected revenue trends. Second, the County Administrator develops and presents a proposed budget (the "Proposed Budget") to the Board of Supervisors. Absent the adoption of a Final Budget by June 30, the Proposed Budget is passed into the new Fiscal Year as the spending authority until a Final Budget is adopted. Third, the County Administrator prepares a Preliminary/Recommended Budget (the "Recommended Budget") that is presented to the Board of Supervisors. Between January and the time the State adopts its own budget, (which is legally due no later than June 15), representatives of the County Administrator monitor, review and analyze the State budget and all adjustments made by the State legislature. Upon adoption of the final State budget, the County Administrator recommends revisions to the Proposed Budget or, dependent on timing, the Recommended Budget to align County expenditures with approved State revenue. Fourth, after conducting public hearings and deliberating the details of the budget, the Board of Supervisors adopts the County's Final Budget by August 30, or by October 2 if the Board of Supervisors has adopted a resolution to extend the deadline. In order to ensure that the budget remains in balance throughout the Fiscal Year, the County Administrator monitors actual expenditures and revenue receipts each month. In the event of a projected year-end deficit, steps are taken, in accordance with the State Constitution, to reduce expenditures. On a quarterly basis, the County Administrator's staff prepares a report that details the activity' within each budget category and provides summary information on the status of the budget. Actions that are necessary to ensure a healthy budget status at the end of the fiscal year are recommended in the quarterly budget status reports. • Other items which have major fiscal impacts are also reviewed quarterly. The County's ability to increase its revenues is limited by State laws that prohibit the imposition of fees to raise general revenue, except to recover the cost of regulation or provision of services. See "CONSTITUTIONAL,AND STATUTORY LIMITATIONS ON TAXES, REVENUES AND APPROPRIATIONS." Recent County General Fund Budgets Set forth below is a description of the County's comparative budgetary and expenditure experience for Fiscal Years 2006-07 through 2007-08. For a summary of the actual audited financial results of the County for Fiscal Year 2005-06, see "EXCERPTS FROM THE AUDITED FINANCIAL STATEMENTS OF THE COUNTY FOR THE FISCAL YEAR ENDED JUNE 30, 2006" in APPENDIX E to this Official Statement. Fiscal Year 2006-07. The County's Fiscal Year 2006-07 Adopted Budget, adopted on May 2, 2006 was 5% lower than the Fiscal Year 2005-06 actuals experience (Actuals). General Fund expenditures decreased by $69 million or 5% compared to the Fiscal Year 2005-06 Adjusted Budget. The County adopted a budget which balanced annual expenditures with annual revenue and closed a projected $43 million General Fund budget gap. The gap was closed by requiring that all County department budgets absorb.salary and benefit cost increases without increasing individual budget allocations; cutting a net of$30 million in on-going appropriations in the General Fund; and increasing 07038\pos-3 B-3 revenue a net of$6 million. The County also cut a net of$5.7 million in on-going appropriations in the Hospital Enterprise Fund and increased revenue a net of $800,000 for a total Hospital Enterprise Fund impact of$6.5.million. Fiscal Year 2007-08. The County's Fiscal Year 2007-08 Adopted Budget, adopted on May 1, 2007, reflects General Fund expenditures of $1.284 billion. In developing the Fiscal Year 2007-08 Adopted Budget, the County closed an estimated $31 million budget gap primarily through . adjustments to revenues and absorption of vacant positions in departments. However, no departments are expected to operate with fewer filled positions than in the prior fiscal year and service delivery levels are expected, on balance, to remain unchanged. In addition, the Fiscal Year 2007-08 Adopted Budget incorporates the full fiscal year compensation costs negotiated in Fiscal Year 2006-07 for all bargaining units other than nurses (whose contract expires in January 2008) and firefighters (who are currently in negotiations with the County). Additionally, the County Administrator reaffirmed four major areas of focus that were first identified in Fiscal Year 2006-07: improving the County's fiscal health; providing services more efficiently and effectively; improving the County's credibility; and developing greater use of teams and partnerships to address issues. Focusing on these areas for improvement allowed the County to better manage its resources, lower its expense growth, improve its revenues, and build a reasonable reserve. The County expects its revenues to grow at historically average rates and continues taking steps to reduce workers compensation costs and minimize employee compensation growth. See "—Contract Negotiations." (Remainder of this Page Intentionally Left Blank) 07038\pos-3 B-4 Table B-1 COUNTY OF CONTRA COSTA GENERAL FUND BUDGET FOR FISCAL YEARS 2005-06,2006-07 AND 2007-08 ($IN 000'S) Final Adopted Final Adopted Budget Budget 2006-07 2007-08 Requirements General Government $151,552 $153,710 Public Protection 340,143 361,624 Health and Sanitation 240;788 265,644 Public Assistance 398,918 405,071 Education 330 328 Public Ways and Facilities 99,508 . 105,645 Recreation and Culture 0 43 Reserves and Debt Service 100 100 To,rAL REQUIREMENTS $1,231,339 S 1 292 16 Available Funds Property Taxes $259,670 $286,790 Fund Balance Available 9,509 7,857 Other Taxes 27,230 26,490 Licenses, Permits and Franchises 14,005 14,407 Fines, Forfeitures and Penalties 13,840 15,261 Use of Money and Property 4,111 13,223 Intergovernmental 618,283 641,570 Charges for Current Services 206,034 199,073 Other Revenue 78,657 87,495 TOTAL AVAILABLE FUNDS $1,231 332 1 2 2 16 Source: County Auditor-Controller. Ad Valorem Property Taxes General. The County administers,the property tax levy and collection system for the County and all local governments in the County, Taxes are levied for each fiscal year on taxable real and personal property that is situated in the County as of the preceding January 1. For assessment and collection purposes, property is classified either as "secured" or "unsecured," and is listed accordingly on separate parts of the assessment roll. The "secured roll" is that part of the assessment roll containing State assessed property and property secured by a lien on real property which is sufficient, in the opinion of the Assessor, to secure payment of the taxes. Other property is assessed on the "unsecured roll." Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each fiscal year. If unpaid, such taxes become delinquent on December 10 and April 10, respectively, and a 10% penalty attaches to any delinquent payment. In addition, property on the secured roll with respect to which taxes are delinquent is declared to be in default on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of the delinquent taxes and the delinquency penalty, plus a redemption penalty of one and one half percent per month to the time of redemption. If taxes are unpaid for a period of five years or more, the tax-defaulted property is declared to be subject to the Treasurer's power of sale and may be subsequently sold by the Treasurer. 07038\pos-3 B-5 Legislation established the "supplemental roll" in 1984, which directs the Assessor to re-assess real property, at market value, on the date the property changes ownership or upon completion of construction. Property on the supplemental roll is eligible for billing 30 days after the reassessment and notification to the new assessee. The resultant charge (or refund) is a one-time levy on the increase (or decrease) in value for the period between the date of the change in ownership or completion of construction and the date of the next regular tax roll upon which the assessment is entered. Billings are made on a monthly basis and are due on the date mailed. If mailed between the months of July through October, the first installment becomes delinquent on December 10 and the second on April 10. If mailed within the months of November through June, the first installment becomes delinquent on the last day of the month following the month of billing. The second installment becomes delinquent on the last day of the fourth month following the date the first installment is delinquent. Property taxes on the unsecured roll are due as of the January 1 lien date and become delinquent, if unpaid, on August 31. A 10% penalty attaches to delinquent taxes on property on the unsecured roll, and an additional penalty of one and one-half percent per month begins to accrue beginning November 1. The taxing authority has four ways of collecting unsecured personal property taxes: (1) by filing a civil action against the taxpayer; (2) by filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer; (3) by filing a certificate of delinquency for recordation in the County Recorder's office, in order to obtain a lien on certain property of the taxpayer; and (4) by the seizure and sale of personal property, improvements or possessory interest, belonging to the taxpayer. The County and its political subdivisions operate under the Teeter Plan pursuant to provisions of Sections 4701 through 4717 of the California Revenue and Taxation Code. See "—The Teeter Plan." Pursuant to those sections, the accounts of all political subdivisions that levy taxes on the County tax rolls are credited with 100% of their respective tax levies regardless of actual payments and delinquencies. The County Treasury's cash position (from taxes) is protected by a special fund (the "Tax Losses Reserve Fund") into which all County-wide delinquent penalties are deposited. The County has used this method since Fiscal Year 1950-51. (See the "—The Teeter Plan—Tar Losses Reserve Fund ') Assessment Appeals. Major property tax assessment appeals by businesses and the oil industry total approximately $4.9 billion in disputed value, with potential loss of revenue in the millions to various units of County local government. .Of the total amount, an aggregate of approximately $2.9 billion was attributable to appeals by oil refineries. Effect of Foreclosures on Property Tax Collections. As described above, once an installment of property tax becomes delinquent, penalties are assessed commencing on the applicable delinquency date until the delinquent installment(s) and all assessed penalties are paid. In the event of foreclosure and sale of property by a mortgage holder, the minimum sales price for the foreclosed property is required to include the full amount of delinquent tax installments and accrued penalties to the date of sale. The County has established a tax resources account in the amount of$ to compensate for losses that may occur as a result of uncollected property taxes. In addition, as required under the Teeter Plan (described below), the County maintains a tax losses reserve fund, to cover potential losses that may result if tax-defaulted property is sold by the County for less than the amount of the taxes owed. See also"—The Teeter Plan." 07038\pos-3 B-f) A recent history of County tax levies, delinquencies and the Tax Losses Reserve Fund cash balances as of June 30th is shown in Table B-2 below. Table B-2 COUNTY OF CONTRA COSTA SUMMARY OF ASSESSED VALUATIONS AND AD VALOREM PROPERTY TAXATION FOR FISCAL YEARS 1998-99 THROUGH 2007-08 Balance in Tax Losses Secured Current Tax % Levy Tax Losses Reserve Fund Fiscal Year Assessed Property Delinquencies . Delinquent Reserve Fund as % of June 30 Valuation Tax Levies (June 30) (June 30) (June 30) Delinquencies 1997-98 $70,314,800,892 $892,581,453 $15,547,736 1.74% $19,508,732 125.5% 1998-99 73,699,554,452 . 939,437,116 15,375,159 1.64 21,550,142 140.2 1999-00 78,346,533,416 981,579,866 15,904,158 1.62 23,054,893 145.5 2000-01 84,627,977,952 1,062,831,354 16,738,410 1.57 24,535,061 146.6 2001-02 93,490,199,701 1,187,173,140 20,551,776 1.73' 27,032,058 131.5 2002-03 100,925,700,794 1,2931561,117 25,574,249 1.98 30,347,321 118.7 2003-04 109,072,548,285 1,402,895,299 27,325,421 1.95 20,167,593 73.8 2004-05 118,776,276,503 1,584,132,373 26,598,823 1.68 23,134,013 87.0 2005-06 131,125,213,168 1,720,977,608 35,699,290 2.07 26,334,817 73.8 2006-07 146,523,464,934 1,967,771,060 80,850,968 4.11 33,558,844 41.5 2007-08* 159,445,107,694 1,983,391,928 N/A N/A N/A N/A *Preliminary. Source: County Auditor-Controller. The Teeter Plan In 1949, the California Legislature enacted an alternative method for the distribution of secured property taxes to local agencies. This method, known as the Teeter Plan, is set forth in Sections 4701-4717 of Revenue and Taxation Code of the State of California(the "Law"). Generally, the Teeter Plan provides for a tax distribution procedure by which secured roll taxes are distributed to taxing agencies within the County included in the Teeter Plan on the basis of the tax levy, rather than on the basis of actual tax collections. The County deposits in the Tax Losses Reserve Fund (defined below) all future delinquent tax payments, penalties and interest, and a complex tax redemption distribution system for all participating taxing agencies is avoided. While the County bears.the; risk of loss on delinquent taxes that go unpaid, it benefits from the penalties associated with these delinquent taxes when they are paid. In turn, the Teeter Plan provides participating local agencies with stable cash Flow and the elimination of collection risk. The constitutionality of the Teeter Plan was upheld in Corrie v. County of Contra Costa, 1 10 Cal. App. 2d 210 (1952). The Teeter Plan was named after Desmond Teeter, the then Auditor-Controller of the County who originated this method of tax distribution. The County was the first Teeter Plan county in the State. Tax Losses Reserve Fund. Pursuant to the Law, the County is required to establish a tax losses reserve fund (the "Tax Losses Reserve Fund")to cover losses that may occur in the amount of tax liens as a result of special sales of tax-defaulted property (i.e., if the sale price of the property is less than the amount owed). During each fiscal year, the Tax Losses Reserve Fund is reviewed and when the amount of the fund exceeds certain levels, the excess may be credited to the County General Fund as provided by Sections 4703 and 4703.2 of the California Revenue and Taxation Code. State law allows any county to draw down their tax losses reserve fund to a balance equal to (i) one percent of the total of all taxes and assessments levied on the secured roll for that year, or(ii) 25% of the current year delinquent secured tax levy. 07038\pos-3 13-7 As of July 1, 2007, the balance in the Tax Losses Reserve Fund was. $33,558,844. Approximately $8 million of the reserve was transferred to the County's General Fund in Fiscal Year 2006-07. In addition, pursuant to the Law, the County has established a tax resources account to compensate for losses that may occur as a result of uncollected current property taxes. Largest Taxpayers The 15 largest taxpayers in the County, as shown on the Fiscal Year 2006-07 secured tax roll, and the approximate amounts of their property tax payments are shown below. These ten taxpayers paid a total of approximately $143 million in taxes, or approximately 7.6% of the County's Fiscal Year 2006-07 secured tax collection. Table B-3 COUNTY OF CONTRA COSTA FIFTEEN LARGEST PROPERTY TAXPAYERS FISCAL YEAR 2006-07 %of Total Taxpayer Total Taxes County Tax Roll' Chevron $40,949,011.12 2.21% Equilon 20,617,112.82 1.11 P G & E 12,742,.115.52 0.69 Tesoro 11,275,945.90 0.61 Tosco/Csland 9,642,831.68 0.52 Sunset Land Co 7,915,631.72 0.43 Walnut Creek Mutual 5,869,577.36 0.32 Windemere/Lennar Homes 5,510,600.74 0.30 Pacific Bell . .4,973,299.62 0.27 Shapell Industries 4,818,171.61 0.26 Delta Energy Center 4,685,013.78 0.25 Seeno Finance & Const 4,281,304.64 0.23 USS Posco 3,901,925.26 0.21 Alamo Plaza Inc 3,086,189.28 0.17 CA Treat Towers 2,623,445.16 0.14 TOTAL FIFTEEN LARGEST TAXPAYERS 142,892,176.21 7.56 Other Taxpayers 1,713,928,347.45 92.44 TOTAL $1,856,820,523.66 100.00% f .Column does not total due to rounding. Source: County Treasurer-Tax Collector. Taxation of State-Assessed Utility Property The State Constitution provides that most classes of property owned or used by regulated utilities be assessed by the State Board of Equalization (the "SBE'') and taxed locally. Property valued by the SBE as an operating unit in a primary function of the utility taxpayer is known as "unitary property," a concept designed to permit assessment of the utility as a going concern rather than assessment of each individual element of real and personal property owned by the utility taxpayer. State-assessed unitary and "operating nonunitary" property (which excludes nonunitary property of regulated railways) is allocated to the counties based on the situs of the various components of.the unitary property. Except for unitary property of regulated railways and certain other excepted property, all unitary and operating nommitary property is taxed at special county-wide rates and distributed to taxing jurisdictions according to statutory formulae generally based on the distribution of taxes in the prior year. In 1999, the SBE adopted a rule 07038\pos-3 B-8 that provides for local assessment of certain investor-owned electric utility facilities. As a result of this rule, the County Assessor currently assesses three power plants located in the County. However, assessment of certain power plants has been transferred to the SBE, so the portion of the County's total net assessed valuation constituting unitary property subject to SBE assessment has increased (see further discussion below). For Fiscal Year 2006-07, approximately _% of the County's total net assessed valuation constituted property subject to State assessment by the SBE, for which approximately $ million of property taxes were collected in Fiscal Year 2006-07. The portion of Fiscal Year 2006-07 tax collections through the SBE assessment methodology attributable to the County General Fund was approximately $_million. Pursuant to Assembly Bill 81 (California Legislature 2001-2002 Regular Session), commencing with the January 1, 2003 property tax lien date, the SBE assesses certain electric generation facilities. The legislation provides that the assessed value and revenues derived from such assessed property is allocated to local jurisdictions in the same manner as locally assessed property based on the location.of the property and not under the unitary property formulae. The County estimates that, should cities annex property underlying existing power plants, the resultant revenue allocation could annually decrease County General Fund.revenue by approximately $1.5 million based on the current fiscal year. (Remainder of this Page Intentionally Left Blank) 07038\pos-3 B-9 Redevelopment Agencies 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 values 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 B-4 shows redevelopment agency full cash value increments and tax allocations for agencies within the County. Table B-4 COUNTY OF CONTRA COSTA COMMUNITY REDEVELOPMENT AGENCY PROJECTS FULL CASH VALUE INCREMENTS AND TAX ALLOCATIONS Itl FISCAL YEARS 1997-98 THROUGH 2006-07 Full Cash Total Tax Fiscal Year Base Year Value(2) Value Increment(3) Allocations(4) 1997-98 $2,198,412,524 $5,687,404,922 $60,454,787 1998-99 2,343,330,103 6,080,461,083 64,427,525 1999-00 2,480,670,587 6,660,417,603 69,321,686 2000-01 2,704,690,573 7,446,872,533 76,886,217 2001-02 3,578,860,177 8,835,385,357 91,289,481 2002-03 3,433,942,598 10,070,678,634 103,955,708 2003-04 3,600,771,960 11,403,833,690 116,813,986 2004-05 2,881,589,675(51 12,875,417,794 131,478,464 2005-06 2,884,391,641 14,506,883,003 148,064,971 2006-07 3,771,200,834 17,084,543,345 175,384,368 (1) Full cash values for all redevelopment projects above the "frozen" base year valuations. These data represent growth in full cash values generating tax revenues for use by the community redevelopment agencies. (2) The Base Year Values for Fiscal Years 1997-98 through 2006-07 were reduced to exclude project areas with negative increment. (3) Does not include unitary and operating non-unitary utility roll values which are determined by the State Board of Equalization on a county-wide basis. (4) Actual tax revenues collected by the County which have been or will be paid to the community redevelopment agencies. (5) Decrease reflects the removal of an undevelopable parcel from a redevelopment project area. Source: County Auditor-Controller. Accounting Policies, Reports and Audits Except as mentioned below, the County believes that its accounting policies used in preparation of its audited financial statements conform to generally accepted accounting principles applicable to counties. The County's governmental funds and fiduciary funds use the modified accrual basis of accounting. This system recognizes revenues when they become available and measurable. Expenditures, with the exception of unmatured interest on general long-term debt, are recognized when the fund liability is incurred. Proprietary funds use the accrual basis of accounting, whereby revenues are recognized when they are earned and become measurable, while expenses are recognized when they are incurred. The Treasurer also holds certain trust and agency funds not under the control of the Board of Supervisors, such as those of school districts, which are accounted for on a cash basis. The California Government Code requires every county to prepare an annual financial report. The Auditor-Controller prepares the Comprehensive Annual Financial Report for the County. This annual report covers financial operations of the County, County districts and service areas, local 07038\pos-3 B-10 autonomous districts and various trust transactions of the County Treasury. Under California law, independent audits are required of all operating funds under the control of the Board of Supervisors. The County has had independent audits for more than 40 years. See APPENDIX E—"EXCERPTS FROM THE AUDITED FINANCIAL STATEMENTS OF THE COUNTY FOR THE FISCAL YEAR ENDED JUNE 30,2006." In addition to the above-mentioned audits, the County Grand Jury may also conduct management audits of certain offices of the County. The County, 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 County can be divided into these categories as follows: (i) governmental funds; (ii) property funds; and (iii) fiduciary funds. Governmental Funds: 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 resources that are available for spending as well as on balances of resources that are available for spending at the end of the Fiscal Year. The County maintains 27 individual governmental funds (e.g. General Fund, special revenue funds, debt service funds, capital projects funds and permanent fund) for reporting purposes. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the General Fund;the Contra Costa County Fire Protection District Special Revenue Fund, and the Land Development Special Revenue Fund. . Proprietary Funds: used to account for information of the same type as the government-wide financial statements, only in more detail. There are of two different types: (i) Enterprise Funds (used to report the same functions presented as business-type activities in the government-wide financial statements) and (ii) Internal Service Funds (an accounting device used to accumulate and allocate costs internally among the County's various functions). Fiduciary Funds: used to account for resources held for the benefit of entities legally separate from the County and individuals, which are not part of the reporting entity. Fiduciary Funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the County's own programs. Presented in Table B-5 on the following page is the County's Schedule of Revenues, Expenditures and Changes in Fund Balances for the County General Fund as of June 30th for the five most recent fiscal years for which audited financial statements are available. More detailed information from the County's audited financial report for the fiscal year ending June 30, 2006 appears in APPENDIx E to this Official Statement. 0703 8\pos-3 B-1 I Table B-5 COUNTY OF CONTRA COSTA GENERAL FUND SCHEDULE OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCES FISCAL YEARS 2001-02 THROUGH 2005-06 ($IN THOUSANDS) 2001-02 2002-03 2003-04 2004-05 2005-06 REVENUES Taxes $200,571 $211,866 $210,032 $237,828 $273,521 Licenses,permits& franchises 23,782 13,614 17,593 12,736 14,442 Fines, forfeitures&penalties 14,508 14,007 27,443 16,620 14,167 Use of money&property. 10,527 7,312 5,412 5,454 13,371 Intergovernmental revenues 506,352 505,878 508,679 530,155 578,249 Charges for services 155,713 173,062 186,508 183,774 213,553 Other revenue 74,613 75,776 88,489 76,892 86,745 TOTAL RrvENUES 986,066 1,001,515 1,044,156 1,063,459 1,194,048 EXPENDITURES General government 128,375 133,565 131,387 127,686 145,803 Public protection 254,070 284,683 294,449 285,743 307,005 Health&sanitation 172,613 193,337 204,188 197,686 179,305 Public assistance 315,112 326,917 335,236 357,657 381,600 Education 205 257 306 290 304 Public ways and facilities 45,679 34,733 38,419 51,884 66,929 Recreation - - - - 294 Interest 2,215 1,145 432 - 2,181 Capital outlay 7,415 2,620 1,973 6,388 - TOTAL EXPENDITURES 925,684 977,257 1,006,390 1,027,352 1,083,421 Excess(deficiency)of Revenues over(under) Expenditures 60,382 24,258 37,766 36,107 110,627 OTFIER FINANCING SOURCES(USES) Operating transfers in 23,568 26,017 30,288 24,775 21,352 Operating transfers out (76,347) (84,735) (87,978) (94,093) (91,609) Capital lease financing 7,415 3,627 1,973 6,388 1,705 TOTAL OTFIER FINANCING SOURCES(USES) (42,872) (55,091) (55,717) (62,930) (68,552) NL­r CHANGE IN FUND BALANCES 17,510 (30,833) (17,951) (26,823) 42,075 FUND BALANCE AT Bi�GINNING OF YEAR, as Previously Reported 144,607 169,402 138,569 119,886 93,063 Adjustment to beginning fund balance 7,285 - (732) - - FUND BALANCE AT BEGINNING OF YEAR, as Restated 151,892 169,402 137,837 119,886 - Residual equity transfers in - - - - - Residual equity transfers out - - - - - FUND BALANCE AT END OF YEAR $169,402 $138,569 $119,886 $93,063 $135,138 Source: County Auditor-Controller. 0703 8\pos-3 B-12 County Employees A summary of the number of County employees follows: Table B-6 COUNTY OF CONTRA COSTA COUNTY EMPLOYEES+ As of Number of June 30 Employees 1998 7,215 1999 7,749 2000 8,325 2001 8,640 2002 8,779 2003 8,785 2004 8,670 2005 8,381 2006 8,423 2007 t Represents full-time equivalent employees. Excludes temporary or seasonal employees. Source: County Auditor-Controller. Contract Negotiations County employees are represented in 39 bargaining units by 17 labor organizations, the principal ones being Public Employees Union, Local One; Local 1021 of the Service Employees International Union ("SEIU") and Local 2700 of the American Federation of State County and Municipal Employees ("AFSCME") which, combined, represent approximately 59% of all County employees in a variety of classifications. The Contra Costa County Deputy District Attorneys' Association was formally recognized by the Board of Supervisors on August 8, 2006 and the Contra Costa, County Defenders Association and the Probation Peace Officers Association was formally recognized by the Board of Supervisors on March 6, 2007. As newly recognized organizations, the County is in the process of negotiating new Memoranda of Understanding with each of these organizations. The Memoranda of Understanding (the "MOUS") of the employee organizations that have expired remain in full force and effect. Table B-7 summarizes the labor organizations at the County, contract expiration dates and status of negotiations. 07038\pos-3 B-13 Table B-7 COUNTY OF CONTRA COSTA LABOR ORGANIZATION UNIT CONTRACT EXPIRATION DATES Contract Labor Organization Expiration Date AFSCME Local 512, Professional and Technical Employees 09/30/08 AFSCME Local 2700, United Clerical,Technical and Specialized Employees 09/30/08 California Nurses Assn. 01/31/08(') Contra Costa County Deputy District Attorneys Association (Z) Deputy Sheriffs Assn., Management Unit and Rank and File Unit 06/30/08 District Attorney Investigator's Association 06/30/08 East Contra Costa County Firefighters Association, IAFF, Local 1230 07/31/07(3) Physicians and Dentists of Contra Costa 09/30/08 Probation Peace Officers Association (') Public Employees Union, FACS Site Supervisor Unit, Local One 09/30/08 Public Employees Union, Local One 09/30/08 SEIU United, Health Care Workers West 09/30/07(3) SEIU Local 1021, Rank and File Unit and Service Line Supervisors Unit 09/30/08 United Chief Officers' Association 06/30/06(3) United Professional Firefighters, IAFF Local 1230 06/30/10(4) Western Council of Engineers 09/30/08 (1) This is a newly recognized labor organization andnegotiations are in process. 'rhe employees represented by this labor organization continue to work for the County pursuant to the terms of the MOU for the Public Employees' Union, Local One. (2) This is a newly recognized labor organization and negotiations are in process. The employees represented by this labor organization continue to work for the County pursuant to the terms of the Public Employees' Union Current Management Resolution. (3) Negotiations are in process and the employees continue to work for the County pursuant to the terms of the existing MOUS. (4) Contract has been negotiated and is awaiting approval by the Board of Supervisors. Source: Contra Costa County Human Resources Department. Pension Plan Description. The Contra Costa County Employees' Retirement Association (the "Association") is a cost-sharing multiple-employer defined pension benefit plan governed by the County Employees' Retirement Law of 1937, as amended (the "County's Employees' Retirement Law"). The plan was established on July 1, 1947 and covers substantially all of the employees of the County, its special districts, the Housing Authority of the County and 16 other member agencies. The plan provides for retirement, disability, and death and survivor benefits, in accordance with the County Employees' Retirement Law. Annual cost-of-living adjustments to retirement benefits can be granted by the Board of Retirement of the Association (the "Board of Retirement") as provided by State statutes. The Board of Retirement is responsible for the general management of the Association and is comprised of 12 members, one of whom is a safety alternate, one of whom is a retiree alternate and one of whom is the alternate appointee of the Board of Supervisors. Five members are appointed by the Board of Supervisors, including the alternate appointee; four members, including the safety alternate, are elected by the active membership of the Association; and two members, including the retiree alternate are elected by retirees. The County Treasurer serves as an ex-officio member of the Board of Retirement. Members of the Board of Retirement, with the exception of the County "Treasurer, serve three-year terms of office, with no term limits. 0703 8\pos-3 B-14 The Board of Retirement has exclusive control of all retirement system investments and is responsible for establishing investment objectives, strategies and policies. The State Constitution and the Act authorize the Board of Retirement to invest in any investment deemed prudent in the opinion of the Board of Retirement. See "—Investment Policy of the Association." The Association is divided into eight separate benefit sections in accordance with the Act. These sections are known as: General Tier I-Enhanced; General Tier I-Non-Enhanced; General Tier I1; General Tier III-Enhanced; General Tier III-Non-Enhanced; Safety Tier A-Enhanced; Safety Tier A-Non- Enhanced; and Safety Tier C-Enhanced. On October 1, 2002, the Board of Supervisors adopted Resolution No. 2002/608, providing enhanced benefit changes equal to 3% of eligible salary per year of service to safety employees retiring at age 50 (commonly known as 3% at 50) and 2% of eligible salary per year of service to general employees retiring .at age 55 (commonly known as 2% at 55), effective July 1, 2002 and January 1, 2003, respectively. The enhanced benefits did not apply to bargaining units represented by the California Nurses Association or to the nonrepresented employees within similar classifications as employees in bargaining units represented by the California Nurses Association, or to the supervisors and managers of those employees until January 1, 2005. In addition, each special district that is a participant of the Association and whose staff are not County employees covered by Resolution No. 2002/608, could elect to participate in the enhanced benefits. Legislation was signed by the Governor in 2002 which allowed the County, effective October 1, 2002, to provide Tier III to all new employees, to move those previously in Tier II to Tier III as of that date, and to apply all future service as Tier III. Tier III was originally created October 1, 1998 and made available to all members with five or more years of Tier II service who elected to transfer to Tier III coverage. As of December 31, 2003, Tier II includes only the employees described above for whom the County did not adopt the enhanced benefits and employees of one special district agency. County employees who were moved to Tier III effective October 1, 2002, continue to have Tier II benefits for . service prior to that date unless the service is converted to Tier 111. The Safety section covers all employees in active law enforcement, active fire suppression work or certain other"safety" classifications as designated by the Board of Retirement. Effective November 1, 2002, an additional flat monthly retiree benefit of$200 is provided for all former members who retired prior to January I, 1983, and are currently receiving pension benefits (including spousal continuance benefits). The cost of this benefit improvement, as determined by the actuary of the Association was $22,955,000 and has been funded by the Association. Service retirement benefits are based on age, length of service--and final average salary. For the Tier 1, Tier III and Safety sections, the retirement benefit is based on the 12 highest consecutive pay months, in accordance with Government Code Section 31462. For Tier 11, the benefit is based on a three- year average salary. Safety Tier C-Enhanced includes only members of the Deputy Sheriffs Association hired after January 1, 2007. Retirement benefits for Safety Tier C are based on the 3% at 50 formula, however the final average salary calculation is based upon three years instead of one and the maximum COLA is 2%. A five-year schedule of the funding progress for the Association is set forth in Table B-8. 0703 8\pos-3 B-15 TABLE B-8 CONTRA COSTA COUNTY EMPLOYEES' RETIREMENT ASSOCIATION SCHEDULE OF FUNDING PROGRESS ($ in 000's) Actuarial Accrued UAAL as a Actuarial Liability Unfunded Percentage Actuarial .Value of (AAL)(" AAL Funded Covered of Covered Valuation Assets(tl Entry Age (URAL) Ratio Payroll Payroll Date (a) (b) (b-a) a( /b) (c) (b-a/c) 12/31/02"' $3,296,736 $3,677,624 $380,888 89.6% $580,415 65.6% 12/31/03(4) 3,538,722 4,141,390 602,668 85.5 600,274 100.4 12/31/04 3,673,858 4,481,243 807,385 82.0 619,132 130.4 12/31/05") 4,062,057 4,792,428 730,371 84.8 627,546 116.4 12/31/06(6) 4,460,871 5,293,977 833,106 84.3 653,953 127.4 (1) Excludes assets for non-valuation reserves. (2) Excludes liabilities from non-valuation reserves. (3) Adjusted to reflect the action by the Board of Retirement to revise the annual investment return assumption to 8%, and receipt ol'$319.1 million from Pension Obligation Bonds issued by the County on May 1,2003. (4) Adjusted to reflect the action by the Board of Retirement to change the annual investment return assumption to 7.9%. (5) Reflects the action by the Board of Retirement to revise the inflation rate assumption to 3.75%. (6) Adjusted to reflect the action by the Board of Retirement to revise the annual investment return assumption to 7.8%. Source: Association Comprehensive Annual Financial Report for the Year Ended December 31, 2006 and the Association Actuarial Valuation and Review as of December 31.2006. During calendar year 2006, 7,693 County employees were active members of the Association, representing approximately 83.5% of the Association's active membership. Listed in Table B-9 is a summary of member population in the Association and in Table B-10 are the payments made by the County to the Association for normal retirement costs as well, as in certain years, UAAL amortized payments. Table B-9 COUNTY OF CONTRA COSTA RETIREMENT ASSOCIATION MEMBER POPULATION Inactive Total Association Vested and Year Ended Active Terminated Retired Members Ratio of Non- December 31 Members Memberst and Beneficiaries Actives to Actives 2002 9,611 1,067 5,619 0.70% 2003 9,476 1,248 5,936 0.76 2004 9,358 1,517 6,118 0.82 2005 9,205 1,731 6,437 0.89 2006 9,210 1,919 6,646 0.93 t Includes terminated members due a refund of member contributions. Source: Association Actuarial Valuation and Review as of December 31,2006. 07038\pos-3 B-16 TABLE B-10 CONTRA COSTA COUNTY EMPLOYEES' RETIREMENT ASSOCIATION SCHEDULE OF EMPLOYER CONTRIBUTIONS Year Annual Annual Ended Required Percentage December 31 Contribution Contributed 2002 $58,319,67811 98.6% 2003 108,728,047(2) 100.0 2004 118,245,418 100.0 2005 147,165,108(3) 100.0 2006 179,755,314141 100.0 (1) The contribution percentage is less than 100% due to action taken by the Retirement Board to phase-in, over three years, increased contribution requirements associated with the significant actuarial assumption changes and the expansion of carnable compensation required by the"Ventura Decision." See"—Impacts of the Ventura Decision." . (2) Excludes Contra Costa County pension obligation bond proceeds of$319,094,719. (3) Excludes the Contra Costa Consolidated Fire District and Moraga-Orinda Fire District pension obligation bond proceeds in the amounts of$124,917,000 and$28,317,911,respectively. (4) Excludes the City of Pittsburg pension obligation bond proceeds in the amount of$11,693,396 received on June 27,2006. Source: Association Comprehensive Annual Financial Report for the Year Ended December 31, 2006 and the Association Actuarial Valuation and Review as of December 31,2006. CCCERA Funding Status. The actuarial report prepared by the Association's independent actuary, The Segal Company, reflects the financial status of the Association as of December 31, 2006. The market value of the plan's assets as of such date was $4,221,722,252 and the return on assets was 10.8%. The value of the plan's unfunded actuarial accrued liability ("UAAL") as of December 31, 2006 is estimated by the actuary to be $833,105,977 using a 7.9% actuarial rate of return. This includes the County's portion of the liability in the amount of $661,798,977 as well as that of the other entities comprising the Association. The GASB Statement No. 25 liabilities calculated for 2006, as shown in the Actuarial Valuation and Review as of December 31, 2006, showed that the funded ratio was approximately 84.8%. See also Table B-8—"Contra Costa County Employee's Retirement Association— Schedule of Funding Progress." The Act authorizes the Board of Retirement to grant annual automatic and ad hoc cost-of-living adjustment (a "COLA") to all eligible retired members. The Act requires the Board of Retirement to grant an annual automatic COLA, effective April 1 of each year. This benefit is based.on the San Francisco-Oakland-San Jose area Consumer Price Index and is limited to 3% for Tier I, Tier 111 and Safety members, and 4% for Tier 11 members. The Government Code allows the granting of a supplemental cost-of-living benefit, on a prefunded basis to eligible retirees whose unused Consumer Price Index increase accumulations equal or exceed 20%. This supplemental is a permanent part of the retirees' monthly benefit and is known as"New Dollar Power." In 2000, then Governor Davis signed legislation that permits 1937 Retirement Act counties to provide increased retirement benefits equal to (a) 3% of eligible salary per year of service to safety employees retiring at age 50, and (b) 2% of eligible salary per year of service to regular employees retiring at age 55. If approved by the County Board of Supervisors, the cost of such benefits would have to be paid by the employers, employees or CCCERA or some combination of all three. The Board of Retirement requested an actuarial study which refined projections regarding cost of such benefits. The actuary completed the study and found that the UAAL would increase by $199,000,000 if the new benefits were approved. The annual cost to pay for the new benefit and to amortize the UAAL would be $29,192,072. Representatives.of the employer and the employees have been in negotiations discussing 07038\pos-3 B-17 the approval of the new benefit and what resources will be used to pay for it. A Memorandum of Understanding ("MOU") addressing the source of payment for these additional benefits for safety employees and for general and miscellaneous employees was executed. Pursuant to the MOU, $100,000,000 of the cost of the benefit would be funded from CCCERA's unrestricted reserves and safety employees would pay the remaining $99.0 million from a portion of the cost of living adjustment ("COLA") increases included in their compensation. The MOU set forth a four year agreement beginning on July 1, 2002 under which safety employees received 5% to 6% COLAs out of which 2.25% was applied toward the new benefit in year 1, with additional 2.25% increments applied in years 2 through 4. The MOU provided a three year agreement beginning on October 1, 2002 for general and miscellaneous members under which they received a 5% COLA in year 1 and 3% COLAs in years 2 and 3. The Association has established and maintains various reserves and designations from member and County contributions and the accumulations of investment income thereof, after satisfying investment and administrative expenses, including a Market Stabilization Account., Table B-1 1 sets forth the balances as of December 31, 2006, in reserves and designated net assets: Table B-11 CONTRA COSTA COUNTY EMPLOYEES'RETIREMENT ASSOCIATION RESERVES AND DESIGNATED NET ASSETS ASSUMING A 7.9%ACTUARIAL RATE OF RETURN (AS OF DECEMBER 31,2006) Category Amount Valuation Reserves $4,460,871,033 Post Retirement Death Benefit 12,786,106 Statutory Contingency Reserve (one percent) 0 Market Stabilization Account 397,352,492 NET ASSETS HELD IN TRUST FOR PENSION BENEFITS $4,871,009,631 Source: Association Comprehensive Annual Financial Report for the Year Ended December 31,2006. The Market Stabilization Account represents the deferred return developed by the smoothing of realized and unrealized gains and losses based on five-year smoothing. This method smoothes only the semi-annual deviation of total market return (net of expenses) from the applicable return target per annum. An 8.35% assumed rate was used in determining contribution rates for the period January 1, 2003, through June 30, 2004. As of December 31, 2003, the Market Stabilization Account was in a negative position due to market losses over three of the four prior years. As of December 31, 2006, the net balance in the Market Stabilization Account was $397,352,492. See Table B-12—"Market Stabilization Account (Deferred Return)." The assumed rate of return from July 1, 2004 through June 30, 2005 was 8.00%, was 7.9% for the Fiscal Year ending June 30, 2006 and was 7.8% for the Fiscal Year ending June 30, 2007. The total unrecognized investment gain as of December 31, 2006 was approximately $397 million. See Table B-12—"Market Stabilization Account (Deferred Return)." A portion of these amounts will be added to the UAAL of the County over the five year market stabilization period. 07038\pos-3 B-18 Table B-12 sets forth the schedule for recognizing estimated deferred gains and losses. The actual amounts recognized in future years may vary depending on whether the rate of return on the Association's assets is equal to the assumed 7.8% rate of return. Table B-12 CONTRA COSTA COUNTY EMPLOYEES' RETIREMENT ASSOCIATION MARKET STABILIZATION ACCOUNT(DEFERRED RETURN) (AS OF DECEMBER 31,2006) Amount Applied to: Remaining Ending Period Amount 2007 2008 2009 2010 2011 December 2002 ($26,906,264) $(26,906,264) — — — — June 2003 25,440,929 25,440,929 — — — — December 2003 73,074,418 48,716,279 $24,358,139 — — — June 2004 (22,870,835) (11,435,418) (11,435,418) — — — December 2004 95,014,297 38,005,719 38,005,719 $19,002,859 — — June 2005 (31,974,387) (10,658,129) (10,658,129) (10,658,129) — — December 2005 50,087,444 14,310,698 14,310,698 14,310,698 $7,155,349 — June 2006 (517,855) (129,464) (129,464) (129,464) (129,464) — December 2006 236,004,745 52,445,499 52,445,499 52,445,499 52,445,499 $26,222,749 TOTAI. $397,352,492 $129,789,849 $106,897,045 $74,971,464 $59,471,384 $26,222,749 Source: Association records. (Remainder of this Page Intentionally Left Blank) 07038\pos-3 B-19 The revenues of the Association by source, net assets at the end of the year and the total return on market value for the five years ending December 31, 2006 are set forth in Table B-13. Table B-13 CONTRA COSTA COUNTY EMPLOYEES'RETIREMENT ASSOCIATION SCHEDULE OF REVENUES,NET ASSETS AT MARKET VALUE AND RETURN ON MARKET VALUE 2001 THROUGH 2006 Source of Revenues Net Assets Held in Interest at Total Investment Market Value Return Year Employee Employer Income/ End of on Market (December 31) Contributions Contributions Loss 111 Year(2) Value(3) 2002 $26,605,875 $57,474,043 $(267,980,549) $2,365,537,423 (9.5)% 2003 51,602,939 427,822,76611 608,574,613 . 3,313,494,947 23.5 2004 65,297,397 118,245,418 415,668,827 3,718,615,896 13.4 2005 73,474,816 300,300,01951 341,877,365 4,221,722,252 10.8 2006 73,468,648 191,448,711161 614,912,800 4,871,009,631 15.3 (1) Net of investment expenses. (2) Net of benefits paid, administrative costs, refund of contributions and other deductions. See also "COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE ASSOCIATION FOR THE FISCAL YEAR ENDED DECEMBER 31,2006." (3) Before deduction of administrative fees and investments costs. (4) Includes proceeds in the amount of$319,094,719 of pension obligation bonds issued by the County in 2003. (5) Includes proceeds in the amount of$153,134,911 of pension obligation bonds issued by the Moraga-Orinda Fire Protection District and the Contra Costa County Fire Protection District in 2005. (6) Includes proceeds in the amount of$11,693,396 received on June 27,2006 from pension obligation bonds issued by the City of Pittsburg. Sources: Association Comprehensive Annual Financial Reports for the years Ended December 31, 2002 through 2006 and Actuarial Valuation Reports as of December 3 I,2002 through 2006. '(Remainder of this Page Intentionally Left Blank) 07038\pos-3 B-20 Investment Policy of the Association: The Board of Retirement adopted its investment guidelines in 1985 and has amended those guidelines, the most recent amendment having been adopted on April 25, 2007 (the "Investment Policy"). The Investment Policy prescribes, among other things, asset class targets for investment of Association funds. The asset allocation targets and their associated ranges, which are a function of the returns and risks from various asset class and the nature of the Association's liabilities, currently are set forth in Table B-14. Table B-14 CONTRA COSTA COUNTY EMPLOYEES' RETIREMENT ASSOCIATION INVESTMENT POLICY ASSET ALLOCATION TARGETS (As OF APRIL 25,2007) Current Investment Asset Type Allocation Allocation Range Domestic Equity 43% 35%to 55% International Equity 11.5 7 to 13 Domestic Fixed Income 23 19 to 35 High Yield Fixed Income 2 1 to 4 International Fixed Income 4 3 to 7 Commodities 2 0 to 3 Real Estate 9 5 to 12 Alternative Investmentst 5 0 to 7 Cash 0.5 0 to 2 TOTAL 100% t CCERA does not have any hedge fund investments. Source: Association. The Association contracts with 34 investment managers who are responsible for investment of their respective portion of the portfolio. The Investment Policy prescribes investment guidelines to be followed by the investment managers as well as monitoring procedures regarding their performance. In April 2005 the Association adopted new asset allocation targets, increasing the target for the domestic equity to 43%, and decreasing the international equity target to 11.5%, the domestic fixed income target to 23%, the real estate target to 9% and the cash equivalent target to 0.5%. A 2% target allocation was also established for commodities and high yield fixed income. The new target allocations are reflected in a revision to the Investment Policy adopted in April 2007. The Association issues a stand-alone financial report, which is available at its office located at 1355 Willow Way, Suite 221, Concord, California 94520. For additional information on the County's pension plan, see APPENDIX E—"EXCERPTS FROM THE AUDITED FINANCIAL STATEMENTS OF THE COUNTY FOR THE FISCAL YEAR ENDED JUNE 30,2006—Note 15—Employees' Retirement Plan." Impact of the Ventura Decision. On August 14, 1997, the Supreme Court of the State of California rendered a decision in the matter of Ventura County Deputy Sheriff's Association v. Board of Retirement of Ventura County Employees'Retirement Association,which held that compensation not paid in cash, even if not earned by all employees in the same grade or class, must be included in "compensation earnable" and "final compensation" on which anemployee's pension is based. This California Supreme Court decision became final on October 1, 1997, requiring, among other things, certain items such as vacation buy-back to be included in the calculations that determine the retirement benefits that a retiree is eligible to receive. The court decision pertains to defined pension plans governed by the County Employees' Retirement Law of 1937, such as the pension plans of many counties in the State, including the County. In addition, two lawsuits against the County on similar issues have been 07038\pos-3 B-21 filed by certain retired County employees. The CCCERA has settled its litigation of these two cases that were consolidated into one case, entitled Vernon D. Paulson, et al. v. Board of Retirement of the Contra Costa Employees'Retirement Association, et al. The consolidated lawsuit was brought on behalf of a class of retired members of the Association regarding the inclusions and the exclusions from "final" compensation that are used in calculating members' retirement benefits as a result of the Ventura decision. A settlement agreement was entered into with all parties and each employer was invoiced for their share of the $34.2 million additional liability plus interest up to the date of the payment. On May 20, 2003, the actuary for CCCERA completed the final true-up for the Paulson settlement. The total settlement cost was $149,346,218. After making certain transfers, the net Paulson liability was $34,230,204, of which $24,821,154 was the responsibility of the County. The County elected to amortize this payment over 19.5 years commencing August 1, 2004. Post-Employment Benefits Other than Pensions Overview. The County provides post-employment medical and dental benefits to employees based upon the bargaining unit contracts. To be eligible, the retiring employee is required to have been a member in a participating health plan on the date of retirement. The cost of the premiums associated with these benefits is recognized on a pay-was-you-go basis when the County makes the payment. The number of retirees and PERS survivors (for which the County makes a payment) employees participating in this benefit program and the contributions made by the County are set forth in Table B-15. Table B-15 CONTRA COSTA COUNTY POST EMPLOYMENT BENEFIT SUMMARY Fiscal Year Number of County Contribution (As of June 30) Participating Retireest ($ in 000's) 2003 4,386 $20,644 2004 4,633 25,216 2005 4,890 26,543 2006 5,049 29,389 2007 t Includes retirees and dependents receiving benefits. Source: Association Records. In June 2004, the Governmental Accounting Standards Board ("GASB") issued Statement No. 45 ("GASB 45"), which addresses how state and local governments should account for and report their costs and obligations related to post-employment health care and other non-pension benefits ("OPEB"). GASB 45 generally requires that employers account for and report the annual cost of OPEB and the outstanding obligations and commitments related to OPEB in essentially the same manner as they currently do for pensions. Annual OPEB costs for most employers will be based on actuarially determined amounts that, if paid on an ongoing basis, generally would provide sufficient resources to pay benefits as they come due. The provisions of GASB 45 may be applied prospectively and do not require governments to fund their OPEB plans. An employer may establish its OPEB liability at zero as of the beginning of the initial year of implementation. However, the unfunded actuarial liability is required to be amortized over future periods on the income statement. GASB 45 also established disclosure requirements for information about the plans in which an employer participates, the funding policy followed, the actuarial valuation process and assumptions, and for certain employers, the extent to which 07038\pos-3 B-22 the plan has been funded over time. These disclosure requirements will be effective for the County's Fiscal Year ending June 30, 2008. GASB 45 is likely to result in a substantial increase in the annual expense recognized by the County for post-retirement health care benefits. If those expenses are not funded as determined by the actuary (the "Actuary"), a substantial liability will accumulate over time and will be reported on the statement of net assets. On February 28, 2006, the County retained the services of Buck Consultants LLP, an independent actuary, to determine the extent of the County's OPEB liability. In an actuarial analysis delivered to the County on April 25, 2006, the Actuary estimated the accumulated post-employment benefit obligation (the "APBO") as of January 1, 2006 for all participants (i.e. active employees, retirees and surviving spouses) of County entities under the current contribution schedule. The APBO is defined as the actuarial present value of benefits attributed to employee service rendered to a particular date. Table B-16 shows the APBO and the amount of.benefit earned by the active employees for service in calendar year 2006 (the normal cost or "NC"), calculated (i) at a discount rate of 4.5% (reflecting the current pay-as-you-go ("PAYGO") funding method), and (ii) at a discount rate of 7.9% (reflecting a fully funded postretirement medical plan). Table B-16 CONTRA COSTA COUNTY POST EMPLOYMENT HEALTH BENEFITS PLAN APBO AND NORMAL COST AS OF JANUARY 1,20061 APBO @ 4.5% APBO @ 7.9% NC @ 4.5% NC @ 7.9% PA( YGO) (Fully Funded) PA( YGO) (Fully Funded) Active Employees $1,605,649,000 $779,265,000 $130,604,000 $55,182,000 Retirees 919,840,000 614,568,000 0 0 Survivors 46,161,000 31,754,000 0 0 TOTAL $2,571,650,000 $1,425,587,000 $130,604,000 $55,182,000 t Information presented in this Table B-16 includes all County entities included in the County's audited financial statements and utilizing County sponsored health benefit programs. Source: Buck Consultants LLP. GASB 45 also requires the calculation of an Annual Required Contribution (the "ARC") which consists of the normal cost and a not greater than 30 year amortization of the unfunded actuarial accrued .liability (the "UAAL") for the post-retirement medical and dental benefit. However, there is no requirement under GASB 45 that the ARC actually be funded. This UAAL is calculated as the APBO less any assets held for the plan. For fiscal years beginning after December 15, 2006, GASB 45 requires that these post-retirement medical plan liabilities be recognized on an accounting basis, if there are no dedicated assets or funding arrangements. 07038\pos-3 B-23 Table B-17 shows the ARC for all County entities for Fiscal Year 2006-07 under the current health benefit plan using the two discount rate assumptions described above. Table B-17 CONTRA COSTA COUNTY POST EMPLOYMENT HEALTH BENEFITS PLAN ANNUAL REQUIRED CONTRIBUTION FOR FISCAL YEAR 20061 4.5% Discount Rate 7.9% Discount Rate (PAYGO) _ _ (Fully Funded) Total APBO $2,571,650,000 $1,425,587,000 Assets 0 0 UAAL $2,571,650,000 $1,425,587,000 Annual Required Contribution Normal Cost $130,604,000 $55,182,000 30 Year Amortization of UAAL 85,721,000 47,519,000 ARC $216,325,000 $102,701,000 t Information presented in this Table 13-16 includes all County entities included in the County's audited financial statements and utilizing County sponsored health benefit programs. Source: Buck Consultants LLP. .Table B-18 shows the APBO, Normal Cost and ARC for County employees only, calculated at 4.5% and 7.9% discount rates. Table B-18 CONTRA COSTA COUNTY POST EMPLOYMENT HEALTH BENEFITS PLAN APBO,NORMAL COST,AND ARC AS OF JANUARY 1,2006 4.5% Discount Rate 7.9% Discount Rate (PAYGO) (Fully Funded) APBO $2,377,514,000 $1,318,565,000 Normal Cost 124,135,000 52,736,000 ARC 203,385,000 96,688,000 Source: Buck Consultants LLP. The amounts above include the liability associated with the subsidization of retiree premiums by active employees. This occurs because the under age 65 retiree medical costs are much higher than active employee costs but the retiree rates are the same as the active rates due to the pooling of the costs in the underwriting process. Approximately $424,583,000 of the liability is caused by this rate subsidy, or 16.0% of the total liability under the 4.5% discount rate assumption. OPEB Tusk Force. In fall 2006, the Board of Supervisors established an OPEB Task Force consisting of County representatives, legal and financial professionals. The OPEB Task Force presented a report (the "Report") to the Board of Supervisors in March 2007 concluding that since a majority of the reimbursement rates of the County are capped, the County could not expect to fund its potential OPEB liability with increased State and federal revenues at this time. The Report also defined and described the OPEB liability for the County, presented options for . establishing OPEB funding targets, recommended an allocation of resources, and pre-negotiation 07038\pos-3 B-24 meetings with the.labor unions, and provided a summary of the OPEB obligations and options being pursued by other counties in the State. On June 26, 2007, the Board of Supervisors accepted a report and staff recommendations based upon additional analysis prepared by the OPEB Task Force. The Board of Supervisors adopted a funding goal equal to 40% of the total OPEB liability. The Board of Supervisors approved the allocation of$10 million commencing in Fiscal Year 2008-09, which amount is projected to grow to $100 million annually by Fiscal Year 2023-24,toward funding the OPEB liability. Even with the identified revenue sources, the County would need an additional estimated $139 million in funding annually to meet the 40% funding goal. The next steps to be undertaken by the County include pre-negotiation meetings with labor representatives, and public outreach and education workshops to discuss strategies to close the $139 million annual funding gap. Solutions may include plan benefit changes and/or a reduction of County services and/or a combination of both. In addition, the OPEB Task Force is studying various options with respect to investment of the funds set aside to pre-fund the OPEB liability and expects to prepare a recommendation to the Board of Supervisors in fall 2007. The next actuarial analysis of the County's OPEB liability is expected to be presented by the Actuary to the Board of Supervisors in spring 2008. Long Term Obligations The County has never defaulted on the payment of principal or interest on any of its indebtedness. Following is a brief summary of the County's general obligation debt, lease obligations and direct and overlapping debt. No General Obligation Debt. The County has no direct general obligation bonded indebtedness and has no authorized and unissued general obligation debt. Lease Obligations. The County has made use of various lease arrangements with private and public financing entities, nonprofit corporations, the County of Contra Costa Public Financing Authority and the Contra Costa County Employees' Retirement Association for the use and acquisition of capital assets. These capital lease obligations have terms ranging from five to 30 years. The longest capital lease ends in 2028. Certain of the lease obligations of the County reflect annual payments made for debt service on lease revenue bonds and certificates of participation issued to finance capital projects. For a summary of the County's lease revenue obligations as of July 1, 2007, see APPENDIX E—"EXCERP'T'S FROM 771E AUDITED FINANCIAL. STATEMENTS OF THE COUNTY FOR THE FISCAL YEAR ENDED JUNE 30, 2006—Notes to General Purpose Financial Statements." Pension Obligation Bonds. The County issued pension obligation bonds in 1994, a portion of which were restructured in 2001 and again in 2003 to refund debentures issued to evidence its statutory obligation to make pension payments with respect to its UAAL to CCCERA. See also"—Pension Plan." 07038\pos-3 B-25 Fiscal Year debt service for the County's lease revenue obligations and pension obligation bonds outstanding as of July 1, 2007 is shown in Table B-19 below. Table B-19 COUNTY OF CONTRA COSTA OUTSTANDING LEASE REVENUE OBLIGATIONS AND PENSION OBLIGATION BONDS Fiscal Year Ending Total Lease Total POB Total 6/30 Debt Service(]) Debt Service Debt Service('-) 2008 $31,260,561 $52,064,234 $83,324,795 2009 29,661,218 55,312,572 84,973,790 2010 28,455,170 56,135,041 84,590,211 2011 28,453,956 59,549,809 88,003,765 2012 28,460,190 63,262,284 91,722,474 2013 28,474,809 67,939,535 96,414,344 2014 28,095,633 68,401,566 96,497,199 2015 28,138,953 35,409,894 63,548,847 2016 28,133,306 36,914,525 65,047,831 2017 25,729,039 38,484,360 64,213,399 2018 25,204,797 40,114,901 65,319,698 2019 25,076,446 41,821,636 66,898,082 2020 23,561,628 43,600,400 67,162,028 2021 23,560,946 45,452,243 69,013,189 2022 21,038,788 47,382,397 68,421,185 2023 21,028,602 — 21,028,602 2024 11,012,192 — 11,012,192 2025 11,028,642 — 11,028,642 2026 9,224,950 — 9,224,950 2027 8,023,825 — 8,023,825 2028 3,004,350 — 3,004,350 TMAL $473,270,273 $751,845,397 $1,225,115,670 (I) Excludes capital leases. (2) Excludes deductions bused upon estimated reimbursement from the State for County hospital and pension obligation bond debt service and estimated earnings on various debt service and debt service reserve funds. (3) Totals do.not add due to independent rounding. Source: County Administrator's Ofticc. Direct and Overlapping Debt. The County contains numerous municipalities, school districts and special purpose districts, as well as the overlapping East Bay Municipal Utility District, which has issued general obligation bonded and lease indebtedness. Set forth in Table B-20 below is a direct and overlapping debt report (the "Debt Report") prepared by California Municipal Statistics Inc. that summarizes such indebtedness as of July 1, 2007. The Debt Report is included for general information purposes only and the County does not guaranty the completeness or accuracy of the information contained in the Debt Report. The Debt Report generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the County. Such long-term obligations generally are not payable from revenues of the County (except as indicated) nor are they necessarily obligations secured by land within the County. 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. 07038\pos-3 B-26 Table B-20 CONTRA COSTA COUNTY DEBT STATEMENT 2006-07 Assessed Valuation: $146,407,238,208 (includes unitary utility valuation) Redevelopment Incremental Valuation: 17.084,076.955 Adjusted Assessed Valuation: $129,323,161,253 OVERLAPPING TAX AND ASSESSMENT DEBT: %Applicable Debt 7/1/07 Bay Area Rapid Transit District 32.304% $ 28,164,242 East Bay Municipal Water District and Special District No. 1 50.274&6.373 2,743,131 Contra Costa Community College District 100. 112,900,000 Martinez Unified School District 100. 29,962,135 Mt.Diablo Unified School District 100. 219,480,000 Pittsburg Unified School District 100. 54,935,000 San Ramon Valley Unified School District 100. 294,489,033 West Contra Costa Unified School District 100. 536,503,520 Acalanes and Liberty Union High School Districts 100. 177,981,053 Brenhvood Union School District 100. 62,300,472 Lafayette School District 100. 24,610,000 Oakley Union School District 100. 25,210,000 Walnut Creek School District 100. 33,640,000 Other School Districts Various 48,469,077 Cities and City Special Tax Districts 100. 18,914,977 East Bay Regional Park District 46.959 78,090,469 West Contra Costa Healthcare District Parcel Tax Obligations 100. 24,620,000 Community Facilities Districts 100. 277,452,984 1915 Act Assessment Bonds(Estimate) 100. 475.891.443 TOTAL GROSS OVERLAPPING TAX AND ASSESSMENT DEBT $2,526,357,536 Less: East Bay Municipal Utility District(100%self-supporting) 550.500 TOTAL Nl l'OVI--RI.AI'PING'I'AX AND ASSESSMENT DEBT $2,525,807,036 DIRECT AND OVERLAPPING GENERAL FUND DEBT: Contra Costa County General Fund Obligations 100. % $ 381,735,000 Contra Costa County Pension Obligations 100. 515,710,000 Contra Costa County Office of Education Certificates of Participation 100. 900,000 Alameda-Contra Costa Transit District Certificates of Participation 11.393 2,153,847 Antioch Unified School District Certificates of Participation 100. 25,177,390 West Contra Costa Unified School District General Fund Obligations 100. 26,075,000 Other School District General Fund Obligations Various 25,371,249 City of Antioch General Fund Obligations 100. 29,817,560 City of Concord General Fund and Judgment Obligations 100. 34,430,000 City of Pittsburg Pension Obligations 100. 39,566,056 City of Richmond General Fund Obligations 100. 39,283,508 City of Richmond Pension Obligations 100. 136,515,133 City of San Ramon General Fund Obligations 100. 18,705,000 Other City General Fund Obligations 100. 79,854,790 Contra Costa County Fire Protection District Pension Obligations 100. 128,280,000 San Ramon Valley Fire Protection District Certificates of Participation 100. 17,080,000 Other Special District Certificates of Participation 100. 2.685.000 TOTAL DIRECT AND OVERLAPPING GENERAL FUND DEBT $1,503,339,533 GROSS COMBINED TOTAL DEBT $4,029,697,069 t':t NET COMBINED TOTAL DEBT $4,029,146,569 Excludes the 2007 Series B Bonds. =' Excludes tax and revenue anticipation notes,enterprise revenue,mortgage revenue and tax allocation bonds and non-bonded capital lease obligations. Ratios to 2006-07 Assessed Valuation: Total Gross Overlapping Tax and Assessment Debt......................................1.73% Total Net Overlapping Tax and Assessment Debt.........................................1.73% Ratios to Adjusted Assessed Valuation: Combined Direct Debt($897,445,000)........................................................0.69% Gross Combined Total Debt..........................................................................3.12% Net Combined Total Debt..............................................................................3.12% Source: California Municipal Statistics,Inc. 07038\pos-3 B-27 Future Financings The County may undertake an approximately $_ million financing in Fiscal Year 2008-09 to acquire,construct and improve various capital projects within the County. Insurance and Self-Insurance Programs The County self-insures its unemployment, dental; management long-term disability and employee medical insurance plans. The County self-insures its workers' compensation exposure to $750,000 per occurrence and purchases commercial insurance to provide protection for up to an additional $150 million per occurrence. For its public and automobile liability exposures, the County purchases $25 million of commercial insurance, excess of a $1 million per occurrence self-insured retention. The County's airports are protected by a commercial liability insurance policy that provides up to $100 million in coverage that is subject to neither a deductible nor a self-insured retention. With respect to the medical malpractice liability exposure, the County purchased coverage in the amount of$1.5 million through the California State Association of Counties Excess Insurance Authority Pooling Fund (self-insured retention) and $10 million in commercial coverage on a claims made basis. The County has a $500,000 self-insured retention. The County's buildings, equipment and other property are commercially insured for losses up to $600 million per occurrence for "All Risk" coverage. There is a $50,000 deductible for "All Risk" coverage. Flood coverage is insured for $550 million on a shared aggregate with a $100,000 minimum deductible. There is a $500,000 maximum deductible for property located within a 100-year flood plain. The County is insured for earthquake in the amount of$225 million with a 5% deductible per location. The County has $100 million Boiler and Machinery coverage. The County also maintains a separate insurance policy to cover the Sheriff-Coroner's two helicopters up to $50 million. All claims, with the exception of dental claims, are handled by County staff. During the last three years, one fire loss, two medical malpractice liability, and one general liability claim have been incurred by the County that will involve payment by a commercial insurance company. Except for the County's airports and a portion of the excess workers' compensation insurance, the commercial insurance has been purchased through the California State Association of Counties' Excess Insurance Authority, a joint powers authority, whose purpose is to obtain "group" commercial insurance for its membership, which includes the County. Internal Service Funds are used to account for all self-insurance activities. It is the County policy to periodically infuse capital into each Fund to sufficiently cover the payment of claims, including those that either will or may require payment sometime in the future. As of June 30, 2006, the Internal Service Funds had approximately $93 million in assets and $121 million in actuarial liabilities as determined by an independent actuary based upon past experience by the County. 07038\pos-3 B-28 Current and future liabilities for the workers' compensation, public liability, automobile liability, and medical malpractice liability funds are determined annually by an outside actuarial firm, while the others are determined by county management personnel. In the County's opinion the Internal Service Funds are sufficiently funded, with an allowance for future investment income, to pay both known claims and those that may have been incurred but are not presently known. The County engaged Milliman Inc. ("Milliman") to estimate the loss and allocated loss adjustment expense reserves for the County's self-insured liabilities. In their "Self-Insurance Actuarial Analysis as of June 30, 2007" Milliman estimated that a loss reserve in the amount of$113.9 million was required to provide for the expected value of self insurance liabilities incurred through June 30, 2007 and the amount of$91.4 million, discounted at 5.5% for investment income, is required to fund the present value of the liabilities. The discounted amount of $91.4 million consists of $56.2 million for County workers' compensation, $11.9 million for the Fire Protection. District's workers' compensation, $17.0 million for general liability and $6.2 million for medical malpractice. As of June 30, 2007, the County had $116.9 million set aside for self-insurance liabilities, which results in a funding level of 86% at a 5.5% discount rate. - For additional information on the County's insurance coverage, see APPENDIX E—"EXCERPTS . FROM THE AUDITED FINANCIAL. STATEMENTS OF THE COUNTY FOR THE FISCAL. YEAR ENDED JUNE 30, 2006—NOTES TO GENERAL PURPOSE FINANCIAL STATEMENTS." 07038\pos-3 B-29 APPENDIX C SUMMARY OF THE COUNTY INVESTMENT POLICY CONTRA COSTA COUNTY INVESTMENT POLICY JUNE 2007 OBJECTIVES AND STANDARDS Standard for Governing Bodies or Persons Authorized to Make Investment Decisions for Local Agencies Governing bodies of local agencies or persons authorized to make investment decisions on behalf of those local agencies investing public funds pursuant to this chapter are trustees and therefore fiduciaries subject to the prudent investor standard. When investing, reinvesting, purchasing, acquiring, exchanging, selling and managing public funds, a trustee shall act with care, skill, prudence and diligence under the circumstances then prevailing,that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency. Within the limitations of this section and considering individual investments as part to an overall strategy, investments as authorized by law. Trustee's Objectives Regarding Funds When investing, reinvesting, purchasing, acquiring, exchanging, selling or managing public funds, the primary objective of a trustee shall be to safeguard the principal of the finds under its control. The secondary objective shall be to meet the liquidity needs of the depositor. The third objective shall be to achieve a return on the funds under its controls. INSTRUMENTS AUTHORIZED FOR INVESTMENT Instruments Authorized for Investment (a) Bonds issued by the local agencies, including bonds payable solely out of the revenues from a revenue-producing property, owned, controlled, or operated by the local agency or by a department, board, agency or authority of the local agency. (b) United States Treasury notes, bonds, bills 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. (c) Registered state warrants or treasury notes or bonds of this state, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the state or by a department, board, agency or authority of the state. (d) • Bonds, notes, warrants or other evidences of indebtedness of any local agency within this state, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled or operated by the local agency, or by a department, board, agency or authority of the local agency. (e) Federal agency or United States government-sponsored enterprise obligations, participations, or other instruments, including those issued by or fully guaranteed as to principal and interest by federal agencies or United States government-sponsored enterprises. 07038\pos-3 C-1 (I) Bankers acceptances otherwise known as bills of exchange or time drafts drawn on and accepted by a commercial bank. Purchases of banker's acceptances may not exceed 180 days' maturity or 40 percent of the agency's money that may be invested pursuant to this section. However, no more than 30 percent of the agency's money may be invested in the banker's acceptances of any one commercial bank pursuant to this section. This subdivision does not preclude a municipal utility district from investing any money in its treasury in any manner authorized by the Municipal Utility District Act (Division 6, commencing with Section 11501, of the Public Utilities Code). (g) Commercial paper of"prime" quality of the highest ranking or of the highest letter and numerical rating as provided for by a nationally recognized statistical-rating organization (NRSRO). The entity that issues the commercial paper shall meet all of the following conditions in either paragraph (1) or paragraph(2): 1. The entity meets the following criteria: (A) is organized and operating within the United States as a general corporation. (B) Has total assets in excess of five hundred million dollars ($500,000,000). (C) Has debt other than commercial paper, if any, that is rated "A" or higher by a NRSRO. 2. The entity meets the following criteria: (A) is organized within the United States as a special purpose corporation, trust or limited liability company. (B) Has program wide credit enhancements including, but not limited to, overcollateralization, letters of credit or surety bond. (C) Has commercial paper that is rated "A-1" or higher or the equivalent by an NRSRO. Eligible commercial paper shall have a maximum maturity of 270 days or less. Local agencies, other than counties or a city and county, may invest no more than 25 percent of their money in eligible commercial paper. Counties or a city and county may invest in commercial paper pursuant to the concentration limits in subdivision (a) of Section 53635 of the Government Code. Following are the concentration limits (Government Code Section 53635, subdivision (a)): 1. Not more than 40 percent of the local agency's money may be invested in eligible commercial paper. 2. Not more than 10 percent of the total assets of the investments held by a local agency be invested in any one issuer's commercial paper. (h) Negotiable certificates of deposit issued by a nationally- or state-chartered bank or a savings association or federal association (as defined by Section 5102 of the Financial Code), a state or federal credit union, or by a state-licensed branch of a foreign bank. Purchases of negotiable certificates of deposit may not exceed 30 percent of the agency's money that may be invested pursuant to this section. For purposes of this section, negotiable certificates of deposits do not come within Article 2 (commencing with Government Code Section 53630), except that the amount so invested shall be subject to the limitations of Government Code Section 53638. The legislative body of a local agency and the treasurer or other official of the local agency having legal custody of the money are prohibited from investing local agency funds, or funds in the custody of the local agency, in negotiable certificates of deposit issued by a state or federal credit union if a member of the legislative body of the local agency, or any person with investment decision making authority in the administrative office manager's office, budget office, auditor-controller's office, or treasurer's office of the local agency also serves on the board of directors, or any committee appointed by the board of directors, or the credit committee or the supervisory committee of the state or federal credit union issuing the negotiable certificates of deposit. 07038\pos-3 C-2 Investments in repurchase agreements or reverse repurchase agreements of any securities. authorized by this section, as long as the agreements are subject to this subdivision, including the delivery requirements specified in this section. (i) 1. "Repurchase agreement" means a purchase of securities by the local agency pursuant to an agreement by which the counterparty seller will repurchase the securities on or before a specified date and for a specified amount and the counterparty will deliver the underlying securities to the local agency by book entry, physical delivery, or by third-party custodial agreement. The transfer of underlying securities to the counterparty bank's customer book-entry account may be used for book-entry delivery. (A) `'Securities," for purpose of repurchase under this subdivision, means securities of the same issuer, description, issue date and maturity. (B) Investments in repurchase agreements may be made on any investment authorized in this section when the term of the agreement does not exceed one year. The market value of securities that underlay a repurchase agreement shall be valued at 102 percent or greater of the funds borrowed against those securities and the value shall be adjusted no less than quarterly. Since the market value of the underlying securities is subject to daily market fluctuations, the investments in repurchase agreements shall be in compliance if the value of the underlying securities is brought back up to 102 percent no later than the next business day. 2. "Reverse repurchase agreement" means a sale of securities by the local agency pursuant to an agreement by which the local agency will repurchase the securities on or before a specified date and includes other comparable agreements. Reverse repurchase agreements may be utilized only when all of the following conditions are met: The security to be sold on reverse repurchase agreement has been owned and fully paid for by the local agency for a minimum of 30 days prior to sale; the total of all reverse repurchase agreements on investments owned by the local agency does not exceed 20 percent of the base value of the portfolio; the agreement. does not exceed a term of 92 days, unless the agreement includes a written codicil guaranteeing a minimum earning or spread for the entire period between the sale of a security using a reverse repurchase agreement and the final maturity date of the same security. Investments in reverse repurchase agreements shall only be made with primary dealers of the Federal Reserve Bank of New York, or with a nationally- or state-chartered bank that has or has had a significant banking relationship with a local agency. "Significant banking relationship" means any of the following activities of a bank: (A) Involvement in the creation, sale, purchase, or retirement of a local agency's bonds, notes, or other evidence of indebtedness. (B) Financing of a local agency's activities. (C) Acceptance of a local agency's securities or funds as deposits. (j) Medium-term notes .of a maximum of five-years maturity issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States. Notes eligible for investment under this subdivision shall be rated in a rating category of"A"or its equivalent or better by a nationally-recognized 1 07038\pos-3 C-3 rating service. Purchases of medium-term notes may not exceed 30 percent of the agency's money that may be invested pursuant to this section. (k) 1. Shares of beneficial interest issued by diversified management companies that invest in the securities and obligations as authorized by subdivisions (a) to 0), inclusive, or subdivision (m) or(n) and that comply with the investment restrictions of this article and Article 2. 2. Shares of beneficial interest issued by diversified management companies that are money market funds registered with the Securities and Exchange Commission under the Investment Company Act of 1940(15 U.S.C. Sec. 80a-I et seq.). 3. If investment is in shares issued pursuant to paragraph (2), the company shall have met the following criteria: (A) Attained the highest ranking or the highest letter and numerical rating provided by not less than two nationally recognized statistical rating organizations. (B) Retained an investment adviser registered or exempt from registration with the Securities and Exchange Commission with not less than five years' experience managing money market mutual finds with assets under management in excess of five hundred million dollars ($500,000,000). 4. The purchase price of shares of beneficial interest purchased pursuant to this subdivision shall not include any commission that the companies may charge and shall not exceed 20 percent of the agency's surplus money that may be invested pursuant to this section. However, no more than 10 percent of the agency's surplus funds may be invested in shares of beneficial interest of any one mutual fund pursuant to paragraph (l). (1) Moneys held by a trustee or fiscal agent and pledged to the payment of security of bonds or other indebtedness, or obligations under a lease, installment sale, or other agreement of a local agency, or certificates of participation in those bonds, indebtedness, or lease installment sale, or other agreements, . may be invested in accordance with the statutory provisions governing the issuance of those bonds, indebtedness, or lease installment sale, or other agreement, or to the extent not inconsistent therewith or if there .are not specific statutory provision, in accordance with the ordinance, resolution, indenture, or agreement of the local agency providing for the issuance. (m) Notes, bonds, or other obligations that are at all times secured by a valid first-priority security interest in securities of the types listed by Government Code Section 53651 as eligible securities. for the purpose of securing local agency deposits having a market value at least equal to that required by Government Code Section 53652 for the purpose of securing local agency deposits. The securities serving as collateral shall be placed by delivery or book entry into the custody of a trust company or the trust department of a bank that is not affiliated with the issuer of the secured obligation, and the security interest shall be perfected in accordance with the requirements of the Uniform Commercial Code or federal regulations applicable to the types of securities in which the security interest is granted. (n) Any mortgage pass-through security, collateralized mortgage obligation, mortgage- backed or other pay-through bond, equipment lease-backed certificate, consumer receivable pass-through certificate, or consumer receivable-backed bond of a maximum of five years' maturity. Securities eligible for investment under this subdivision shall be issued by an issuer having an "A" or higher rating for the issuer's debt as provided by a nationally recognized rating service and rated in a rating category of"AA or its equivalent or better by a nationally recognized rating service. Purchase of securities authorized by this subdivision may not exceed 20 percent of the agency's surplus money that may be invested pursuant to this section. 07038\pus-3 C-4 (o) Shares of beneficial interest issued by a joint powers authority organized pursuant to Government Code Section 6509.7 that invests in the securities and obligations authorized in subdivisions (a) to (n), inclusive. Each share shall .represent an equal proportional interest in the underlying pool of securities owned by the joint powers authority. To be eligible under this section, the joint powers authority issuing shares shall have retained an investment adviser that meets all of the following criteria: I. The adviser is registered or exempt from registration with the Securities and Exchange Commission. 2. The adviser has not less than five years of experience investing in the securities and obligations authorized in subdivisions (a)to(n) inclusive. 3. The adviser has assets under management in excess of five hundred million dollars ($500,000,000). (p) Local Agency Investments - LAW (All references in this section to the Treasurer and Controller pertainto the State Treasurer and the State Controller.) 1. All money in the Local Agency Investment Fund shall be held in trust in the custody of the Treasurer. 2. All money in the Local Agency Investment Fund is nonstate money. That money shall be held in a trust account or accounts. The Controller shall be responsible for maintaining those accounts to record the Treasurer's accountability, and shall maintain a separate account for each trust deposit in the Local Agency Investment Fund. 3. That money shall be subject to audit by the Department of Finance and to cash count as provided for in Government Code Sections 13297, 13298, and 13299. It may be withdrawn only upon the order of the depositing entity or its disbursing officers. The system that the Director of Finance has established for the handling, receiving, holding and disbursing of state agency money shall also be used for the money in the Local Agency Investment Fund. 4. All money in the Local Agency Investment Fund shall be deposited, invested .and reinvested in the same manner and to the same extent as if it were state money in the State Treasury. Existence and Appropriation of Fund, Investment and Distribution of Deposits 1. There is in trust in the custody of the Treasurer, the Local Agency Investment Fund, which fund is hereby created. The Controller shall maintain a separate account for each governmental unit having deposits in this fund. 2. Notwithstanding any other provisions of law, a local governmental official, with the consent of the governing body of that agency, having money in its treasury not required for immediate needs, may remit the money to the Treasurer for deposit in the Local Agency Investment Fund for the purpose of investment. 3. Notwithstanding any other provisions of law, an officer of any nonprofit corporation whose membership is confined to public agencies or public officials, or an officer of a qualified quasi- governmental agency, with the consent of the governing body of that agency, having money in its treasury not required for immediate needs, may remit the money to the Treasurer for deposit in the Local Agency Investment Fund for the purpose of investment. 07038\pos-3 C-5 4. Notwithstanding any other provision of law or of this section, a local agency, with the approval of' its governing body, may deposit in the Local Agency Investment Fund proceeds of the issuance of bonds, notes, certificates of participation, or other evidences of indebtedness of the agency pending expenditure of the proceeds for the authorized purpose of their issuance. In connection with these deposits of proceeds, the Local Agency Investment Fund is authorized to receive and disburse moneys, and to provide information, directly with or to an authorized officer of a trustee or fiscal agency engaged by the local agency, the Local Agency.Investment Fund is authorized to hold investments in the name and for the account of that trustee or fiscal agent, and the Controller shall maintain a separate account for each deposit of proceeds. 5. The local governmental unit, the nonprofit corporation, or the quasi-governmental agency has the exclusive determination of the length of time its money will be on deposit with the Treasurer. 6. The trustee or fiscal agent of the local governmental unit has the exclusive determination of the length of time proceeds from the issuance of bonds will be on deposit with the Treasurer. 7. The Local Investment Advisory Board shall determine those quasi-governmental agencies which qualify to participate in the Local Agency Investment Fund. 8. The Treasurer may refuse to accept deposits into the fund if, in the judgment of the Treasurer, the deposit would adversely affect the state's portfolio. 9. , The Treasurer may invest the money of the fund in securities prescribed in Government Code Section 16430. The "Treasurer may elect to have the money of the fund invested through the Surplus Money Investment Fund as provided in Article 4 (commencing with Government Code Section 16470)of Chapter 3 of Part 2 of Division 4 of Title ') 10. Money in the fund shall be.invested to achieve the objective of the fund, that is to realize the maximum return consistent with safe and prudent treasury management. 11. All instruments of title of all investments of the fund shall remain in the Treasurer's vault or be held in safekeeping under control of the Treasurer in any federal reserve bank, or any branch thereof, or the Federal Home Loan Bank of San Francisco, with any trust company, or the trust department of any state or national bank. 12. Immediately at the conclusion of each calendar quarter, all interest earned and other increment derived from investments shall be distributed by the Controller to the contributing governmental units or trustees or fiscal agents, nonprofit corporations, and quasi-governmental agencies in amounts directly proportionate to the respective amounts deposited in the Local Agency Investment fund and the length of time the amounts remained therein. An amount equal to the reasonable costs incurred in carrying out the provisions of this section, not to exceed a maximum of one-half of one percent of the earnings of this fund, shall be deducted from the earnings prior-to distribution. The amount of this deduction shall be credited as reimbursements to the state agencies having incurred costs in carrying out the provisions of this section. 13. The Treasurer shall prepare for distribution a monthly report of investments made during the preceding month. 07038\pos-3 C-6 FURTHER RESTRICTIONS/LIMITATIONS BY GOVERNMENT CODE AND COUNTY TREASURER Further Restrictions Set By Treasurer A. Reverse repurchase agreements will be used strictly for the purpose of supplementing income with a limit of 10 percent of the total portfolio without prior approval of the Treasurer. B. Swaps and Trades will each be approved on a per-trade basis by Treasurer or Assistant Treasurer. C. SBA loans require prior approval of the Treasurer in every transaction. D. Repurchase Agreements will generally be limited to Wells Fargo Bank, Bank of America or other institutions with whom the County treasury has executed tri-party agreements. Collateral will be held by a third party to the transaction that may include the trust department of particular banks. Collateral will be only securities that comply with Government Code Section 53601. E. Securities purchased through brokers will be held in safekeeping at the Bank of New York Trust Company, N.A. or as designated by the specific contract(s) for government securities and tri- party repurchase agreements. F. Bank C.D.s or non-negotiable C.D.s will be collateralized at 105 percent by government securities or 150 percent by current mortgages. There will be no waiver of the first $100,000 collateral except by special arrangement with the Treasurer. G. All investments purchased by the Treasurer's Office shall be of investment grade. The minimum credit rating of purchased investments shall be as defined by Government Code Section 53600 el. seg. H. All legal securities issued by a tobacco-related company are prohibited. A tobacco- related company is defined as an entity that makes smoking products from tobacco used in cigarettes, cigars or snuff or for smoking in pipes or a company that has total revenues of 15 percent or more from the sale of such products. The tobacco-related issuers restricted from any investment are British American Tobacco, Gallaher Group PLC, Imasco Ltd., Lowes Companies, ALTRIA Group, RJ Reynolds Tobacco Holdings, Inc., Brooke Groupe LTD., UST, Inc. and Universal Corp. However, tobacco-related companies will not be limited to the foregoing list. Additional companies will be prohibited as long as said entities fall within the definition of tobacco-related companies. . I. Financial futures or financial option contracts will each be approved 'on a per trade basis by the County Treasurer. J. No more than 10 percent of the local agency's money may be invested in the outstanding commercial paper of any single issuer. K. No more than 10 percent of the outstanding commercial paper of any single issuer may be purchased by the local agency. Prohibited Investments by Government Code A. A local agency shall not invest any funds pursuant to this Article or pursuant to Article 2 (commencing with Government Code Section 53630) in inverse floaters, range. notes or interest-only strips that are derived from a pool of mortgages. 07038\pos-3 C-7 --"m- B. A local agency shall not invest any funds pursuant to this article or pursuant to Article 2 (commencing with Government Code Section 53630) in any security that could result in zero interest accrual if held to maturity. However, a local agency may hold prohibited instruments until their maturity dates. The limitation in this subdivision shall not apply to local agency investments in shares of beneficial interest issued. by diversified management companies registered under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1, et seq.) that are authorized for investment pursuant to subdivision (k)of Government Code Section 53601. Instruments Authorized for Investments: Maturity Where this section does not specify a limitation on the term or remaining maturity at the time of the investment, no investment shall be made in any security, other than a security underlying a repurchase or.reverse repurchase agreement authorized by this section, that at the time of the investment has a term remaining to maturity in excess of five years, unless the legislative body has granted express authority to make that investment either specifically or as a part of an investment program approved by the legislative body no less than three months prior to the investment. Quality of Investment Instruments, Issuers and Sources Regular financial review and analysis of issuers and sources of securities such as banks and brokerage firms shall be performed. These will be based on credit-rating services' evaluations, financial documents such as audits, Form 10-Q filings to the Securities and Exchange Commission and other reliable financial information. GLOSSARY Agencies .A colloquial term for securities issued by the federal agencies. Bankers Acceptances A time bill of exchange drawn on and accepted by a commercial bank to finance the exchange of goods. When a bank "accepts" such a bill, the time draft becomes, in effect, a predated, certified check payable to the bearer at some future specified date. Little risk is involved for the investor because the commercial bank assumes primary liability once the draft is accepted. Basis Point One basis point is equal to 1/100 of one percent. For example, if interest rates increase from 8.25%to 8.50%, the difference is referred to as a 25-basis-point increase. Blue Sky Laws Common term for state securities law, which vary from state to state. Generally refers to provision related to prohibitions against fraud, dealer and broker regulations and securities registration. Book Value Refers to value of a held security as carried in the records of an investor. May . differ from current market value of the security. Certificates of Deposit (C/Ds) Certificates issued against finds deposited in a commercial bank for a definite period of time and earning a specified rate of return. They are issued in two forms, negotiable and non-negotiable. • Negotiable Certificates of Deposit May be sold by one holder to another prior to maturity. This is possible because the issuing bank agrees to pay the amount of the deposit plus interest earned to the bearer of the certificate at maturity. 07038\pos-3 C-8 • Non-Negotiable Certificates of Deposit These certificates are collateralized and are not money market instruments since they cannot be traded in the secondary market. They are issued on a fixed-maturity basis and often pay higher interest rates than are permissible on other savings or time-deposit accounts. Commercial Paper Short-term, unsecured promissory notes issued in either registered or bearer form and usually backed by a line of credit with a bank. Maturities do not exceed 270 days and generally average 30-45 days. Coupon Rate The annual rate of interest payable on a security expressed as a percentage of the principal amount. CUSIP Numbers CUSIP is an acronym for Committee on Uniform Security Identification Procedures. CUSIP numbers are identification numbers assigned each maturity of a security issue and usually printed on the face of each individual security in the issue. The CUSIP numbers are intended to facilitate identification and clearance of securities. Inverse Floaters An adjustable interest rate note keyed to various indices such as LIBOR, commercial paper, federal funds, treasuries and derivative structures. The defined interest rate formula is the opposite or inverse of these indices. Interest rates and pay dates may reset daily, weekly, monthly, quarterly, semi-annually or annually. Liquidity Usually refers to the ability to convert assets (such as investments) into cash. Mark to Market Valuing the inventory of held securities at its current market value. Market Value Price at which a security can be traded in the current market. . Maturity The date upon which the principal of a security becomes due and payable to the holder. Medium-Term Notes (MTNs) Corporate debt obligations continuously.offered in a broad range of maturities. MTNs were created to bridge the gap between commercial paper and corporate bonds. The key characteristic of MTNs is that they are issued on a continuous basis. Money Market instruments Private and government obligations of one year or less. Offer The price of a security at which a person is willing to sell. Par Value The stated or face value of a security expressed as a specific dollar amount marked on the face of the security; the amount of money due at maturity. Par value should not be confused with market value. Premium The amount by which the price paid for 'a security exceeds par value, generally representing the difference between the nominal interest rate and the actual or effective return to the investor. Range Notes A security whose rate of return is pegged to an index. The note defines the interest rate minimum or floor and the interest rate maximum or cap. An example.of an index may be federal funds. The adjustable rate of interest is determined within the defined range of the funds. Repurchase Agreement or.RP or REPO An agreement consisting of two simultaneous transactions whereby the investor purchases securities from a bank or dealer and the bank or dealer agrees 07038\pos-3 C-9 --""mow to repurchase the securities at the same price on a certain future date. The interest rate on a RP is that which the dealer pays the investor for the use of his funds. Reverse repurchase agreements are the mirror image of the RPs when the bank or dealer purchases securities from the investor under an agreement to sell them back to the investor. Settlement Date The date used in price and interest computations, usually the date of delivery. SLUGS An acronym for State and Local Government Series. SLUGS are special United States Government securities sold by the Secretary of the Treasury to states, municipalities and other local government bodies through individual subscription agreements. The interest rates and maturities of SLUGS are arranged to comply with arbitrage restrictions imposed under Section 103 of the Internal Revenue Code. SLUGS are most commonly used for deposit in escrow in connection with the issuance of refunding bonds. STRIPS US Treasury acronym for "separate trading of registered interest and principal of securities." Certain registered Treasury securities can be divided into separate interest and principal components, which may then be traded as separate entities. g SWAP Generally refers to an exchange of securities, with essentially the same par value, but may vary in coupon rate, type of instrument, name of issuer and number of days to maturity. The purpose of the SWAP may be to enhance yield, to shorten the maturity or any benefit deemed by the contracting parties. Treasury Securities Debt obligations of the United States Government sold by the Treasury Department in the form of bills, notes and bonds: • Bills Short-term obligations that mature in one year or less and are sold at a discount in lieu of paying periodic interest. • Notes Interest-bearing obligations that mature between one year and 10 years. • Bonds Interest-bearing long-term obligations that generally mature in 10 years or more. Zero-Coupon Security A security that makes no periodic interest payments but instead is sold at a deep discount from its face value. 07038\pos-3 C-10