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HomeMy WebLinkAbout2007-04 ADM MINUTES OF THE REGULAR MEETING OF THE ADMINISTRATION COMMITTEE Orange County Sanitation District Wednesday, April 11, 2007,AT 5:00 P.M. A meeting of the Administration Committee of the Orange County Sanitation District was held on April 11, 2007, at 5:00 p.m., in the Sanitation District's Administrative Office. (1) The roll was called and a quorum declared present, as follows: ADMINISTRATION COMMITTEE STAFF PRESENT: MEMBERS: Jim Ruth, General Manager DIRECTORS PRESENT: Bob Ghirelli, Assistant General Manager Mark Waldman, Chair Lorenzo Tyner, Director of Finance and Phil Luebben,Vice Chair Administrative Services Steven Choi Jim Herberg, Director of Engineering Jon Dumitru Jeff Reed, Human Resources and Employee Darryl Miller Relations Manager Joy Neugebauer Mike White, Controller Chris Norby Lilia Kovac, Committee Secretary Ken Parker Rich Spencer Sal Tinajero Angela Belt Jim Winder Jim Burror Doug Davert, Board Vice Chair Norbert Gaia Bob Geggie DIRECTORS ABSENT: Randy Kleinman Bill Dalton Rich Freschi OTHERS PRESENT: Jim Ferryman, Board Chair Brad Hogin, General Counsel Don McLean, Driver-Alliance Ed Soong, Public Resources Advisory Group Toby Weissert, Carollo Engineering Vicki West, Driver-Alliance NTMENT OF ID N2o appointm�lntwas necessaryAlR PRO TEM cgAH EOI THE (3) PUBLIC COMMENTS N OAAIE1PNpRiK1'255 2007 There were no public comments. BY: (4) REPORT OF THE COMMITTEE CHAIR Chair Waldman did not give a report. Minutes of the Administration Committee April 11,2007 Page 2 (5) REPORT OF THE GENERAL MANAGER Assistant General Manager, Bob Ghirelli updated the committee on status of the North County Yard and its occupancy timeline; and Jim Herberg, Director of Engineering, briefly reviewed the Capital Improvement Projects for the 2007/08 fiscal year, as well as Engineering process Improvements. (6) REPORT OF DIRECTOR OF FINANCE AND ADMINISTRATIVE SERVICES Lorenzo Tyner, Director of Finance and Administration, reported progress made in the insurance rate quotation process for acquiring best competitive rates for Excess Workers'Compensation, Excess Liability coverage,and Property coverage. (7) REPORT OF GENERAL COUNSEL Brad Hogin, General Counsel, reported that Kem County has filed a lawsuit against OCSD's Board-approved biosolids addendum,which provides additional CECA review of the Tule Ranch operation for land application. (8) CONSENT CALENDAR ITEMS Consideration of motion to approve all agenda items appearing on the Consent Calendar not specifically removed from same, as follows: a. MOVED, SECONDED AND DULY CARRIED: Approve minutes of the March14, 2007 meeting of the Administration Committee. END OF CONSENT CALENDAR (9) ACTION ITEMS a. ADM07-26 MOVED, SECONDED AND DULY CARRIED: Recommend to the Board of Directors to: (1)Adopt Resolution No. OCSD 07-_,Authorizing the Execution and Delivery by the District of an Installment Purchase Agreement, a Trust Agreement, an Escrow Agreement and a Continuing Disclosure Agreement in connection with the execution and delivery of Orange County Sanitation District Refunding Certificates of Participation, Series 2007A,Authorizing the Execution and Delivery of such Certificates Evidencing Principal in an Aggregate Amount of Not to Exceed $315,000,000,Approving a Notice of Intention to Sell,Authorizing the Distribution of an Official Notice Inviting Bids and an Official Statement in Connection with the Offering and Sale of Such Certificates and Authorizing the Execution of Necessary Documents and Certificates and Related Actions. (2)That the Orange County Sanitation District Financing Corporation adopt Resolution No. FC-04, Authorizing the Execution and Delivery by the Corporation of an Installment Purchase Agreement and a Trust Agreement in connection with the execution and delivery of Orange Minutes of the Administration Committee April 11, 2007 Page 3 County Sanitation District Refunding Certificates of Participation, Series 2007A;Authorizing the Execution and Delivery of such Certificates Evidencing Principal In an Aggregate Amount of Not to Exceed $315,000,000 and; Authorizing the Execution of Necessary Documents and Certificates and Related Actions. b. AOM07-27 MOVED, SECONDED AND DULY CARRIED: Recommend to the Board of Directors to adopt Ordinance No. OCSD-32,An Ordinance of the Board of Directors of Orange County Sanitation District Establishing Sanitary Sewer Service Charges; Establishing Capital Facilities Capacity Charges; Adopting Miscellaneous Charges and Fees Relating to Industrial Charges, Source Control Permittees and Wastehaulers,and Repealing Ordinance No. OCSD-30B. Directors requested that the agenda report be modified to Include the amount of the increase. C. ADM07-28 MOVED, SECONDED AND DULY CARRIED: Recommend to the Board of Directors to adopt Ordinance No. OCSD-33,Adopting Fees, Revised Procedures and Policies Concerning Annexation of Properties to the District and Repealing Ordinance No. OCSD-29. (10) INFORMATIONAL ITEMS a. ADM07-29 2006-07 and 2007-08 District Budget Update. Lorenzo Tyner, Director of Finance and Administrative Services, briefly updated the Directors on the operating budget as expenses are assessed and forecasted for the 2007/08 budget.The revenue budget will be reviewed in May,and summary presentations will be presented to the committees in June for adoption. b. ADM07-30 2007/08 Benefits Program Renewal Costs Rich Spencer, Human Resources Supervisor, reviewed the cost of the employee benefits for the next fiscal year, and compared the costs to the current year and two years prior. C. ADM07-31 Property Tax Credit Adjustments for Class I and Class II Permits Controller, Mike White, briefly presented the adjustments to standardize the permit user fees methodology for permittees beginning 2008/09. Minutes of the Administration Committee April 11, 2007 Page 4 (11) CONVENE IN CLOSED SESSION PURSUANT TO GOVERNMENT CODE SECTION 54957(b)(1). The Committee convened in Closed Session at 6:45 p.m. pursuant to Government Code Section 54957(b)(1). Confidential Minutes of the Closed Session held by the Administration Committee have been prepared in accordance with Califomia Government Code Section 54957(b)(1), and are maintained by the Clerk of the Board in the Official Book of Confidential Minutes of Board and Committee Closed Meetings. RECONVENE IN REGULAR SESSION: The Committee reconvened in regular session at 7:00 p.m. (12) OTHER BUSINESS, COMMUNICATIONS OR SUPPLEMENTAL AGENDA ITEMS, IF ANY Director Luebben thanked the Sanitation District for providing support to the City of Cypress Arbor Day, and Mr. Ruth for being the guest speaker at the city council meeting. (13) MATTERS WHICH A DIRECTOR MAY WISH TO PLACE ON A FUTURE AGENDA FOR ACTION AND STAFF REPORT There were none. (14) FUTURE MEETING DATES The next regular Administration Committee meeting is scheduled for May 9, 2007, at 5 p.m. (15) ADJOURNMENT The Chair declared the meeting adjourned at 7:07 P.M. 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M $174 TA EM am $10 UM $1M 5186 $182 See $84 ON Ve8 7439% 0ENERN.CONTNNER CORPORATIW .495 U04 0.79 SM 0.0 INS SB03 $370 013 W17 eWt $254 San Was 70.01% JEMICOCONTAINERWC. am. $470 2.16 Use am $417 $1A78 $610 sm $491 $BM S321 S1,645 3677 69.92% CEWI INDUSTRIES INC. 0.289 $1M am $177 am SM $631 SM W04 $188 U14 $205 $615 Sul 69.11% BEARINGINSPECTIONINC. 0.942 S85S 233 $737 2.14 $IA14 $2.410 $1,13a2 $1A08 SM $BBB 581 SZ39 SM 67.46% KIRKHILL RUBBER CO. 3.438 $2.406 7.17 $2,210 7.17 E3.401 $B4OT) $3,307 Kno $2.510 $2,139 $2,620 $7,80 wass A. S P 5 TECHNOLOGIES 5.00 E4,234 S11 $1,61T 4.53 ,1W 58,001 $3,131 M.8]0 $4,410 $1,951 $1,M] Ulan KIM M.)6% EXCEL MEDIA,LLC O.TM $514 0.11 $M 0.11 SM SW3 $218 3395 5536 S0 $41 5620 Sne 6129% AWEDFACIRCIRTALSPWROG 0.76.5 WN 209 S863 ON SM $I'M $5W SM $559 $799 sm $I'M SSW 8122% SELECTCIRCUDS 0.820 $574 0.65 sm 0.19 $m UN $2M EA4 $M9 $247 W9 3B15 Sul M.2B% BREA COMMUNffY HOSPRN. .738 $1.910 5.71 $1,808 5.71 E2,708 58.433 $2,435 53ABi 81.889 $2.181 E2.WT $am #zees 56m ANAHEIM EXTRUSION CO.INC. .49 sm 0.9 E3W 1.6 $]m 51,07 1 $89 n64 sin sm 61,377 3482 NM Frt INDUSTRIES,CANNON .140 513.818 13.15 $4,185 11.65 $5,5W En,513 W,10 $15,31111 $14.413 $6.WA $4261 $23,W8 0,330 M.21% PURE-CHEM PRWUCTS COLD WC 0.129 SW 022 Ees 0.12 EM $ete $70. 5/M EM EM I 843U129 ne 5266% BRIDGEMARK WRPORAmON O.NIB $4W O.W $0 0.W $491 156 330 $518 0 08 VTF 52.09%CANWNEQlJ � ENTWESTINC 1.122 S]W 1.)1 $541 1.69 EBW $2.12) b1 N,3i $819 SM $81] Sm SIM%ENGRAVERS INK CO.LTD 1W 009 E28 012 EM EW inn SIR E34 $45 $91 51.1]%CIRWmTEGM INC. 0.25 En 020 BB S M 1n Sb] S2W S94 El4t i1M W.19%CHERRYAEROSPACELLC S W, 10.M $3,M2 6.N $3,280 $12.976 $4.005 U.Sal SQ5T0 $4a80 $2539 f4,SW 041%ATS $613 Im $SW 1.4] Saw $1,9W $618 f1.]88 S�M $719 $53) 8 SM 4].12%ODONNEIL CIL,u-C 0.513 Use 0A2 0 0.M $9 53]4 110 5284 $3]4 S) E) 9 $124 4].10%MAGNETIC METALS CORPORA 1.141 SM 8.8) S2,8M 1.6] Val $4,4W $1. $3,314 $833 83,SM WI1 $1,519 0.19%B A F INWSTRIES 0416 $W . 1 $321 0A2 $244 SM M 0n E3W S38] 1M SM 0.66%BE0 GPLATING 0 9 E5M0.1) sm 0.1T 1 W74 1M WS $W2 $630 i305 42B- BECKMNNCWLTEKNC. 14.)53 $10.327 18.28 $5.1MES9W $24A28 ,438 fleeW $10,]n 58213 KM] AW 0A4%AMERINAX W1WRG PRDDUCTB INC. 0.90 $BW 0.93 32W 1A] $BB) P.M SM f12f] 86BB Use9838 $491 M.60%ELECTRO NIETN.FlNL5HINGC TIO O.ne $123 aM SIM 023 $1OT SM $96 2259 $1n f1W 583W WSM$10A23 32.79 $10.358 3051 S1I,4n E35,38T $10,438 SK9M $10,9)d 512,630 E11,155 T18 98A3% BAAIC ELECTRONICS WC. 0.2n $152 2.38 $747 O3] $114 11.On E213 W S1M (1)utilizing FIOW Data from FY 05-06 Distributed at the (2)-Tax Credits based on Taxes paid in FY 05-M Administration Committee (3)-Per Million Gallons 0 Meeting (4)Par Thousand Pounds Fiscal Year 0607 Aotu CBe .UMar Coat of Sary 1 Eat.FY 07-08 CAnr s flatter Net Cost of Sonic 1 Vd,,. Fl Chc i a JgW Chance J22i TSS CIwme Qms LM NO N.11- Flow ® flop TSs is Nei PermH fram PNe, OvOINior PRNATELABEL LABORATORIES,INO 0.190 $133 11.10 $3.516 0" we $4.078 1817 a59 $139 N 1 S329 $4709 1250 30.13% NEU 0NlCSTAMPINGANDPIATING 1.10 4805 Ole, See 0.09 $45 S083 S207 Nas $843 $36 $34 $913 Wall W.27% UNNER9ALALLOYCORP. 2.894 S2AM 332 $1.116 3.52 $1.672 54,815 $1,252 53,583 $2113 51347 $1288 $4.748 $1186 3328% PLEGEL OIL COMPANY Btdk T Efl-AHA. 2.494 S1746 0.06 $18 022 Sim $1.869 64M 51 $t MI $22 Sol $I $480 33.21% GARGCIL PRODUCTION LLC 0.03 SBBS Om $0 0.W s0 $695 Sim Mee sm GO s0 SIM else 33.01% KENLENSPEC MESINC. 0.598 $418 Ole $62 Ole $93 35n S134 we S436 s75 Sn i513 f14.3 3252% NU-TECPOWDERCOATING Olsl 5255 2.0] SON 0.50 Sall $1146 SMS an $79O $182 it 33Bo 31.83% SUPEMORPROCENING O.nt $512 0.21 S68 0.12 E58 5636 $138 5500 S534 sm Me SIM Sim MR% TOYOTARACINGDEVELOPMEW#2 03" M&I ON 52N CA SWO $1M MW $7M S421 $3311 278 S1037 MIS 31.57% CRCCKETTCONTAINERCORP. 1B34 S723 123a S3Li85 122 $578 S5165 S717 $4.5 S754 M S445 0E8 1MT 31.45% NAHEIM TRUCK DEPOT92 BIN WASH 1AM $1.319 13B U07 139 1610 am 3555 t7E1 Sun.. i SIM S2333, f558 31.22% AUTOCHLOR SYSTEM OF WMMINGTON CON See 1GO Sam 0.10 $47 S6D7 Me 1 7 See 5703 $162 M.93% IA HABRA BAKERY 5.137 $3,598 38.35 $12464 13.07 $8,576 524.635 S4,991 S1BBW 751 15031 00B SMSB3 749 M.M% S FPP.L.P. 0.00 $0 0.12 $37 0.12 $56 5136 S34 {COS Me S49 $1 $31 29.04% EIECTRORACK PRODUCTS .O4C. 0.ma SW 1.93 Sell 1.97 $934 $2.039 SQII $1541 $516 Enl $n0 $1912 {4E2 M.OTA UWATEC CORPORATION 0.432 $302 ON Sam On s383 5966 $217 U51 S315 E9S5 E280 S9W s209 VGM HARBOR TRUCK BODIES INC. onAl S542 1.48 P71 1.47 Sam $1.712 3404 $1 M 5565 $M S539 f18T2 s384 V.81% SOLDERANSK INC. om $2n 1.80 $me 031 S145 sill $140 U51 S28B $a57 S112 f1 SMa 27.89% HANSONlORAN CO..INC. 0.620 $4$4 10.00 $3169 Ole $131 53734 SM U&l S463 S3 $101 $1,379 S$14 27.14% INDEPENDENT FORGE COMPANY 0.799 MW Ole SBY 0.4 S205 $me $IN Sao NO $110 $158 f$5/ 3181 27A2% PIERO%COMPANY 0.553 SM] 0.00 s0 ow s0 $387 No $319 E404 SO ED 5 NAD%- RAILAIANERS.INC. 0.088 E8a 010 S84 020 $BB E2M $53 f17a $71 $M $74 $223 S47 M.48% VALEANi PHARMACEUTI INT. i1w $0481 5.42 $1717 5.42 $2.5n $13n1 740 $11031 S9 BBB $2AT1 $1 $1 B12 M.40% SOUTH COAST OIL CORPORATION L759 $1.252 0.00 s0 0.00 SO $1252 5218 $10]8 $1306 SO SO {1 s2F0 2B.10e, ROCK INDUSTRIES,INC. ow $me 1.53 3484 022 $103 Seat $102 AM S244 $584 n sm $190 M.8654 WEBER PRECISION GRAPH 0.313 $119 231 $BBB D.00 S284 $1.3931 SIM i1221 52M $1.073 $219 s+S20 SM 24.61% WASTE MANAGEMENT OF ORANGE Mo NSF 1.151 $80B 2.90 $915 1.03 E927 MA I $Ml 82.148 $941 $1.107 $714 982 0514 M93% 9 PANLOAWANY &NO $5789 i"08 $51,971 037 En2 E58.025 SZ4021 SsOm 66.031 $62,689 $210 588930 1 3OF am SANTA ANA PLATING CNK CAPRAL 0.121 Sim 0.48 $148 OA8 $219 M19 $1111 M09 $161 $1761 INN S97 am% ALLOY TECH ELECTRMMMHING INC. 1.014 VIC O.M S121 ORB $131 082 $161 MCI $740 5146 5101 $107 M.31% SUNCUPSE.INC. DBA CORRUKRAFT 11 MOOD $If less West 93 N E2 7 $4,42227 Mile $1B11) $8.762 $11.319 $3424 5D6 n.95% OLYL9+ICPOWDERCOATINGS 0.WO $417 0.52 Sim 0.42 5199 SM2 $139 SIM $435 WOEI f153 $lap $+48 2260% METAL PCWOERPRODUCTS-ARAHENA 1.7M $120] 1028 S3246 1.05 Sa96 $4,952 $418 K53a $1259 $3A111 $382 I&= Sl.OM 12.64% JOMNSON CONm01-5.INC. 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CORRUGATOR PLANT 2766 51,938 14M $4 1235 $5.858 412.400 E2 $2,019 $5354 S4 15 $1 010 lam- BAZLHOUSTONCO. 1.479 S1.035 138 M38 13a S653 $2.124 5384 $1780 $I'M s5M f503 In Sw 19.81% M.S.BELLOWS CAN SBB a $83 Ole $124 sm so $M0 $of Sim SIM me s0 1g.58% M C P F000.51NC. 25.8/3 $1 101 2917.66 P24.2M 40.73 19.324 MCI 712 f2B8 1 318.94T �pl $14,890 $11 US $187 6 19AM UNITED CUSTOM POl15HING8PlAT01G Olaf $197 0.13 s4D 0.17 NO $317 S61 am $2m $49 $62 $318 $51 1sim VELIE CIRCURS INC. B.6M 634 5.18 $1,641 1.94 San $7.147 NIS 2 E4A34 $1980 SBn $T $11B3 18.7 PRECKIUS METALS PUTING 0.]OB MG5 0.11 $33 O.M $115 S843 SBB i514 E518 E40 SM 5814 1100 iB.AT% BODYCOTETHERMALPRCCESSING 3.325 320 1.M $404 1.62 Me W.455 $521 B31 E242B E48] 3557 33An {A9 AM46 ARROWHEAD PRODUCTS CORPORATION 10.IN $7311 Ilse $4.OB2 12N 55,903 $17. 95 $2.848 st 7 S]BM 54823 $4.548 $17099 BSO IBM% AMFRIPEC INC. 21.181 E11813 298.n 8 BB3 7.35 53487 5112.03 31,038 ittt E15451 E113378 52,667 $131 18 18.21% KNOTT58ERRY FARM FOODS t4.883 10405 551.43 17586 9.46 13980 200011 184 1B7 B4) 1p 853 211047 16- 12 825 18.01% (1)UDludng FIOW Data from FY 05-06 (2)-Taa Credits based on Taxes paid in FY 0506 (3)-Per Million Gallons (4)Per Thousand Pounds •1 NNW Yaer Wo'Aa.lChm.. near M. n Bt et No Wc1$3ZW VAISIne FI,Ch,r, J W Clam Jaw TSSC6eme Svc In Net Permk �y� am ],$$-Q NOP _Q from Poor >y PA9[ fi?MP E B 4 1 2 .1 129 C 7 13 I 519 1 8 0 EATONAEROSPACE,LLC .077 $1.314 1.67 A52] 3.12 $1,480 $3,321 $647 $2,B]4 $1.370 $838 $I.I40 $0,147 17.69% DATA SOLDER INC.. 0.4� 2321 0.14 so 0.15 f72 5430 E80 $us 5335 752 $0 "a 17.61% MICROMETALS INC.p3 B00 M. 10.93 $3271 190 E1,882 E7.63B 5792 W.WT E2A23 $3,Bd8 E1,2B0 fB4OdB 1]SB% CIRCURACCESS.INC. 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CAR $454 1.10 $846 . 1.092 $1. 3505 $420 5189 f1AeN $N 4.OM USDF MASS SINVOR N1.51 $10,NO2 110 T 22B ),)35 8 S1HAN E92.280 p0248 f2)1,p$ MAN 3.89% MARCELELECTRONICSIWERNATONILL 34A09 p4,436 3B all ] 585 1.944 $31,718 82I $LT30 $2, $32,982 $1,181 3.99% CITYOFANAHEIM-PUBLICUTILITIESD 7.915 SRb11 OB 0 IN Are f9Aib $5.Ti8 p$ p1 $095 f2m $BB% P C A INDUSTRIES,LLC 1204 $14843 A 1 p,3p 2 1,319 $1)b28 pmm S1e452 ell 048 E . 1 f10.1p 3A4% WGROSEMI INTEGRATED PRODUCTS 48.1N $32314 1.10 $34 I'm ,ON 181 f30. $33,108 E4Is E $35220 $1,2W 3.82% ELECTRON PLATING III INC 1318 $1,083 ]i 522N 1 63 2.091 1p pA99 f1,108 #11 f1,9B0 pt 3.7% ALUMINUM PRECISION PROWCTS ING43 9A99 p.121 ]4 51,184 2lN 51,303 $4,610 $132 NA 52,215 $1,428 Et f4,67 ft'a 3.T6% IONSBURSKY BROTHERS SUPPLY 1AIR 51.112 1.05 S333 . 1 $521 E1,912 p6 f/A' 51.1W $I'm 1 3.74% FROZSUN FOODS ING 153N 810,TSB Me 0 5418 E11,486 $0 sli $11= E338 S322 $11AH p2N 3.719 E..INC.03 ,m 353 1.N 19 5590 $4,557 $32 M S3.4N p40 5455 8Bt tN (1)UOlizing FLOW Data from FY 05-06 (2)-Tax Credits based on Taxes paid In FY 05-06 (3).Per Million Gallons (4)Per Thousand Pounds Fiscal Yaw,Da07 Actual Ghana"ume, E .FYOT-0 Cne Un54r NM C0aI&Bank 1 3/W90n1- Fxrx CMMD Igw Cmag, I➢ag TSSCIN, Sual, I$$ NMP-$®LL R, 4n BM TSS® MaLPannit from PHor OIeLPdor ASTECHENGM IS DPRODUCTS INC. 11.1 X 7 2.02 $639 2.38 $1120 $9.554 $137 $941] $8131 sm Saw $9,]81 $347 3.09% PRECISION CIRCUITS WEST INC. D.BN 0.33 SIDE 0.17 $79 We $0 $BBB $501 Im 501 f8113 Z• 3.15 % LA PALMA INTERCOMMUNITY HOSPITAL 11AN E8327 24.80 $7.857 24.80 S11368 $27852 $1, 92 2B2 SB.686 59477 SOMM8 f27."I 3.57% NELCOPRODUCTS.INC. 10A57 $7.390 5" S1848 520 468 ST.5N S900 $11,206 E770B JIM S1.903 $11599 W$ 3.49% AN MIL ENT.DBA DANOO METAL SURFACI B.T43 $4713 1.38 S138 2.73 $I.M saw $219 $ 5 SSW 8 M 15 3.45% LAM PLATE TECH,INC. 0A11 $427 ON $17 OAS 25 Ing SO SUB S20 Sig SUS 16 3.d3% _ CT'OFTUSMNWATERSERVICE 17)H$T. B5.0119 $BB SOB 0.02 $0 4.77 52205 $68780 SO $68790 $60.3 ) 1745 $71125 3.41% MEDTRONICHEARTVALVES INC. line $7338 34.34 $10 77 2039 $9.6M $37539 E559 W 0 S7852 19121 ET417 $palm 10 3.N% MANUFACTURED PACKAGING PRO DUCTS OASS $459 2M S840 0.94 S"5 51,543 SO $1513 "M 5772 3341 51593 50 3.23% CARTEL ELECTRONICS.INC. 5268 S36R 2.71 1.51 $731 SS270 S5Xo f3837 1 T f5 Is a1B% KRYLERCORPORATIDN 2.358 VASI 02B $57 0.26 E1N $1,81311 to 51 M $I'M 105 6101 $1927 fSB 3.18% IIARTWELL CORPORATION 2 1 5.13 $1,= 5.13 496 S5]66 19 S $1.798 51992 1 " fS07 5170 SID% ANGELICA TEKIILE SERVICES M A W.M WAS 10 31.09 14751 SBD,57i M 0m $51089 BOB it ) N 774 111 309% CIRTECH INC. 7.874 $5512 7AB $2.405 546 $2 B3B $10,60 $170 $10,475 55.150 $3010 S2033 510.792 9317 3.02% PACIFIC IMAGE TECHNOLOGY INC. 0.434 =4 0.07 E22 0A7 $33 Bass 50 aw $317 so US Sam Sioll 2,81% OAE SHIN USA INC. 220 2 SiN/80 135.97 5430T1 95.TB ,M2 E2d2714 St $N1 $160B29 $51955 S3S024 $]A1608 2.83% SOUIHCOAST CIRCUUSINC. 1.11 S7s1 on 5121 a" E139 $101 $1051 W25 Sim $107 Stairs f2fI 2.60% MARK OPTICS INC. 0.581 S392 0.38 $124 OM $395 P12 570 $542 S409 5150 E30S SM 4 $221 2.55% PACIFIC OVART2,INC. --FIN $790 1.13 $359 124 5500 $173B E70 $I888 $624 S433 E454 $1Tt1 2.54% CLASSIC PLATING INC. 2.2M $1 571 am =5 0.70 $334 $2 10 SO $2210 $1.638 SWO 7 $2 $54 2M% ORANGE COUNTY PLATING CO..MC. 3.615 52 WI 1.83 =5 0.97 $461 $3318 $10 53A07 $2,640 5392 5355 3B8 $50 242% GUMKERS ATHLETIC SERVICE 1.950 $1385 120 WSI 1.01 S478 $2224 $23 1 $1424 S400 Sam 252 $51 2.559 DYNAMIC DETAILS INC. 51.576 S38105 18.53 S58B9 15M S72]0 us,243 $30 14 $37.659 $7060 $5602 $503M 1127 2.20% A S R POWDER COATING INC. 0.641 E449 025 0 am $95 E924 SO SS24 $488 $97 $73 MISS 14 224% DON MIGUEL ME)OCAN FOODS I . 17.N4 S11931 172.50 W.M. no? 54] S109.121 $321 $108000 $12.445 $65912 $32.705 $1111M IDEAL UNIFORM RENTAL SERVICE 6A22 S4215 8.08 $2A54 4M 291 S%Oei so $B oat S4 ) S3 N1 $1,768 So 244 $18E 2DM IACEY CUSTOM LINENS 1.685 E1185 0.0 $151 1.01 1 $in $83 $17M 41,215 SIR Sam $1769 SM 1A HO60N METAL FINISHING 20.732 $14513 1.52 Salt 4.02 1W8 $16. 03 S43 $1 am $15139 $6BI $1 771 $17In 0 1.95% TTMTECKNOLOGIESINC. 17.232 $12063 3.75 $1.187 4.39 2083 515233 $0 51 ]33 $12502 101? E1,505 $15619 B 1.87% EMBEE INC.51 6,470 S45N 0.0 $198 1.55 S736 S5.484 S32 i M2 $,Ln4 $139 3567 $5531 59s 1.82ta WESTERN YARN DYEING INC. 2975 =,M 46.85 $14.841 30.97 $14.697 552.622 $283 W30 $24 On E17,902 E11 ]O4 1.81% DUALITYALUMINUM FORGE" 0.070 NIB 1.14 $362 On S340 $1,318 EO $1316 5"2 $07 S282 51M1 $23 1.77% ROADRUNNER CIRCUR TECHNOLOGIES.IN D.508 5355 D.OB $30 0.13 $59 $dM 5444 71 E30 5452 so 1.76% BLACK OXIDE INDUSTRIES INC. 4.279 U, 0.47 $14B t" 5683 S3.826 Sao S3768 E3134 178 E52) p 581 1.82% IA HABRA PLATING CO.INC. 1,282 Saw 0.18 2 0.43 $208 $1,155 $15 $1 In fB38 $62 $150 $1157 i17 1.0% FRESH FOOD CONCEPTS 11.79E 257 91.0 S290]4 W28 $23899 $61140 $0 $611M SI 13 10 $IBM 562,0119 86 1.42% TOYOTA MC4NGD LOPMEIT 2076 $1453 4.16 $1.317 4.15 Staff "m $180 "558 51.516 1 1516 "621 ISM GOGLANIFN BAKERIES 7.317 SSAM 61.73 $19 42.52 $".17T $M,851 596E SN8m M $15 W 7S f369 1.34% CALIFORNIASTATEUNIVERSITYATFULLE 107.147 $76006 Was $28 7 BTU $31.800 $135.1131 50 $13 113 $78 $34145 S2A,505 $136,885 f1772 1.91% WEST ANAHEIM MEDICAL CENTER 23.271 SI&M 0.52 S15 70 M.52 $23.022 $5d682 $2.088 $52596 $18BB2 $18 9 $17,740 SSS2T2 507E 1.18% ABGELECTROPOLISH 3.557 5380 DOT $22 0.14 $67 $479 $0 $479 $ 07 US, M2 "85 $6 1.21% SHEMIN D.YOELIN BLUE LAKE ENERGY L Din i95 O.OB $18 ON $27 $140 SO $in in 22 521 $142 $2 1.18% CWUMBINEASSOLIATES 0.137 S96 0.06 $19 ON $26 E143 SO $1M Sim E23 f22 S1M $2 1.18% PRIME HEALTHCARE HB LLC 11230 $7 BBt 23.41 E7.417 29.41 E11.110 E28 5980 427 $8 $8,945 SB,5B1 f01 WIN) 1.10% SEMICOA SEMILONDUCTORB 3.21E $2,251 9A1 948 0.88-SUN EB503 145 a56 $2 7 7 $2548 IKON POWDER COATING INC. 0286 Sam 0.69 f220 0.56 S207 S1.037 $0 $1037 $674 f2B5 E2N f1 N6 fB OSd% EMAEE INC.92 15.508 S10855 4. $1435 Sim 52989 $15279 $=" $1 252 $11 $1.731 303 114 E5B NN 0.88% ROTO-DIE COMPANY INC. 0.32E ml .17 S54 0.17 Sol Saw 50 S368 40 $65 $3611 i2 D.BBY. BOEMGC PANYGENERAL FAC 45.808 S32 N7 89.42 $2B 324 114.23 S54201 $114592 $5930 1 681 S3347 $31165 "1760 51083K Sill MESA CONSOLIDATED WATER DISTRICT 11.803 SB 2B2 6.60 $20BB 0.50 ".063 EI3.44 50 1 $9618 # 20 52376 NE 513 0O.SB% THERMAL-VAC TECHNOLOGY INC. 2459 $1721 0.80 E252 1.N M93 $2.466 $0 Km $3N SW 10 $13 0.63% WHEELSEWICESGROUP MC. 1.357 WO 0.97 E30B O.B9 $421 $1.878 $0 51819 EBB1 P71 $324 $1888 SO0."% ANODYNE MC. 2999 2100 0.50 159 1.28 0 2B57 "I tro 182 61 843 12 D.41% (1)Utilizing Flow Data from FY 05-06 (2)-Tax Credits based on Taxes paid in FY 05-06 (3)-Per Million Gallons (4)Per Thousand Pounds ur ChM"Under M of tF OTOec Mn nm d oM rvice VMume Raw Clume I" SAEm4 IQW I.wGW[aB 25111 SH6 N%P3.11 EIM M M TSSM NMPemh *QM PriorWHIND FINISHING INC. 9YeLCDg 4 B , t $84,5ig $61.084 SMIM $802 PI30JATEx INDUSTMESINC. 7.947 $5,563 5.82 1 ,10 S11,B00 $355 5/1,251 SSM $2225 53.45 $11,20 $12 0.11% WEIR N WATER CONDITION 8.132 SSBB3 0.21 7 ,181 S8,9d1 S11 f8,931 .938 1 SDt Sim 4n o.02% ALUMINUM PRECIS PRODUCTS INC.DEN2. $1.710 Ulm I.W 1 $2,386 $0 1.180 E223 $3 f2366 -0.0/% PICOFARAD INC. 1.000 7 0.89 190 1. 13 f1,554 1AB8 E770 E240 E072 i1,498 1 -0.OB% MWNFOODPMMCTS,1 . Me $2.097 .1 51.30 ,301 352,7BB TIB 2.1BB 531,7B0 ) i T0E -0.12% COOPER AND BRAIN INC. .0B3 1 5. ,I 3,4B8 E10.72B $709 022 -0. % Cr1YOF NEWPORTBFACN,GENERALb 1 1,512 1.BB E537 TO 52A52 EO E1.5)/ SB47 IM1 CENTRAL POWDER G 0. 174 0.13 $42 E2B3 m $181 7 1 -0.M% ACCURATE METAL FABRICATORS M. 3. 2.)30 3.T0 $1,200 1.751 5&a88 uI 52.853 $1, 7 1,980 -0.B114 WERTNEWPORr OIL P u. AS 40.90 $14.07 4L 1,223 $06,530 ,6E0 531,702 17.9 ,ERA W -0.74% IRVINE SENSORS C 0 0.J2 $100 0. Sim $w 2 w i1.81% LINGO INDUSTRIES INC. 1.82 012 $3,404 SBI I= tT 920 427 -0AM SOUTH COAST OIL CO. .512 .12 Dv t 5523 fa E971 T 46 -1.18% POWDERCOAT bERVICES.INC.p4 0. 183 0.34 $1 In Sin $0 Inn SIM $11S 1$ CULLIGAN WATER CONDITIONING 1 11.763 .30 $11 IN $15.034 WO 1 St ,432 1 •1.M DRSSENSORS&TARGETING SYSTEMS.INC 1,745 2.B3 $ 1381 E4,DBsSi 51,1 ton 013 -128% TAYCO ENGINEERING INC. . 55 2B 1.74 $MI $1,769 ,769 1M -1AM SHREEJI PLATING&COATING INC. .re S20 Si" SO /M E3B T 1 .1419 eOEING COMPANY GNARAM . 26 1.41 .15 S740 1163 13A28 1 $3,270 -1A8% CYTEC ENGINEERED MATERMLS WC. S f67 .13 $41 0.1 E1T0 170 ftBT -1.84% OUALIIY ALUMINUM FORGE Y3 .T41 $519 .St S101 0.67 10 1 E1B4 f016 1T -t.7m6 MORAVEK BIOCIIEMICAIA INC. 0.128 .2B $83 0.28 IN 2B4 5100 f298 -1.81% RTI ELECTRONICS. C. .486 E93B 1.01 5320 1. 1 7B 1.138 f3B0 $" E110B 421 -1.87% MILL INDUSTRIES .N 772 $247 $230 $79 16 -1.91% DLSNEYLAND RESORT- 174. 621.13 SISSON MIS 4 , 1 7d18 ,521 $.5MLIff 1 1 19B.12d S180A41 $572,166 1 MI -1.BB% ULTRAFURE METAL FWISNPIG,I 4A40 $3.184 11 Ee7 3.40 1.010 ,BBS 12S $4,)41 f:fA21 Set 51,244 Egos -1.80% ST..IOSEPM HOSPITAL 42.BW M.031 89.45 520.3 80.45 441 100.11M E100,5T1 1,324 E34,17T .104 $8%MS 4.35% CHAPMAN MEDICAL CENTER AM S4,216 12.78 $4,052 ,070 14A1 10 $14,398 $4,480 ,077 S14.006 Q.4B% FOAMEx L.P. .02 S1,2B3 3.63 $1,1S0 1.7 ,1 SI,160 $1,338 1387 1.371 KOM -260% M T S MICRO EcT N .13 141 141 EIS $137 -2.50% THOMPSON ENERGY RC 1. 1 S1,P82 0.90 71 1, 2 $1,782 $1.331 T $1.747 -2.51% SOUTHERN CLLIFO 6 26 515-M 5. 1, .474 ,931 MMI 1, 1.906 56M 4b CAL-TRONICS CIRCUIT 0. T Q 2 132 $In $43 S12B .57% PRO WHEELS POLISHING 0.12 7 0.1 132 IM 1 129 .57% RENAL RESEARCH I UT , 1 1 4 1 .%) ,SBA E1A19 1, 419 1B 4.58% ORES NATIONAL DIGITAL MED 1. B 1 ,200 ,988 1A33 1.484 1.301 ) UCI MEDICAL CENTER SI.66T w.- 14 11 1 137.338 4" ,670 SIB. S I SB% TUSTIN HOSPITAL AND MEDICAL CENTER 4AM $3,100 9M 2A 933 1 1o,408 AN ,233 Sa628 .3T8 -2.68% MISERPERMAN MEOICALCENTER 2 .. E18 4 M 1S,019 49Y9 ,38) SSS.W $17181 51B,B33 S10022 $60.116 BASE -2AB% HOAG MEMORIAL HOSPRAL PRESBYTERN M. 143. ,519 143.08 ,1n 1B1.B25 181,923 S50,316 $54,890 E52. 157,)7 T 4. FAIRVIEW DEVELOPMEMAL CENTER . 1 ) 112.81 112A1 ,434 12&B15 916 $39.47 Ed3,D2B Ed1,1T6 ft 041 .58% S .JUDE MEDICAL CENTER 12.175 $I.M a.m 7 1 ,019 SB.32B 510,178 SB, ,2M 4 4. % ANAHEIM MEMORIAL MEDICAL CENTER KISS $21 AB9 .99 E20A7B 84 ,525 Td.502 522,528 E24,5B1 $23.5 f70.632 CHILDRENS HOSPITALOFORANGE $B,580 28.58 M 13.559 .191 191 $10.001 $1 . 14 1 ,443 $31,E00 KYOCERATYCOMCORPORATION 1.3I8 U71 2.89 1 1.373 R80 $1,013 1.1 1 $3.178 -2AI% SMITHS AEROSPACE TM4 $1,053 3.14 SM4 3.14 UN 53,535 S1,D98 1.1 1,147 f3A44 491 -2A6% SECHRISTINDUSTRIESANC. .533 $3l3 1.11 E362 1.11 2B 1,253 26 UM -2MI6 UOP LLC 0.230 i1e4 DAB 5135 2 71 1 7 1 E537 41d -2.5836 HITECHSOMER 0.040 332 0.10 0.10 f45 10] $1M 4E .2.58% METROPOLITAN WATER DISTRI,;I OF SO.Q 1.BB0 $1,398 4.00 $1,ZBS1 4.121 $1.07150,021 1, 0193 410 .2.70% GRANDE FOODS.A CALIFORNIACORP. 2.130 SI,4BI EBAO f11.850 um $15.mi MM2 U17 Ma IVII.VUUI $2T,519 41m 4.02% JOINT FORCES TRAINING BASE.LOS ALAMH m.280 sm M18I $17,1"108A0 M.21151 573 So ST3 E25,018 7 fTO Bt$ 62/ 4.85% (1)Ubll2ing Flow Date from FY 05-06 (2)-Tax Credits based on Taxes paid In FY 05-06 (3)-Per Milllon Gallons (4)Per Thousand Pounds FYuI Ye¢r OB-0)Adud C9a es UnOm Cwlof Bery 1 EaFY0T4SCMmo9UoIJwNd to Seml 1 Volume Flow Clams = Chime J4S1 TSS Glen � JM Nd Pe�m9 0m TSS-Q Ild Perm3 hem PHer Clot Pnor J e H DEBURPoNG INC.i2 1.312 "is 2.86 SIM 3.74 St))5 33,800 526 674 056 St S1 ] p 1B 4155 d.32% ALI METALS PROCESSING OF O.C.INC. 4461 M 1.98 $631 am 5400 $7.951 S307 $7.643 53 d20 S)el E3.113 5]285 45N .4W ELTOROMEATSHOP 3.450 415 431 354 B)e9 1322 S]2.o12 E1 $TI 56 $2519 $34 1 1 2 Wa We -4Ta% CT'OF TUSTIN-MAINTENANCE YARD 0.447 13 0.]e 1A8 $512 S1.071 $1.01 $32] EBB) 5995 $1019 69 AN% CT'OF HUNTINGTW BEACH FEW DEP 2.e63 S1 1.09 $345 324 $1,530 P)0 0 70 SIM $416 $1,18e 53518 -0.38% AflK OEBURPoNG ANDTUMBUNG 0.131 0.11 022 E102 $229 SO Me IN $42 $)8 3217 12 4.41% TECHPLATE,INC. 0.05) E0 0.08 $27 0.14 EBB E133 N33 2 ESt $12$ 49 -0.0% LBN UNIFORM SUPPLY CO.,INC. 14.728 10310 36.74 1163) 0 253)8 S4).325 $0 $47.325 S10,754 $14.036 519 S4430 919 4.29% ORANGE COUNTY METAL PROCESSING 14.504 10153 2" Sale 1)SS $6325 S1940 353 18335 510,5901$22.M 56415 States 1 4.35% HANLTON MATERIALS 3.W4 52719 12M 54011 IBM $9155 15865 $121 1 )81 $2,835 $].054 61412B O1S d56% GKN AEROSPACE TRANSPARENCY SYSTE m.6W $13158 4b5 $1,413 0� NI 545 853 6 $14.30 .166 533 fe -).42% IDEAL ANOOMNG INC. 6.325 S4 de 0.72 S22T li m $5,50 $10203 $9821 54619 ]5 10 KIMBERLYL WWORLDWIDE,INC. 425.820 E288 ) 4472e $141,6841266A8 $601,80 Simi 3112T9 i4 372 $310921 5463)93 $145613 PRECISION ANODIZING AND PLATING INC. 12.927 900 223 sm 2e.44 $12W M.300 S994 $219So S%`IW 9667 SI%WT ON e.139 SANTANA SERVICES 0.317 $222 0.03 $8 028 S416 See $1 $'1 $231 1 $582 M .10.88% VILLA PARK ORCMMS ASSWIATKIN 3e83 $2,188 7.05 S22E3 19.T S1383 $14,403 S0 51 620D6 S] $1 831 4192 -10.91% GERARD ROOFING TECHNOLOGIES,LLP San $25]4 421 S1,333 WA!I 514332 SI&V9 Sale 1t,41 52665 $11,044 $1 3E8 084 -11.0% DUNWIMMETALPROCESSING 2228 31,5% 0.68 $216 &M S3206 U. $to $4A)0 $1625 $24TD lm 4914 -1235% ALUMINUM FORGE-DW.OF ALUM PRECLSI 3.421 $2384 tat ]2 15.10 $7.162 $10.121 $174 SBam $2498 55.519 SS10) 41 -12.M% CAUR CONSOLIDATED WATER PUPoFIGTI 13.016 0111061 $10 45aa $21e16 $31,120 ease $30,855 $9,504 $16.811 326,54T -13.98% SERRANOWATEROISTRICT 0890 548) 0.02 S6 3.)6 $1.T62 S22]5 $0 S2 S $50 $1,3]3 S1,688 43B) -16.016 CRY OF ANAHEIM-WATER SERWCES &M2 $5)9) 0.11 M.M m $41T96 SO 541T98 SB ) $27,112 n 4]BM -19.13% INTEC PRODUCTS,INC. 2.595 $1817 0.32 SID1 49.W S23.285 $0.212 $232 $ 960 $1,695 $IV 517,950 $1 e6] 4 014 -20.07% GEMINI INDUSTPoESINC. 4017 S33]a 1.07 S30 101.58 $0,198 $51,910 $103 SSI... UZ17 5110 E3].140 Sees 1 ]d0 -20.)3% LAMLIG4RINGSYSTEM.INC. 0.01 S321 022 $M On $339 W54 WT $0 iS96 Saw U61 $960 5850 WA CARGILLINC. M371 O.T) $245 O.n sm $BTD $1.173 S0 $271 Sale S282 S848 WA PATIO AND DOOR OUTLET INC, Mm 104 0.41 $131 0.41 $IN $521 $541 $0 Ea02 $157 $151 $511 511 WA H.KOCM SSONS W. D.45 $112 021 $67 021 Slot S30 $514 S0 Inn Sal E)e 13311 $$$e WA PARAMOUNT DISC NANUFACTURIN INC. 0.095 $67 020 $53 0.20 594 5223 $15736 so STB 3T2 S21] S217 WA I I4. INE TECHNOLOGY INC. D.165 116 0.10 $31 ON $42 188 S226 5121 "1 E32 11B0 51Po WA PACIFICUTILnYPRWUCTS INC. 0.089 SIR 111$ SSB 0.10 $47 Sim $1)9 $0 $65 EAO S36 I]0 $170 WA DR.SMOOTHIE ENTERPRISES 0.042 S29 0.0 $28 ON $41 $0 64M SO S33 S32 3B5 IN WA W VIDEOINC. 0.052 536 0.07 $21 ON 22B S0 0 536 325 120 $83 W WA IMPERIAL PI.ATING 0.034 524 0.03 $B 0.03 S12 E44 202 0 S26 S10 E10 i44 WA S fl C OR CORPORATION D0W $21 0.00 Po U.00 521 Stec 50 $22 SO EO $22 $22 WA W.M.ELLIOTT 0.001 $1 om i0 U.OU 101 51 40 1 30 Sol $1 1 WA Grano TaMl nmll. 8 a3 53.91 $1,11 .6 13.3 (1)UWizing FIOW Date from FY 05-06 (2)-Tax Credits based on Twos paid in FY 05-06 (3)-Per Million Gallons (4)Per Thousand Pounds t ORANGE COUNTY SANITATION DISTRICT 2007 MARKETING SURVEY EXCESS WORKERS' EXCESS LIABILITY PROPERTY COMPENSATION COVERAGE COVERAGE ACE Insurance Company ACE Insurance Company ACE/Westchester Specialty ARCH Specialty Insurance Everest Insurance Animal Affiliated FM CNA Genesis Gen Re Allianz CSAC- Lexington Arch Gray Insurance Company Market Berkshire- Hathaway Liberty Mutual Munich American Risk Partners Munich Re Chubb Custom Midwest Employers One Beacon Insurance Group CNA NY Magic Scottsdale Insurance First State/Pacific National Union Fin Insurance/American St. Paul/Travelers General Star International Group AIG Praetorian (U.S. Specialty) Great American Insurance Co. Safety National Hartford Insurance Zurich Insurance Insurance Company of the West Lexington Liberty Mutual Lloyd's of London One Beacon — Homeland St. PauVFravelers Swiss Re/ IRI XL America Zurich /Steadfast Distributed at the Administration Committee U-//- c Meeting • ORANGE COUNTY SANITATION DISTRICT(OCSD) RENEWAL STRATEGY TIMELINE 2007 PROPERTY-BOILER&MACHINERY-JULY 1ST January February March April May June Jul LIABILITY-JULY 1 ST January February March April May June July EXCESS WORKERS'COMPENSATION-JULY 1S1 January February March Aril May Juuc July WATERCRAFT-JULYIST January February March April May June July CRIME COVERAGE -APRIL 1 ST January Februa March April May June Jnly AD&D -JULY 1ST January February March April May June July POLLUTION LIABILITY- 3 YEAR POLICY TO EXPIRE JULY 1.200E January February March April May June July LEGEND I Renewal Strategy Meeting Presented to Committee Applications to OCSD Quotes/Indications received Covemge Renewed-Binders Issuetl Applications Returned to Alliant Preliminary Marketing Report Certificates Issued Renewal Specifications to Market Proposal to OCSD OCSD Admin. Committee April 11. 2007 Prr7pnsed Budget Upd.le FY 06-07 and FY 07-08 Proposed Budget Update Orange County Saniation Distnct Apni 11,"1 $141 million prey of the proposed 2007-08 Budget Is allocated to Operating Expenses. Capital Implv7ement Prog, S Me M,uxl S 30S M a^1 0e01 service S ee M lnnl S SB M n2fi1 Operaling Ow% 5lee ML 1 $110 Man1 MmN1sl%%M Coe% S 25 M 1411 S 2611. Cenl21 Ag.1 C S 5MIw S sMuv Total Erpewftre6 $545M S51414 Operating costs are proposed to Increase by S2.5 million D.mx •eeP1r � rr,pew irmm rr W. 01.ry U..aM Bel file S75.9M $763M $04M Ctamite1601Mr Syptiea 25.4 M.1 123) Comranml Semcea 20.9 242 33 %,.,6 M.m.. 10.4 9.1 0M Ueueea el 9.9 0.6 Re..11h6M 1.1 1.4 1.5 0A OIMr Egre 9.7 10.1 0.4 Cost Me[a. (17.M (IBM 1.1 SuPTOMI S13S5 Pwo S25 Self mu—e 26 26 0.0 Tolel Opereling Eal—n SlMAM $1406M 525M Distributed at the Administration Committee J'f—It-01 Meeting 1 OCSD Admin. Committee AprII 11,2007 Proposed Budget Update The majority of the expenditure changes will occur In five expenditure categories: proposed change. t. Chemicals S Other Supplies ($2.3)M 2. Solids&Waste Disposal $2.7 M 3. Repairs&Maintenance ($1.3)M 4. Utilities $0.8 M 5. Cost Allocation $1.1 M While the cost of Chemicals has Increased, process optimization has reduced usage. f 'w P,.p...d Prop..w FY 0748 Chong. FY 07-00 DIMMecgon $10.0 M ($1.0)M $9.0 M Odor Control 6.6 (0.7) 5.9 Cosgulen% 6.3 (0.4) 5.9 Other Cheml Supplies 2.5 (0.2) 2.3 Total D .sricab/ $25.4 M ($2.3W $23.1 M S.PPiies Blosolids hauling and grit screening costs rise as total solids Increase. ad.1W Pr.poee4 Fopoau4 FY 07-08 Change FY 07-H SOIMS Removal $13.4M $0.9M $14.3M Residue)Solkls/Grit 0.6 1a 2.4 Darer Correct Services 6.9 0.6 7.5 Taal Cenlradual/ $20.9M $3.3M $24.2M Proleulonal SeNices 2 OCSD Admin.Committee April 11, 2007 Proposed Budget Update Repairs and Maintenance remain constant. However,some costs are reallocated. Adapted pm" Ropo FY 07-0e Ch ry "049 R&M-SWIMS $4.1M ($0.51M 83.8M R&M-M04065 4.6 (0.6) 4.0 n&M-Older 1.7 (0.2) 1.6 Twel MGM $10A M ($1.3)M $9.1 M The Utilities budget Is Increased, as electricity and natural gas costs continue to rise. Adopted P 'p Ropooad EleclrlcXy $6.4 M $0.8 M $7.0 M NaWW Gas I 0.3 1.3 waler 13 (0.1) 1.4 ONer 0.2 OA 0.2 TMM Unites $9.1 M SIDE M $9.9 M Coot Allocation Less direct labor and materials will be allocated to the CIP than previously anticipated. Adopts Rmpoeed prepeeed FY07-H C0an, FT 0149 Seledes ($8.0)M $0.5M ($7.5)M Expenses ($9.3) 0.6 (aJ) TOW Coss ($17.3)M $1.1 M ($162p$ A90ea6on 3 OCSD Admin. Committee April 11,2007 Proposed Budget Update Next Steps ♦ Revenue detail will be presented at the May Administration Committee meeting ♦ Summary presentations to the June Operations and Administration Committees ♦ Presentation and budget adoption at the June Board meeting 4 OCSD Admin. Committee April 11, 2007 Capiral/mprovemenr Program Two-Year Budget Update Capital Improvement Program (CIP) Apn12W7 Projected User Rate Increases •OEw Pmpcn Cuttxit pax P acted w wa w avte t>n un nu uu wwr� Projected CIP Budget .+Curtent euEget ■Pen(spent) ProlecteE Future szw m v v IIeIY� �� A Distributed at the Administration Committee 1 L,y_tt-0'I Meeting OCSO Admin. Committee April 11,2007 Capital Improvement Program Projected CIP Budget s Mmo-u ..Cument Budget seoo -Future •Pest •eWn System Boo •$ecantlart •collections a TP Rehab/Upgrade BW BW B epMYMr Marqugat eer Tbe Vllagepectruma.irnrPlace n) 3 Acids from Odorous Compounds Lead to Pipe Corrosion z : 2 OCSD Admin.Committee April 11,2007 Capital Improvement program k Consent Decree Saconaary Standards MlleetoneEsenl 1orl1 Coen Yard TIII In P ww Mee I Admin.Bid . ee UIIIIaOan Proposed CIP Adjustments, Delays and Deferrals s OCSD Admin.Committee April 11,2007 Capital Improvement Pragmm Growth Slower Than Projected jt r BetterBetter C�IR onln Assesament Information Power Reliability Project Delayed t 4 OCSD Admin. Committee April 11,2007 Capital Improvement Program f t:: Gas Flares at Plant No. 1 OS.Hd'. ction and Management All Lower Construction BIds and Contingency Reduetlons.- 5 OCSD Admin.Committee April 11, 2007 Capital 6rrprovement Program Newly Proposed Projects ♦ Security upgrades • Central generation cooling water system ♦ Research funding ♦ Los Alamitos sewer study • Administrative office plan/relocations Questions I& Orange County Sanitation District www.ocsd.com 6 STATE OF CALIFORNIA) ) SS. COUNTY OF ORANGE ) Pursuant to California Government Code Section 54954.2, 1 hereby certify that the Notice and the Agenda for the Administration Committee meeting to be held on April 11, 2007, was duly posted for public inspection in the main lobby of the District's offices on April 5, 2007. IN WITNESS WHEREOF, I have hereunto set my hand this 5th day of April, 2007. Cilia ov�s�CCle of the Board Board of Directors Orange County Sanitation District H:\DEPnGMO%150%151\BS\FONMSIAGENDA CERTIFICATION-ADMIN.COMMITTEE.DOC ORANGE COUNTY SANITATION DISTRICT °2,11 NOTICE OF MEETING he ivyal eAz h.: ""'P 2„"'I' ADMINISTRATION COMMITTEE 1enw....E.win m.I11M add.: Finance, Human Resources and Information Technology PO ew 9111J luuutwn 8212E 28H Iv` B 12 i •[i.e[.aei..e: N"'a nuarwe1rA ORANGE COUNTY SANITATION DISTRICT fiunnB2 DB 71 18 E2lEB-0I11B Wa6ae WEDNESDAY, APRIL 11, 2007 - 5:00 P.M. :r Mae DISTRICT'S ADMINISTRATIVE OFFICES Aiuntlim 10844 ELLIS AVENUE Eren FOUNTAIN VALLEY, CALIFORNIA 92708 Hurirnl rest plrine WW W .00SD.COM /inerrant U.allnl IblHrum (inrrlxn i>vre Nunrnrywn Haaop I'""" A regular meeting of the Administration Committee of the Orange la Hahre 9 9 9 Ia I>xima County Sanitation District will be held at the above location, date Lnn AIT""nF Newllnrt Hea.a, and time. Iri..l. tllAMn 5nn Ann form Hxech S 'nnn T." I"ille l'wt ynr" l mae Lunt, .I G.." wary Ob[Noc. IwW4i /vMii9 Mwwey IAty W.Gr GIRWete Lvian Hwu:h To maintain warldalass leadership m wastewater and water resource management. O� `J9 C IXE EM�P ADMINISTRATION COMMITTEE MEETING DATES Meeting Date Board Meeting Dates April 11, 2007 April 25, 2007 May 9, 2007 May 23, 2007 June 13, 2007 June 27, 2007 July 11, 2007 *July 18, 2007 August — Dark August 22, 2007 September 12, 2007 September 26, 2007 October 10, 2007 October 24, 2007 November 14, 2007 November 28, 2007 December 12, 2007 *December 19, 2007 January 2008 — Dark January 23, 2008 February 13, 2008 February 27, 2008 March 12, 2008 March 26, 2008 April 9, 2008 April 23, 2008 *Meetings being held the third Wednesday of the month. ROLL CALL ADMINISTRATION COMMITTEE Finance, Human Resources and Information Technology Meeting Date: April 11, 2007 Time: 5:00 p.m. Adjourn: COMMITTEE MEMBERS (14) Mark Waldman Chair Phil Luebben ice Chair Steven Choi Bill Dalton Jon Dumltru Rich Freschi Darryl Miller Joy Neu ebauer Chris Norb Ken Parker Sal Tina'ero Jim Winder James M. Ferryman Board Chair Doug Davert Board Vice Chair OTHERS Brad H in, General Counsel STAFF Jim Ruth, General Manager Nick Arhontes, Director of Operations Bob Ghirelli, Assistant General Manager Jim Herbs , Director of Engineering Ed Tortes, Director of Technical Services Lorenzo Tyner, Director of Finance and Administrative Services Lille Kovac, Committee Secretary Bret Colson, Public Information Manager Jeff Reed, Human Resources and Employee Relations Manager Mike White, Controller c: Lenora Crane Hidepr�agenda\CommMeasMmin Cc=Nee1 07\02. Roll Call.doc AGENDA REGULAR MEETING OF THE ADMINISTRATION COMMITTEE ORANGE COUNTY SANITATION DISTRICT WEDNESDAY, APRIL 11 , 2007, AT 5:00 P.M. ADMINISTRATIVE OFFICE 10844 Ellis Avenue Fountain Valley, California 92708 www.ocsd.com (1) DECLARATION OF QUORUM (2) APPOINTMENT OF CHAIR PRO TEM IF NECESSARY (3) PUBLIC COMMENTS (4) REPORT OF COMMITTEE CHAIR (5) REPORT OF GENERAL MANAGER a. 2007/08 CIP Budget Update (6) REPORT OF DIRECTOR OF FINANCE AND ADMINISTRATIVE SERVICES (7) REPORT OF GENERAL COUNSEL (8) CONSENT CALENDAR ITEMS Consideration of motion to approve all agenda items appearing on the Consent Calendar not specifically removed from same, as follows: a. Approve minutes of the March 14, 2007 meeting of the Administration Committee. END OF CONSENT CALENDAR b. Consideration of items deleted from Consent Calendar, if any. Book Page 1 April 11, 2007 Page 2 (9) ACTION ITEMS a. ADM07-26 Recommend to the Board of Directors to: (1)Adopt Resolution No. OCSD 07-_, Authorizing the Execution and Delivery by the District of an Installment Purchase Agreement, a Trust Agreement, an Escrow Agreement and a Continuing Disclosure Agreement in connection with the execution and delivery of Orange County Sanitation District Refunding Certificates of Participation, Series 2007A, Authorizing the Execution and Delivery of such Certificates Evidencing Principal in an Aggregate Amount of Not to Exceed $315,000,000, Approving a Notice of Intention to Sell,Authorizing the Distribution of an Official Notice Inviting Bids and an Official Statement in Connection with the Offering and Sale of Such Certificates and Authorizing the Execution of Necessary Documents and Certificates and Related Actions. (2)That the Orange County Sanitation District Financing Corporation adopt Resolution No. FC-04,Authorizing the Execution and Delivery by the Corporation of an Installment Purchase Agreement and a Trust Agreement in connection with the execution and delivery of Orange County Sanitation District Refunding Certificates of Participation, Series 2007A;Authorizing the Execution and Delivery of such Certificates Evidencing Principal in an Aggregate Amount of Not to Exceed $315,000,000 and; Authorizing the Execution of Necessary Documents and Certificates and Related Actions. (Book Page 10) b. ADM07-27 Recommend to the Board of Directors to adopt Ordinance No. OCSD-32, An Ordinance of the Board of Directors of Orange County Sanitation District Establishing Sanitary Sewer Service Charges; Establishing Capital Facilities Capacity Charges;Adopting Miscellaneous Charges and Fees Relating to Industrial Charges, Source Control Pennittees and Wastehaulers, and Repealing Ordinance No. OCSD-30B. (Book Page 112) C. ADM07-28 Recommend to the Board of Directors to adopt Ordinance No. OCSD-33, Adopting Fees, Revised Procedures and Policies Concerning Annexation of Properties to the District and Repealing Ordinance No. OCSD-29. (Book Page 151) (10) INFORMATIONAL ITEMS a. ADM07-29 2006-07 and 2007-08 District Budget Update (Book Page 158) b. ADM07-30 2007/08 Benefits Program Renewal Costs (Book Page 172) C. ADM07-31 Property Tax Credit Adjustments for Class I and Class II Permits (Book Page 174) Book Page 2 April 11, 2007 Page 3 (11) CLOSED SESSION ._--------.............................................................---`--_._...----.__..__...._..__..__.._......._._............._..........----------'— During the course of conducting the business set forth on this agenda as a regular meeting of the Committee, i the Chair may convene the Committee in closed session to consider matters or pending real estate negotiations, pending or potential litigation,or personnel matters, pursuant to Government Code sections 54956.8, 54956.9, 54957 or 54957.6,as noted. Reports relating to (a) purchase and sale of real property; (b) matters of pending or potential litigation; (c) employee actions or negotiations with employee representatives; or which are exempt from public disclosure i under the California Public Records Act, may be reviewed by the Committee dudng a permitted closed session and are not available for public inspection. At such time as final actions are taken by the Committee on any of ;_these subjects,the.minules will reflect all requiretl disclosures of Information. A. Convene in closed session. 1. Conference with designated representatives Jim Ruth, General Manager; Lorenzo Tyner, Director of Finance and Administrative Services; Jeff Reed, Human Resources and Employee Relations Manager; and Paul Loehr, Human Resources Supervisor, re Meet and Confer Update re contract negotiations for employees represented by 1). Orange County Employees Association; 2). International Union of Operating Engineers, Local 501, and 3). Supervisors, Professional Management Team (part of Peace Officers Council of California) (Government Code Section 54957(b)(1). B. Reconvene in regular session. C. Consideration of action, if any, on matters considered in closed session. (12) OTHER BUSINESS COMMUNICATIONS OR SUPPLEMENTAL AGENDA ITEMS IF ANY (13) MATTERS WHICH A DIRECTOR MAY WISH TO PLACE ON A FUTURE AGENDA FOR ACTION AND STAFF REPORT (14) FUTURE MEETING DATES The next regular Administration Committee meeting is scheduled for May 9, 2007, at 5 p.m. (15) ADJOURNMENT Book Page 3 April 11, 2007 Page 4 Agenda Postina: In accordance with the requirements of California Government Code Section 54954.2, this agenda has been posted in the main lobby of the District's Administrative offices not less than 72 hours prior to the meeting date and time above. All written materials relating to each agenda item are available for public inspection in the office of the Clerk of the Board. Items Not Posted: In the event any matter not listed on this agenda is proposed to be submitted to the Committee for discussion and/or action, tt will be done in compliance with Section 54954.2(b) as an emergency item or bemuse there Is a need to take immediate action, which need came to the attention of the Committee subsequent to the posting of agenda, or as set forth an a supplemental agenda posted in the manner as above, not less than 72 hours prior to the meeting date. Public Comments: Any member of the public may address the Administration Committee on specific agenda items or matters of general interest. As determined by the Chair, speakers may be deferred until the specific item is taken for discussion and remarks may be limited to three minutes. Matters of interest addressed by a member of the public and not listed on this agenda cannot have action taken by the Committee except as authorized by Section 54954.2(b). Consent Calendar: All matters placed on the consent calendar are considered as not requiring discussion or further explanation, and unless a particular item is requested to be removed from the consent calendar by a Director of staff member, there will be no separate discussion of these items. All items on the consent calendar will be enacted by one action approving all motions, and casting a unanimous ballot for resolutions included on the consent calendar. All items removed from the consent calendar shall be considered in the regular order of business. The Committee Chair will determine if any items are to be deleted from the consent calendar. Items Continued: Items may be continued from this meeting without further notice to a Committee meeting held within five(5)days of this meeting per Government Code Section 54954.2(b)(3). Meeting Adioumment: This meeting may be adjourned to a later time and items of business from this agenda may be considered at the later meeting by Order of Adjournment and Notice in accordance with Government Code Section 54955(posted within 24 hours). Accommodations for the Disabled: The Board of Directors Meeting Room is wheelchair accessible. If you require any special disability related accommodations, please contact the Orange County Sanitation District Clerk of the Board's office at(714)593-7130 at least 72 hours prior to the scheduled meeting. Requests must specify the nature of the disability and the type of accommodation requested. Notice to Committee Members: For any questions on the agenda or to place any items on the agenda, Committee members should contact the Committee Chair or Clerk of the Board ten days In advance of the Committee meeting. Committee Chair: Mark Waldman (714)827-1968 Committee Secretary: Lilia Kovac (714)593-7124 Ikovac0ocsd.00m General Manager: Jim Ruth (714)593-7110 innhAocsd.co Assistant General Manager Bob Ghirelli (714)593-7400 rahirellifalocsd.com Director of Finance and Lorenzo Tyner (714)593-7550 Itynereacsd.com Administrative Services Human Resources and Employee Jeff Read (714)593-7144 ireedralocsd.com Relations Manager H:1dep0agenda\Committees'Admin Commilteet0407103.041107 Administration Agmda.doc Book Page 4 h April 11, 2007 ADMINISTRATION COMMITTEE AGENDA CALENDAR Item Action May 2007/08 Budget Action Book Page 5 MINUTES OF THE REGULAR MEETING OF THE ADMINISTRATION COMMITTEE Orange County Sanitation District WEDNESDAY, March 14, 2007, AT 6:00 P.M. A meeting of the Administration Committee of the Orange County Sanitation District was held on March 14, 2007, at 5:00 p.m., in the Sanitation District's Administrative Office. (1) The roll was called and a quorum declared present, as follows: ADMINISTRATION COMMITTEE STAFF PRESENT: MEMBERS: Jim Ruth, General Manager DIRECTORS PRESENT: Lorenzo Tyner, Director of Finance and Mark Waldman, Chair Administrative Services Phil Luebben,Vice Chair Jim Herberg, Director of Engineering Steven Choi Jeff Reed, Human Resources and Employee Bill Dalton Relations Manager Jon Dumitru Mike White, Controller Rich Freschi Penny Kyle, Clerk of the Board Darryl Miller Rich Spencer Joy Neugebauer Laurie Klinger Chris Norby Randy Kleinman Ken Parker Jim Burror Sal Tinajero Juanita Skillman Doug Davert, Board Vice Chair OTHERS PRESENT: DIRECTORS ABSENT: Brad Hogin, General Counsel Jim Ferryman, Board Chair Jim Winder (2) APPOINTMENT OF CHAIR PRO TEM No appointment was necessary. (3) PUBLIC COMMENTS There were no public comments. (4) REPORT OF THE COMMITTEE CHAIR Chair Waldman did not give a report. (6) REPORT OF THE GENERAL MANAGER Jim Ruth, General Manager, recognized Jim Herberg, Director of Engineering, who briefed the Committee on the CIP budget, and responded to their questions. Book Page 6 i Minutes of the Administration Committee March 14, 2007 Page 2 (6) REPORT OF DIRECTOR OF FINANCE AND ADMINISTRATIVE SERVICES Lorenzo Tyner, Director of Finance and Administration, introduced Randall Kleinman, Principal Financial Analyst(Risk Manager). (7) REPORT OF GENERAL COUNSEL Brad Hogin, General Counsel, did not give a report. (8) CONSENT CALENDAR ITEMS Consideration of motion to approve all agenda items appearing on the Consent Calendar not specifically removed from same, as follows: a. MOVED, SECONDED AND DULY CARRIED:Approve minutes of the February 14, 2007 meeting of the Administration Committee. b. ADM07-06 MOVED, SECONDED AND DULY CARRIED: Recommend that the Board of Directors: (1)Approve the amended Joint Powers Agreement of the CSAC (California State Association of Counties) Excess Insurance Authority which supersedes the California Public Entities Insurance Authority(CPEIA)that provides the District's excess workers' compensation insurance coverage, in a form approved by General Counsel; and, (2)Approve the CSAC Excess Insurance Authority's amended Memorandum of Understanding for the Excess Workers' Compensation Program to incorporate non-county public entity membership in the program, in a form approved by General Counsel. END OF CONSENT CALENDAR (9) INFORMATIONAL ITEMS a. ADM07-07 2006-07 and 2007-08 District Budget Update Lorenzo Tyner, Director of Finance and Administrative Services, provided a brief overview of the FY 2007-08 budget. b. ADM07-08 2007-08 Sewer Service User Fee Estimates Mike White, Controller, discussed proposed high strength discharge sewer service fee billing method adjustments. Directors discussed whether the policy issues should be considered before or after the completion of the next rate study. It was determined that the impact of these policy issues beyond 2007-08 would be brought back for further discussion at the April meeting. Book Page 7 Minutes of the Administration Committee March 14, 2007 Page 3 C. ADM07-09 Succession Management Program Update Rich Spencer, Human Resources Supervisor, gave a brief report and overview of the Succession Management Program. (10) CLOSED SESSION The Committee convened in Closed Session at 6:40 p.m. pursuant to Government Code Section 54957(b)(1). Confidential Minutes of the Closed Session held by the Administration Committee have been prepared in accordance with California Government Code Section 54957.2, and are maintained by the Clerk of the Board in the Official Book of Confidential Minutes of Board and Committee Closed Meetings. A. Convene in closed session. 1. Conference with designated representatives Jim Ruth, General Manager; Lorenzo Tyner, Director of Finance and Administrative Services; and Jeff Reed, Human Resources and Employee Relations Manager, re Meet and Confer Update re contract negotiations for employees represented by 1). Orange County Employees Association; 2), International Union of Operating Engineers, Local 501, and 3). Supervisors, Professional Management Team (part of Peace Officers Council of California) (Government Code Section 54957(b)(1). B. The Committee reconvened in regular session at 6:45 p.m. C. Consideration of action, if any, on matters considered in closed session. (11) OTHER BUSINESS, COMMUNICATIONS OR SUPPLEMENTAL AGENDA ITEMS, IF ANY (12) MATTERS WHICH A DIRECTOR MAY WISH TO PLACE ON A FUTURE AGENDA FOR ACTION AND STAFF REPORT Director Miller requested a report on water conservation measures that could be applied in the treatment plant and what the projected impact would be on user fees. Director Neugebauer requested the committee be provided updates on the North County Yard. (13) FUTURE MEETING DATES The next regular Administration Committee meeting is scheduled for April 11, 2007, at 5 p.m. Book Page 8 Minutes of the Administration Committee March 14,2007 Page 4 (14)ADJOURNMENT The Chair declared the meeting adjourned at 6:50 p.m. Submitted by: v( Penny K Clerk of the Board M:ldepflagendalCommVd a Wmin CommMeBD407106.031407 Adminisealbn Minutwdac Book Page 9 ADMINISTRATION COMMITTEE mOe Tois omit• 25/07 AGENDA REPORT 1OeMN""biir 1OemNurr6er ADM07-26 Orange County Sanitation District FROM: James D. Ruth, General Manager Originator: Lorenzo Tyner, Director of Finance and Administrative Services SUBJECT: CERTIFICATES OF PARTICIPATION (COPS), SERIES 2007A GENERAL MANAGER'S RECOMMENDATION (1) Adopt Resolution No. OCSD07-_,Authorizing the Execution and Delivery by the District of an Installment Purchase Agreement, a Trust Agreement, an Escrow Agreement and a Continuing Disclosure Agreement in connection with the execution and delivery of Orange County Sanitation District Refunding Certificates of Participation, Series 2007A, Authorizing the Execution and Delivery of such Certificates Evidencing Principal in an Aggregate Amount of Not to Exceed $315,000,000, Approving a Notice of Intention to Sell,Authorizing the Distribution of an Official Notice Inviting Bids and an Official Statement in Connection with the Offering and Sale of Such Certificates and Authorizing the Execution of Necessary Documents and Certificates and Related Actions. (2) That the Orange County Sanitation District Financing Corporation adopt Resolution No. FC-04, Authorizing the Execution and Delivery by the Corporation of an Installment Purchase Agreement and a Trust Agreement in connection with the execution and delivery of Orange County Sanitation District Refunding Certificates of Participation, Series 2007A; Authorizing the Execution and Delivery of such Certificates Evidencing Principal in an Aggregate Amount of Not to Exceed $315,000,000 and; Authorizing the Execution of Necessary Documents and Certificates and Related Actions. SUMMARY The Board of Directors has previously authorized the issuance of new fixed rate Certificates of Participation (COP)debt sufficient to refund up to$280 million of COP Series 2003 and the hiring of a financing team. The independent financial advisor is Public Resources Advisory Group and the bond counsel and disclosure counsel is Orrick, Herrington&Sutcliffe. Woodruff, Spradlin & Smart, our General Counsel, has also been assisting staff. The purpose of the financing is to take advantage of the current low interest rate environment and to advance refund all or a portion of the COP Series 2003. Many maturities of this issue may be advance refunded for significant economic savings under current market conditions in excess of three (3) percent as the minimum present value of savings as required by the Sanitation District's policy. The draft documents for the financing will be distributed to the rating agencies following the Administration Committee meeting. These documents will be presented to the OCSD Board of Directors and Financing Corporation on April 25, 2007 for final approval. Staff and consultants will make a brief presentation and provide an overview of the draft documents and the financing schedule at the Administration Committee meeting. Form No.owtv[a xenw:mrotmr Page 1 Book Page 10 PRIOR COMMITTEE/BOARD ACTIONS September 26, 2001: Adoption of Debt Policy October 25, 2006: Renewed Consultant Agreement with Public Resources Advisory Group for an additional five years effective November 2006. February 28, 2007: Directed staff to initiate procedures to refund Certificates of Participation (COP) Series 2003 up to$280 million in new fixed-rate Certificates of Participation (COP) debt. February 28, 2007: Authorized the General Manager to negotiate and enter a Consultant Services Agreement with Orrick, Herrington & Sutcliffe to provide bond counsel services. ADDITIONAL INFORMATION The most recent Strategic Plan capital improvement program requires approximately$2.2 billion over the next 10 years, of which approximately$1.2 billion is to be financed through long-term borrowings in accordance with the District's long-term debt fiscal policy and cash flow projections The next new debt issuance of$300 million of COP debt is not scheduled until fiscal year 2007-08. A total of up to $1.2 billion in COP debt issuance is being proposed over the next ten years with a new issuance scheduled approximately every year for at least the next six years. These financings are needed early in the 10-year capital improvement program because the bulk of the construction is scheduled during the next seven years. Due to the current low interest rate environment, staff is proposing to refund at least $84.0 million of COP Series 2003 maturing in years 2027 through 2030 with annual coupon rates of 5.25 percent, as shown in bold in the chart below. Additional bond maturities may be proposed to be refunded depending on the existing market rates at the time of issuance. COP Series 2003 Maturity Bond Type Principal Amount Coupon Call Date Call Price 02/01/21 Serial $ 4,495000 5.25% 08/01/13 100.000 0210122 Serial 15- 10010D0 5.0DOA 08/01/13 100.000 02101/23 Serial 15,805,000 5.00% 08/01/13 . 100.000 02101/24 Serial 16840000 5.00% 08/01/13 100.000 02/01/25 Serial 17,425,000 5.00% 08/01/13 100.000 02101/26 Serial 18,350 000 5.00% 08/01/13 100.000 - 7 . 02101/33 i Term108180000 _ 5.00°h � 08/01/13, 1 100.000� Total $280,000,000 rwm ea oYwoxa vwi.xoaowr Page 2 Book Page I I The Board of Directors and the Financing Corporation are required to adopt separate Resolutions to complete this borrowing. Drafts of these two Resolutions are attached for review. A Financing Corporation is required by the structure of the COPS and was formed in April 2000, solely to satisfy this need. The Board of Directors of the Corporation is the same as the Board of Directors of the District and the Corporation meets after an adjournment of the OCSD Board. The OCSD Resolution authorizes the execution and delivery of certain legal documents and the execution and delivery of Certificates of Participation evidencing principal in an aggregate amount of not to exceed $315,000,000 all as spelled out in the title as follows: "A RESOLUTION OF THE BOARD OF DIRECTORS OF THE ORANGE COUNTY SANITATION DISTRICT AUTHORIZING THE EXECUTION AND DELIVERY BY THE DISTRICT OF AN INSTALLMENT PURCHASE AGREEMENT, A TRUST AGREEMENT, AN ESCROW AGREEMENT AND A CONTINUING DISCLOSURE AGREEMENT IN CONNECTION WITH THE EXECUTION AND DELIVERY OF ORANGE COUNTY SANITATION DISTRICT REFUNDING CERTIFICATES OF PARTICIPATION, SERIES 2007A, AUTHORIZING THE EXECUTION AND DELIVERY OF SUCH CERTIFICATES EVIDENCING PRINCIPAL IN AN AGGREGATE AMOUNT OF NOT TO EXCEED $315,000,000, APPROVING A NOTICE OF INTENTION TO SELL, AUTHORIZING THE DISTRIBUTION OF AN OFFICIAL NOTICE INVITING BIDS AND AN OFFICIAL STATEMENT IN CONNECTION WITH THE OFFERING AND SALE OF SUCH CERTIFICATES AND AUTHORIZING THE EXECUTION OF NECESSARY DOCUMENTS AND CERTIFICATES AND RELATED ACTIONS" The Resolution of the Corporation is somewhat shorter and simpler. It authorizes three actions that are similarly enumerated in the title as follows: "A RESOLUTION OF THE BOARD OF DIRECTORS OF THE ORANGE COUNTY SANITATION DISTRICT FINANCING CORPORATION AUTHORIZING THE EXECUTION AND DELIVERY BY THE CORPORATION OF AN INSTALLMENT PURCHASE AGREEMENT AND A TRUST AGREEMENT IN CONNECTION WITH THE EXECUTION AND DELIVERY OF ORANGE COUNTY SANITATION DISTRICT REFUNDING CERTIFICATES OF PARTICIPATION, SERIES 2007A, AUTHORIZING THE EXECUTION AND DELIVERY OF SUCH CERTIFICATES EVIDENCING PRINCIPAL IN AN AGGREGATE AMOUNT OF NOT TO EXCEED $315,000,000 AND AUTHORIZING THE EXECUTION OF NECESSARY DOCUMENTS AND CERTIFICATES AND RELATED ACTIONS." Copies of the Resolutions are enclosed with the agenda along with the Preliminary Official Statement. To reduce reproduction and postage expenses, copies of the other documents are not included, but will be available electronically within the Director's website prior to the Board meeting. Following is a chart listing the remaining steps to be completed for the issuance of the COP Series 2007A debt issuance: ➢ Develop rating agency presentation April ➢ Conduct rating agency presentations ➢ Finalize debt service and cash flow modeling ➢ Board approval of legal and disclosure documents ➢ Conduct Competitive Sale of Fixed Rate COP 2007A ➢ Execute COP 2007A Refunding issue May ➢ Investment of Bond Proceeds D Debt Administration Fotm No.M 102,3 Reulvea:owllol Page 3 Book Page 12 The Consultant Services Agreements with PRAG and Orrick total a not-to-exceed amount of $225,000. These and other costs, such as printing the Official Statement, underwriters' discount, rating agency fees and trustee's fees will be paid from the proceeds of the borrowing. ATTACHMENTS 1. Proposed Resolution of OCSD 2. Proposed Resolution of the OCSD Financing Corporation 3. Preliminary Official Statement JDR:LT:mw Form No.Dw IW 3 Pw+eM.0Y01N) Page 4 Book Page 13 RESOLUTION NO. OCSD 07- A RESOLUTION OF THE BOARD OF DIRECTORS OF THE ORANGE COUNTY SANITATION DISTRICT AUTHORIZING THE EXECUTION AND DELIVERY BY THE DISTRICT OF AN INSTALLMENT PURCHASE AGREEMENT, A TRUST AGREEMENT, AN ESCROW AGREEMENT AND A CONTINUING DISCLOSURE AGREEMENT IN CONNECTION WITH THE EXECUTION AND DELIVERY OF ORANGE COUNTY SANITATION DISTRICT REFUNDING CERTIFICATES OF PARTICIPATION, SERIES 2007A, AUTHORIZING THE EXECUTION AND DELIVERY OF SUCH CERTIFICATES EVIDENCING PRINCIPAL IN AN AGGREGATE AMOUNT OF NOT TO EXCEED $315,000,000, APPROVING A NOTICE OF INTENTION TO SELL, AUTHORIZING THE DISTRIBUTION OF AN OFFICIAL NOTICE INVITING BIDS AND AN OFFICIAL STATEMENT IN CONNECTION WITH THE OFFERING AND SALE OF SUCH CERTIFICATES AND AUTHORIZING THE EXECUTION OF NECESSARY DOCUMENTS AND CERTIFICATES AND RELATED ACTIONS WHEREAS, in order to finance the acquisition, construction and installation of certain improvements to the wastewater system (the "Prior Project') of the Orange County Sanitation District (the "District'), the District purchased the Prior Project from the Orange County Sanitation District Financing Corporation (the "Corporation'), and the Corporation sold the Prior Project to the District, for the installment payments (the "Prior Installment Payments") to be made by the District pursuant to the Installment Purchase Agreement, dated as of July I, 2003 (the"Prior Installment Purchase Agreement'), by and between the District and the Corporation; WHEREAS, in order to provide the funds necessary to finance the Prior Project, the District and the Corporation caused to be executed and delivered the Orange County Sanitation District Certificates of Participation, Series 2003 (the "Prior Certificates"), evidencing direct, undivided fractional interests in the Prior Installment Payments,and the interest thereon; WHEREAS, the District desires to refinance all or a portion of the Prior Project (to the extent so refinanced, the "Project') by prepaying all or a portion of the Prior Installment Payments,thereby causing all or a portion of the Prior Certificates to be prepaid; WHEREAS, in order to provide the funds necessary to prepay the Prior Installment Payments to be so prepaid, the District and the Corporation desire that the Corporation purchase the Project from the District, and the District sell the Project to Corporation, and that the District then purchase the Project from the Corporation, and the Corporation sell the Project to the District, for the installment payments (the "Installment Payments") to be made by the District pursuant to an Installment Purchase Agreement (such Installment Purchase Agreement, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution,being referred to herein as the"Installment Purchase Agreement); OHS WIiSf:2WIS1976.2 91758-I0 GHUMKrI Book Page 14 WHEREAS, the Corporation proposes to assign without recourse certain of its rights under and pursuant to the Installment Purchase Agreement to Union Bank of California,N.A., as trustee (the "Tmstee'), pursuant to a Trust Agreement among the Trustee, the Corporation and the District (such Trust Agreement, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the '"Trust Agreement"); WHEREAS, in consideration of such assignment and the execution and entering into of the Trust Agreement, the Trustee will execute and deliver Orange County Sanitation District Refunding Certificates of Participation, Series 2007A (the "Certificates'), evidencing direct, undivided fractional interests in the Installment Payments,and the interest thereon; WHEREAS, the funds to pay the Prior Installment Payments to be prepaid, and the interest thereon, and the Prior Certificates evidencing interests therein, will be applied to such purpose pursuant to an Escrow Agreement by and between the District and Union Bank of California, N.A., as prior trustee and escrow bank (such Escrow Agreement, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution,being referred to herein as the"Escrow Agreement"); WHEREAS,the District desires to provide for the public sale of the Certificates; WHEREAS, a form of the Notice of Intention to Sell to be published in connection with the public offering and sale of the Certificates has been prepared (such Notice of Intention to Sell, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution,being referred to herein as the"Notice of Intention to Sell"); WHEREAS, a form of the Official Notice Inviting Bids to be distributed in connection with the public offering and sale of the Certificates has been prepared (such Official Notice Inviting Bids, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution,being referred to herein as the"Notice Inviting Bids"); WHEREAS,a form of the Preliminary Official Statement to be distributed in connection with the public offering of the Certificates has been prepared (such Preliminary Official Statement in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the "Preliminary Official Statement'); WHEREAS, Rule 15c2-12 promulgated under the Securities Exchange Act of 1934 ("Rule 15c2-12") requires that, in order to be able to purchase or sell the Certificates, the underwriter thereof must have reasonably determined that the District has undertaken in a written agreement or contract for the benefit of the holders of the Certificates to provide disclosure of certain financial information and certain material events on an ongoing basis; WHEREAS, in order to cause such requirement to be satisfied, the District desires to enter into a Continuing Disclosure Agreement with the Trustee (such Continuing Disclosure Agreement in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the "Continuing Disclosure Agreement"); OHS WM 2601819762 4176&IOOHIMIl<H 2 Book Page 15 WHEREAS,there have been prepared and submitted to this meeting fors of: (a) the Installment Purchase Agreement; (b) the Trust Agreement; (c) the Escrow Agreement; (d) the Notice of Intention to Sell; (e) the Notice Inviting Bids; (f) the Preliminary Official Statement;and (g) the Continuing Disclosure Agreement; WHEREAS, all acts, conditions and things required by the Constitution and laws of the State of California to exist, to have happened and to have been performed precedent to and in connection with the consummation of the financing authorized hereby do exist, have happened and have been performed in regular and due time, for and manner as required by law, and the District is now duly authorized and empowered, pursuant to each and every requirement of law, to consummate such financing for the purpose, in the manner and upon the terms herein provided; NOW, THEREFORE, the Board of Directors of the Orange County Sanitation District DOES HEREBY RESOLVE,DETERMINE AND ORDER: Section 1. All of the recitals herein contained are true and correct and the Board of Directors of the District(the"Board")so finds. Section 2. The Installment Purchase Agreement, in substantially the form submitted to this meeting and made a part hereof as though set forth herein, be and the same is hereby approved. The Chair of the Board of Directors,and such other member of the Board of Directors as the Chair may designate, the General Manager of the District, the Director of Finance of the District, and such other officer of the District as the Director of Finance may designate (the "Authorized Officers") are, and each of them is, hereby authorized and directed, for and in the name of the District, to execute and deliver the Installment Purchase Agreement in the form submitted to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Installment Purchase Agreement by such Authorized Officer, provided, however, that such changes, insertions and omissions shall not result in an aggregate principal amount of Installment Payments in excess of$315,000,000, shall not result in a true interest cost for the Installment Payments in excess of 5.00% and shall not result in a final Installment Payment later than February 1, 2033. Section 3. The Trust Agreement, in substantially the form submitted to this meeting and made a part hereof as though set forth in full herein, be and the same is hereby approved. The Authorized Officers are,and each of them is,hereby authorized and directed, for and in the name OHS WM:260191W&2 417WOGHINKH 3 Book Page 16 of the District,to execute and deliver the Trust Agreement in the form presented to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Trust Agreement by such Authorized Officer. Section 4. The execution and delivery of Certificates evidencing principal in an aggregate amount of not to exceed $315,000,000, payable in the years and in the amounts, and evidencing principal of and interest on the Installment Payments as specified in the Trust Agreement as finally executed,are hereby authorized and approved. Section 5. The prepayment of all or a portion of the Prior Installment Payments,and the Prior Certificates evidencing interests therein, is hereby authorized and approved and the Authorized Officers are, and each of them is, hereby authorized and directed to determine which of the Prior Installment Payments, and Prior Certificates, are to be so prepaid; provided, however,that the net present value savings from such prepayment shall not be less than 3.00%. Section 6. The Escrow Agreement, in substantially the form submitted to this meeting and made a part hereof as though set forth in full herein, be and the same is hereby approved. The Authorized Officers are, and each of them is, hereby authorized and directed, for and in the name of the District, to execute and deliver the Escrow Agreement in the form presented to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Escrow Agreement by such Authorized Officer. Section 7. The form of Notice of Intention to Sell, in substantially the form submitted to this meeting and made a part hereof as though set forth in full herein, with such changes, insertions and omissions therein as may be approved by an Authorized Officer, is hereby approved, and the use of the Notice of Intention to Sell in connection with the offering and sale of the Certificates is hereby approved. The Authorized Officers are each hereby authorized and directed,for and in the name and on behalf of the District,to cause the Notice of Intention to Sell to be published once in The Bond Buyer (or in such other financial publication generally circulated throughout the State of California or reasonably expected to be disseminated among prospective bidders for the Certificates as an Authorized Officer shall approve as being in the best interests of the District) at least five days prior to the date set for the opening of bids in the Notice Inviting Bids, with such changes, insertions and omissions therein as an Authorized Officer may require or approve, such requirement or approval to be conclusively evidenced by such publishing of the Notice of Intention to Sell. Section S. The Notice Inviting Bids, in substantially the form submitted to this meeting and made a part hereof as though set forth herein, with such changes, insertions and omissions therein as may be approved by an Authorized Officer, be and the same is hereby approved, and the use of the Notice Inviting Bids in connection with the offering and sale of the Certificates is hereby authorized and approved. The terms and conditions of the offering and sale of the Certificates shall be as specified in the Notice Inviting Bids. Bids for the purchase of the Certificates shall be received at the time and place set forth in the Notice Inviting Bids. The Authorized Officers are each hereby authorized and directed,for and in the name and on behalf of OHS V e :260191976.2 41759-10GHHA9CH 4 Book Page 17 the District, to accept the bid for the Certificates with the lowest true interest cost, or to reject all bids therefor,in accordance with the terms of the Notice Inviting Bids. Section 9. The Preliminary Official Statement, in substantially the forth presented to this meeting and made a part hereof as though set forth in full herein, with such changes, insertions and omissions therein as may be approved by an Authorized Officer, is hereby approved, and the use of the Preliminary Official Statement in connection with the offering and sale of the Certificates is hereby authorized and approved. The Authorized Officers are each hereby authorized to certify on behalf of the District that the Preliminary Official Statement is deemed final as of its date, within the meaning of Rule 15c2-12 (except for the omission of certain final pricing,rating and related information as permitted by Rule 15c2-12). The Authorized Officers are each hereby authorized and directed to famish, or cause to be furnished, to prospective bidders for the Certificates a reasonable number of copies of the Preliminary Official Statement. Section 10. The preparation and delivery of a final Official Statement (the "Official Statement"), and its use in connection with the offering and sale of the Certificates, be and the same is hereby authorized and approved. The Official Statement shall be in substantially the form of the Preliminary Official Statement, with such changes, insertions and omissions as may be approved by an Authorized Officer, such approval to be conclusively evidenced by the execution and delivery thereof. The Authorized Officers are, and each of them is, hereby authorized and directed to execute the final Official Statement and any amendment or supplement thereto,for and in the name of the District. Section 11. The Continuing Disclosure Agreement, in substantially the form submitted to this meeting and made a part hereof as though set forth herein, be and the same is hereby approved. The Authorized Officers are, and each of them is, hereby authorized and directed, for and in the name of the District, to execute and deliver the Continuing Disclosure Agreement in the form submitted to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Continuing Disclosure Agreement by such Authorized Officer. Section 12. The Authorized Officers are, and each of them hereby is, authorized and directed to execute and deliver any and all documents and instruments and to do and cause to be done any and all acts and things necessary or proper for carrying out the execution and delivery of the Certificates and the transactions contemplated by the agreements or documents referenced in this Resolution. Section 13. All actions heretofore taken by the officers and employees of the District with respect to the execution, delivery and sale of the Certificates, or in connection with or related to any of the agreements or documents referenced in this Resolution, are hereby approved,confirmed and ratified. OHS WE8T:260181976.2 41758-IOGHI/k1KH 5 Book Page 18 Section 14. This Resolution shall take effect immediately upon its adoption. PASSED AND ADOPTED at a regular meeting held April 25,2007. Chair ATTEST: Clerk of the Board APPROVED: General Counsel, Orange County Sanitation District OHS WESI:260181976.2 41758-100HVMM 6 Book Page 19 STATE OF CALIFORNIA ) ) as COUNTY OF ORANGE ) 1, , Cleric of the Board of Directors of the Orange County Sanitation District, do hereby certify that the foregoing Resolution No. OCSD 07- was passed and adopted at a regular meeting of said Board on the 25th day of April 2007,by the following vote,to wit: AYES: NOES: ABSTENTIONS: ABSENT: IN WITNESS WHEREOF, I have hereunto ad my hand and affixed the official seal of Orange County Sanitation District this_day of ,2007. Clerk of the Board of Directors Orange County Sanitation District OHS 260191976.2 61758-10GH1aaat Book Page 20 RESOLUTION NO. A RESOLUTION OF THE BOARD OF DIRECTORS OF THE ORANGE COUNTY SANITATION DISTRICT FINANCING CORPORATION AUTHORIZING THE EXECUTION AND DELIVERY BY THE CORPORATION OF AN INSTALLMENT PURCHASE AGREEMENT AND A TRUST AGREEMENT IN CONNECTION WITH THE EXECUTION AND DELIVERY OF ORANGE COUNTY SANITATION DISTRICT REFUNDING CERTIFICATES OF PARTICIPATION,SERIES 2007A, AUTHORIZING THE EXECUTION AND DELIVERY OF SUCH CERTIFICATES EVIDENCING PRINCIPAL IN AN AGGREGATE AMOUNT OF NOT TO EXCEED S315,000,000 AND AUTHORIZING THE EXECUTION OF NECESSARY DOCUMENTS AND CERTIFICATES AND RELATED ACTIONS. WHEREAS, in order to finance the acquisition, construction and installation of certain improvements to the wastewater system (the "Prior Project") of the Orange County Sanitation District (the "District'), the District purchased the Prior Project from the Orange County Sanitation District Financing Corporation(the"Corporation"),and the Corporation sold the Prior Project to the District, for the installment payments (the "Prior Installment Payments") to be made by the District pursuant to the Installment Purchase Agreement, dated as of July 1, 2003 (the"Prior Installment Purchase Agreement'),by and between the District and the Corporation; WHEREAS, in order to provide the funds necessary to finance the Prior Project, the District and the Corporation caused to be executed and delivered the Orange County Sanitation District Certificates of Participation, Series 2003 (the "Prior Certificates"), evidencing direct, undivided fractional interests in the Prior Installment Payments,and the interest thereon; WHEREAS, the District desires to refinance all or a portion of the Prior Project (to the extent so refinanced, the "Project") by prepaying all or a portion of the Prior Installment Payments,thereby causing all or a portion of the Prior Certificates to be prepaid; WHEREAS, in order to provide the funds necessary to prepay the Prior Installment Payments to be so prepaid, the District and the Corporation desire that the Corporation purchase the Project from the District,and the District sell the Project to Corporation, and that the District than purchase the Project from the Corporation, and the Corporation sell the Project to the District, for the installment payments (the Installment Payments") to be made by the District pursuant to an Installment Purchase Agreement (such Installment Purchase Agreement, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution,being referred to herein as the"Installment Purchase Agreement"); WHEREAS, the Corporation proposes to assign without recourse certain of its rights under and pursuant to the Installment Purchase Agreement to Union Bank of California,N.A.,as trustee (the "Trustee'), pursuant to a Trim Agreement among the Trustee, the Corporation and the District (such Trust Agreement, in the form presented to this meeting, with such changes, OHS WM 260182132.2 <175d-IOOH11NOCH Book Page 21 insertions and omissions as are made pursuant to this Resolution, being referred to herein as the "Trust Agreement"); WHEREAS, in consideration of such assignment and the execution and entering into of the Trust Agreement, the Trustee will execute and deliver Orange County Sanitation District Refunding Certificates of Participation, Series 2007A (the "Certificates', evidencing direct, undivided fractional interests in the Installment Payments,and the interest thereon; WHEREAS,there have been prepared and submitted to this meeting forms of (a) the Installment Purchase Agreement;and (b) the Trust Agreement; WHEREAS, all acts, conditions and things required by the Constitution and laws of the State of California to exist, to have happened and to have been performed precedent to and in connection with the consummation of the actions authorized hereby do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the Corporation is now duly authorized and empowered, pursuant to each and every requirement of law, to consummate such actions for the purpose, in the manner and upon the terms herein provided; NOW, THEREFORE, the Board of Directors of Orange County Sanitation District Financing Corporation DOES HEREBY RESOLVE,DETERMINE AND ORDER. Section 1. All of the recitals herein contained are true and correct and the Board of Directors of the Corporation(the`Board")so finds. Section 2. The Installment Purchase Agreement, in substantially the form submitted to this meeting and made a part hereof as though set forth herein, be and the same is hereby approved. The President of the Corporation,the Vice-president of the Corporation,the Treasurer of the Corporation and the Secretary of the Corporation, and such other officer of the Corporation as the President may designate(the "Authorized Officers") are, and each of them is, hereby authorized and directed, for and in the name of the Corporation, to execute and deliver the Installment Purchase Agreement in the form submitted to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Installment Purchase Agreement by such Authorized Officer; provided, however, that such changes, insertions and omissions shall not result in an aggregate principal amount of Installment Payments in excess of$315,000,000, shall not result in a true interest cost for the Installment Payments in excess of 5.00% and shall not result in a final Installment Payment later than February 1,2033. Section 3. The Trust Agreement, in substantially the form submitted to this meeting and made a part hereof as though set forth in full herein, be and the same is hereby approved. The Authorized Officers are, and each of them is, hereby authorized and directed, for and in the name of the Corporation, to execute and deliver the Trust Agreement in the form presented to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the OHS WM:2b01S2132.2 4173&IOGHI/k1KH 2 Book Page 22 same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Trust Agreement by such Authorized Officer. Section 4. The execution and delivery of Certificates evidencing principal in an aggregate amount of not to exceed $315,000,000, payable in the years and in the amounts, and evidencing direct, undivided fractional interests in the Installment Payments, and the interest thereon, as specified in the Trust Agreement as finally executed, are hereby authorized and approved. Section 5. The officers and agents of the Corporation are, and each of them hereby is, authorized and directed to execute and deliver any and all documents and instruments and to do and cause to be done any and all acts and things necessary or proper for carrying out the execution and delivery of the Certificates and the transactions contemplated by the agreements or documents referenced in this Resolution. Section 6. All actions heretofore taken by the officers and agents of the Corporation with respect to the execution, delivery and sale of the Certificates, or in connection with or related to any of the agreements or documents referenced in this Resolution, are hereby approved, confirmed and ratified. Section 7. This Resolution shall take effect immediately upon its adoption. PASSED AND ADOPTED at a meeting held April 25,2007. President,Orange County Sanitation District Financing Corporation ATTEST: Clerk of the Board Orange County Sanitation District Financing Corporation OHS WEST:26018202.2 41758-100HVMKH 3 Book Page 23 APPROVED: General Counsel,Orange County Sanitation District Financing Corporation OHS WM:2601821322 41768-10OHMAKH 4 Book Page 24 STATE OF CALIFORNIA ) ) ss COUNTY OF ORANGE ) I, ,Clerk of the Board of Directors of the Orange County Sanitation District Financing Corporation, do hereby certify that the foregoing Resolution No. was passed and adopted at a meeting of said Board on the 25th day of April, 2007, by the following vote,to wit: AYES: NOES: ABSTENTIONS: ABSENT: IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of Orange County Sanitation District Financing Corporation, California, this _ day of , 2007. Clerk of the Board Orange County Sanitation District Financing Corporation OHSWm:2601821312 41758-100HVMM Book Page 25 OH&S 4/2/07 Draft This Preliminary Official Statement and the information contained herein are subject to completion or amendment. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful. PRELIMINARY OFFICIAL STATEMENT DATED APRIL_,2007 NEW ISSUE-BOOK-ENTRY-ONLY Ratings: Moody's: Standard&Poor's " Fitch (See"RATINGS"herein) In the opinion of Orrick, Herrington&Sure/fe LLP, Los Angeles, California Special Counsel to the District, based upon an analysis of existing laws, regulations, r7dinga and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, the Interest on the Installment Payments paid by the District render the Installment Purchase Agreement and received by the mvners of the Certificates is excluded from grass income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt front State of California personal income taxes. In the further opinion of Special Counsel, such Interest is not a speefc preference item for purposes of the federal individual or corporate alternative minimum taxes, although Special Counsel observes that such interest is included in adjusted current earrings when calculating corporate alternative minimum tarable income. Special Counsel expresses no opinion regarding any other tar consequences related to the ownership or disposition of, or the accrual or receipt of interest evidenced by, the Certificates. See 'TAX MA7TERS"herein. ORANGE COUNTY SANITATION DISTRICT REFUNDING CERTIFICATES OF PARTICIPATION,SERIES 2007A Dated: Date of Delivery Due:February 1,as shown below The Orange County Sanitation District Refunding Certificates of Participation, Series 2007A (the "Certificates") evidence direct, fractional undivided interests of the Owners thereof in the installment payments(the"Installment Payments"),and the interest thereon, to be made by the Orange County Sanitation District(the"District")pursuant to the Installment Purchase Agreement, dated as of_ 1, 2007(the"Installment Purchase Agreement"), by and between the District and the Orange County Sanitation District Financing Corporation (the"Corporation"). Pursuant to the Masten Agreement for District Obligations, dated as of August 1, 2000 (the "Master Agreement"), by and between the District and the Corporation, the District has established conditions and terms upon which obligations such as the Installment Payments and the interest thereon, will be incurred and secured. Installment Payments under the Installment Purchase Agreement are payable solely from Net Revenues(as more fully described in the Master Agreement, the"Net Revenues")as provided in the Installment Purchase Agreement,consisting primarily of all income and revenue received by the District from the operation or ownership of the District's Wastewater System(the"Wastewater System")remaining after payment of Maintenance and Operation Costs, as further described in 'SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES" herein. The Installment Purchase Agreement provides that the obligation of the District to pay the Installment Payments, and payments of interest thereon, and certain other payments required to be made in accordance with the Installment Purchase Agreement,solely from Net Revenues,is absolute and unconditional. See"SECURITY AND SOURCES OF PAYMENT" herein. The proceeds of the Certificates,together with other available moneys,will be rued to(i)prepay all or a portion of the prim installment payments and relmed certificates of participation in order to refinance certain improvements to its Wastewater System(the "Project")(ii)fund a reserve fund for the Certificates,and(ill)pay the costs incurred in connection with the execution and delivery of the Certificates. See"REFUNDING PLAN"herein. Interest evidenced by the Certificates will be payable semiannually on February 1 and August 1 of each year,commencing on August 1,2007. See"TIE CERTIFICATES"herein. The Certificates will be initially delivered only in book-entry form and will be registered in the time of Cede&Co.,as nominee of The Depository Trust Company,New York.New York("DTC"),which will act as securities depository for the Certificates. Individual purchases of the Certificates will be made in book-entry form only. Purchasers of Certificates will not receive physical certificates representing their ownership interests in the Certificates purchased. The Certificates will be delivered in denominations of $5,000 and any integral multiple thereof. Payments of principal and interest Preliminary,subject to change. OHS WM:260184418.4 41759-II MKHMMH Book Page 26 evidenced by the Certificates are payable directly to DTC by Union Bank of California.N.A.,as trustee(the"Trustee"). Upon receipt of payments of such principal and interest, DTC Will in turn distribute such payments to the beneficial owners of the Certificates.See APPENDIX D-"BOOK-ENTRY-ONLY SYSTEM"herein. MATURITY SCHEDULE' $ Serial Certificates Maturity Rinapal linens, Pncea Matunty Pnncwd Ntc., Pnceor (Felmvy l) Amount Rate Yield CUSw (February l) Aaovm Rate Yield CUS1P $ _%Term Certificates Due February 1.20_Yield-_% S _%Term Certificates Due Februaryl.20_Yield-_% The Certificates arc subject to prepayment prior to maturity,as described herein.See-THE CERTIFICATES"herein. THE OBLIGATION OF THE DISTRICT TO PAY THE INSTALLMENT PAYMENTS,AND THE MEREST THEREON, AND OTHER PAYMENTS REQUIRED TO BE MADE BY IT UNDER THE INSTALLMENT PURCHASE AGREEMENT IS A SPECIAL OBLIGATION OF THE DISTRICT PAYABLE,IN THE MANNER PROVIDED IN THE INSTALLMENT PURCHASE AGREEMENT,SOLELY FROM NET REVENUES AND OTHER FUNDS PROVIDED FOR IN THE INSTALLMENT PURCHASE AGREEMENT,AND DOES NOT CONSTITUTE A DEBT OF THE DISTRICT OR OF THE STATE OF CALEFORNIA, OR OF ANY POLITICAL SUBDIVISION THEREOF. IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE DISTRICT OR THE STATE OF CALIFORNIA.OR ANY POLITICAL SUBDIVISION THEREOF,IS PLEDGED TO THE PAYMENT OF THE INSTALLMENT PAYMENTS,OR THE INTEREST THEREON, OR OTHER PAYMENTS REQUIRED TO BE MADE UNDER THE INSTALLMENT PURCHASE AGREEMENT. SEE "SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES"HEREIN. This cover page contains information intended for quick reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. Capitalized terms used in this cover page shall have the meanings given such terms herein. An investment in the Certificates involves certain risks. See"RISK FACTORS"herein for a discussion of factors than should be considered in addition to the other matters set forth herein,in evaluating the investment quality of the Certificates. [The Cerr fcata will be sold by competitive sale an or about May_, 2007 pursuant to the 0 trial Notice Inviting Bids dated April 2006. See APPENDIX G- "OFFICIAL NOTICE INVITING BIDS" attached hereto. Far additional information concerning the competitive sale of the Certfcates, contact the District's financial advisor, Public Resources Advisory Group, Las Angela, Colifornia The Cert fcates are offered when,as and if executed and delivered and received by the Initial Purchaser,subject to the approval by Orrick, Herrington& Sutcliffe LLP, Los Angela, California, Special Counsel to the District, and certain other conditions. Certain legal mattes will be passed upon for the District and the Corporation by Woodruff, Spradlin & Smart, a Professional Corporation,Orange, California and for the Dislria by Orrick,Herrington&Sutcliffe LLP a Disclosure Counsel to the Distrid. It is anticipated that the Certificates in definitive form will be available far delivery to DTC in Nov York, Nov York an or about May 20071 (FOR FINAL OFFICIAL STATEMENT. The Certfcmes Were sold by competitive sale an April_ 2007 pursuant to the Ofyctal Naice Irwlling Bids and Official Bid Form dated April_, 1007. The Certificates are offered when, as and if ex cured and delivered and received by the Initial Purchaser, subject to the approval by Orrick, Herrington & Sutcliffe LLP, Las Angela, California, Special Counsel to the District, and certain other conditions. Certain legal matters will be passed upon for the District and the Corporation by Woodruff Spradlin & Smart, a Profasioaal Corporation, Orange, California. Public Resources Advisory Group, Los Angela, California has served as financial advisor to the Dishes in connection with the execution aid delivery of the Certificates. It is anticipated that the Carl fcates in definitive form will be available for delivery to DTC in Nov York, Nov York on or about Mayes 2007.] Dated: .2007 OHS West26018,1418A 41758-11 MXHli,8t11 Book Page 27 MAP OF THE DISTRICT OHS Wa 260194418.4 41758-11 IoUOVMKH Book Page 28 . ORANGE COUNTY SANITATION DISTRICT Board of Directors James Ferryman(Chair)-Costa Mesa Sanitary District Doug Davert(Vice Chair)-Tustin Harry Sidhu-Anaheim Don Webb-Newport Beach Roy Moore-Brea Jon Dumitru-Orange Patsy Marshall-Buena Park Constance Underhill-Placentia Phil Luebben-Cypress Sal Tinajero-Santa Ana Larry Crandall-Fountain Valley Charles Antos-Seal Beach Don Bankhead-Fullerton David Shavrver-Stanton Bill Dalton-Garden Grove Rich Freschi- Villa Park Cathy Green-Huntington Beach Jim Winder- Yorba Linda Steven Choi-Irvine Joy L.Neugebauer-Midway City Sanitary District Steve Anderson-La Habra Darryl Miller-Irvine Ranch Water District Mark Waldman-La Palma Ken Parker-Los Alamitos Chris Norby-Member of the Orange County Board of Supervisors Executive Management of the District James D. Ruth,General Manager Robert P.Ghirelli,PhD.,Assistant General Manager Lorenzo Tyner,Director of Finance and Administrative Services James Herberg,Director of Engineering Ed Torres, Director of Technical Services Nick Arhontes,Director of Operations& Maintenance Special Services Special Counsel and Disclosure Counsel Orrick,Herrington&Sutcliffe LLP Los Angeles,California District General Counsel Bradley R. Hogin Woodruff, Spradlin& Smart,a Professional Corporation Orange,California Financial Advisor Public Resources Advisory Group Los Angeles,California Trustee Union Bank of California,N.A. Los Angeles,California oxs Waaaoistus.a ayss-u MVJi/MH Book Page 29 This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Certificates by any person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. The information set forth herein has been provided by the District and other sources that am believed by the District to be reliable. No dealer, broker, salesperson or other person has been authorized to give any information or to make any representations other than those contained in this Official Statement. If given or made, such other information or representations must not be relied upon as having been authorized by the District,the Corporation or the Initial Purchaser in connection with any reoffering. This Official Statement is not to be construed as a contract with the purchasers of the Certificates. Statements contained in this Official Statement which involve estimates,projections, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of facts. The information and expressions of opinion herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District or the Corporation since the date hereof.This Official Statement is submitted with respect to the sale of the Certificates referred to herein and may not be reproduced or used,in whole or in part,for any other purpose,unless authorized in writing by the District. All summaries of the documents and laws are made subject to the provisions thereof and do not purport to be complete statements of any or all such provisions. Preparation of this Official Statement and its distribution have been duly authorized and approved by the District and the Corporation. In connection with the offering of the Certificates, the Initial Purchaser in connection with any reoffering may over-allot or effect transactions which stabilize or maintain the market price of the Certificates at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Initial Purchaser in connection with any reoffering may offer and sell the Certificates to certain dealers, institutional investors and others at prices lower than the public offering prices stated on the cover page hereof and such public offering prices may be changed from time to time by the Initial Purchaser. Certain statements included or incorporated by reference in this Official Statement constitute forward-looking statements. Such statements are generally identifiable by the terminology used such as "plan,""expect,""estimate,""budget"or other similar words. The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results,performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. CUSIP data included here is subject to Copyright 2007, American Bankers Association. CUSIP date included herein is provided by the Standard & Poor's CUSEP Service Bureau, a division of The McGraw-Hill Companies, Inc. and is provided for convenience of reference only. Neither the District, the Corporation or the Initial Purchaser shall be responsible for the selection or correctness of the CUSIP numbers set forth herein. OHS Wa126a184418A 41758-11 MKWMKH Book Page 30 TABLE OF CONTENTS Page INTRODUCTION................................................._........................._..............................._.............. I General....................................................................._....................................._..............._............ 1 TheDistrict.............................................................._..............................................._..............2 Security and Sources of Payment for the Certificates.................................._.._..................._.._.2 ContinuingDisclosure................................................................._._................._...........................3 Miscellaneous............................................................................................................_...........3 REFUNDINGPLAN...................................._......................................................................_...........3 SOURCES AND USES OF PROCEEDS OF THE CERTIFICATES................................................_.5 THECERTIFICATES........................................................................................................._........._.5 General..................................................................._......................_........................_........_...5 PrepaymentProvisions..........................................._...............................................................6 SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES........................................8 InstallmentPayments...............................................................................................................8 NetRevenues........................................._...................................................................................9 Rate Stabilization Account...........................................................................__....................... 10 Allocation of Revenues........................._......................._............................................_........._... 10 RateCovenant............_........................._............................................................................_....... I ReserveFund........................................._................................................................................... 12 Limitations on Issuance of Additional Obligations....................................................._._..........13 Insurance.................................................................................._........._..................................._.. 15 Allocation of Installment Payments.......................................................................................15 THEDISTRICT ....................................................._............_.........._..................................................16 Background............................................................................................................................ 16 Organization and Administration..........................._.............................................. ...._......_._17 Services................................................_............................................................................. 18 ServiceArea........................................................................................................................... 19 Employees............................................._...................._........................._.........._._..............20 RetirementPlan..........................._....................._......................_.............................................21 Post-Employment Benefits.......................................................................................................22 RiskManagement......................................................................................_.._........_.............._...22 ExistingFacilities.........................................................................................._........_.........._.......22 Permits,Licenses and Other Regulations--..................................................................._..........24 Capital Improvement Program.....................................................................................................25 Groundwater Replenishment System......................................................................................_.28 PreferredLevel of Treatment...................._.........................................................................._.28 BiosolidsManagement............................................................................................................29 UrbanRunoff.............................................................._..................................................._..........30 Integrated Emergency Response Program...................................................._._.....................30 DISTRICTREVENUES.........................................................................................._............_.._...........31 SewerService Charges...._......................._.._..........._................................................._._......_...31 AdditionalRevenues............................................_.................................................._............34 Wastewater Treatment History.................................................................................._._......_...36 Customers................................................_.................................................................._............36 OHS WmINIEa18.4 1 4 V58-1l MKH/h4KH Book Page 31 TABLE OF CONTENTS (continued) Page Assessed Valuation......................................................................................................................38 Tax Levies and Delinquencies.....................................................................................................38 Budgetary Process........................................................................................................................39 Reserves.......................................................................................................................................40 Summary of Operating Date........................................................................................................41 Projected Operating Data.............................................................................................................42 Management's Discussion and Analysis of Operating Data........................................................43 Investment of District Funds........................................................................................................44 FINANCIAL OBLIGATIONS...............................................................................................................45 Existing Indebtedness...................................................................................................................45 Variable Rate and Swap Obligations............................................................................................47 AnticipatedFinancings.................................................................................................................48 Direct and Overlapping Bonded Debt..........................................................................................49 THECORPORATION............................................................................................................................51 LIMITATIONS ON TAXES AND REVENUES...................................................................................51 Article XIIIA of the California Constitution................................................................................51 Legislation Implementing Article XIIIA......................................................................................51 Article XIIIB of the California Constitution................................................................................52 PropositionIA.............................................................................................................................53 Proposition62..............................................................................................................................53 Article XIIIC and Article XIIID of the Califomia Constitution...................................................54 Other Initiative Measures.............................................................................................................56 LEGALMATTERS................................................................................................................................56 FINANCIAL ADVISOR.........................................................................................................................56 ABSENCE OF LITIGATION.................................................................................................................56 FINANCIAL STATEMENTS................................................................................................................57 TAXMA17ERS.....................................................................................................................................57 VERIFICATION OF MATHEMATICAL COMPUTATIONS.............................................................59 CONTINUINGDISCLOSURE..............................................................................................................59 RATINGS .....................................................................................................................................59 PURCHASE AND REOFFERING.........................................................................................................60 MISCELLANEOUS...............................................................................................................................60 APPENDIX A COMPREHENSIVE ANNUAL FINANCIAL.REPORT OF THE ORANGE COUNTY SANITATION DISTRICT FOR FISCAL YEAR ENDED JUNE 30,2006......................................................................................................................... l APPENDIX B THE COUNTY OF ORANGE-ECONOMIC AND DEMOGRAPHIC INFORMATION........................................................................................................... I APPENDIX C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS.................................................. 1 APPENDIX D BOOK-ENTRY ONLY SYSTEM................................................................................... 1 APPENDIX E FORM OF APPROVING OPINION OF SPECIAL COUNSEL..................................... 1 APPENDIX F FORM OF CONTINUING DISCLOSURE AGREEMENT............................................ l APPENDIX G OFFICIAL.NOTICE INVITING BIDS............................................................................ 1 OHS WW:26018M1&4 11 41758-11 MKHIMKH Book Page 32 OFFICIAL STATEMENT S ORANGE COUNTY SANITATION DISTRICT REFUNDING CERTIFICATES OF PARTICIPATION,SERIES 2007A INTRODUCTION This introduction contains only a brief summary of certain of the terms of the Certificates being offered and a brief description of the Official Statement.All statements contained in this introduction ore qualified in their entirety by reference to the entire Official Statement. References to, and summaries of provisions of the Constitution and laws of the State of California (the "State') and any documents referred to herein do nor purport to be complete and such references are qualified in their entirety by reference to the complete provisions. All capitalised terms cared in this Official Statement and not otherwise defined herein have the meanings set forth in the Trust Agreement, the Installment Purchase Agreement and the Master Agreement (each, as hereinafter defined). See APPENDLY C— "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—Definitions"herein. General This Official Statement, including the cover page and all appendices hereto, provides certain information concerning the Sale and delivery of S ' aggregate principal amount of the Orange County Sanitation District Refunding Certificates of Participation, Series 2007A (the "Certificates") evidencing direct,fractional undivided interests in the Installment Payments(the"Installment Payments") and the interest thereon,to be made by the Orange County Sanitation District(the"District")pursuant to the Installment Purchase Agreement, dated as of_ 1, 2007 (the"Installment Purchase Agreement"), to be entered into by and between the District and the (range County Sanitation District Financing Corporation(the"Corporation"). Pursuant to the Master Agreement far District Obligations, dated as of August 1, 20D0 (the"Master Agreement"), by and between the District and the Corporation, the District has established and declared the conditions and terms upon which obligations such as the Installment Purchase Agreement,and the Installment Payments and the interest thereon,will be incurred and secured Installment Payments under the Installment Purchase Agreement are payable Solely from Net Revenues (as defined hereinafter) as provided in the Installment Purchase Agreement, consisting primarily of all income and revenue received by the District from the operation or ownership of the District's Wastewater System (the "Wastewater System") remaining after payment of Maintenance and Operation Costs, as further described in"SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES"herein. The Certificates are to be executed and delivered pursuant to a Trust Agreement, dated as of 1, 2007 (the"Trust Agreement"), by and among the District, the Corporation and Union Bank of California,NA.,as trustee(the"Trustee). Proceeds from the sale of the Certificates,together with other available moneys,will be used to(i)prepay all or a portion of the prior installment payments and related certificates of participation in order to refinance certain improvements to its Wastewater System (the "Project")(ii)fund a reserve fund for the Certificates,and(iii)pay the costs incurred in connection with the execution and delivery of the Certificates. See"REFUNDING PLAN"herein. The Certificates will be executed and delivered in the form of fully registered certificates, dated as of the date of initial delivery thereof and will mature on February 1 in each year as set forth on the cover page hereof. Interest evidenced by the Certificates will be payable semiannually on February 1 and August I of each year, commencing on August I, 2007. See"THIN CERTIFICATES"herein. The Certificates will be initially delivered only in book-entry form and will be registered in the name of Cede& Co., as nominee of The • Preliminary,subject to change. OHS Weu:260184418.4 41758-11 hOUV61KH Book Page 33 Depository Trust Company, New York New York ("DTC"), which will act as securities depository for the Certificates. The Certificates will be delivered in denominations of$5,000 and any integral multiple thereof. So long as the Certificates are in the DTC book-entry system, the interest, principal, purchase price and prepayment premiums, if any, due with respect to the Certificates will be payable by the Trustee,or its agent,to DTC or its nominee. DTC,in turn,will make payments pursuant to its procedures as described under APPENDIX D—"BOOK—ENTRY SYSTEM"herein. The District The District is a public agency responsible for regional wastewater collection, treatment and disposal. The District is the sixth largest wastewater discharger in the United States. The District provides service to an area with a population of approximately 2.5 million people in the northern and central portion of the County of Orange (the "County"), in a service area of approximately 479 square miles, treating 235 million gallons per day ("mg/d") of wastewater in Fiscal Year 2005-06. See "THE DISTRICT,""DISTRICT REVENUES"AND"FINANCIAL OBLIGATIONS"herein. Security and Sources of Payment for the Certificates The Certificates evidence direct, fractional undivided interests in the Installment Payments, and the interest thereon,paid by the District pursuant to the Installment Purchase Agreement. The obligation of the District to pay the Installment Payments and the interest thereon and other payments required to be made by it under the Installment Purchase Agreement is a special obligation of the District payable,in the manner provided under the Installment Purchase Agreement, solely from Net Revenues, and other funds as provided in the Installment Purchase Agreement. Net Revenues generally consist of all income and revenue received by the District from the operation or ownership of the Wastewater System remaining after payment of Maintenance and Operation Costs,all as further provided in the Master Agreement. The Installment Purchase Agreement constitutes a Senior Obligation and, as such, is subject to the provisions of the Master Agreement and is afforded all of the advantages, benefits, interests and security afforded Senior Obligations pursuant to the Master Agreement. Currently,the District has Senior Obligations Outstanding evidenced by five series of certificates of participation and two related interest rate swap agreements, payable on a parity with the Installment Payments under the Installment Purchase Agreement. The two swap agreements were executed by the predecessor special districts in connection with the execution and delivery of certain Outstanding Senior Certificates. The payments under these swap agreements are payable on a parity with the Installment Payments under the Installment Purchase Agreement and other Senior Obligations, as provided in the Master Agreement. See"FINANCIAL OBLIGATIONS—Existing Indebtedness"herein and APPENDIX C—"SUMMARY OF PRINCIPAL LEGAL DOCUMENTS— Master Agreement'attached hereto. The term "Existing Senior Obligations" as used in this Official Statement refers to the 1992 Agreement for Acquisition and Construction, the 1992 Swap,the 1993 Agreement for Acquisition and Construction,the 1993 Swap,the 2000 Installment Purchase Agreement,the 2003 Installment Purchase Agreement and the 2006 Installment Purchase Agreement, and the term "Senior Obligations" as used in this Official Statement refers to the Existing Senior Obligations and any additional Senior Obligations, such as the Installment Purchase Agreement which may be made payable on a parity basis to the Installment Payments as provided in the Master Agreement. Senior Obligations, together with any Subordinate Obligations payable on a subordinate basis to the Installment Payments executed and delivered as provided in the Master Agreement are referred to collectively as the"Obligations." Pursuant to the Master Agreement,the District will,to the extent permitted by law, fix,prescribe and collect fees and charges for the services and facilities of the Wastewater System which will be at least sufficient to yield during each Fiscal Year (a)Net Revenues equal to 125% of Debt Service on Senior Obligations for such Fiscal Year and (b) Net Operating Revenues equal to 100% of Debt Service on all Oes wevr26014a41d4 41758-11 MKINAKH 2 Book Page 34 Obligations for such Fiscal Year. The District may make adjustments from time to time in such fees and charges and may make such classification thereof as it deems necessary, but shall not reduce the fees and charges then in effect unless the Revenues and Net Revenues from such reduced fees and charges will at all times be sufficient to meet the requirements of the Master Agreement. See "SECURITY AND SOURCE OF PAYMENT FOR THE CERTIFICATES—Rate Covenant"herein. The obligation of the District to pay the Installment Payments and the interest thereon,and other payments required to be made by it under the Installment Purchase Agreement is a special obligation of the District payable,in the manner provided in the Installment Purchase Agreement, solely from Net Revenues and other funds provided for in the Installment Purchase Agreement,and does not constitute a debt of the District or of the State, or of any political subdivision thereof, in contravention of any constitutional or statutory debt limitation or restriction. Neither the faith and credit nor the taxing power of the District or the Stale or any political subdivision thereof, is pledged to the payment of the Installment Payments, or the interest thereon, or other payments required to be made under the Installment Purchase Agreement. The Installment Purchase Agreement constitutes a Senior Obligation and, as such, is subject to the provisions of the Master Agreement and is afforded all of the advantages, benefits, interests and security afforded Senior Obligations pursuant to the Master Agreement. See"SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES" herein. Continuing Disclosure The District has covenanted for the benefit of holders and beneficial owners of the Certificates(a) to provide certain financial information and operating data (the "Annual Report")relating to the District and the property in the District not later than eight (8)months after the and of the District's Fiscal Year (which currently would be March 1), commencing with the report for the 2006.07 Fiscal Year, and(b)to provide notices of the occurrence of certain enumerated events, if material. The specific nature of the information to be contained in the Annual Report or the notices of material events is set forth in the Continuing Disclosure Agreement. Sea "CONTINUING DISCLOSURE" and APPENDIX E —"FORM OF CONTINUING DISCLOSURE AGREEMENT." Miscellaneous The Certificates will be offered when,as and if executed and delivered,and received by the Initial Purchaser, subject to the approval as to their legality by Special Counsel and certain other conditions. It is anticipated that the Certificates in definitive form will be available for delivery through the facilities of DTC on or about__,2007. The descriptions herein of the Trust Agreement,the Master Agreement,the Installment Purchase Agreement and any other agreements relating to the Certificates are qualified in their entirely by reference to such documents. Copies of the documents are on file and available for inspection at the corporate trust office of the Trustee at Union Bank of California,N.A., , Los Angeles, California 90071,Attention: Corporate Trust. REFUNDING PLAN Net proceeds from the sale of the Certificates,together with other available moneys, will be used to prepay all or a portion of the prior installment payments (the "Refunded Installment Payments")to be made by the District pursuant to the installment purchase agreement, dated as of July 1, 2003 (the"2003 hlstallment Purchase Agreement") which was executed in connection with the execution and delivery of the Orange County Sanitation District Certificates of Participation, Series 2003 (the "2003 Certificates") evidencing$280,000,000 original aggregate principal amount. OHS wen:160184418.4 41758-11 xdMACH 3 Book Page 35 Pursuant to the terms of the trust agreement, dated as of July 1, 2003 (the "Prior Trust Agreement'), by and among Union Bank of California, N.A.,as trustee,the Corporation and the District pursuant to which such 2003 Certificates were executed and delivered, the refunding of the Refunded Certificates will be effected by depositing a portion of the proceeds of the Certificates,together with other available moneys, in an escrow fund(the"Escrow,Fund")to be created and established under the Escrow Agreement,dated as of I, 2007, by and between the District and Union Bank of California, N.A., as escrow agent. Such proceeds and other monies deposited by the District in the Escrow Fund will be used to purchase Government Obligations,the principal of and interest on which when due,together with uninvested proceeds, will be sufficient to provide for the payment of the interest on the Refunded Installment Payments on each payment date through and including August 1, 2013 (the "Prepayment Date")and to provide for the prepayment of the Refunded Installment Payments on the Prepayment Date at a Prepayment Price(the"Prepayment Price")equal to the principal amount thereof, without premium. In accordance with the Prior Trust Agreement, the Refimded Installment Payments, and the interest thereon, will be applied to the payment of the 2003 Certificates evidencing interests therein (the "Refunded Certificates") through and including the Prepayment Date and to the prepayment of the remaining outstanding Refimded Certificates on the Prepayment Date at a redemption price equal to the Prepayment Price. See"VERIFICATION OF MATHEMATICAL COMPUTATIONS." The specific maturities of the 2003 Certificates that will be refunded and prepaid as a result of the execution and delivery of the Certificates(the"Refunded Certificates")will be determined by District on the basis of market conditions at or about the time that the District accepts bids for the Certificates by competitive sale. Such Refunded Certificates may be some or all of the maturities of the 2003 Certificates listed in the following table. Orange County Sanitation District* Certificates of Participation,Series 2003 Maturity Principal Interest (February 1) Amount Rate CUSIP No. 2021 S 4,495,000 5.25% 68428PAA3 2022 15,100,000 5.00 69428PABI 2023 15,805,000 5.00 68428PAC9 2024 16,640,000 5.00 68428PAD7 2025 17,425,000 5.00 68428PAE5 2026 18,350,000 5.00 68428PAF2 2027 19,265,000 5.25 69428PAGO 2028 20,235,000 5.25 6942SPAH8 2030 44,505,000 5.25 68428PAJ4 2033 108,180,000 5.00 68428PAKI The maturing principal of and the investment income to be derived from the Government Obligations in the Escrow Fund will held in trust solely for the Refunded Certificates and will not be available to pay the principal and interest evidenced by the Certificates or any obligations other than the Refunded Certificates. • Preliminary,subject to change. OHS Wat260184418.4 4175&11 K90Yt1KH 4 Book Page 36 SOURCES AND USES OF PROCEEDS OF THE CERTIFICATES The sources and uses of funds with respect to the delivery of the Certificates are shown below. Sour e� Certificate Proceeds Amounts released from Prior Trust Agreement $ Total Sources $ Uses Escrow Fund Reserve Fond Costs of Issuance(0 Total Uses $ t t Costs of issouce include,among other things,fees of rating agencies.initial fees of the Trustee and Special Cwmsel fees. THE CERTIFICATES General The Certificates will be prepared in the form of fully registered certificates in denominations of $5,000 and any integral multiple thereof. The Certificates will be dated as of the date of initial delivery thereof and will =lure on February I in each year as set forth on the cover page hereof. Interest evidenced by the Certificates will be payable semiannually on February I and August 1 of each year, commencing on August 1, 2007. See"THE CERTIFICATES" herein. The Certificates will be initially delivered only in book-entry form and will be registered in the name of Cede& Co., as nominee of The Depository Trust Company, New York, New York("DTC"), which will act as securities depository for the Certificates. Individual purchases of the Certificates will be made in book-entry form only. Purchasers of Certificates will not receive physical certificates representing their ownership interests in the Certificates purchased. The interest evidenced by the Certificates shall be payable on each Interest Payment Date to and including their respective Principal Payment Dates or prepayment prior thereto, and shall represent the sum of the interest on the Installment Payments coming due on the Interest Payment Dates in each year. The principal evidenced by the Certificates shall be payable on their respective Principal Payment Dates and Mandatory Sinking Account Payment Dates in each year and shall represent the Installment Payments coming due on the Principal Payment Dates and Mandatory Sinking Account Payment Dates in each year. Each Certificate shall evidence interest from the Interest Payment Date next preceding its date of execution to which interest has been paid in full, unless such date of execution shall be after a Record Date and on or prior to the following Interest Payment Date, in which case such Certificate shall evidence interest from such Interest Payment Date, or unless such date of execution shall be on or prior to 15, 2007, in which case such Certificate shall represent interest from its date of initial delivery. Notwithstanding, the foregoing, if, as shown by the records of the Trustee, interest evidenced by the Certificates shall be in default,each Certificate shall evidence interest from the last Interest Payment Date to which such interest has been paid in full or duly provided for. Interest evidenced by the Certificates shall be computed on the basis of a 360-day year consisting of twelve 30-day months. See APPENDIX C —"SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—Trust Agreement." 0nSwW260t344la.4 41739-11 hatwhUR 5 Book Page 37 Payments of principal and interest evidenced by the Certificates are payable directly to DTC by Union Bank of California,N.A.,as trustee. Upon receipt of payments of such principal and interest,DTC will in turn distribute such payments to the beneficial owners of the Certificates. So long as the Certificates are in the DTC book-entry system, the interest, principal, purchase price and prepayment premiums, if any,due with respect to the Certificates will be payable by the Trustee, or its agent,to DTC or its nominee. DTC, in turn, will make payments pursuant to its procedures as described under APPENDIX D—"BOOK - ENTRY SYSTEM"herein. So long as the Certificates are in the DTC book- army system,the interest,principal and prepayment premiums, if any,due with respect to the Certificates will be payable by the Trustee, or its agent, to DTC or its nominee. DTC, in turn, will make payments pursuant to its procedures as described under APPENDIX D—"BOOK-ENTRY SYSTEM"herein. Prepayment Provisions Optional Prepayment The Certificates are subject to optional prepayment prior to their stated Principal Payment Dates, on any date on or after February 1, 2017, in whole or in part, in Authorized Denominations, from and to the extent of prepaid Installment Payments paid pursuant to the Installment Purchase Agreement or from any other source of available funds, any such prepayment to be at a price equal to the principal evidenced by the Certificates to be prepaid plus accrued interest evidenced thereby to the date fixed for prepayment. Mandan ny Sinking Account Prepayment The Certificates with a stated Principal Payment Date of February 1, 20 are subject to prepayment prior to their stated Principal Payment Date, in part, from Mandatory Sinking Account Payments, on each February 1 specified below, at a prepayment price equal to the principal evidenced thereby, plus accrued interest evidenced thereby to the date fixed for prepayment, without premium. The principal evidenced by such Certificates to be so prepaid and the dates therefor will be as follows: Date (February 1) Mandatory Sinking Fund Amount ? Stated Principal Payment Date. The amount of each such prepayment shall be reduced in the event and to the extent that Installment Payments payable on the corresponding Installment Payment Date are prepaid from any source of funds available to the District pursuant to the Installment Purchase Agreement, and applied to the prepayment of Certificates with a stated Principal Payment Date of February 1,20_ The Certificates with a stated Principal Payment Date of February 1, 20_ are subject to prepayment prior to their stated Principal Payment Date, in part, from Mandatory Sinking Account Payments, on each February I specified below, at a prepayment price equal to the principal evidenced thereby,plus accrued interest evidenced thereby to the date fixed for prepayment,without premium. The principal evidenced by such Certificates to be so prepaid and the dates therefor will be as follows: OHS Wm:2601&41&4 4175E-11 6sO0rACH 6 Book Page 38 Date (February 1) Mandatory Sinking Fund Amount t Stated Principal Payment Date. The amount of each such prepayment shall be reduced in the event and to the extent that Installment Payments payable on the corresponding Installment Payment Date are prepaid from any source of funds available to the District pursuant to the Installment Purchase Agreement, and applied to the prepayment of Certificates with a stated Principal Payment Date of February 1,20_ Selection of Cerdflexer for prepayment Whenever less than all the Outstanding Certificates are to be prepaid on any one date pursuant to provisions of the Trust Agreement with respect to optional prepayment of Certificates, the Trustee shall select the Certificates to be prepaid among Certificates with different Principal Payment Dates as directed in a Written Request of the District. Whenever less than all the Outstanding Certificates with the same stated Principal Payment Date are to be prepaid on any one date in accordance with the Trust Agreement, the Trustee shall select the Certificates with such Principal Payment Date to be prepaid by lot in any manner that the Trustee deems fair and appropriate, which decision shall be final and binding upon the District and the Owners. The Trustee shall promptly notify the District in writing of the numbers of the Certificates so selected for prepayment on such date. For purposes of such selection,any Certificate may be prepaid in part in Authorized Denominations. Notice of prepayment When prepayment of Certificates is authorized pursuant to the Trust Agreement, the Trustee shall give notice, at the expense of the District, of the prepayment of the Certificates. The notice of prepayment shall specify(a)the Certificates or designated portions thereof(in the case of prepayment of the Certificates in part but not in whole)which are to be prepaid(b)the date of prepayment, (c)the place or places where the prepayment will be made, including the name and address of any paying agent, (d)the prepayment price, (e)the CUSIP numbers assigned to the Certificates to be prepaid (f) the numbers of the Certificates to be prepaid in whole or in part and, in the case of any Certificate to be prepaid in part only,the principal evidenced by such Certificate to be prepaid and(g)the interest rate and stated Principal Payment Date of each Certificate to be prepaid in whole or in part. Such notice of prepayment shall further state that on the specified date there shall become due and payable upon each Certificate or portion thereof being prepaid the prepayment price and that from and after such date interest evidenced thereby shall case to accrue and be payable. With respect to any notice of optional prepayment of Certificates, unless at the time such notice is given the Certificates to be prepaid shall be deemed to have been paid within the meaning of the Trust Agreement,such notice shall state that such prepayment is conditional upon receipt by the Trustee, on or prior to the date fixed for such prepayment, of moneys sufficient to pay for the prepayment price of the Certificates to be prepaid, and that if such moneys shall not have been so received said notice shall be of no force and effect and the District shall not be required to prepay such Certificates. In the event a notice of prepayment of Certificates contains such a condition and such moneys are not so received,the prepayment of Certificates as described in the conditional notice of prepayment shall not be made and the Trustee shall, within a reasonable time after the date on which such prepayment was to occur, give notice to the persons and in the manner in which the notice of prepayment was given,that such moneys were not so received and that there shall be no prepayment of Certificates pursuant to such notice of prepayment. The Trustee shall, at last 30 but not more than 60 days prior to any prepayment date,give notice of prepayment to the respective Owners of Certificates designated for prepayment by first-class mail, OHS WM:260I84/18.4 anss-u nucxmtxe 7 Book Page 39 postage prepaid,at their addresses appearing on the registration books maintained by the Trustee as of the close of business on the day before such notice of prepayment is given. The actual receipt by the Owner of any notice of such prepayment shall not be a condition precedent to prepayment, and neither failure to receive such notice nor any defect therein shall affect the validity of the proceedings for the prepayment of such Certificates or the cessation of interest evidenced thereby on the date fixed for prepayment. Effect of Napoyment If notice of prepayment has been duly given as aforesaid and moneys for the payment of the prepayment price of the Certificates to be prepaid are held by the Trustee,then on the prepayment date designated in such notice, the Certificates so called for prepayment shall become payable at the prepayment price specified in such notice; and from and after the date so designated, interest evidenced by the Certificates so called for prepayment shall cease to accrue, such Certificates shall cease to be entitled to any benefit or security hereunder and the Owners of such Certificates shall have no rights in respect thereof except to receive payment of the prepayment price thereof. The Trustee shall, upon surrender for payment of any of the Certificates to be prepaid. pay such Certificates at the prepayment price thereof,and such moneys shall be pledged to such payment. All Certificates prepaid pursuant to the provisions of the Trust Agreement shall be canceled by the Trustee and shall not be redelivered. SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES Installment Payments Pursuant to the Installment Purchase Agreement,the Project will be acquired by the District from the Corporation.The District has covenanted to, subject to any rights of prepayment under the Installment Purchase Agreement, pay to the Corporation, solely from Net Revenues and from no other sources, the Purchase Price in Installment Payments, with interest thereon, as provided in the Installment Purchase Agreement. Pursuant to the Master Agreement, the District has established and declared the conditions and terms upon which obligations such as the Installment Purchase Agreement, and the Installment Payments and the interest thereon payable under the Installment Purchase Agreement, will be incurred and secured. The obligation of the District to make the Installment Payments, and payments of interest thereon,and other payments required to be made by it under the Installment Purchase Agreement, solely from Net Revenues, is absolute and unconditional, and until such time as the Installment Payments, payments of interest thereon, and such other payments shall have been paid in full (or provision for the payment thereof shall have been made pursuant to the Installment Purchase Agreement),the District has covenanted that it will not discontinue or suspend any Installment Payments when due,whether or not the Project or any par thereof is operating or operable or has been completed, or its use is suspended, interfered with, reduced or curtailed or terminated in whole or in part, and such Installment Payments, payments of interest thereon, and other payments shall not be subject to reduction whether offset or otherwise and shall not be conditional upon the performance or nonperformance by any party of any agreement or any cause whatsoever. The District's obligation to make Installment Payments from Net Revenues is on a parity with the District's obligation to make payments with respect to its Outstanding Senior Obligations. See '—Net Revenues"below. Pursuant to the Trust Agreement, the Corporation has assigned to the Trustee for the benefit of the Owners of the Certificates substantially all of its rights,title and interest in the Installment Purchase Agreement, including its right to receive Installment Payments and the interest thereon. Currently,the District has Senior Obligations Outstanding evidenced by five series of certificates of participation and two related interest rate swap agreements, payable on a parity with the Installment Payments under the Installment Purchase Agreement. The two swap agreements were executed by the OHSWeat160184418.4 41758-11 MKWAmtH $ Book Page 40 predecessor special districts in connection with the execution and delivery of certain Outstanding Senior Certificates. The payments under these swap agreements are payable on a parity with the Installment Payments under the Installment Purchase Agreement and other Senior Obligations, as provided in the Master Agreement. See"FINANCIAL OBLIGATIONS—Existing Indebtedness"herein and APPENDIX C—"SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—Master Agreement"attached hereto. The obligation of the District to pay the Installment Payments, and the interest thereon,and other payments required to be made by it under the Installment Purchase Agreement and Master Agreement, is a special obligation of the District payable, in the manner provided in the Installment Purchase Agreement, solely from Net Revenues and other funds provided for in the Installment Purchase Agreement,and does not constitute a debt of the District,the State or of any political subdivision thereof, in contravention of any constitutional or statutory debt limitation or restriction. Neither the faith and credit nor the taxing power of the District,the State or any political subdivision thereof, is pledged to the payment of the Installment Payments, or the interest thereon, or other payments required to be made under the Installment Purchase Agreement. The Installment Purchase Agreement constitutes a Senior Obligation and, as such, is subject to the provisions of the Master Agreement and is afforded all of the advantages, benefits, interests and security afforded Senior Obligations pursuant to the Master Agreement. See"SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES"herein. Net Revenues The District is obligated to make Installment Payments solely from Net Revenues as provided in the Master Agreement, which consist of Revenues remaining after payment of costs paid by the District for maintaining and operating the Wastewater System ("Maintenance and Operation Costs"). Revenues are defined in the Master Agreement to mean, for any period, all income and revenue received by the District during such period from the operation or ownership of the Wastewater System, determined in accordance with generally accepted accounting principles, including all fees and charges received during such period for the services of the Wastewater System, investment income received during such period (but only to the extent that such investment income is generally available to pay costs with respect to the Wastewater System, including Maintenance and Operation Costs), Net Proceeds of business interruption insurance received during such period,ad valorem taxes received during such period payments under the Agreement Acquiring Ownership Interests, Assigning Rights and Establishing Obligations, entered into on February 13, 1986, and amendment No. 1 thereto dated December 10, 1986, by and between predecessor County Sanitation District No. 14 of Orange County and the Irvine Reach Water District(the "IRWD Agreement") received during such period and all other money received during such period howsoever derived by the District from the operation or ownership of the Wastewater System or arising from the Wastewater System (including any standby or availability charges), but excluding (a) Capital Facilities Capacity Charges, (b)payments received under Financial Contracts,and(c)refundable deposits made to establish credit and advances or contributions in aid of construction (which, for purposes of the Master Agreement, shall not include payments under the IRWD Agreement); provided, however, that (i) Revenues shall be increased by the amounts, if any, transferred during such period from the Rate Stabilization Account to the Revenue Account and shall be decreased by the amounts, if any,transferred during such period from the Revenue Account to the Rate Stabilization Account,and (ii)Revenues shall include Capital Facilities Capacity Charges collected during such period to the extent that such Capital Facilities Capacity Charges could be properly expended on a Capital Facilities Capacity Charge Eligible Project for which the proceeds of Subject Obligations were used or are available to be used. See "DISTRICT REVENUES—Additional Revenues"herein. The District's obligation to make the Installment Payments from its Net Revenues is on a parity with the District's obligation to make payments with respect to its other outstanding obligations described as Senior Obligations and all Reimbursement Obligations with respect to Senior Obligations,as provided in the Master Agreement. The Installment Purchase Agreement constitutes a Senior Obligation and, as OHS WeN260184418.4 41758-11 MKHMIKH 9 Book Page 41 such, is subject to the provisions of the Master Agreement and is afforded all of the advantages, benefits, interests and security afforded Senior Obligations pursuant to the Master Agreement. Pursuant to the Master Agreement, the District pledges all Net Revenues to the payment of the Senior Obligations and Reimbursement Obligations with respect to Senior Obligations,and the Net Revenues will not be used for any other purpose while any of the Senior Obligations or Reimbursement Obligations with respect to Senior Obligations remain unpaid; provided, however, that out of the Net Revenues there may be apportioned such sums for such purposes as are expressly permitted by the Master Agreement. This pledge constitutes a first lien on the Net Revenues for the payment of the Senior Obligations and Reimbursement Obligations with respect to Senior Obligations. The term Senior Obligations, generally means all revenue bonds or notes(including bond anticipation notes and commercial paper)of the District authorized,executed, issued and delivered under and pursuant to applicable law,the Installment Purchase Agreement and all other contracts (including financial contracts) or leases of the District authorized and executed by the District under and pursuant to applicable law, the installment, lease or other payments under which are,in accordance with the provisions of the Master Agreement,payable from Net Revenues on a parity with the payments under the Master Agreement. The District may at any time incur Subordinate Obligations payable on a subordinate basis to the Installment Payments executed and delivered as provided in the Master Agreement; provided, however, that prior to incurring such Subordinate Obligations,the District will have determined that the incurrence thereof will not materially adversely affect the District's ability to comply with the requirements of the Master Agreement. The District may at any time incur Reimbursement Obligations with respect to Subordinate Obligations. For a description of the District's Outstanding Senior Obligations and Subordinate Obligations, see"FINANCIAL OBLIGATIONS—Existing Indebtedness"herein. There are currently no Subordinate Obligations or Reimbursement Obligations with respect to Subordinate Obligations outstanding. The District may, in connection with the incurrence of Subordinate Obligations, pledge Net Revenues to the payment of Subordinate Obligations and Reimbursement Obligations with respect to Subordinate Obligations; provided, however, that such pledge, and any lien created thereby, shall be junior and subordinate to the pledge of,and lien on,Net Revenues for the payment of Senior Obligations and Reimbursement Obligations with respect to Senior Obligations. Rate Stabilization Acmunt In order to avoid Fluctuations in its fees and charges of the Wastewater System, from time to time the District may deposit in the Rate Stabilization Account from Net Revenues such amounts as the District deems necessary or appropriate. From time to time, the District may also transfer moneys from the Rate Stabilization Account to the Revenue Account to be used by the District, first to pay all Maintenance and Operations Costs as and when the same shall be due and payable. In addition,any such amount transferred from the Rate Stabilization Account to the Revenue Account by the District is included as Revenues for any period, but such transferred amount is excluded from determining Operating Revenues for any period. Revenues will be decreased by the amounts,if any,transferred from the Revenue Account to the Rate Stabilization Account. There are presently no funds in the Rate Stabilization Account. Allocation of Revenues In order to carry out and effectuate the pledge of Net Revenues under the Master Agreement as described above, the District agrees and covenants that all Operating Revenues received by the District will be deposited when and as received in the Revenue Account. Additionally, amounts may,from time to time as the District deems necessary or appropriate,be transferred from the Rate Stabilization Account and deposited in the Revenue Account, as described above under "— Rate Stabilization Account" The OHS Wea:260184i18.4 41758-11 6MWBIKH 10 Book Page 42 District will pay from the Revenue Account all Maintenance and Operations Costs (including amounts reasonably required to be set aside in contingency reserves for Maintenance and Operations Costs, the payment of which is not immediately required)as and when the same shall be due and payable. After having paid, or having made provisions for the payment of, Maintenance and Operations Costs, the District shall set aside and deposit or transfer, as the case may be, from the Revenue Account such amounts at such times as provided in the Master Agreement in the following order of priority: (1) Senior Obligation Payment Account; (2) Senior Obligation Reserve Funds; (3) Subordinate Obligation Payment Account; (4) Subordinate Obligation Reserve Funds;and (5) Rate Stabilization Account. Amounts required or permitted to be deposited or transferred as described in items 2, 3, 4 and 5 above, shall not be so deposited or transferred unless the District shall have determined that there will be sufficient Net Revenues available to make the required deposits or transfers on the dates on which such deposits or transfers are required to be made as described above. So long as the District has determined that Net Revenues will be sufficient to make all of the deposits or transfers required to be made pursuant to items 1,2, 3,4 and 5 above,on the dates on which such deposits or transfers are required to be made, Net Revenues on deposit in the Revenue Account may from time to time be used for any purpose for which the District funds may be legally applied. For additional information, see APPENDIX C — "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—Master Agreement" Rate Covenant Pursuant to the Master Agreement,the District will,to the extent permitted by law, fix,prescribe and collect fees and charges for the services of the Wastewater System which will be at least sufficient to yield during each Fiscal Year(a)Net Revenues equal to 125%of Debt Service on Senior Obligations for such Fiscal Year and (b) Net Operating Revenues equal to 100% of Debt Service on all Obligations for such Fiscal Year.The District may make adjustments from time to time in such fees and charges and may make such classification thereof as it deems necessary, but will not reduce the fees and charges then in effect unless the Revenues and Net Revenues from such reduced fees and charges will at all times be sufficient to meet the requirements of the Master Agreement. In addition, the District has covenanted in the Master Agreement to prepare and adopt an annual budget for the Wastewater System for each Fiscal Year. Such budget will set forth in reasonable detail the Revenues anticipated to be derived in such Fiscal Year and the expenditures anticipated to be paid or provided for therefrom in such Fiscal Yew, including,without limitation, the amounts required to pay or provide for the payment of the Obligations during such Fiscal Year, the amounts required to pay or provide for the payment of Maintenance and Operations Costs during such Fiscal Year and the amounts required to pay or provide for the payment of all other claims or obligations required to be paid from Revenues in such Fiscal Year,and will show that Revenues and Net Revenues will be at least sufficient to satisfy the requirements of the Master Agreement. On or before September I of each Fiscal Year, the District will file with the Trustee a copy of the adopted budget for such Fiscal Year. See APPENDIX C— "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—Master Agreement"for additional information. OHS Wa 26018441&4 41758-11 MKWM tH I I Book Page 43 Reserve Fund The Trust Agreement provides for the funding of the Reserve Fond in an amount equal to the "Reserve Requirement,"which is defined as an amount,as of any date of calculation,equal to the least of (a) ;• (b) I U% of the original aggregate amount of principal evidenced by the Certificates, (c) the maximum amount of remaining Installment Payments,and the interest thereon,coming due in any one Certificate Year,and(d) 125%of the average amount of remaining Installment Payments,and the interest thereon,coming due in each Certificate Year. Amounts in the Reserve Fond may be used to pay principal and interest evidenced by the Certificates to the extent that amounts in the Principal Account and Interest Account are insufficient therefor. The Trustee shall establish and maintain the Reserve Fund until all required Installment Payments, and the interest thereon, are paid in full pursuant to the Installment Purchase Agreement and until the first date upon which no Certificates are Outstanding. The Reserve Fund will be funded with a portion of the net proceeds of the Certificate in the amount of S which amount is sufficient to satisfy the Reserve Requirement. See "SOURCES AND USES OF PROCEEDS OF THE CERTIFICATES." The District may substitute a Reserve Facility for all or a part of the moneys on deposit in the Reserve Fund by depositing such Reserve Facility with the Trustee so long as, at the time of such substitution, the amount on deposit in the Reserve Fund, together with the amount available under such Reserve Facility and any previously substituted Reserve Facilities, shall be at least equal to the Reserve Requirement. Moneys for which a Reserve Facility has been substituted as provided in the Trust Agreement shall be transferred, at the election of the District, to the Installment Payment Fund, or upon receipt of an Opinion of Counsel to the effect that such transfer,in and of itself,will not adversely affect the exclusion of interest evidenced by the Certificates from gross income for federal income tax purposes, to a special account to be held by the Trustee and applied to the payment of capital costs of the District,as directed in a Written Request of the District. Any amounts paid pursuant to any Reserve Facility shall be deposited in the Reserve Fund. If a Reserve Facility is credited to the Reserve Fund to satisfy a portion of the Reserve Requirement,the Trustee shall make a claim for payment under such Reserve Facility, in accordance with the provisions thereof, in an amount which, together with other available moneys in the Reserve Fund, will be sufficient to make said deposit in the Interest Account or Principal Account. The moneys in the Reserve Fund, and any Reserve Facility, shall be held in trust by the Trustee for the benefit of the Owners and shall be used and disbursed only for the purposes and was authorized in the Trust Agreement. Moneys, if any, on deposit in the Reserve Fund shall be withdrawn and applied by the Trustee for the final payment of principal and interest evidenced by the Certificates. Amounts on deposit in the Reserve Fund which were not derived from payments under any Reserve Facility credited to the Reserve Fund to satisfy a portion of the Reserve Requirement shall be used and withdrawn by the Trustee prior to using and withdrawing any amounts derived from payments under any such Reserve Facility. In order to accomplish such use and withdrawal of such amounts not derived from payments under any such Reserve Facility,the Trustee shall,as and to the extent necessary, liquidate any investments purchased with such amounts. If and to the extent that more than one Reserve Facility is credited to the Reserve Fund to satisfy a portion of the Reserve Requirement, drawings thereunder, and repayment of expenses with respect thereto,shall be made on a pro-ram basis(calculated by reference to the policy limits available thereunder). The Trustee shall, from amounts received from the District pursuant to the Installment Purchase Agreement,deposit in the Reserve Fund an amount of money which,together with the amount already on • Preliminary,subject to change. OHS Wat2e0184418.4 41758-11 MKHIMXH 12 Book Page 44 deposit therein and the amounts available under all Reserve Facilities, will be equal to the Reserve Requirement. No deposit need be made in the Reserve Fund so long as there shall be on deposit therein a sum equal to the amount which, together with the amounts available under all Reserve Facilities, is at least the Reserve Requirement. The Trustee shall promptly notify the District in writing if the amount on deposit is less than the Reserve Requirement. If, as a result of the scheduled payment of principal or interest evidenced by the Certificates,the Reserve Requirement is reduced the Trustee shall transfer an amount equal to the amount of such reduction to the Installment Payment Fund. See APPENDIX C—"SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—Trust Agreement." Limitations on Issuance of Additional Obligations Senior Obligations. The District may at any time incur Senior Obligations in addition to the Existing Senior Obligations payable from Net Revenues as provided in the Master Agreement on a parity with all other Senior Obligations theretofore incurred but only subject to the following conditions under the Master Agreement (1) Upon the incurrence of such Senior Obligations, no Event of Default will be continuing under the Master Agreement;and (2) Subject to the provisions of the Master Agreement, the District will have received either one of the following: (i) A Written Certificate of the District certifying that,for a 12 consecutive calendar month period during the 24 consecutive calendar month period ending in the calendar month prior to the incurrence of such Senior Obligations (which 12 consecutive calendar month period will be specified in such certificate or certificates): (A) Net Revenues,as shown by the books of the District,will have amounted to at least 125% of Maximum Annual Debt Service on all Senior Obligations to be outstanding immediately after the incurrence of such Senior Obligations,and (B) Net Operating Revenues,as shown by the books of the District,will have amounted to at least 10OVo of Maximum Annual Debt Service on all Obligations to be outstanding immediately after the incurrence of such Senior Obligations. For purposes of demonstrating compliance with the foregoing,Net Revenues and Net Operating Revenues may be adjusted for(x)any changes in fees and charges for the services of the Wastewater System which have been adopted and are in effect on the date such Senior Obligations are incurred, but which, during all or any part of such 12 consecutive calendar month period, were not in effect, (y) customers added to the Wastewater System subsequent to such 12 consecutive calendar month period but prior to the date such Senior Obligations are incurred, and (z) the estimated change in available Net Revenues and Net Operating Revenues which will result from the connection of existing residences or businesses to the Wastewater System within one year following completion of any project to be funded or any system to be acquired from the proceeds of such Senior Obligations;or OHS Wat:26018441M 41758-11 MKHIMKH 13 Book Page 45 (ii) A certificate or certificates from one or more Consultants which, when taken together, project that, for each of the two Fiscal Years next succeeding the incurrence of such Senior Obligations: (A) Net Revenues will amount to at least 125% of Maximum Annual Debt Service on all Senior Obligations to be outstanding immediately after the incurrence of such Senior Obligations,and (B) Net Operating Revenues will amount to at least 100% of Maximum Annual Debt Service on all Obligations to be outstanding immediately after the incurrence of such Senior Obligations. For purposes of demonstrating compliance with the foregoing,Net Revenues and Net Operating Revenues may be adjusted for(x)any changes in fees and charges for the services of the Wastewater System which have been adopted and are in effect on the date such Senior Obligations are incurred or will go into effect prior to the end of such two Fiscal Year period,(y)customers expected to be added to the Wastewater System prior to the end of such two Fiscal Year period, and (z) the estimated change in available Net Revenues and Net Operating Revenues which will result from the connection of existing residences or businesses to the Wastewater System within one year following completion of any project to be funded or any system to be acquired from the proceeds of such Senior Obligations. For purposes of preparing the certificate or certificates described above,the Consultant may rely upon financial statements prepared by the District that have not been subject to audit by an independent certified public accountant if audited financial statements for the period we not available. See, also "FINANCIAL OBLIGATIONS - Existing Indebtedness" herein. The provisions described above in paragraph (2)need not be complied with if the Senior Obligations being incurred are Short-Term Obligations excluded from the calculation of Assumed Debt Service pursuant to clause(H)of the definition thereof. See APPENDIX C - "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS - Definitions"herein. The determination of Net Revenues for use in the calculation described above is more fully described in APPENDIX C - "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS - Master Agreement-Senior Obligations"attached hereto. The provisions described in paragraph(2)above need not be complied with for such portion of such Senior Obligations incurred for the purpose of providing funds to refund or refinance such Obligations if(I)a portion(which may be all)of the Senior Obligations are incurred for the purpose of providing funds to refund or refinance any Obligatons, (ii) upon such refunding or refinancing, debt service on such refunded or refinanced Obligations, or debt service on bonds,notes or other obligations of an entity other than the District,the debt service on which is payable from Obligation Payments for such Obligations(the "Related Bonds"),will no longer be included in the calculation of Assumed Debt Service either because such Obligations, or the Related Bonds of such Obligations, will have been paid in full or because such debt service is disregarded pursuant to clause(L) of the definition of Assumed Debt Service, and (iii) Assumed Debt Service in each Fiscal Year for the portion of such Senior Obligations incurred for the purpose of providing funds to refund or refinance such Obligations is less than or equal to 105% of Assumed Debt Service in such Fiscal Year for such Obligations being refunded or refinanced(assuming for such purposes that debt service on such refunded or refinanced Obligations, or debt service on the Related Bonds of such Obligations, is not disregarded pursuant to clause (L) of the definition of Assumed Debt Service). See APPENDIX C - "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS - Master Agreement" attached hereto for additional information. OHS WM:z80184418.4 41758-11 NWIVb1KH 14 Book Page 46 The District may at any time incur Reimbursement Obligations with respect to Senior Obligations. Subordinate Obligations. The District may at any time incur Subordinate Obligations upon satisfaction of the conditions provided in the Master Agreement. See APPENDIX C—"SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—Master Agreement'herein for a description of such conditions. Insurance The District will procure and maintain or cause to be procured and maintained casualty insurance on the Wastewater System with responsible insurers,or provide self insurance(which may be provided in the form of risk-sharing pools), in such amounts and against such risks (including accident to or destruction of the Wastewater System) as are usually covered in connection with facilities similar to the Wastewater System. The District will procure and maintain such other insurance which it will deem advisable or necessary to protect its interests and the interests of the Corporation. See"THE DISTRICT— Risk Management' and APPENDIX C — "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS — Master Agreement'herein. Allocation of Installment Payments Table 1 below sets forth the Installment Payments, together with the estimated interest thereon, assuming the only prepayments made are the mandatory prepayments described under "THE CERTIFICATES— Prepayment Provisions"herein. Also set forth are the payments due on Outstanding Senior Obligations. OHS Weee36OHM1E.4 41768-11 MKIIIN" is Book Page 47 Table 1 Estimated Installment Payments of the District Find year Outstanding Senior Fading Installment Payments Obligations Payments June 30 Principal Interest Principal Interest", Total 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2023 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 (1) Asanna_%for all uo-hedged variable we obligations and actual swap reles for swapped variable rate obligations. See "FINANCIAL OBLIGATIONS - Existing Indebtedness' and APPENDIX A - "COh1PREHENSIVE ANNUAL FINANCIAL REPORT OF THE ORANGE COUNTY SANITATION DISTRICT FOR FISCAL YEAR ENDED TUNE 30. 2006"herein. THE DISTRICT Background The Orange County Sanitation District is a public agency responsible for regional wastewater collection, treatment and disposal. The District is the sixth largest wastewater discharger in the United States. The District provides service to an area with a population of approximately 2.5 million people in i OHS West 2601044184 41758-11 M IVKdKH 16 1 Book Page 48 the northern and central portion of the County by treating 235 mg/d of wastewater in Fiscal Year 2005-06. The District serves approximately 81% of the County population in approximately 479 square miles, or 59%of the County. The service area which comprises the District was originally formed in 1954 pursuant to the County Sanitation District Act, as amended, Section 4700 el seg. of the Health and Safety Code of the State.The District's service area originally consisted of seven independent special districts in the County which were each responsible for matters relating to their individual districts. These special districts were jointly responsible for the treatment and disposal facilities which they each used. The seven independent districts were successors to the Joint Outfall Sewer Organisation, which was formed in 1923 among the Cities of Anaheim, Santa Ana, Fullerton,and Orange, and the sanitary districts of Placentia, Buena Park, La Habra, and Garden Grove. The Joint Outfall Sewer Organization constructed a treatment plant and outfall in the early 1920's to serve its members. it was reorganized in 1947 and 1948 into seven county sanitation districts - Districts Nos. 1, 2, 3, 5, 6, 7 and 11. These prior districts were formed based on engineers' analyses of the gravity flows in the service area. District No. 13 was formed in 1985 and District No. 14 was added in 1986. These districts were co-participants in a Joint Agreement which provided for the joint construction,ownership,and operation of the prior districts'joint facilities. In April 1998, at the request of the District's Board of Directors (the "Board"), the Board of Supervisors of Orange County (the "County Board") passed Resolution No. 98-140 approving the consolidation of the than existing nine special districts into a new, single sanitation district, to be known as the Orange County Sanitation District. This action was designed to simplify governance structures, reduce the size of the Board, ease administrative processes, streamline decision-making and consolidate accounting and auditing processes.The consolidation was effective on July L 1998. Pursuant to the Resolution and Government Code Section 57500, the prior districts transferred and assigned all of their powers, rights, duties, obligations, functions and properties to the District, and the District assumed all obligations of the prior districts which were several and not joint including, without limitation, their obligations to repay the then outstanding certificates of participation. See "FINANCIAL OBLIGATIONS—Existing Indebtedness"herein. The boundaries of the nine predecessor special districts were initially used by the District to delineate separate revenue areas (the "Revenue Areas") for budgeting and accounting purposes and in order to facilitate the imposition of fees and charges imposed by the District. See"DISTRICT REVENUES—Sewer Service Charges"herein. The District is managed by an administrative organization composed of a Board of Directors appointed by twenty-five member cities and agencies which are serviced by the District. The District is responsible for construction and maintenance of a major portion of the wastewater collection, treatment and disposal facilities within its boundaries. Revenue Area No. 7 is responsible for approximately 152 miles of local sewers in its service area, whereas local sanitary districts, water districts and cities are responsible for local sewers in the remainder of the District's service area. Organisation and Administration The District is independent of and overlaps other formal political jurisdictions. There are many governmental entities, including the County,that operate within the District's jurisdiction. These entities are exclusively responsible for the administration of their own fiscal affairs,and the District is not entitled to operating surpluses of,or responsible for operating deficits of,any of the other entities. The twenty-five member Board of Directors is comprised of representatives from twenty-one cities, unincorporated areas of the County and three special districts,including mayors of cities,members of city councils, directors of independent special districts and one member from the County Board. OHS Wc12 6 0184 41 8.4 41758-11 MKH/MKH 17 Book Page 49 Several board committees, made up of members of the Board of Directors, consider topics for action by the Board and make recommendations to the Board. The Chair and the Vice Chair of the Board are elected every year by a majority of the Board,and some at the pleasure of the majority of the Board. The District has a general manager, general counsel, administrative and operating staff, with offices located at Reclamation Plant No. 1 in Fountain Valley. The District currently employs an administrative and operating staff of over 600 under the direction of the General Manager,James D. Ruth. James D. Ruth,is the District's General Manager,and has served in that capacity since December 2005. Prior to that time, from January 2003 to October 2004,Mr. Ruth served as Chief Executive Officer for the County of Orange. Mr. Ruth had previously provided 22 years of service to the city of Anaheim as parks and recreation director,deputy city manager,assistant city manager and chief executive officer,a post he held for I 1 years. Robert P. Ghirelli, Ph.D., is the District's Assistant General Manager, and has served in that capacity since July 2006. Mr. Ghirelli previously served as Director of Technical Services for the District since his joining the District in 1998. Prior to joining the District, Mr. Ghirelli served forjust over a year as managing principal of the Los Angeles office of a national environmental consulting firm, served 20 years in supervisory positions with the State and Regional Water Boards,with 13 years Executive Officer of the California Regional Water Quality Control Board, Los Angeles/Ventura Region. Lorenzo Tyner, is the District's Director of Finance and Administrative Services. In September 2005, Mr.Tynerjoined the District with nearly 15 years of public finance and budgeting experience,most recently serving as the Los Angeles Unified School District Budget Director and Deputy Chief Financial Officer. Mr. Tyner previously worked in large government organizations including the City of Los Angeles and the Los Angeles County Metropolitan Transportation Authority and private sector companies IBM Global Services and Northrop. James Herberg, P.E., is the District's Director of Engineering, and has served in that capacity since November 2006. Prior to becoming Director of Engineering, he was the District's Director of Operations and Maintenance. Mr. Herberg has over twenty years of experience in water and wastewater including project management, construction management, design, strategic planning, and operations & maintenance. Ed Torres, has served as Director of Technical Services for the District. Mr. Torres has twenty- four years of public and private sector experience in protecting public health and the environment. Prior to joining the District in 1991, Mr. Torres served in a professional capacity for the California State University System and TRW Electronics and Defense Sector. Nick Arhontes, P.E., serves as the Director of Operations and Maintenance and has served the District since 1988. Mr. Arhontes has over 30 years of experience managing various engineered systems in the private and public sectors regionally,nationally,and internationally. Services The District owns and operates regional wastewater collection, treatment, and disposal facilities for the metropolitan area in the northern and central portion of the County. The District receives wastewater from the collection systems of the cities, sanitary districts and unincorporated areas of the County located within the District. See"THE DISTRICT—Service Areas"herein. OHS WM1Q601S*H&4 41758-11 MKH A H 18 Book Page 50 i Generally, local agency systems collect wastewater from residential and industrial customers and convey the wastewater to District trmlk sewer pipelines for conveyance to the District's wastewater treatment plants. The District's staff is responsible for operating and maintaining the District's infrastructure, although some operations are provided by external contractors. Currently, the District has established supply contracts for all chemicals necessary to the operation and maintenance of the facilities of the District. The District has sufficient standby systems in the event of equipment failures or system outages. Service Area The map on the inside cover page of this Official Statement shows the District's boundaries and selected cities located within the District District boundaries were originally established in 1947 and 1948 based on drainage basins. As the existing cities have grown and new areas have incorporated, city limits have come to overlap District boundaries. The District currently serves an approximately 471 square-mile area including 23 of the County's 33 cities and unincorporated areas of the County. The District serves a population of approximately 2.5 million residents and owns sanitary sewerage facilities with a replacement value of approximately$5.56 billion. Table 2 below sets forth the estimated populations of cities and unincorporated areas served by the District as of January 1,2006. OHS Wa:26018141&4 41758-11 hCUUmtx 19 Book Page 51 i Table 2 Estimated Populations of Cities and Uoincorporated Areas Served by the Orange County Sanitation District As of January 1,2006 City Population Anaheim 342,410 Brea 39,560 Buena Park 81,350 Costa Mesa 113,130 Cypress 48,850 Fountain Valley 57,410 Fullerton 136,430 Garden Grove 171,770 Huntington Beach 201.000 Irvine 193,790 La Habra 61,790 La Palma 16,080 Los Alamitos 12,000 Newport Beach 83,360 Orange 137,900 Placentia 51,240 Santa Ana 351,320 Seal Beach 25,300 Stanton 38,760 Tustin 71,770 Villa Park 6,220 Westminster 92,410 Yorba Linda 66.79 Cities Subtotal 240,540 Unincorporated Areas 81,000 Total 2,481,540 Source: Smte of California Department of Finance.Demographic Research Unit and Omnge County Sanitation District. Employees As of June 30, 2006. the District had 644 full-time equivalent ("FTE") staff positions and 644 FTE's budgeted for Fiscal Year 2006-07. Certain employees in the District are represented by recognized employee organizations, which include the following: the Orange County Employee Association ("OCEA"), the International Union of Operating Engineers - Local 501 ("Local 501") and the Supervisory Professional Management Team ("SPMT"). As of March 1, 2007, the District had 603 represented and non-represented employees. Total represented employees as of March I, 2007 were as follows: 97 positions were represented by the OCEA, 194 were represented by Local 501 and 250 were represented by SPMT. Agreements with each of these bargaining units are effective through June 30, 2007. The District is currently in negotiations with its bargaining units for extensions of these agreements. The OCEA has represented various bargaining units since 1979. Local 501 has represented the operations and maintenance bargaining unit since October 1985. SPMT has represented the professional and supervisory bargaining wit since 1991. The District has historically enjoyed a good working relationship with its bargaining units and has experienced no work stoppages by represented personnel in the past. OHS wac2601844184 41758•11 MxwMxe 20 Book Page 52 For a description of the Orange County Employee's Retirement System, in which the District participates, and the District's deferred compensation plan, see "Retirement Plan" below and Note 7 to the Comprehensive Annual Financial Report of the Orange County Sanitation District for Fiscal Year Ended June 30, 2006, set forth in Appendix A. The District has no significant or unusual liabilities and costs associated with other employee benefits, such as vacation, sick leave and other post-employment benefit liabilities. Retirement Plan The District participates in the Orange County Employee's Retirement System (OCERS), a cost- sharing multiple-employer, defined benefit pension plan which is governed and administered by a nine member Board of Retirement. OCERS was established in 1945 under the provisions of the County Employees Retirement Law of 1937, and provides members with retirement, death, disability, and cost- of-living benefits. All District full-time employees participate in OCERS. Employees who retire at or after age 50 with ten or more years of service are entitled to an annual retirement allowance. The amount of the retirement allowance is based upon the member's age at retirement, the member's "final compensation" as defined in Section 31462 of the Retirement Law of 1937,the total yeas of service under OCERS, and the employee's classification as a Tier I or Tier II member. As of July 1, 2006, the formula to calculate retirement benefits was enhanced to 2.5%at age 55,or employees retiring at age 55 or older receive 2.5% of their average salary for every year of service. Average salary is the highest consecutive 12 months of compensation for Tier 1 employees and the highest consecutive 36 months of compensation divided by three for Tier 11 employees. Benefits fully vest on reaching five years of service. OCERS also provides death and disability benefits. As a condition of participation under the provisions of the County Employees Retirement Law of 1937, members are required to contribute a percentage of their annual compensation to OCERS. The District is required to make periodic contributions to OCERS in amounts that we estimated to remain a constant percentage of covered employees' compensation such that, when combined with covered employees' contributions,will fully provide for all covered employees' benefits by the time they retire. A current comparison of OCERS costs for Fiscal Years 2001.02 through 2005-06 and projected costs through Fiscal Year 2007-08 is shown below. Table 3 Orange County Sanitation District Comparison of OCERS Costs for Fiscal Years 2001-02 through 2007-08(t) Fiscal Year Rate 42) Cost 2001-02 2.36% $ 765,459 2002-03 5.50 1,943,056 2003-04 9.15 3,668,650 2004-05 12.37 5,524,673 2005-06 15.21 7,416,556 2006-07 20.15 9,903,830(3) 2007-08 20.87(a) 11,724,637 In (1) Amounts represent employer contributions made by the District and employee contributions. (2) Required contribution as a percent ofcovered payroll. Includes amortization of Unfunded Accrued Actuarial Liability. (3) Projected. OHS Wen:260H*4l&4 41755-11 MKWMKH 21 Book Page 53 i For Fiscal Years 2001-02 through 2005-06, the required contribution equaled the contribution actually made. As noted, the required contribution set forth above includes amortization of Unfunded Accrued Actuarial Liability ("UAAL"). For the fiscal year ended June 30, 2006, total payroll costs of employees covered by OCERS was$48,761,087. As of the December 31,2005 valuation,OCERS has an aggregate UAAL ratio of 71.53%,for a total UAAL of$2.30 billion. For more information regarding OCERS and the District's retirement plan as of June 30, 2005, see Note 7 to the Comprehensive Annual Financial Report of the Orange County Sanitation District for Fiscal Year Ended June 30,2006 set forth in Appendix A. The Comprehensive Annual Financial Reports of the Orange County Employees Retirement System are available on the OCERS website at http://www.ocers.org. The information on such website is not incorporated herein by such reference or otherwise. Post-Employment Benefits On June 21,2004,the Governmental Accounting Standards Board("GASB")approved Statement No. 45 (GASB 45), accounting standards for other(than pensions) postemployment benefits ("OPEB"). GASB 45 effective dates are phased in, similar to GASB's Statement No. 34 which was implemented in recent years. The first effective Fiscal Year for the District is Fiscal Year 2007-08. Preliminary indications are that the District's potential OPEB liability will not have a material impact on the District's operational results. Risk Management As of the date hereof, the District has in force basic all risk property and casualty insurance, including theft, fire, flood terrorism and boiler and machinery losses to the Wastewater System. The District is self-insured for portions of workers' compensation,property damage and general liability. The self-insurance portion of workers' compensation is $500,000 per person per occurrence with outside excess insurance coverage to$50 million. The self-insured portion for property damage covering fine and other disasters is$25,000 per occurrence with outside excess insurance coverage to$1 billion. The self- insured portion for property damage covering flood is $100,000 per occurrence with outside excess insurance coverage to$300 million. The District is self-insured for all property damage from the perils of earthquakes. See "DISTRICT REVENUES — Reserves." The District also maintains outside comprehensive boiler and machinery insurance, including business interruption insurance, with a $100 million per occurrence combined limit with deductibles ranging from $25,000 to $350,000. The District is substantially self-insured for general liability coverage with a$250,000 self-insured deductible,but has excess general liability coverage to$25 million per occurrence. During the past three fiscal years there have been no settlements in excess of covered amounts. Claims against the District are processed by outside insurance administrators. The District believes that there are no unrecorded claims as of June 30, 2006 that would materially affect the financial position of The District. For more information regarding the District's insurance coverage as of June 30, 2006, see Note I to the Comprehensive Annual Financial Report of the Orange County Sanitation District for Fiscal Year Ended June 30,2006 set forth in Appendix A. Existing Facilities The District's Wastewater System presently consists of two wastewater treatment plants, an influent metering and diversion structure, 16 pump stations,various interplant pipelines and connections, OHS We 2601WISA 41759-11 MMtVamCH 22 Book Page 54 and the ocean outfall facilities. The District's Wastewater System includes approximately 584 miles of sewers within 12 mark sewer systems, 152 miles of local sewers located within Revenue Area No. 7,two treatment plants, two discharge outfalls and two emergency weir outlets. The existing treatment plants have a rated primary treatment capacity of 366 million gallons per day,including standby capacity. Treatment Plant No. 1 ("Plant No. I") is located in the City of Fountain Valley,about four miles from the coast, adjacent to the Santa Ana River. Secondary treatment capabilities are provided by a trickling filter plant and a conventional air activated sludge plant. Up to 15 million gallons per day ("mg/d") of secondary treated effluent is conveyed to an Orange County Water District (the "OCWD") plant for tertiary treatment prior to ground water recharge. Treatment Plant No.2("Plant No. 2")is located in the City of Huntington Beach, 1,500 feet from the ocean, at the mouth of the Santa Ana River. Secondary treatment capabilities are provided by a pure oxygen activated sludge plant. The District employs several phases in the treatment of wastewater. The first phone, preliminary treatment,removes debris such as eggshells, sand and biodegradable items. See,also"Preferred Level of Treatment" and "Biosolids Management" below. In the next phase, primary treatment, wastewater is pumped to large settling basins. The liquids are separated from the remaining solids which settle or float as the wastewater passes through large settling basins called clarifiers. The settled solids are sent to solids treatment facilities. Approximately half of the primary treated wastewater flows into the ocean outfall pumping station where it is blended with secondary treated wastewater before being discharged into the ocean. The other half is sent to secondary treatment for further processing. During secondary treatment, the wastewater is placed in aeration basins to which naturally occurring bacteria are added to remove most of the remaining dissolved and suspended microscopic organic solids. The treated wastewater from both plants is mixed together at Plant No. 2, where it is then pumped through the ocean outfall pipe that extends five miles offshore. Table 4 below sets forth the treatment plants' approximate current and future treatment capacities. Table 4 Wastewater System Treatment Capacities (MG/D) 2005-06 Existing Primary Total Planned Actual Treatment Existing Secondary Secondary Flows Capacity Treatment Capacity capacity", Plant No. 1 87 198 110 170 Plant No. 2 148 168 90 150 Aggregate Treatment Plant Facilities 235 366 200 320 (1) The District's "Planned Total Capacity" is based on the Strategic Plan for planned capacity by 2020. which estimated the District's requirements to meet future expected primary and secondary capacity demands. The District has the capability to divert a portion of the influent flow from Plant No. I to Plant No. 2 through interplant connections. A portion of the flow destined for Plant No.2 can also be diverted to Plant No. 1. The treated wastewater from Plant No. 1 flows by gravity to the outfall system through interconnecting lines. The combined Plant No. I and Plant No.2 effluent is then pumped through a 120- inch diameter ocean outfall which is approximately five miles long. The last mile of the outfall pipe is a OHS WM:2601S4418.4 4175&11 M KH 23 Book Page 55 i diffuser that dilutes the wastewater with seawater in a ratio of 148 parts seawater to one part treated wastewater at an average depth of 185 feet. The 120-inch outfall has a capacity of 480 million gallons per day at high tide. A smaller 78-inch diameter outfall that terminates at a shallower depth is still maintained, although it is reserved for use in emergencies. This smaller outfall is estimated to have a capacity of approximately 230 million gallons a day. There is an interplant gas pipeline between Plant No. I and Plant No.2 which allows digester gas(which is used as fuel for many of the facilities' engines) from one plant to be used at the other to balance the supply and demand, which results in efficient gas utilization. Permits,Licenses and Other Regulations The Wastewater System is subject to regulations imposed by the 1972 Clean Water Act, Public Law 92-500 (the "Clean Water Act"), the California Environmental Quality Act of 1970, as amended ("CEQA") and the Federal Clean Air Act. The regulatory requirements are administered by the United States Environmental Protection Agency(the"EPA")and the California Regional Water Quality Control Board("RWQCB"). Regulations of these agencies deal primarily with the quality of effluent which may be discharged from the treatment plants and the nature of waste material discharged into the collection system. The Clean Water Act directs the EPA to monitor and to regulate the discharge of pollution into navigable waterways and to enforce the requirements that all wastewater treatment plants in the nation provide full secondary treatment for sewage. In 1977, Congress amended the Clean Water Act to allow waivers of secondary treatment standards for certain ocean dischargers if they can demonstrate, to the satisfaction of the EPA, that significant adverse environmental impacts would not occur. The District currently has all applicable permits and licenses necessary to operate its facilities. The District has discharged treated wastewater into the Pacific Ocean under a permit issued by the EPA and the RWQCB. The discharge permit included a waiver under the 301(h) provisions of the Clean Water Act, allowing for less than full secondary treatment based on an ocean discharge of sufficient depth,distance and dilution. The permit was initially issued in 1985 and was the first modified Section 301(h) permit issued to a major wastewater treatment facility. The District's permit, which included the Section 301(h) waiver of secondary treatment requirements, was issued on May 6, 1998, expired on June 8,2003. In July 2002, the Board of Directors approved a change from the existing level of treatment, a blend of 50 percent advanced primary and 50 percent secondary treated wastewater, to full secondary treatment standards. See "Preferred Level of Treatment" and "Urban Runoff' below. As a result, the District established a policy to treat all wastewater discharges into the ocean to secondary treatment standards. See "Preferred Level of Treatment" below. To implement this policy, District staff was directed to immediately proceed with the planning,design,and implementation of treatment methods with the expressed purposes of eliminating the need for the permit wavier received under Section 301(h). Following determination by the Board of Directors in July 2002 to implement full secondary standards, staff prepared the Secondary Treatment National Pollutant Discharge Elimination System ("NPDES") Permit Application that was required to be submitted to the regional office of the EPA and the RWQCB in December 2002. The NPDES Permit is separate and apart from the permit waiver received under Section 301(h), and once awarded would negate any necessary waiver. Achieving secondary treatment standards will take approximately 6 years to complete,with completion expected in December 2012. But ocean discharge permits are issued for five (5)years, and the EPA has no authority to waive the discharge limits requirements or grant a longer permit (except per Sec. 301(h)). The alternative was to voluntarily seek a consent decree concurrently with the issuance of the new ocean discharge permit. This negotiated consent decree (the "Consent Decree") approves the schedule and decrees that no penalties will be imposed for discharges that exceed the secondary treatment limits during OHS West:260184418.4 41759-11 NIIUV ncH 24 Book Page 56 the period of construction. The Consent Decree was signed by the District, EPA, and the RWQCB and filed with the U.S.District Court on November 15,2004. The South Coast Air Quality Management District ("AQMD") is the regional governmental agency charged with implementing the Federal Clean Air Act. AQMD permits are required before a sewage treatment improvement project can be constructed. Such permits are project specific and contain construction process requirements, required equipment and standards for predicted air quality. After construction is completed,the AQMD issues an operation permit. These permits are also project specific and contain air quality standards and other appropriate operetional guidelines. Most of the District's facilities are enclosed in order to trap emissions,which are cleaned by air scrubbers that remove odors. In addition,the District has implemented an air quality risk reduction program which includes a twenty-year plan to improve treatment plant operations and reduce industrial toxic pollutants. The District currently has all necessary AQMD permits to operate the Wastewater System. Capital Improvement Program The Master Plan. The District's 1989 master plan consisted of a 30-year plan of action for managing wastewater activities to the year 2020, entitled "2020 Vision, Action Plan for Wastewater Management and Environmental Protection 1990-2020"(the"Master Plan"). The Master Plan integrated research facilities planning, environmental analysis, toxic control, water conservation and reclamation, sludge reuse, other wastewater programs and financial planning into a single unified approach. In connection with the preparation of the Master Plan,an in-depth land use study was performed,resulting in the creation of a uniform land use classification system and a map of the District's service area. Land use designations and unit flow factors were used to project wastewater flows in the District's trunk sewers for then present conditions, through the year 2020. These flows were included in a computer model of the District's Wastewater System which identified future sewer capacity improvements. A thirty-year capital improvement program was developed to implement the required sewer capacity improvements. This land use study included the collection and compilation of the latest available land use plans,reports,maps and studies from the cities within the District and the County, and interviews with the planning directors or key staff within the District. Land use planning within the District's service area is the responsibility of the County for unincorporated areas and cities for areas within their boundaries. The California Coastal Commission has some land use authority within the District's coastal areas. The Strategic Plan. In October 1999, the District updated the Master Plan with a strategic plan (the "Strategic Plan'). The Strategic Plan updated the planning process set forth in the Master Plan through the year 2020 and defined the District's goals, responsibilities, and requirements over the then following twenty years, including projections through the assumed "build-out" of the District's service area to the year 2050. In addition to updating the population and flow assumptions, the Strategic Plan provided for an operations and financial plan,including a review of the collection,treatment and disposal facilities, and the District's ocean curtails. Studies on a preferred level of wastewater treatment and in- sourcing of the ocean monitoring program were prepared and incorporated in the Strategic Plan. Water and air regulatory agencies require that all wastewater facilities be designed to meet the needs of anticipated growth and provide a reasonable reserve capacity. With the adoption of the Strategic Plan,the District's planning process met these requirements by shifting its approach for the development of master plans from a"size and build"approach to a broad-based multi-agency cooperative evaluation process. Many of the assumptions used to develop the Strategic Plan, such as inflation, the projected service population, the level of building activity, and the volume of wastewater treated, were quite different from what was assumed ten years earlier under the Master Plan. Critical factors such as population growth, new construction, the volume of wastewater delivered to the plants and viable water conservation and reclamation programs were reevaluated. OHS WW:2601W1&4 41758-11 MKHIMKH 25 Book Page 57 11 Interim Strategic Plan. In June 2002, a new, or Interim Strategic Plan Update (the "Interim Strategic Plan" herein) was completed to further update and revise many of the assumptions used to develop the District's previous planning documents, including population and land-use projections, the level of building activity in the District's service area and the volume of wastewater to be treated. The Interim Strategic Plan also provides for an operations and financial plan including a review of the District's collection, treatment and disposal facilities, and a study of the District's ocean omfall system. In addition, potential changes in the regulatory climate for the berreficial reuse of biosolids were also considered. On July 17, 2002, the Board of Directors approved Resolution No. OCSD-14, "Establishing the Policy for Level of Treatment of Wastewater Discharged into the Ocean". This resolution established the District's policy to treat all wastewater discharges into the ocean to secondary treatment standards thereby providing for continued public safety,marine ecosystem protection, and water reclamation opportunities. To implement this policy, the District staff was directed to immediately proceed with the planning, design, and implementation of treatment methods that will allow the agency to meet Clean Water Act secondary treatment standards. The District currently estimates that it will take 6 years (through December 2012) and additional capital improvement costs of$538 million to reach secondary treatment discharge standards. In the interim, the District will operate the plants to maximize available secondary treatment and to reduce effluent biochemical oxygen demand and suspended solid discharges below currently allowed limits. The current 50 percent secondary portion will increase incrementally as operations change and new facilities me constructed and placed in service. See "Preferred Level of Treatment"below. The District's planning process for development of the Interim Strategic Plan incorporated an analysis of population growth, dry weather and peak wet weather flows and the maximum use of existing facilities. The population of the District's service area was projected to grow to 2.7 million by the year 2020. Average flow rates at both treatment plants were projected to increase to 278 million gallons a day by 2020(134 million gallons a day of treatment at Plant No. 1 and 144 million gallons a day at Plant No. 2),up 15%from the Fiscal Year 2005-06 flow. In combination with the Interim Strategic Plan, the District developed its current Capital Improvement Program ("CIP"). The District expects to meet future demands on the Wastewater System through the CIP. This program has been developed to satisfy anticipated regulatory requirements, increased population, additional treatment requirements, conservation, energy and other resource savings considerations,odor control improvements,and air quality protection needs. Through 2020,the District's CIP is scheduled to accomplish: • Major rehabilitation of the existing headworks, primary treatment, secondary treatment, outfall pumping,and solids handling facilities at both treatment plants. • Replace and rehabilitate 16 of the District's outlying pumping stations, and 44 trunk sewer improvement projects. • Fund cooperative projects to help cities upgrade their sewer systems. • Disinfect the District's ocean discharge to reduce bacterial levels below Stine bathing standards. • Reclaim 70 millions of gallons per day of the District's effluent,or nearly one-third of the total daily flow(Groundwater Replenishment System). OHS Wes1:2601644184 41758-11 MKH/AgCH 26 Book Page 58 . Achieve full secondary treatment standards. CIP Validation Study. In preparation of each year's Budget,the District conducts an Annual CIP Validation Study to ensure that the scopes of the projects were necessary,and that the cost estimates were accurate. As a result of the completion of the CIP Validation Study and the Secondary Treatment Peer Review in March 2007, a revised CIP was further developed to meet secondary treatment standards as quickly as possible while providing for increased flows and rehabilitation and refurbishment of existing facilities. As identified within the Interim Strategic Plan, and verified through the CIP Validation Study and Secondary Treatment Review, $538 million of additional capital improvements over the next 6 years (through December 2012)are needed to reach full secondary standards. The CIP Validation Study resulted in a revised CIP consisting of 107 large capital projects managed by the Engineering Department through 2020-21 at a total cost of$2.3 billion, approximately $750 million of which has been spent to date. The bulk of construction is scheduled during the next ten years, with average annual expenditures of nearly $300 million projected over the next five years. Implementation of full secondary treatment standards is scheduled to be completed on or before December 31, 2012. A summary of total estimated capital costs for the CIP for Fiscal Years 2007-08 through 2020-21 is set forth in Table 5 below. Table 5 Estimated Capital Costs Fiscal Years 2007-08 through 2020-21 trr Project Coat Collection System Capacity $ 169,005,450 Collection System Repair,Rehabilitation,Replacement 192,087,530 Treatment Plant Capacity 18,329,380 Additional Secondary Treatment 489,917,580 Groundwater Replenishment System,Phase 1 15,793,000 Improved Treatment 110,905,900 Treatment Plant Repair,Rehabilitation,Replacement 505,453,550 Support Facilities 105,791,810 Total Validated Capital Improvement Program $1,607,194,100 (1) All costs are estimated as of March 23.2007 and are derived from the CIP Validation Study. Source:Orange County Sanitation District. Of the Fiscal Year 2007-08 proposed CIP cash flow outlay of$338.8 million, the largest cash outlay within the plant facilities is$54.3 million for the new trickling filters at Treatment Plant No.2 with a total project cost of$221.2 million. The Headworks replacement at Treatment Plant No. 2 requires $53.4 million in Fiscal Year 2007-08,with a total project cost of$257.8 million. Another$36.6 million is required for the replacement of the interplant pumping station on Ellis Avenue to be located at Reclamation Plant No. 1,with a total project cost of$78.5 million. Of the Fiscal Year 2008-09 proposed CIP cash flow budget of$356.0 million, the largest budgeted expenditure within the plant facilities is $71.8 million for the new secondary treatment facility 2 at Reclamation Plant No. 1. The new trickling filters at Treatment Plant No. 2 are expected to require $54.1 million in Fiscal Year 2008-09. Another $39.3 million is being proposed for the Headworks replacement at Treatment Plant No.2. The largest project in the collection system,proposed in the Fiscal Year 2007-08 proposed CIP, is $8.5 million for the Bushard Trunk Sewer project. For Fiscal Year 2009-09, the three largest projects OHswea2e019e41a4 41759-11 NEWMItlt 27 Book Page 59 include $10.8 million for Gisler-Redhill North Trunk Improvements,$15.2 million for replacement of the Bitter Point Pump Station,and$20.5 million for the Newport Trunk Sewer and Force Mains project. The 1 total budgets for these three projects are$16.1 million,$34.1 million,and$24.4 million,respectively. In connection with the preparation of the update to the CIP cash flow budgets for Fiscal Years 2006-07 and 2007-08, the Board's Operations Committee is reviewing and validating staffs annual CIP review. A new Strategic Plan Update is expected in 2008-09. Groundwater Replenishment System The District has taken a multi-jurisdictional approach to planning for capital facilities because many of the methods for reducing or managing flows involve other jurisdictions. One such project is the Groundwater Replenishment System (GWRS). In March 2001, the District entered into an agreement with the OCWD to design and construct Phase 1 of the GWRS. This cost of this project is to be paid equally (50 percent shares)by each agency. The GWRS is a joint effort by the two agencies to provide reclaimed water for replenishment of the Orange County Groundwater Basin and to augment the seawater intrusion barrier. The GWRS is planned for three phases, Phase 1 will produce approximately 72,000 acre-feet per year of recycled water by June 2007,Phase 2 will increase the total capacity to 112,000 acro- feet by the year 2010.and Phase 3 will increase the total capacity to 145,600 acre-feet by the year 2020. Following the completion of Phase 1, the extent of the District's commitment to date, the GWRS will have the capacity to divert up to 100 million gallons per day of flow from the District's ocean discharge. Costs for Phases 2 and 3 have yet to be approved and programmed As of June 30, 2006, the total estimated cost of GWRS Phase 1 was $497.10 million. Of this amount, up to$92.50 million may be reimbursed through grants from the U.S. Environmental Protection Agency, the U.S. Bureau of Reclamation, the State Water Resources Control Board, and others. The District's estimated gross and net share is $248.55 million and $202.30 million, respectively. Costs incurred by the District through June 30, 2006 total $150.89 million. As noted above, Phase I of the GWRS is nearing completion and the GWRS will not have any funding in the Fiscal Year 2008-09 budget. Preferred Level of Treatment In July 2002, the Board of Directors approved a change from the existing level of treatment, a blend of 50 percent advanced primary and 50 percent secondary treated wastewater, to full secondary treatment standards. The reasoning behind the decision to move to full secondary standards included (1) the possibility (no matter how remote) that bacteria from the ocean outfall may at times reach the shoreline, (2) upgraded treatment will aid additional water reclamation with the Orange County Water District,(3)and the public clearly stated preference for upgrading wastewater treatment at the time. In an effort to eliminate most bacteria from being released from the ocean outfall, in 2002 the District began to use chlorine bleach to disinfect the effluent and then apply sodium bisulfate to remove any remaining chlorine prior to releasing the treated wastewater to the ocean. In order to protect the animal life living in the ocean, the District continues to take measures to limit the chlorine residual to a very low level-essentially non-detectable. This mode of disinfection is anticipated to occur for the short- term, possibly two or three years, while the District studies, designs and constructs permanent facilities, and considers alternate disinfection technologies. Beginning in Fiscal Year 2006-07, the addition of disinfection treatment required an annual outlay of$7 million in additional chemicals within the joint operating budget of the District. OHS Wat26019441a4 41755-11 MKH/I.ixH 28 Book Page 60 Following determination by the Board of Directors in July 2002 to implement full secondary standards, staff prepared the Secondary Treatment NPDES Permit Application that was required to be submitted to the regional office of Environmental Protection Agency ("EPA") and the RWQCB in December 2002. An NPDES permit has been issued to the District and the District is currently operating under the Consent Decree. See"THE DISTRICT—Permits,Licenses and Other Regulations." The District estimates that it will take approximately 6 years and require additional capital improvement costs of approximately $539 million to add additional secondary treatment capacity to the Wastewater System, with completion expected in December 2012. In addition, based upon the District's most recent projections, upon completion of facilities necessary to meet secondary treatment standards, operating costs will increase by approximately $7.2 million annually. In the interim, the District will operate the plants to maximize available secondary treatment and to reduce effluent biochemical oxygen demand and suspend solid discharges below those currently allowed limits. Each year, the current 50 percent secondary portion will increase incrementally as operations change and new facilities are constructed and placed in service over the coming years. Biosolids Management The District produces approximately 650 tons of digested and dewatered(Class B) biosolids per day. By 2020, the District's biosolids production is projected to increase by 20%, to 285,000 tons annually. The District relies on the following technologies and locations for the management of its biosolids: land application of Class B biosolids in Arizona, land application of chemically-stabilized Class A biowlids in Kern County, composting to Class A biosolids in Riverside County, Kent County and La Paz County,Arizona,and landfilling of Class B biosolids in Yount County,Arizona. Counties throughout California and Arizona have developed,or are in the process of developing, ordinances that severely restrict or ban the land application of Class B biosolids. In June 2006, Kern County voters approved an anti-sludge initiative that bans the land application of both Class B and Class A biosolids. It has become clear that certain land application options currently available to the District are anticipated to be eliminated in the near future due to these developments. The District, as well as most of California's wastewater agencies, is working to develop sustainable products and management locations for its biosolids. The dynamic regulatory issues, land application ordinances and bans, and public perception challenges have prompted the District, with the help of CH2MHill, to develop a Long-Range Biosolids Management Plan(LRBMP). This LRBMP was approved by the Board in December 2003. The goal of the LR13MP was to develop a sustainable, reliable, and economical program for long-range biosolids management providing environmentally sound practices that meet the stringent federal, state, and local regulatory requirements. The LRBMP recommendations included new in-plant technologies to reduce the volume of biosolids, explore the production of Class A biosolids products, and move into the energy and fuel production and compost markets. As a result of the LRBMP recommendations,the existing Synagro biosolids management contract was amended in April 2004 to have 250 tons per day of the District's Class B biosolids composted at Synagro's South Kern, Industrial Center (SKIC) facility, which is currently scheduled to open in December 2007. In May 2006, the District entered into a contract with EnerTech Environmental, Inc. to convert 225 tons of biosolids per day to a renewable fuel at EnerTech's proposed facility in Rialto, California. The EnerTech solution is a relatively new, patented heat treatment process that increases the ability to dewater biowlids in order to maximize the efficiency of the production of fuel. By decreasing the moisture content of biosolids prior to drying, a smaller dryer is needed, thus reducing capital and energy consumption. The fuel product will be recycled and reused, under agreements with area cement OHS W.060184418.4 J 1758-I r A9CWM6H 29 Book Page 61 kilns and other fuel users. Residual ash from the fuel combustion becomes part of the cement product, resulting in no residual waste product liability. The EnerTech facility is expected to come on-line in late 2008. Also in April 2005, the Board approved the amendment of the existing memorandum of understanding ("MOU") with South Orange County Wastewater Authority ("SOCWA") for preliminary facility design, permitting, and community relations activities for the development of a composting facility at the Prima Deshecha Landfill in South Orange County. For the pest two years under the previous existing MOU, SOCWA and the District have been working with the Orange County Integrated Waste Management Department's Biosolids Committee to site an enclosed biosolids and green waste composting facility at the Prima Deshecha Landfill in South Orange County. The proposed "South Orange County Composting Facility"would take in approximately 100 to 110 tons of Class B biosolids daily from the District and SOCWA and,combined with like amounts of wood chips and yard trimmings, produce approximately 65 to 75 tons of compost per day. The MOU reflects a 50-50 participation commitment and ownership in the facility between SOCWA and the District, and consent to initiate and fund the tasks for the initial planning, permitting and concept design of the project. This project is still in the development process. As a result of the transition to biosolids-based compost and energy products the cost to the District for biosolids management is expected to increase by about$3 million per year starting in Fiscal Year 20%.47. The Fiscal Year 2005-06 budget for biosolids management was$9.7 million. The Fiscal Year 2006-07 budget for biosolids management is $12.8 million. The Fiscal Year 2007-08 biosolids management budget is currently estimated to be$14.3 million. Urban Runoff For a two-month period during the summer of 1999,eight miles of beaches in Huntington Beach were closed by the OCHCA due to excessive levels of bacteria in the water. A three-month interagency source investigation did not identify a definitive source of the contamination, but determined that the District was not at fault. Although the initial "signature" of the pollution strongly suggested sewage contamination, the investigation concluded that none of the District's facilities caused the excessive bacteria levels and that there was no adverse impact on the capacity of the Wastewater System. In June 2002, the District's charter was amended by an act of the State Legislature to include permissive language authorizing the diversion and management of dry weather urban runoff flows. This charter change will allow the District, in its discretion, to acquire, construct, operate, maintain, and Finnish facilities for the diversion of urban nmoff from drainage courses within the District, the treatment of the urban nmoff,the return of the water to the drainage courses,or the beneficial use of the water. As noted above, in July 2002, the Board of Directors approved the implementation of full secondary standards. The District is currently discharging treated wastewater into the Pacific Ocean under a permit issued by the EPA and the RWQCB on May 6, 1998 and currently under an administrative grant of permission until the EPA/RWQCB issue a new permit to replace it. Following determination by the Board of Directors in July 2002 to implement full secondary standards, staff prepared the Secondary Treatment NPDES Permit Application that was required to be submitted to the regional office of the EPA and the RWQCB. See"THE DISTRICT—Permits,Licenses and Other Regulations." Integrated Emergency Response Program Growing awareness of the threat to public utilities from natural disasters such as earthquakes, floods and other perils has made preparedness for these and other events a high priority for the planners, OHS wrn:26019"18.4 41758-11 nixwsacH 30 Book Page 62 engineers, and managers of the District. In recognition of the potential damage which could occm in the wake of a major earthquake, flood, or other disaster, the District has implemented an Integrated Emergency Response Program (the "WRP") in 1979. The IERP is a two-volume plan which contains policies, plans and procedures preparing for,and responding to,emergencies. The District also analyzed disaster preparedness issues and policies within the Master Plan,and within a 1994 document titled Fault Rupture Hazard Investigation-Wastewater Treatment Plant No.2. According to the Master Plan, earthquakes are considered to be the most potentially devastating natural disaster events which confront the District. The disaster preparedness plan included in the Master Plan reviewed two possible major earthquake scenarios: an 8.3 Richter magnitude("M')earthquake on the southern San Andreas fault system and an M 7.0 earthquake 7.0 Newport-Inglewood fault zone,which includes Plant No. 2. An M 8.3 earthquake on the southern San Andreas fault,while on the whole more destructive than the M 7.0 Newport-Inglewood fault even, would probably result in less damage to the District's service area due to the distance of the fault from most of the service area However,the 1989 Master Plan stated that damage from such a major earthquake on the San Andreas fault would be extensive. Also, the Master Plan indicated that an M 7.0 earthquake on the Newport-Inglewood fault within five miles of the District's sewerage facilities could cause major destruction to those facilities. The disaster preparedness plan in the Master Plan indicated that it would not be economically feasible to upgrade all of the existing sanitary sewerage facilities to survive an earthquake of this magnitude along the Newport-Inglewood fault. The IERP outlines the policies and employee actions to be taken before, during and after an earthquake,earthquake response guidelines and damage assessment procedures. The Master Plan analyzed the vulnerability of the sanitary sewerage facilities and operations of the District and planned a risk reduction program wherein the vulnerability of many of the District's sanitary sewerage facilities to an earthquake could be reduced by recommended retrofit construction measures. The Master Plan also recommended that designs of existing major structures where were constructed prior to development of current seismic design standards be reviewed and the structures strengthened, if necessary. Since the 1989 Master Plan and the 1994 Report, the District has completed retrofitting where deemed appropriate. Pursuant to the Master Plan, a6 recant and future projects have been, and will be, designed to the same high earthquake code standards as set for other essential services, such as hospitals and fire stations. Many of the older buildings analyzed in the Master Plan have been replaced by structures built after 1989. The Army Corps of Engineers' "All-River Plan"has mitigated any future flooding of the Santa Ana River system and potential threats to the District's Wastewater System. Also, both Plant No. 1 and Plant No.2 are surrounded by 3-foot to 6-fom high walls,built to federal standards. The disaster preparedness plan in the Strategic Plan investigates the damage potential posed by coastal flooding, tsunamis (large ocean waves generated by seismic activity) and windstorms. However, based on available information,the District does not consider any of such events to be a significant threat to the Wastewater System. The Strategic Plan also makes recommendations regarding fire protection of the Wastewater System and most of the structures at Plant No. I and Plant No.2 are constructed of fire-resistant materials. The IERP describes the procedures needed to respond to a possible disaster. For more information regarding emergency response policies, the disaster preparedness Plan described in the Strategic Plan and the IERP can be reviewed at the District's office. OHS Wev26019441&4 31 41756-11 MKRM§01 Book Page 63 i DISTRICT REVENUES I, Sewer Service Charges General. The District has the power to establish fees and charges for services of the Wastewater System. Such fees and charges are established by the District's board of directors and are not subject to review or approval by any other agencies. In Fiscal Year 1997-98, a Rate Advisory Committee (the "RAC")was established comprised of representatives from industrial, commercial and residential users. The goal of the RAC was to examine the then current rate structure and, if needed, develop recommendations for change. The RAC analyzed the District's rate structure to determine whether its then current sewer service user fees (now known as "Sewer Service Charges") were equitable among residences and industry. This review resulted in a proposal to expand the number of non-residential user categories from one to twenty-three and to provide for gradual rate increases in seven of the nine Revenue Areas. The increase in the number of categories provided a more equitable fee structure and also provided for future reductions in single-family residential Sewer Service Charges. The Sewer Service Charges for those categories were based on the average flow and strength of wastewater discharged for each property type. In May 2002,the Board adopted District Ordinance No. OCSD 18 (the"2002 Ordinance")which was effective on July 1, 2002. The 2002 Ordinance included a rate increase of$7.50 per year, or 9.4%, for all ratepayers to $87.50 per year. On July 2, 2003, the Board adopted Ordinance No. OCSD-20 increasing sanitary sewer service charges for all single family and multi-family residential units as well as most commercial and industrial properties. The Ordinance was adopted by a 2/3 vote of the Board as required under law after conducting a noticed public hearing in compliance with all laws. The Ordinance increases the amount of the annual charges by approximately 15%per year for each of the following five years, commencing with Fiscal Year 2003-04, thereby raising the single family residence user rate from the then current $87.50 to $100.00, $115.00, $132.00, $152.00, and $175.00 annually. In May 2005,the Board adopted Ordinance No. OCSD-26 increasing the Fiscal Year 2005-06 single family residential rate 31%. from $115.00 to $151.00 for such year. In May 2006, the Board adopted Ordinance No. OCSD- 30B increasing the Fiscal Year 2006-07 single family residential rate 9.8%, from $151.00 to $165.90 for such year. In April 2007, the Board began its considerations towards increasing sanitary sewer service charges for all single family and multi-family residential units as well as most commercial and industrial properties. As currently contemplated,this schedule would increase the amount of the annual charges by approximately 11%per year for each of the following five years, commencing with Fiscal Year 2007-08, increasing the Fiscal Year 2007-08 single family residential rate 9.8%,increasing the Fiscal Year 2008-09 single family residential rate 12.9%, increasing the Fiscal Year 2010-11 single family residential rate 12.90/a,increasing the Fiscal Year 2011-12 single family residential rate 12.9%,increasing the Fiscal Year 2012-13 single family residential rate 12.75%, increasing the Fiscal Year 2013-14 single family residential rate 5.3%, increasing the Fiscal Year 2014-15 single family residential rate 5.3% and increasing the Fiscal Year 2015-16 single family residential rate 5.3%. Such increases are subject to approval by ordinance adopted by a 2/3 vote of the Board after conducting a noticed public hearing in compliance with all laws. The resulting increased sewer rates for each fiscal year are well below the average annual sewer Tate of $337.00 par year currently being charged according to a survey of 904 agencies encompassing all 58 counties in the State conducted by the State Water Resources Control Board. This increase was necessary in order to meet the District's cash flow needs due to the addition of disinfection treatment and other operating requirements. As discussed under the caption 'THE OHS War;260184418.4 41758-11 NUGOVKH 32 Book Page 64 DISTRICT—Capital Improvement Program,"the CIP Validation Study in the Spring of 2005 and further in March 2007 developed a capital improvement program to meet secondary treatment standards as quickly as possible while providing for increased flows and rehabilitation and refurbishment of existing facilities. As projected out to 2020, the CIP cash flow needs total approximately $2.3 billion, with the bulk of the construction scheduled during the next ten years and average annual expenditures of nearly $300 million projected over the next five years. The District collects Sewer Service Charges from property owners through the semi-annual property tax bill distributed by the County throughout the District, except in Revenue Area No. 14. Pursuant to the IRWD Agreement, the District receives payments from the Irvine Reach Water District (the "IRWD") which directly collects fees from customers through a monthly billing procedure in Revenue Area No. 14. The District has covenanted in the Master Agreement to fix, prescribe and collect fees and charges to satisfy certain coverage requirements as further described under "SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES—Rate Covenant"herein. Residential Sewer Service Charges. Pursuant to the 2002 Ordinance the District established residential Sewer Service Charges upon a rational basis between the fees charged each customer and the Services and facilities provided to each customer of the District. In accordance with the 2002 Ordinance and the noticed public hearing held at that time which considered increases in the amount of the annual charges by approximately 20%per year for each of the then following five years,in May 2005,the Board adopted Ordinance No. OCSD-26 increasing the Fiscal Year 2005-06 single family residential rate 31%, from $115.00 to $151.00 for such year for all ratepayers, except those located in Revenue Area 14. such year. In May 2006, the Board adopted Ordinance No. OCSD-30B increasing the Fiscal Year 2006-07 single family residential rate 9.8%, from $151.00 to $165.80 for such year, except those located in Revenue Area 14. The average total of fees and charges for Revenue Area No. 14 are$70.80 per year per single-family residential unit and are levied and collected directly by the IRWD on a monthly basis. The IRWD subsequently pays fees to the District on a quarterly basis pursuant to the IRWD Agreement. This increase was necessary in order to meet the District's cash flow needs. Table 6 below sets forth a five- year comparison of the Sewer Service Charge rate for single-family residences. Table 6 Annual Sewer Service Charges Single Family Residence Rate Five Year Rate Schedule Fiscal Years 2002-03 through 2006-07 Fiscal Year Sewer Service Charge 2002-03 $ $7.50 2003-04 100.00 2004-05 115.00 2005-06 151.00 2006-07 165.80 Source:thege County Sanitation Distdd. Table 7 below sets forth Fiscal Year 2005-06 total average yearly Sewer Service Charge for single-family residences within the District,together with the tax comparable total average annual Sewer Service Charge,within the jurisdictions of certain other cities and districts within the State. OHS W.,26a1W1&4 41758-11 MKHMIKH 33 Book Page 65 Table 7 Comparison of Total Sewer Service Charges For Single-Family Residences tit For The Year Ended June 30,2006 Annual Average Dry Sewer Weather Flow Service Treatment Collection Property Tax Entity (mgld) Charge Level P1 Responsibility"' Income(4) San Diego 180 $422 2 Yes No Los Angeles(City) 447 294 4 Yes No East Bay MUD 80 205 4 No Yes Sacramento 155 204 3 No Yes Orange County Sanitation Distrito') 235 166 2 No Yes Los Angeles(County) 524 96 4 No Yes (1) Treatment Level Categories: "1"-Primary trentmcat. 'T'—Advanced primary or primary with some secondary treatment. "3"-Seexodary treatment. "4"-Advanced secondary or secondary with some tertiary treatment. "5"-Tertiary urra rnect. (2) Osage County Sanitation District Sewer Smices Charges a4rysted to Fiscal Year 2006-07. (3) Source: 2005-06 Wastewater User Charge Survey Report by the California State Water Resources Control Board. (4) Source: 2002 Survey by the Association of Metropolitan Sewage Agencies. Indtatrial Sewer Service Charges. The District charges industrial Sewer Service Charges to customers discharging high-strength or high-volume wastes into the sewer systems. Customers subject to industrial Sewer Service Charges are billed directly by the District. The fee charged to each customer is based on the customer's sewage volume, the concentration of suspended solids and biochemical oxygen demand. Pursuant to the 2002 Ordinance, rates for each component factor were revised for certain industrial users in order to be consistent with the rates charged to residential users. Total industrial Sewer Service Charges in Fiscal Year 2005-06 were approximately $11.0 million. Industrial Sewer Service Charges are applied to both the operating and capital funds. Additional Revenues The District has several sources of additional revenue, including property taxes,Capital Facilities Capacity Charges,capacity rights,permit and inspection fees and interest earnings. Property Taxes. The District receives approximately 2.5%of the one percent County ad valorem property tax levy, based on the allocation procedure under State law. Property tax revenues were $38.4 million in Fiscal Year 2000-01, $41.1 million in Fiscal Year 2001-02,$44.6 million in Fiscal Year 2002- 03, $46.9 million in Fiscal Year 2003-04, $35.8 million in Fiscal Year 2004.05 and $40.0 million in Fiscal Year 2005-06. The $11.2 million decrease in property tax revenues from Fiscal Year 2003-04 to Fiscal Year 2004-05 is reflective of the State of California's than current fiscal crisis and the implementation of the first year of a two-year 40% secured property tax shift away from independent special districts. During the 2004-05 State Budget process, the State Legislature and the Governor enacted Senate Bill 1096 and Assembly Bill 2115, effectively shifting an additional $1.3 billion in local property tax revenues from counties, cities, special districts and redevelopment agencies to schools and community colleges. This shift was effective for Fiscal Year 2004-05 and Fiscal Year 2005-06,resulting OHS Wcw260184418,4 4175&11 MKH/MxH 34 Book Page 66 in a 40%secured property loss for the District. See"LIMITATIONS ON TAXES AND REVENUES - Proposition 1A." This 40% reduction for Fiscal Year 2004-05 was somewhat offset by the continuing upturn in the real estate market. Total assessed valuations increased over the 2004-05 Fiscal Year by 10.3%, and the full value of these increases was received on all non-secured property tax distributions. The District expects property tax revenues in its full allotment (no State property tax shift) of$55.6 million in Fiscal Year 2006-07. Current projections indicate that property tax revenues received by the District are expected to increase by approximately 54% in fiscal year 2006-07 and then 5% each year thereafter. The apportionment of the ad valorem tax is pursuant to a revenue program adopted by the District in April 1979 to comply with the EPA, the RWQCB, legal and contractual requirements and Board policy. Capital Facilitier Capacity Charges. Capital Facilities Capacity Charges (formerly known as connection fees) are one-time fees with two components, paid at the time property is developed and connected to the Wastewater System. The fees are imposed by the District pursuant to Section 5471 of the California Health and Safety Code and are levied to pay a portion of the District's capital costs and for access to capacity in the Wastewater System. Currently, the District has Capital Facilities Capacity Charges of $2,890 per residential unit (three-bedroom); however, under the current industrial use ordinance, additional Capital Facilities Capacity Charges can be imposed on industrial uses who place larger than average demand on the Wastewater System. Member cities and sanitary districts collect Capital Facilities Capacity Charges for the District when building permits are issued. Capital Facilities Capacity Charges are reviewed annually to reflect the changes in the value of the Wastewater System to which a new customer is connecting. On December 15, 1999, the Board approved District Ordinance No. OCSD 99-11 (the "1999 Ordinance")which established a comprehensive Capital Facilities Capacity Charge. The 1999 Ordinance, effective as of January 1, 2000, renamed connection fees as Capital Facilities Capacity Charges and provided a more equitable schedule of fees among industrial, commercial and residential users. Pursuant to the 1999 Ordinance,Capital Facilities Capacity Charges were revised for high demand industrial uses in five incremental increases from 1999 through 2001. Pursuant to an agreement with the IRWD, the IRWD is not required to pay Capital Facilities Capacity Charges and in exchange,the IRWD provides funding to the District for the construction costs of certain wastewater collection, transmission,treatment and disposal facilities to be used by the IRWD and is obligated to make certain payments to the District for certain services arising from the Wastewater System(including any standby or availability charges). Sale ofCapaciry. The District has entered into agreements with the Santa Ana Watershed Project Authority ("SAWPA") whereby wastewater from Upper Santa Ana River Basin dischargers can be transported through the District's Santa Ana River Interceptor to the District's wastewater treatment facilities.This program was developed in the early 1970's.The agreements establish control mechanisms regarding the quality of wastes deposited into the Wastewater System. At the present time, SAWPA has purchased and paid for 30 million gallons a day of capacity rights in the District's Santa Ana River Interceptor and 13 million gallons a day of capacity in the District's wastewater treatment plants. Additional treatment plant capacity can be purchased in increments at the District's current replacement cost. The Santa Ana River Interceptor Line ("SARI") was built in the Chino Basin Preserve Area in order to remove dairy farm wastes and accommodate future urban development. Salts in the washwater generated from the cleaning of cows and milking equipment were leaching into the groundwater in the Chino Basin and the SARI was built to divert the washwater from this area. However, due to the nature of the Chino Basin Preserve,the development of any infrastructure in the area to accommodate the SARI OHS Wm26018441&4 4175a-11 M1MWFMH 35 Book Page 67 i was limited. The current SARI multi-phase project is designed to connect several dairies to the SARI. 1 Future expansions of this project could include connecting other dairies and other waste streams with the I SARI line. See"THE DISTRICT—Capital Improvement Program"herein. Wastewater Treatment History The average yearly influent flow to the District has remained relatively stable for the preceding five years. The wastewater flow for Fiscal Year 2000-01 was 246 mg/d, for Fiscal Year 2004-05 was 243 mg/d and for Fiscal Year 2005-06 was 235 mg/d. The highest flow rate experienced was during El Nino storm periods. Peak flows of 500 mg/d were recorded in December 1997 and February 1998. There were no sewer failures or overflows during these events. Customers The historical number of customers served by the District for the Fiscal Years 2000-01 through 2004-05 and the projected number of customers Served by the District for the Fiscal Years 2005-06 through 2009-10, identified in Equivalent Dwelling Units C EDUs"), are set forth in Table 8 below. As discussed below, sewer service charges are based on the expected amount of wastewater flow for a single family dwelling. This base amount is considered the "equivalent dwelling unit". The EDU's set forth in Tables 8 and 9 below equate to total Sew"Service Charge levies. Table 8 Historical and Projected Equivalent Dwelling Units Fiscal Years 2001-02 through 2010-11 Historical Projected Fiscal Year EDUs Fiscal Year EDUstt) 2001-02 898,031 2006-07 907,986 2002-03 897,757 2007-08 911,618 2003-04 RI 894,169 2008-09 915,264 2004-05"1 893,501 2009-10 918,925 2005-06 910,469 2010.11 922,601 (1) EDU growth during the projection period is estimated at approximately 0.4%per atmum. (2) With respect to this Fiscal Year.presentation in the Statistical Section of the Comprehensive Annual Financial Report set forth in Appendix A include EDU's which equate to total Sewer Service Charge collections. Source:Orange County Sanitation District. Table 9 below shows the number of residential and commercial customers and industrial customers end the approximate percentages of Sewer Service Charge revenues derived from the combined residential and commercial use and industrial use for the last five fiscal years. OHS Wevt260184418.4 41758-11 NWJi 1RH 36 Book Page 68 Table 9 Number of Accounts and Revenues by Customer Class for the Fiscal Years Ending June 30 (S Millions) Residential/Commercial Industrial Percent age of Number of Sewer Equivalent Percentage of Service Single- Sewer Service Number of Charge Family Total Charge Customer Revenu Fiscal Year Dwellings Revenue Revenues Accounts Total Revenue as 200"2 998,031 $70.3 90% 573 $ 7.5 10'Yo 2002-03 897,757 77.0 92 603 6.3 8 2003-041t1 860,156 86.0 92 530 7.5 8 2004-05 01 860,634 99.0 90 568 10.5 10 2005-06 872,859 132.0 92 557 12.2 8 (1) With respect to this Fiscal Year,presentation in the Statistical Section of the Comprehensive Annual Financial Report set foot in Appendix A include EDU's which equate to total Sewer Service Charge collections rather than levies. Source: Orange County Sanitation District. The ten largest industrial customers of the District for the Fiscal Year ended June 30, 2006 are shown in Table 10 below. These industrial customers paid a total of$6,331,911 for services of the District, or approximately 57% of the District's approximately $11 million of total revenues received from industrial customers, and approximately 4.10% of the District's total Sewer Service Charge revenues of approximately$132 million. Table 10 Largest Customers of the District for the Fiscal Year Ended June 30,2006 Percentage of Total Sewer Service Saver Service User Charges Charge Revenues Kimberly-Clark Worldwide,Inc. $ 948,680 0.61% WC Foods, Inc. 875,884 0.57 Alstyle Apparel—A&G Inc. 845,474 0.55 Stremicks Heritage Foods,LLC 694,946 0.45 Disneyland Resort 676,876 0.44 Nor-Cal Beverage Co. Inc. 574,081 0.37 Disneyland Resort-DCA 534,899 0.35 House Foods America Corp. 480,413 0.31 Van Law Food Products, Inc. 374,478 0.24 Pepsi-Cola Bottling Group 326,180 0.21 TOTAL $6,331,911 4.10% Source: Ormge County Sanitation District. OHS Wea:260194418.4 41759-11 nawmixx 37 Book Page 69 i Assessed Valuation i The assessed valuation of property in the County is established by the County Assessor, except for public utility property which is assessed by the State Board of Equalization. Due to changes in assessment required under State Constitution Article XIIIA, the County assessment roll no longer purports to be proportional to market value. See "LIMITATIONS ON TAXES AND REVENUES" herein. Generally, property can be reappraised to market value only upon a change in ownership or completion of new construction. The assessed value of property that has not incurred a change of ownership or new construction must be adjusted annually to reflect inflation at a rate not to exceed 2% per year based on the State consumer price index. In the event of declining property value caused by substantial damage, destruction, economic or other factors, the assessed value must be reduced temporarily to reflect market value. For the definition of full cash value and more information on property tax limitations and adjustments,see"LIMITATIONS ON TAXES AND REVENUES"herein. The County Assessor determines and enrolls a value for each parcel of taxable real property in the County every year. The value review may result in a reduction in value. Taxpayers in the County also may appeal the determination of the County Assessor with respect to the assessed value of their property. Table 11 below shows a five-year history of assessed valuations in the District since Fiscal Year 2001-02. Over the years shown, assessed valuations in the District have increased at an average rate of approximately 8.7%per fiscal year. Table 11 Assessed Valuations of Property in the District Fiscal Years 2001-02 through 2005-06 is Millions) Fiscal Year Value %Change 2001-02 173.4 8.85 2002-03 188.9 8.91 2003-04 201.4 6.66 2004.05 219.3 8.85 2005-06 241.8 10.30 Some: County of Orange Audiloo-Controller. Since 2002, the Southern California housing market has experienced significant price appreciation with accelerating demand. One factor contributing to such demand in Southern California over the past several years has been the increasing use of creative financing options for individual home buyers, including adjustable rate mortgages. Adjustable rate mortgages take various forms, but commonly have low initial interest rates, which have risen significantly in this year. As interest rates begin to rise and adjustable rates are reset and result in higher interest rates, homeowners who financed the purchase of their homes with an adjustable rate mortgage can expect their monthly mortgage payments to increase. In addition,it is possible that as interest rates rise on new loans and adjustable rates are reset on existing loans, there will be a decrease in home sale prices, resulting in recent homebuyers having loan balances in excess of the value of their homes. In the past several months,a number of public home builders with significant operations in the Southern California housing market have reported in SEC filings slowing demand, significant increases in sales cancellation rates and increasing inventory build-ups(including increasing investor/speculator resale inventory)amid rising interest rates. OHS West:26019 ISA 41758-I1 WHAIKH 38 Book Page 70 Tax Levies and Delinquencies Property taxes are based on assessed valuation which is determined as described under "DISTRICT REVENUES—Assessed Valuation"herein. In accordance with the California Revenue and Taxation Code,the County tax collector collects secured tax levies for each Fiscal Year. Property taxes on the secured roll are due in two installments, on November I and February 1. The District currently participates in the County's Teeter Plan under which the District receives annually 100% of the secured property in levies and Sewer Service Charges to which it otherwise is entitled,regardless of whether the County has actually collected the levies. This alternative method provides for funding each taxing entity included in the Teeter Plan with its total secured property taxes during the year the taxes are levied, including any amount uncollected at fiscal year end. Under this plan,the District's general fund receives the full amount of secured property taxes levied each year on its behalf and, for so long as such plan remains in effect, the participating entities, such as the District, no longer experience delinquent taxes. The County's general fund is the designated recipient of future collections of penalties and interest on all delinquent taxes collected on behalf of participants in this alternative method of apportionment. In recent years, the County has experienced delinquencies of Sewer Service Charges in the District of approximately 2%. Unpaid taxes become delinquent after December 10 and April 10, respectively,and a ten percent penalty attaches to any delinquent payment. In addition, property on the secured roll with respect to which taxes are delinquent is declared tax-defaulted on or about June 30. Such property may thereafter be redeemed by payment of the delinquent taxes and the delinquency penalty, plus costs and 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 subject to sale by the County Treasurer-Tax Collector. Property taxes on the unsecured roll are due as of the January I lien date and become delinquent, if unpaid, on August 31. A ten percent penalty attaches to delinquent taxes on property on the unsecured roll and an additional penalty of one and one-half percent per month begins to accrue on November I. The taxing authority has four ways of collecting unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain ajudgment lien on certain property of the taxpayer,(3)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) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the taxpayer. Table 12 below shows a five-year history of the District's ad valorem total property tax and Sewer Service Charge levies. Pursuant to the Teeter Plan described above, which provides for the County's financing of annual delinquencies, information with respect to outstanding delinquencies in prior yews collected in current fiscal years and the percent of delinquencies to the total tax and Sewer Service Charge levies. OHS W W:260184418.4 41758-11 h9MAKH 39 Book Page 71 i i I i Table 12 Total Property Tax and Sewer Service Charge Levies in the District for ; Fiscal Years 2001-02 through 2005-06 Fiscal Total Tax and Year Sewer Service Charge Levy 2001-02 $112,087,000 2002-03 122,210,000 2003-04 134,132,000 2004-05 152,745,000 2005-06 191,290,000 Source:O=ge County Auditor-Controller's Office. Budgetary Process The District's operating fund budget relies on revenues from property taxes and Sewer Service Charges, both of which are collected can the property tax bill. See "DISTRICT REVENUES — Sewer Service Charges" and"— Additional Revenues." The District receives tax revenues from the County in eight allocations, with the largest receipts in December and April. The District operates on a Fiscal Year beginning each July 1. The operating fund budgets include fords to cover the dry period of each tax year, i.e., the period from the beginning of the Fiscal Year until the first taxes are received. The dry-period requirement is budgeted at one-half of the annual operating fund budgeted expenditures. The District uses the accrual method of accounting in its budgets.The District has conformed to its budgets for the last five fiscal years and is conforming to its budget for the current fiscal year. The District's annual budget preparation process begins in January of each year and concludes in June upon its adoption. The General Manager reviews the final operating budgets and then distributes them to the Directors and District Committees for consideration. The Board of Directors then adopts the proposed annual budgets,with any revisions,in June of each year. Budgetary control is exercised at the individual Department level and administrative policies provide guidelines on budget transfers and the authorization necessary to implement transfers. A budget adjustment is a transfer which does not change the total appropriated amount and does not require Board action. Approval may be granted by the General Manager or the Department Head in certain circumstances. Department Heads have the discretion to reapportion funds between certain line items within a division but may not exceed total appropriated amounts for each department. They may also transfer staff across divisional lines. The General Manager and Board of Directors must approve additional capital outlay items. A budget amendment is an adjustment to the total appropriated amount which was not included in the original budget. These supplemental appropriations require formal action by the Board of Directors. Prior year reserves or fund balances may be appropriated to fund items not previously included in the adopted budget. Reserves or fund balances exceeding minimum amounts required by fiscal policies may be appropriated if it is determined to be in the best interest of the District. Directors may also appropriate reserves in case of emergencies or unusual circumstances. OHS Ww260184 18.4 41758-1I h1KH/hllCH 40 Book Page 72 Reserves The District has an established reserve policy with eight separate categories for its reserve funds. The following table sets forth actual reserves at June 30, 2005 and 2006, and projected reserves at June 30, 2007, for each fund. Increases to the Capital Improvement Program Reserve and Debt Service Required Reserves are attributable principally to the funding of projected CIP cash Flow and the Reserve Fund for the Certificates. Reserve levels are calculated in accordance with the District's reserve policy. Table 13 Actual and Projected Reserves Fiscal Years 2004-05 through 2006-07 ($ Millions) June30,2005 June30,2006 June30,2007 Cash Flow Requirements Reserve Operating Expenses $108 $113 $65 Certificate of Participation Payments — -- 54 Operating Contingencies Reserve — -- 13 Capital Improvement Program Reserve 191 189 43 Catastrophe and Self Insurance 57 57 57 Capital Replacement and Refurbishment 51 52 53 Debt Service Required Reserves 65 79 79 Rate Stabilization Reserve Total $472 $490 $364 + Projected. Source: (range Cowry Sanitation District. The Cash Flow Requirements Reserve was established to fund operation, maintenance and certificates of participation debt service expenses for the first half of the fiscal year,prior to the receipt of the first installment of the property tax allocation and sewer service user fees which are collected as a separate line item on the property tax bill. The level of this reserve is established as the sum of an amount equal to six months operations and maintenance expense and the total of certificates of participation debt service expenses due in the subsequent fiscal year. The Operating Contingency Reserve was established to provide for non-recurring expenditures that were not anticipated when the annual budget and Sewer Service Charges were adopted. The level of this reserve is equal to ten percent of the District's annual operating budget. The Capital Improvement Reserve was established to fund annual increments of the capital improvement program with a target level at one half of the average annual capital improvement program through the year 2020. Levels higher and lower than the target can be expected while the long- term financing and capital improvement programs are being finalized. The Catastrophic Loss, or Self- Insurance Reserve is established for property damage including fire, flood and earthquake, general liability and workers' compensation. The level of reserve in this fund is maintained at a level to fund the District's non-reimbursed costs which are estimated to be $57 million. The Capital Replacement/Renewal Reserve was established to provide thirty percent of the funding to replace or refurbish the current collection,treatment and disposal facilities. The current replacement value of these facilities is estimated to be approximately $5.56 billion. The initial reserve level for this fund was established at $50 million and is augmented by interest eamings and a portion of the annual Sewer Service Charges. Debt Service Required Reserves(or Obligation Reserve Funds as defined in the Master Agreement)are controlled by a trustee pursuant to the provisions of certificates of participation issues and is not available for the general needs of the District. The Rate Stabilization Reserve accumulates all available funds which exceed the targets for all other reserves. The Rate Stabilization Reserve is a OHS W.t 2W184418.4 41758-11 MKWtdKH 41 Book Page 73 separate fund from the Rate Stabilization Account established under the Trust Agreement. These funds are applied to future years' needs and must be maintained at specified levels. There is currently no established target for this reserve and,because the reserves of all other funds have not been exceeded,the reserve level for this reserve fund is zero for Fiscal Years 2005-05 through 2006-07. See APPENDIX A - "COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE ORANGE COUNTY SANITATION DISTRICT FOR FISCAL YEAR ENDED JUNE 30,2006"heroin. Summary of Operating Data Set forth in Table 14 below is a summary of historic operating results for the District for Fiscal Years 2001-02 through 2005.06. The District's CEP cash flow budget for Fiscal Year 2005-06 is $260.8 million, an increase of$72.9 million from the prior year total, for the financing of joint works treatment and disposal system improvement projects,and collection system improvement projects. This increase is attributable to the additional infrastructure needs identified in the Interim Strategic Plan and in the CIP Validation Study. The information presented in the summary should be read in conjunction with the financial statements and notes. Sea APPENDIX A - "COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE ORANGE COUNTY SANITATION DISTRICT FOR FISCAL YEAR ENDED JUNE 30,2006"herein. Table 14 Summary of Historical District Revenues and Expenses and Other Financial Information For Fiscal Years 2001-02 Through 2005-06 ($Mullions) 2001-02 2002-03 2003-04 2004-05 2005-06 Revenues: Sewer Service Charges(') $ 70.3 S 77.0 S 86.0 $ 99.0 $ 132.0 Industrial Sewer Service 7.5 6.3 7.5 10.5 122 Charges Revenue Area No. 14 Fees 22 3.2 5.8 6.9 5.3 Ad Valorem Taxes 41.1 44.6 46.9 35.8 40.0 Interest Earnings 27.8 25.9 6.8 15.1 10.4 Capital Facilities Capacity Charges 10.6 10.1 9.0 9.8 15.6 Other Revenues 2.5 3.4 4.0 6.1 9.2 Total Revenues SI62A 5170.5 5166.0 5183.2 5224.7 Operations and Maintenance Expenses S 68.6 S 79.7 $ 95.4 $ 101.8 $ 105.6 Net Revenuesn' S 93.4 S 90.8 S 70.6 S 81.4 S 119.1 Debt Service $ 23.4 S 22.4 S 34.1 $ 37.9 $ 32.3 Coverage Ratios121 3.99x 4.05x 2.07x 2.15x 3.69x CIP Outlay S 83.9 $112.9 $149.5 $187.9 S260.8 Ending Rawr,,Slrl 5429.7 $394.0 $518.0 5407.0 5411.0 (1) Net ofrebotm if my,to cemmerdel users. (2) Calculated in aceordance with the Master Agreement. (3) Fxcludes debt service reserves in accordance with the District's reserve policy. Source: Orange County Sanitation District. OHS West.2W184418.4 41758-1I MKH/MKH 42 Book Page 74 Projected Operating Data Set forth in Table 15 below are projected operating results for the District for Fiscal Years 2006- 07 through 2010-1 1. These projections assume the number of projects and scheduled build out set forth in the CIP Validation Study, increased sewer service rates for Fiscal Year 2006-07 and projected increased sewer service rates for Fiscal Years 2007-08 and 2008-09 at 9.8% and thereafter at 12.9o/a. Principal expenditure components of these projections we the Interim Strategic Plan and CIP Validation Study, which identified 107 large capital projects managed by the Engineering Department through 2020 at a total cost of$2.3 billion, and currently projected to include nearly$1.5 billion in the next five years. The District's CIP cash flow budget for Fiscal Year 2006-07 is$266.1 million,an increase of$5.8 million from the prior year total. This CUP budget finances joint works treatment and disposal system improvement projects, and collection system improvement projects. This increase is attributable to the additional infrastructure needs identified in the Interim Strategic Plan and in the CIP Validation Study. The preparation of such projections was based upon certain assumptions and certain forecasts with respect to conditions that may occur in the future. While the District believes that these assumptions and forecasts are reasonable for the purposes of the projected selected operating data, it makes no representations that they will in fact oocm. To the extent that actual future conditions differ from those assumed herein,the data will vary. Table 15 Summary of Projected District Revenues and Expenses and Other Financial Information for Fiscal Years 2006-07 through 2010-11 ($Millions) 2006-07 2007-08 2008-09 2009-10 2010-11 Revenues: Sewer Service Charges $149.3 $164.6 $186.6 $211.5 $239.8 Industrial Sewer Service Charges 17.1 18.9 21.4 24.2 27.5 Revenue Area No. 14 Fees 19.8 24.0 18.5 18.2 20.4 Ad Valorem Taxes 55.6 58.3 61.2 64.3 67.5 Interest Earnings 17.3 15.5 17.4 18.9 20.5 Grants 2.4 4.0 -- - - Capiml Facilities Capacity Charges 11.1 11.7 12.3 13.0 13.6 Other Revenues 29.6 10.4 7.8 8.0 8.1 Total Revenues $301.2 $307.4 $325.3 $358.1 $397.4 Operations and Maintenance Expenses $129.1 $135.6 $147.1 $157.7 $169.8 Net Revenues.. $172.1 $171.8 $1781 5200.4 $227.6 Debt proceeds - $300.0 $255.0 $225.0 $225.0 Debt Service2l $ 54.4 $ 65.3 $ 85.4 $103.1 $119.5 Coverage Ratim")12) 3.16x 2.63x 2.09x 1.94x 1.90x CIP Outlay $266.1 $338.8 $309.4 $278.3 $293.2 Ending Reserveslrl $285.3 $319.0 $331.3 $352.8 $370.7 (1) Calculated in accordance with the Master Agreement. (2) Preliminary.subject to chaage. Assumes the refoading ofthe 2027 though 2029 maturities of the 2003 Certificates,which is the minimum the District expects to refund. The specific maturiies and amount ofthe Refunded Certificates will be MS Wat:2601&l41&4 41758-11 MKH/N4KP 43 Book Page 75 dctemdned by District on the basis of market conditions at or about the time that the District accepts bids for the Certificates. (3) Excludes debt service reserves in accordance with the District's reserve policy. Source: Orange County Sanitation District. Management's Discussion and Analysis of operating Data The District's Fiscal Year 2006-07 total operating and capital improvement budget is $456.3 million,a 0.3%increase over the prior year budget of$455.1. The District's Fiscal Year 2006-07 budget includes$266.1 million in capital improvement outlays as the District moves towards reaching secondary treatment standards by the target date of December 31, 2012, as specified by the Board's July 2002 resolution and in keeping with the terms and conditions of its ocean discharge permit and related Consent Decree. The Fiscal Year 2006-07 operations budget for the collection, treatment, and disposal of wastewater is $129.1 million, an $11.3 million, or 9.6% increase from the prior year budget of$117.9 million. This increase is primarily attributable to the proposed increase in personnel costs due mostly to the current capital improvement program,totaling$1.6 billion over the next 10 years. Personnel costs are being proposed for increase at 6.9°/a,or$4.8 million. Contractual services budget increased$2.9 million, or 19.9"/o due primarily to the $2.7 million, or 27.2% increase in solids removal. This increase is reflective of a projected 18.0% increase in hauling and land application costs compounded by a 4.0% increase in the volume of solids generated, from 250,000 tons to 261,000 tons. Repairs and maintenance budget increased $2.2 million, or 26.8% primarily due to the $1.2 million maintenance replacement of activated sludge diffusers that supply aeration to the basins. In addition, $750,000 was approved for the cleaning of three digesters and another $700,000 for the overhaul of two central generation system engines used to supplement electricity from digester gas produced from the treatment plants. Another significant increase is in operating materials and supplies, up SI A million or 6.7%, due primarily to the combined increases in chemicals for treatment, odor control, and disinfection approximating one million dollars. These chemical increases are primarily a result of unit price increases of up to 25%. The cost per million gallons of wastewater treated,an industry-wide performance measurement,is expected to increase in Fiscal Year 2006-07 to $1,358, a $141, or 11.6% increase over the prior year actual of $1,217. Wastewater flow through the treatment system is expected to increase from the actual 235 million gallons per day(mgd)in Fiscal Year 2005-06 to 250 mild in Fiscal Year 2006-07,a 6.4%increase. The Fiscal Year 2006-07 Capital Improvement Program (CIP)cash flow budget was approved at $266.1 million, a 4.0% decrease from the prior year budget of $277.1 million. These budgeted cash outlays are based on a valuation study of the CIP conducted by staff to ensure the appropriateness of all capital projects and the accuracy of the cost estimates. The Fiscal Year 2006-07 CIP identified 85 large capital projects and 23 special projects over a 15 year period at a total cost of$1.87 billion. This total represented a S435 million decrease from the Fiscal Year 2005-06 CIP. Based on this study, the Board adapted Ordinance No. OCSD-30B increasing the sanitary sewer service charges by approximately 9.8% for Fiscal Year 2006-07. This action increased the single family residence user rate, the basis for all sewer user fee rates, from $151.00 to $165.80. The completion of the CIP Validation Study for Fiscal Year 2006-07 reaffirms the need for further rate increases in future years. Annual increases are ordered to be subject to reaffirmation by the affirmative vote of 2/3 of the members of the Board of Directors prior to implementation of any such charge for each fiscal year. See"DISTRICT REVEN(JES-Sewer Service Charges." The CIP Validation Study and Secondary Treatment Review conducted in March 2007 updated the CIP with the continue goal of meeting secondary treatment standards as quickly as possible while providing for increased flows and rehabilitation and refurbishment of existing facilities. This updated CIP Validation Study resulted in a revised CIP consisting of 107 large capital projects through 2020 at a Oxs wea:xeosata.4 41759-1 r rixwhna 44 Book Page 76 total cost of$2.3 billion. The CIP cash flows over the next ten years is now projected to be$1.6 billion; average annual expenditures of nearly $300 million projected over the next five years, and the implementation of full secondary treatment standards to be completed on or before December 31,2012. Investment of District Funds State statutes authorize the District to invest in obligations of the United States Government, state and local governmental agencies, negotiable certificates of deposits, bankers acceptances, commercial paper, reverse repurchase agreements and a variety of other investment instruments which are allowable under California Government Code Section 53600 w seq. All District funds, except for Obligation Reserve Funds controlled by a bank trustee pursuant to the provisions of Existing Senior Obligations, are managed by an external money manager, Pacific Investment Management Company ("PIMCO"). Mellon Trust ("Mellon Trust") serves as the District's independent custodian bank for its investment program. Callan Associates ("Callan") serves as the District's independent advisor. At June 30, 2006, the District's externally managed fund consisted of short-tenn investment portfolio of$72,171,454 with an average maturities of 85 days, and a long-term investment portfolio of $295,290,776 with average maturities of 2.7 years. Investments consist of United States government securities, corporate bonds and commercial paper. The District's portfolio contains no reverse purchase agreements. [TO COME: At March 31, 2007,the District's externally managed fund consisted of short- term investment portfolio of $ with an average maturities of _ days, and a long-term investment portfolio of$ with average maturities of_years. Investments consist of United States government securities, corporate bonds and commercial paper. The District's portfolio contains no reverse purchase agreements.] Deposits in banks are maintained in financial institutions which provide deposit protection on the bank balance from the Federal Depository Insurance corporation. The California Government Code requires State banks and savings and loans to secure local government deposits by pledging government securities equal to 1100/. of the deposits or by pledging first trust deed mortgage notes equal to 150%of the deposits. The District's Investment Policy requires that the District invest public funds in a manner which ensures the safety and preservation of capital while meting reasonable anticipated operating expenditure needs, achieving a reasonable rate of return and conforming to all state and local statutes governing the investment of public funds. The primary objectives, in order, of the District's investment activities are safety,liquidity and return on investments. For more information regarding the District's investment portfolio as of June 30,2006, we Note 2 to the Comprehensive Annual Financial Report of the Orange County Sanitation District for Fiscal Year Ended June 30,2006 set forth in Appendix A. FINANCIAL OBLIGATIONS Existing Indebtedness Currently the District has Senior Obligations Outstanding payable on a parity with the Installment Payments under the Installment Purchase Agreement. The table below describes the District's outstanding certificates of participation as of April 1, 2007. The payment obligations in connection with each of these obligations,together with the 1992 Swap and the 1993 Swap described below, constitutes a OHS Wea:260184418.4 41758-11 rmnumxH 45 Book Page 77 Senior Obligation, subject to the provisions of the Master Agreement and shall be afforded all of the advantages, benefits, interests and security afforded Senior Obligations pursuant to the Master Agreement. The District has no outstanding general obligation bonds. Table 16 Outstanding Certificates of Participation Debt at April 1,2007 Principal Issue Outstanding Final Amount Date Balance Maturity 1992 Certificates $ 660,6 00,000 12/3/92 $ 85,505,000 8/1113 1993 Certificates 46,000,000 9/2/93 32,200,000 8/1/16 Series 2000 Certificates 218,600,000 9113/00 197,400,000 811130 Series 2003 Certificates* 290,000,000 9/26103 280,000,000 211/33 Series 2006 Certificates 200,000,000 3/8/06 200,000,000 2/1/36 Total Long-Term Debt $905,200,000 $795,105,000 • All or a portion of the Series 2003 Cemfleites are being refunded with proceeds from the sale of the Certificates. In connection with the execution and delivery of the above-referenced outstanding certificates of participation, the district entered certain installment purchase agreements, or equivalent documents providing for the payment of installment payments or similar payments. In December 1992,the District mused the execution and delivery of certain certificates of participation which were subsequently designated as the Orange County Sanitation Refunding Certificates of Participation, 1992 Series (the "1992 Certificates"). The District entered into an agreement for acquisition and construction(the"1992 Agreement for Acquisition and Construction"), a Standby Certificate Purchase Agreement (including as thereafter amended and substituted, the "1992 Standby Agreement") in order to provide for payment of the purchase price of tendered and un marketed 19,92 Certificates,and an Interest Rate Swap Agreement, as amended(the"1992 Swap")with AIG Financial Products Corp. In September 1993, the District mused the execution and delivery of certain certificates of participation which were subsequently designated as the Orange County Sanitation Refunding Certificates of Participation, 1993 Series (the "1993 Certificates"). The District entered into an agreement for acquisition and construction (the"1993 Agreement for Acquisition and Construction"),a Reimbursement Agreement (including as thereafter amended and substituted, the"1993 Reimbursement Agreement") in order to provide for payment of the purchase price of tendered and mmanarketed 1993 Certificates, and an interest rate swap agreement, as amended (the "1993 Swap') with Societe G6nerale, New York Branch. In August 2000,the District caused the execution and delivery of the Certificates of Participation, Series 2000-A (the "2000-A Certificates") and the Orange Comfy Sanitation District Refunding Certificates of Participation, Series 2000-B (the "2000-B Certificates" and together with the 2000-A Certificates the 112000 Certificates"). In connection with the execution and delivery of the 2000 Certificates,the District entered into an installment purchase agreement (the"2000 Installment Purchase Agreement")and a Standby Agreement, dated as of August 1, 2000(the"2000 Standby Agreement"),by and among the District,the Trustee and Dexia Credit Local,acting through its New York Agency in order to provide for payment of the purchase price of tendered and unremarketed 2000 Certificates. On August 2003, the District caused the execution and delivery of the Orange County Sanitation District Certificates of Participation, Series 2003 (the "2003 Certificates") evidencing $280,000,000 original aggregate principal amount,a portion of which are being refunded with proceeds from the sale of Oxs wea:260r8aara.n 41758-11 MKH/Mlcx 46 Book Page 78 the Certificates. In connection with the execution and delivery of the 2003 Certificates, the District and the Corporation entered into an installment purchase agreement (the "2003 Installment Purchase Agreement"). In Match 2006, the District caused the execution and delivery of certain certificates of participation designated as the Orange County Sanitation Refunding Certificates of Participation, 2006 Series (the "2006 Certificates") evidencing $200,000,000 original aggregate principal amount. In connection with the execmion and delivery of the 2006 Certificates, the District and the Corporation entered into an installment purchase agreement (the "2006 Installment Purchase Agreement") and the District entered into a Standby Certificate Purchase Agreement, dated m of March 1, 2006 (the "2006 Standby Agreement"),with Depfa Bank plc, acting through its New York Branch in order to provide for payment of the purchase price of tendered and unremarketed 2006 Certificates. The 1992 Standby Agreement, the 1993 Reimbursement Agreement, and the 2000 Standby Agreement and the 2006 Standby Agreement each constitutes a Credit Facility Agreement and a Credit Facility.The obligation of the District to repay amounts drawn on or paid under these agreements,to pay interest on such amounts and to pay any other amounts in connection with such draw or payment constitutes a Reimbursement Obligation,each with respect to a Senior Obligation. For more information regarding the District's outstanding indebtedness and interest rate swaps as of Jane 30, 2006, see "Variable Rate and Swap Obligations" and Notes 4 and 5 to the Comprehensive Annual Financial Report of the Orange County Sanitation District for Fiscal Year Ended June 30, 2006 set forth in Appendix A. Variable Rate and Swap Obligations The District entered into separate interest rate swap agreements in connection with the 1992 Certificates and the 1993 Certificates. The objective of the interest rate swaps is to lower the District's borrowing costs when compared against fixed-rate bonds at the time of issuance. The swaps effectively change the District's variable interest rate to a synthetic fixed rate of 5.55% on the 1992 Certificates and to a synthetic fixed rate of 4.56%on the 1993 Certificates. By their terms,the District receives payments that are calculated by reference to a floating interest rate and makes payments that are calculated by reference to a fixed interest rate. In its annual financial report, the interest rate swap agreements are accounted for as a hedge by the District,and the associated interest rate differential to be paid or received is charged to interest expense as interest rates change. See Note 5 to the Comprehensive Annual Financial Report of the Orange County Sanitation District for Fiscal Year Ended June 30, 2006 set forth in Appendix A. Under the 1992 Swap,the District receives a variable interest rate equal to the interest paid to the holders of the 1992 Certificates which is based on a tax exempt daily interest rate as determined by the remarketing agent on an initial notional amount of$160,600,000. The notional value of the swap declines in tandem with the principal amount evidenced by the 1992 Certificates. The 1992 Swap matures on August 1,2013. Because interest rates have declined since execution of the 1992 Swap,the swap had an estimated negative fair value of$10.92 million as of lane 30,2005. Under the 1993 Swap,the District receives a variable interest rate equal to the interest paid to the holders of the 1993 Certificates which is based on a tax exempt daily interest rate as determined by the remarketing agent on an initial notional amount of$46,000,000. The notional value of the 1993 Swap declines in tandem with the principal amount evidenced by the 1993 Certificates. The 1993 Swap matures on August 1, 2016. Because interest rates have declined since execution of the 1993 Swap,the swap had an estimated negative fair value of$3.43 million as of June 30,2005. OHS Wm201S4 M 4175&11 MKH/baCH 47 Book Page 79 The interest rate swap agreements entail risk to the District. The counterparty may fail or be unable to perform, interest rates may vary from assumptions and the District may be required to make significant payments in the event of an early termination of an interest rate swap. The District or the counterparty may terminate a swap if the other party fails to perform under the terms of the contract. In the event of termination due to default,the defaulting parry will pay to the nondef tulting party the excess (if any)of the sum of the settlement amount and the unpaid amounts owed less the unpaid amounts due from the non-defaulting party. Each swap may be terminated by the District if the counterparty's credit quality rating falls below"AA=by Standard&Poor's or"Aa3 by Moody's Investors Service. If a swap is terminated, the related series of certificates of participation would no longer carry a synthetic interest rate. The District believes that if any such an event were to occur, it would not have a material adverse impact on its financial position. As of June 30, 2006, the District was not exposed to credit risk associated with such swaps because each swap had a negative fair value. However,should interest rates change,and the fair value of the swap become positive, the District would be exposed to credit risk in the amount of the swap's fair value. Neither swap will expose the District to basis risk because the variable-rate interest paid to the certificate holders is equal to the variable-rate interest camed on the notional amount of the swap. Net payments under the terms of the interest rate swap agreements constitute Senior Obligations under the Master Agreement and are on a parity with the District's payment obligations with respect to the Certificates. Likewise, termination payments under the interest rate swap agreements would be payable on a parity with the District's payment obligations with respect to the Certificates. For more information regarding the District's interest rate swaps as of June 30,2006,see Notes 4 and 5 to the Comprehensive Annual Financial Report of the Orange County Sanitation District for Fiscal Year Ended June 30,2006 set forth in Appendix A. Anticipated Financings As projected out to 2020, the CIP cash flow needs will be approximately $2.3 billion in fidure wastewater treatment improvements and in future collection system capital improvements, with average annual expenditures of nearly $300 million projected over the next five years, and with the bulk of the construction scheduled during the next ten years. Sixty percent of these improvements are expected to be funded through current revenues and the balance will be funded through the issuance of new debt. In Fiscal Year 2007-08 the District expects to incur Additional Senior Obligations evidencing principal in an aggregate amount of approximately$300 million. OHS Wa@6a1W8.4 41758-11 NW H 48 Book Page 80 Direct and Overlapping Bonded Debt The Table 17 below presents the aggregate direct and overlapping bonded debt of the District as of June 30,2006. Table 17 Direct and Overlapping Bonded Debt of the District as of June 30,2006 ORANGE COUNTY SANITATION DISTRICT 2005.06 Assessed Valuation(Land&Improvements Only): $241,849,995,272 Redevelopment Incremental Valuation: 26,265,003,329 Adjusted Assessed Valuation: $215,594,991,943 OVERLAPPING TAX AND ASSESSMENT DEBT (Based on redevelopment adjusted all property assessed valuation of$221,268,184,347): %Aoolic Ail Debt 6130/O6 Orange County Teeter Plan Obligations 71.832% $ 88,874,142 Metropolitan Water District of Southern California 15.119 58,898,332 Coast Community College District 99.525 102,230,952 North Orange County Joint Community College District 96.872 234,666,609 Rancho Santiago Community College District 98.200 206,906,581 Brea-Olinda and Laguna Beach Unified School Districts 97.858& 29,019,956 10.973 Newport-Mesa Unified School District 100.000 104,770,000 Placentia-Yorba Linda Unified School District 98.689 95,793,033 Saddleback Valley Unified School District 11.256 10.594,147 Santa Ana Unified School District 100.000 135,923,187 Tustin Unified School District School Facilities Improvement District No.2002-1 98.944 28,353,349 Anaheim Union High School District 100.000 128,308,955 Fullerton Joint Union High School District 90.440 57,187,844 Huntington Beach Union High School District 99.013 202,440,796 School Districts 97.608-100 200,2369997 City of Anaheim 99.100 6,114,470 Irvine Ranch Water District Improvement Districts Various 160,422,350 Rossmoor Community Services District Special Tax Obligations 100.000 715,000 Bonita Canyon Community Facilities District No.98-1 100.000 43.615,000 Irvine Unified School District Community Facilities District No.86-1 100.000 277,245,000 Tustin Unified School District Community Facilities District No.88.1 and 97.1 100.000 161,3229675 Orange County Community Facilities District No. 874 99.974 66,537,433 Other Community Facilities Districts Various 278,029,298 Orange County Assessment Districts 100.000 115,919,296 City of Irvine 1915 Act Bonds 100.000 735,464,169 City of Tustin 1915 Act Bonds 100.000 39,039,000 Other 1915 Act Bonds 100.000 27,508,000 TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT S3,616,135,561 (continued) OHS WW:160184418.4 41758-1I MOI/WH 49 Book Page 81 (continued from previous page) DIRECT AND OVERLAPPING GENERAL FUND DEBT: %Amplicable Debt 6/30/06 Orange County General Fund Obligations 71.832% $ 452,557,403 Orange County Pension Obligations 71.832 71,628,211 Orange County Board of Education Certificates of Participation 71.832 14,237,102 Orange County Transit District Authority 71.832 1,774,250 Coast Community College District Certificates of Participation 99.525 6.663,199 South Orange County Community College District Certificates of Participation 34.495 13.390,611 Brea-01inda Unified School District Certificates of Participation 97.858 30,883,985 Orange Unified School District Certificates of Participation 96.729 50,260,388 Placentia-Yorba Linda Unified School district Certificates of Participation 99.689 85,721,576 Santa Ana Unified School District Certificates of Participation 100,000 44,699,711 Other Unified School District Certificates of Participation Various 25,066,152 Union High School District Certificates of Participation Various 59,508,612 School District Certificates of Participation Various 62,899,163 City of Anaheim General Fund Obligations 99.100 650,376,520 City of Fullerton General Fund Obligations 100.000 32.330,993 City of Huntington Beach General Fund and Judgment Obligations 99.969 95,206,488 City of Irvine General Fund Obligations 100.000 37,170,000 City of Santa Ana General Fund Obligations 100.000 128,149,066 Other City General Fund Obligations Various 180,668.898 Orange County Sanitation District Certificates of Participation 100.000 130,370,000 Irvine Ranch Water District Certificates of Participation 89.144 39,401,648 Municipal Water District of Orange County Water Facilities Corporation 66.566 18,774,940 Yorba Linda County Water District Certificates of Participation 97.697 10,038,367 Orange County Fire Authority 49.923 8,305,494 TOTAL GROSS OVERLAPPING GENERAL FUND DEBT $2,240,072,777 Less: Orange County Transit District Authority(80%self-supporting) 1,419,400 City of Anaheim self-supporting obligations 620,579,172 Other City self-supporting obligations 9,094,147 MWDOC Water Facilities Corporation(100%self-supporting) 18,774,940 TOTAL NET OVERLAPPING GENERAL FUND DEBT $1,590,205,118 GROSS COMBINED TOTAL DEBT $5,856,208,33811r NET COMBINED TOTAL DEBT $5,206,340,679 to Percentage of overlapping agency's redevelopment adjusted all property assessed valuation ($221.268,184,347)located within boundaries of the district. 1r1 Excludes tax and revenue anticipation notes,enterprise revenue,mortgage revenue and tax allocation bonds.non-bonded capital lease obligations and the Certificates. Total Overlapping Tax and Gross Combined Net Combined Ratios to: Assessment Debt Total Debt Total Debt Land and Improvement Assessed Valuation 1.50% 2.72% 2.41% Land Property Assessed Valuation N/A 2.65% 2.35% STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30105:$948,026 Source: California Municipal Statistics,Inc. OHS Wen:26018M18.4 41758-11 MKH4M 50 Book Page 82 THE CORPORATION The Corporation was organized June 19, 2000 as a nonprofit public benefit corporation pursuant to the Nonprofit Public Corporation law of the State. The Corporation's purpose is to render assistance to the District in its acquisition of equipment, real property and improvements on behalf of the District. Under its articles of incorporation,the Corporation has all powers conferred upon nonprofit public benefit corporations by the laws of the State,provided that it will not engage in any activity other than that which is necessary or convenient for,or incidental to the purposes for which it was formed. The Corporation is a separate legal entity from the District. It is governed by a twenty-five member Board of Directors. The Corporation has no employees. All staff work is performed by employees of the District. The members of the Corporation's Board of Directors are the Board of Directors of the District. The District's Director of Finance and Administrative Services and other District employees are available to provide staff support to the Corporation. The Corporation has not entered into any material financing arrangements other than those referred to in this Official Statement. Further information concerning the Corporation may be obtained from the Orange County Sanitation District office at 10844 Ellis Avenue, Fountain Valley, California, 92708-7018. LIMITATIONS ON TAXES AND REVENUES Article XIIIA of the California Constitution On Jenne 6, 1978, California voters approved Proposition 13 ("Proposition 13'), which added Article XIIIA to the State Constitution ("Article XIIIA'). Article XBIA, as amended, limits the amount of any ad valorem tax on real property to one percent of the full cads value thereof,except that additional ad valorem taxes may be levied to pay debt service on (i) indebtedness approved by the voters prior to July 1, 1978,(ii)(as a result of an amendment to Article XIIIA approved by State voters on June 3, 1996) on bonded indebtedness for the acquisition or improvement of real property which has been approved on or after July 1, 1978 by two-third of the voters on such indebtedness, and (iii) bonded indebtedness incurred by a school district or community college district for the construction, remnstruction, rehabilitation or replacement of school facilities or the acquisition or lease of real property for school facilities, approved by 55% of the voters of the district, but only if certain accountability measures are included in the proposition. Article XIIIA defines full cash value to mean 'the county assessor's valuation of real property as shown on the 1975-76 tax bill under `full cash value," or thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment." The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2%per year or to reflect a reduction in the consumer price index or comparable data for the area under the taxing jurisdiction, or reduced in the event of declining property values caused by substantial damage, destruction, or other factors. Legislation enacted by the State Legislature to implement Article XIIIA provides that notwithstanding any other law,local agencies may not levy any ad valorem property tax except to pay debt service on indebtedness approved by the voters as described above. Legislation Implementing Article XIIIA Legislation has been enacted and amended a number of times since 1978 to implement Article XIIIA. Under current law,local agencies are no longer permitted to levy directly any property tax(except OHS West 2601WI&A 41758-11 MKW 51 Book Page 83 to pay voter-approved indebtedness). The one percent 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 1989, Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the two percent 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. Beginning in the 1981-82 fiscal year, assessors in the State no longer record property values on tax rolls at the assessed value of 25%of market value which was expressed as$4 per$100 assessed value. All taxable property is now shown at full market value on the tax rolls. Consequently, the tax rate is expressed as $1 per$100 of taxable value. All taxable property value included in this Official Statement is shown at 100% of market value (unless noted differently) and all tax rates reflect the $1 per $100 of taxable value. Article XIIIB of the California Constitution An initiative to amend the State Constitution entitled"Limitation of Govemment Appropriations" was approved on September 6, 1979, thereby adding Article XIIIB to the State Constitution ("Article XIIIB"). Under Article XIIIB,the State and each local governmental entity has an annual"appropriations limit' and is not permitted to spend certain moneys that ere called "appropriations subject to limitation" (consisting of tax revenues, state subventions and certain other funds) in an amount higher than the appropriations limit. Article XIIIB does not affect the appropriations of moneys that are excluded from the definition of"appropriations subject to limitation,"including debt service on indebtedness existing or authorized as of January 1, 1979, or bonded indebtedness subsequently approved by the voters. In general terms, the appropriations limit is to be based on certain 1978.79 expenditures, and is to be adjusted annually to reflect changes in consumer prices, populations, and services provided by these entities. Among other provisions of Article XIIIB, if these entities' revenues in any year exceed the amounts permitted to be spent,the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years. "Appropriations subject to limitation" are authorizations to spend "proceeds of taxes," which consist of tax revenues, state subventions and certain other funds, including proceeds from regulatory licenses,user charges or other fees to the extent that such proceeds exceed"the cost reasonably home by such entity in providing the regulation,product or service," but proceeds of taxes" excludes tax refunds and some benefit payments such as unemployment insurance. No limit is imposed on appropriations of funds which are not "proceeds of taxes," such as reasonable user charges or fees, and certain other non. tax funds. Not included in the Article XRIB limit are appropriations for the debt service costs of bonds existing or authorized by January 1, 1979, or subsequently authorized by the voters, appropriations required to comply with mandates of courts or the federal government and appropriations for qualified capital outlay projects. The appropriations limit may also be exceeded in certain cases of emergency. The appropriations limit for the District in each year is based on the District's limit for the prior year, adjusted annually for changes in the cost of living and changes in population, and adjusted, where applicable, for transfer of financial responsibility of providing services to or from another unit of government. The change in the cost of living is,at the District's option,either(1)the percentage change in State per capita personal income, or (2)the percentage change in the local assessment roll on nonresidential property. Either test is likely to be greater than the change in the cost of living index, OHS Wat:260184418.4 41758-11 NMH/MaH 52 Book Page 84 which was used prior to Proposition I11. Change in population is to be measured either within the jurisdiction of the District or the County as a whole. As amended by Proposition 111, the appropriations limit is tested over consecutive two-year periods. Any excess of the aggregate "proceeds of taxes" received by a District over such two-year period above the combined appropriations limits for those two years is to be returned to taxpayers by reductions in tax rates or fee schedules over the subsequent two years. As originally enacted in 1979,the District's appropriations limit was based on 1978-79 authorirations to expend proceeds of taxes and was adjusted annually to reflect changes in cost of living and population (using different definitions, which were modified by Proposition I 11). Starting with Fiscal Year 1990-91,the District's appropriations limit was recalculated by taking the actual Fiscal Year 1986-87 limit,and applying the annual adjustments as if Proposition I l l had been in effect. The District does not anticipate that any such appropriations limitations will impair its ability to make Installment Payments as required by the Installment Purchase Agreement. Proposition 1A Proposition IA ("Proposition IA"), proposed by the Legislature in connection with the 2004-05 Budget Act and approved by the voters in November 2004, restricts State authority to reduce major local tax revenues such as the tax shifts permitted to take place in Fiscal Years 2004-05 and 2005-06. Proposition 1A provides that the State may not reduce any local sales tax rate, limit existing local government authority to levy a sales tax rate or change the allocation of local sales tax revenues, subject to certain exceptions. Proposition IA generally prohibits the State from shifting to schools or community colleges any share of property tax revenues allocated to local governments for any fiscal year,as set forth under the laws in effect as of November 3, 2004. Any change in the allocation of property tax revenues among local governments within a county must be approved by two-thirds of both houses of the Legislature. Proposition 1A provides, however, that beginning in Fiscal Year 2008-09, the State may shift to schools and community colleges up to 8%of local government property tax revenues,which amount must be repaid, with interest, within three years, if the Governor proclaims that the shift is needed due to a severe state financial hardship, the shift is approved by two thirds of both houses and certain other conditions are met. The State may also approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. Proposition IA also provides that if the State reduces the vehicle license fee ("VLF") rate currently in effect, 0.65% of vehicle value, the State must provide local governments with equal replacement revenues. Further, Proposition IA requires the State, beginning July 1, 2005, to suspend State mandates affecting cities, counties and special districts, excepting mandates relating to employee rights, schools or community colleges, in any year that the State does not fully reimburse local governments for their costs to comply with such mandates. Proposition 62 On November 4, 1986, California voters adopted Proposition 62, a statutory initiative which amended the California Government Code by the addition of Sections 53720-53730. Proposition 62 requires that(I)any local tax for general governmental purposes(a"general tax")must be approved by a majority vote of the electorate;(ii)any local tax for specific purposes(a"special tax")must be approved by a two-thirds vote of the electorate; (III) any general tax must be proposed for a vote by two-thirds of the legislative body; and (iv) proceeds of any tax imposed in violation of the vote requirements must be deducted from the local agency's property tax allocation. Provisions applying Proposition 62 OHS Wa1:260184418.4 41758-11 hMWMKH 53 Book Page 85 retroactively from its effective date to 1985 are unlikely to be of any continuing importance;certain other restrictions were already contained in the Constitution. Most of the provisions of Proposition 62 were affirmed by the 1995 California Supreme Court decision in Santa Clara County Local Transportation Authority v. Guardino,which invalidated a special sales tax for transportation purposes because fewer than two-thirds of the voters voting on the measure had approved the tax. The District has not imposed any taxes subject to the provisions of Proposition 62 and believes that it will not impair its ability to make its Installment Payments as required by the Installment Purchase Agreement. The requirements of Proposition 62 have generally been superseded by the enactment of Article XIIIC of the Constitution(Proposition 218)in 1996. Article XIIIC and Article XIIID of the California Constitution Proposition 218, a State ballot initiative known as the "Right to Vote an Taxes Act," was approved by the voters on November 5, 1996. The initiative added Articles XIIIC and XIIID to the California Constitution,creating additional requirements for the imposition by most local governments of "general taxes,""special taxes,""assessmens,""fees,"and"charges.- Proposition 218 became effective, ` pursuant to its terms, as of November 6, 1996, although compliance with some of its provisions was deferred until July 1, 1997, and certain of its provisions purport to apply to any tax imposed for general governmental purposes(i.e., "general taxes') imposed,extended or increased on or after January 1, 1995 and prior to November 6, 1996. Article XIIID impose; substantive and procedural requirements on the imposition, extension or increase of my"fce"or"charge" subject to its provisions. A "fee" or"charge" subject to Article XIIID includes my levy,other than an ad valorem tax, special tax or assessment, imposed by an agency upon a parcel or upon a person as an incident of property ownership. Article XIIID prohibits, among other things, the imposition of my proposed fee or charge, and, possibly, the increase of my existing fee or charge, in the event written protests against the proposed fee or charge are presented at a required public hearing an the fee or charge by a majority of owners of the parcels upon which the fee or charge is to be imposed. Except for fees and charges for water, sewer and refuse collection services,the approval of a majority of the property owners subject to the fee or charge,or at the option of the agency,by a two-thirds vote of the electorate residing in the affected area,is required within 45 days following the public hearing on my such proposed new or increased fee or charge. The California Supreme Court decisions in Richmond v. Shasta Community Services District, 32 Cal. 4th 409 (2004) ("Richmond"), and Bighorn- Desert View Water Agency v. Vedil (published July 24, 2006) ("Bighorn") have clarified some of the uncertainty surrounding the applicability of Section 6 of Article XIIID to service fees and charges. In Richmond, the Shasta Community Services District charged a water connection fee, which included a capacity charge for capital improvements to the water system and a fire suppression charge. The Court held that both the capacity charge and the fire suppression charge were not subject to Article XIIID because a water comection fee is not a property-related fee or charge because it results from the property owner's voluntary decision to apply for the connection. In both Richmond and Bighorn, however, the Court stated that a fee for ongoing water service through an existing connection is imposed "as an incident of property ownership" within the meaning of Article XIIID, rejecting, in Bighorn, the water agency's argument that consumption-based water charges are not imposed "as an incident of property ownership"but as a result of the voluntary decisions of customers as to how much water to use. Article XIIID also provides that"standby charges"are considered"assessments"and must follow the procedures required for "assessments" under Article XIIID and imposes several procedural requirements for the imposition of my assessment, which may include (1) various notice requirements, including the requirement to mail a ballot to owners of the affected property; (2) the substitution of a property owner ballot procedure for the traditional written protest procedure,and providing that"majority oxs wer:xeotaeataa 41758-11 tncwrna 54 Book Page 86 protest" exists when ballots (weighted according to proportional financial obligation) submitted in opposition exceed ballots in favor of the assessments; and (3) the requirement that the levying entity "separate the general benefits from the special benefits conferred on a parcel"of land. Article XIIID also precludes standby charges for services that we not immediately available to the parcel being charged. Article XIIID provides that all existing, new or increased assessments are to comply with its provisions beginning July 1, 1997. Existing assessments imposed on or before November 5, 1996, and "imposed exclusively to finance the capital costs or maintenance and operations expenses for [among other things] water" are exempted from some of the provisions of Article XIIID applicable to assessments. Article XIIIC extends the people's initiative power to reduce or repeal existing local taxes, assessments,fees and charges. This extension of the initiative power is not limited by the terms of Article XIIIC to fees, taxes, assessment fees and charges imposed after November 6, 1996 and absent other authority could result in retroactive reduction in any existing taxes, assessments, fees or charges. hi Bighorn, the Court concluded that under Article XIIIC local voters by initiative may reduce a public agency's water rates and delivery charges. The Court noted, however, that it was not holding that the authorized initiative power is free of all limitations, stating that it was not determining whether the electorate's initiative power is subject to the public agency's statutory obligation to set water service charges at a level that will "pay the operating expenses of the agency, ... provide for repairs and depreciation of works,provide a reasonable surplus for improvements,extensions,and enlargements,pay the interest on any bonded debt, and provide a sinking or other fund for the payment of the principal of such debt as it may become due." The District implemented a five-year plan beginning in Fiscal Year 2002-03 which included a rate increase of$7.50 per year, or 9.4%, for all ratepayers to $87.50 per year. In May 2003, the Board approved consideration of a 15% rate increase a year, for each year, over the then following five years, upon 2/3 vote of the Board after conducting a noticed public hearing in compliance with Article XIIID. This level of increase was considered necessary to provide needed capital improvements, to cover additional treatment and disinfection costs, and to minimize rate increases over an extended period of time. On July 2, 2003, the Board adopted Ordinance No. OCSD-20 increasing sanitary sewer service charges for all single family and multi-family residential units as well as most commercial and industrial properties. The Ordinance was adopted by a 2/3 vote of the Board as required under law after conducting a noticed public hearing in compliance with all laws. The Ordinance increases the amount of the annual charges by approximately 15% per year for each of the following five years, commencing with Fiscal Year 2003-04, thereby raising the single family residence user rate from the then current $87.50 to $100.00,$115.00, $132.00, $152.00, and $175.00 annually. The Ordinance discounted by 5%the annual increases which were the subject of the required protest hearings on the fee increase as described above. After the completion of the CIP Validation Study for Fiscal Year 2005-06 that increased its ten year CIP cash flow projects to $2.2 billion, or an average of$220 million per year, the Board adopted Ordinance No. OCSD-26 increasing the Fiscal Year 2005-06 single family residential rate 31%, from $115 to $151 for such year. In May 2006, the Board adopted Ordinance No. OCSD-30B increasing the Fiscal Year 2006-07 single family residential rate 9.8%, from $151.00 to $165.80 for such year, except those located in Revenue Area 14. These increases represented the increase permitted under the protest hearings on the fee increase which was held in 2003. In April 2007, the Board began its considerations towards increasing sanitary sewer service charges for all single family and multi-family residential wits as well as most commercial and industrial properties. Any such increases are subject to approval by ordinance adopted by a 213 vote of the Board after conducting a noticed public hearing in compliance with all laws. See"DISTRICT REVENUES — Sewer Service Charges"herein. OHS wrr2601e4418.4 41738.11 h7KHNKH 55 Book Page 87 Pursuant to the Master Agreement,the District will,to the extent permitted by law, fix, prescribe and collect fees and charges for the services of the Wastewater System which will be at least sufficient to yield during each Fiscal Year(a)Net Revenues equal to 125%of Debt Service on Senior Obligations for such Fiscal Year, and (b)Net Operating Revenues equal to 100% of Debt Service on all Obligations for such Fiscal Year.The District may make adjustments from time to time in such fees and charges and may make such classification thereof as it deems necessary, but will not reduce the fees and charges then in effect unless the Revenues and Net Revenues from such reduced fees and charges will at all times be sufficient to meet the requirements of the Master Agreement. In the event that service charges are determined to be subject to Article X111D, and proposed increased service charges cannot be imposed as a result of a majority protest, such circumstances may adversely effect the ability of the District to generate revenues in the amounts required by the Master Agreement, and to make Installment Payments as provided in the Installment Purchase Agreement. No assurance may be given that Articles XBIC and XMD will not have a material adverse impact on Net Revenues. Other Initiative Memares Articles XIIIA, XIIIB, XIIIC and XUID were adopted pursuant to Califamia's constitutional initiative process. From time to time other initiative measures could be adopted by Calif rmia voters, placing additional limitations on the ability of the District to increase revenues. LEGAL MATTERS The validity of the Certificates and certain other legal matters are subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP,Los Angeles, California, Special Counsel to the District A complete copy of the proposed form of Special Comsel opinion is contained in Appendix E hereto. Special Counsel, in its capacity as Special Comm] to the District, undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement Certain legal matters will be passed upon for the District and the Corporation by Woodruff, Spradlin& Smart,a Professional Corporation, Orange, California and for the District by Orrick Herrington & Sutcliffe LLP as Disclosure Comm] to the District. FINANCIAL ADVISOR The District has retained Public Resources Advisory Croup as financial advisor (the "Financial Advisor") in connection with the execution and delivery of the Certificates. The Financial Advisor has not been engaged,nor have they mderaken,to audit,authenticate or otherwise verify the information set forth in the Official Statement, or any other related information available to the District, with respect to accuracy and completeness of disclosure of such information. The Financial Advisor has reviewed the Official Statement but makes no guaranty, warranty or other representation respecting accuracy and completeness of the information contained in the Official Statement. ABSENCE OF LITIGATION There is no action, suit,proceeding,inquiry or investigation,at law or in equity,before or by any court, regulatory agency, public board or body, pending or, to the best knowledge of the District, threatened against the District affecting the existence of the District or the titles of its directors or officers to their offices or seeking to restrain or to enjoin the sale or delivery of the Certificates,the application of the proceeds thereof in accordance with the Trust Agreement, or in my way contesting or affecting the validity or enforceability of the Certificates,the Trust Agreement,the Master Agreement,the Installment Purchase Agreement or my action of the District contemplated by my of said documents, or in my way contesting the completeness or accuracy of this Official Statement, or contesting the powers of the oxs Wac26n81QSA ansa-n nnavraxH 56 Book Page 88 District or its authority with respect to the Certificates or any action of the District contemplated by any of said documents,nor,to the knowledge of the District is there any basis therefor. There is no action, suit, proceeding, inquiry or investigation,at law or in equity,before or by any court, regulatory agency, public board or body pending or, to the best knowledge of the District, threatened against the District contesting or affecting the ability of the District to collect amounts from which Installment Payments are payable, or which would have a material adverse effect on the District's ability to make Installment Payments. FINANCIAL STATEMENTS The basic financial statements of the District included in Appendix A to this Official Statement have been audited by Mayer Hoffimm McCann P.C.,independent certified public accountants. In January 2006 Mayer Hoffman McCann P.C.merged the District's former auditors,Conrad and Associates,L.L.P., into its national practice. See APPENDIX A—"COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE ORANGE COUNTY SANITATION DISTRICT FOR FISCAL YEAR ENDED JUNE 30, 2006" herein. The report issued for the year ended June 30, 2006, received the Government Finance Officer's Association Certificate of Achievement for "Excellence in Financial Reporting" for the 13th consecutive year. The audited financial statements,including the footnotes thereto,should be reviewed in their entirety. Mayer Hoffman McCann P.C. has consented to the inclusion of its report as Appendix A but has not undertaken to update its report or to take my action intended or likely to elicit information concerning the accuracy, completeness or fairness of the statements made in this Official Statement, and no opinion is expressed by Mayer Hoffinan McCann P.C. with respect to any event subsequent to its report dated August 31,2006. TAX MATTERS In the opinion of Orrick,Herrington&Sutcliffe LLP("Special Counsel"),based upon 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 components evidenced by the Certificates 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 personal income taxes. Special Counsel is of the further opinion that interest components evidenced by the Certificates are not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Special Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. A complete copy of the proposed form of opinion of Special Counsel is set forth in Appendix E hereto. To the extent the issue price of any maturity of the Certificates is less than the amount to be paid at maturity of such Certificates(excluding amounts stated to be interest and payable at least amuaily over the term of such Certificates),the difference constitutes"original issue discount,"the accrual of which,to the extent properly allocable to each Beneficial Owner thereof, is treated as interest components evidenced by the Certificates which is excluded from gross income for federal income tax purposes and State of California personal income taxes. For this purpose,the issue price of a particular maturity of the Certificates is the first price at which a substantial amount of such maturity of the Certificates is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters,placement agents or wholesalers). The original issue discount with respect to any maturity of the Certificates accrues daily over the term to maturity of such Certificates on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Certificates to determine taxable gain or loss upon disposition (including sale, prepayment, or payment on maturity) of such OHS war:260184418.4 41758.11 WHMaCH 57 Book Page 89 Certificates. Beneficial Owners of the Certificates should consult their own tax advisors with respect to the tax consequences of ownership of Certificates with original issue discount, including the treatment of Beneficial Owners who do not purchase such Certificates in the original offering to the public at the first price at which a substantial amount of such Certificates is sold to the public. Certificates purchased,whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (or, in some cases, at their earlier call date) ("Premium Certificates") will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of bonds, like the Premium Certificates, the interest components evidenced by 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 Certificate,will be reduced by the amount of amortizable bond premium properly allocable to such Beneficial Owner. Beneficial Owners of Premium Certificates 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 I'I gross income for federal income tax purposes of interest components evidenced by obligations such as the Certificates. The District has made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest components evidenced by the Certificates will not be included in federal gross income. Inaccuracy of these representations or f rilum to comply with these covenants may result in interest components evidenced by the Certificates being included in gross income for federal income tax purposes,possibly from the date of original delivery of the Certificates. The opinion of Special Counsel assumes the accuracy of these representations and compliance with these covenants. Special Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken), or events occurring (or not occurring), or any other matters coming to Special Counsel's attention after the date of delivery of the Certificates may adversely affect the value of, or the tax status of interest components evidenced by, the Certificates. Accordingly, the opinion of Special Counsel is not intended to, and may not, be relied upon in connection with any such action,events or matters. Although Special Counsel is of the opinion that interest components evidenced by the Certificates are excluded from gross income for federal income tax purposes and are exempt from State of California personal income taxes, the ownership or disposition of, or the accrual or receipt of interest components evidenced by, the Certificates may otherwise affect a Beneficial Owner's federal, state or local tax liability. The nature and extent of these other tax consequences depends upon the particular tax status of the Beneficial Owner or the Beneficial Owner's other items of income or deduction. Special Counsel expresses no opinion regarding any such other in consequences. Future legislation, if enacted into law,or clarification of the Code may cause interest components evidenced by the Certificates 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. The introduction or enactment of any such future legislation or clarification of the Code may also affect the market price for, or marketability of, the Certificates. Prospective purchasers of the Certificates should consult their own tax advisers regarding any pending or proposed federal tax legislation, as to which Special Counsel expresses no opinion. The opinion of Special Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Special Counsel's judgment as to the proper treatment of the Certificates for federal income tax purposes. It is not binding on the Intemal Revenue Service ("IRS") or the courts. Furthermore, Special Counsel cannot give and has not given any opinion or assurance about the future activities of the District, or about the effect of future changes in the Code, OHS wm:zsotswt8.a 41758-11 mmJiIMKH 58 Book Page 90 the applicable regulations,the interpretation thereof or the enforcement thereof by the IRS. The District has covenanted,however,to comply with the requirements of the Code. Special Counsel's engagement with respect to the Certificates ends with the delivery of the Certificates, and, unless separately engaged, Special Counsel is not obligated to defend the District or the Beneficial Owners regarding the tax-exempt status of the Certificates in the event of an audit examination by the IRS. Under current procedures,parties other than the District and its appointed counsel, including the Beneficial Owners, 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 bonds is difficult, obtaining an independent review of IRS positions with which the District legitimately disagrees, may not be practicable. Any action of the IRS, including but not limited to selection of the Certificates for audit, or the course or result of such audit, or an audit of bonds presenting similar tax issues may affect the market price for,or the marketability of,the Certificates,and may cause the District or the Beneficial Owners to incur significant expense. VERIFICATION OF MATHEMATICAL COMPUTATIONS Causey Demgen & Moore Inc., certified public accountants (the "Verification Agent"), will deliver a report stating that the firm has verified the accuracy of mathematical computations concerning (a)the adequacy of the maturing principal amounts of and interest earned on the Government Obligations initially deposited in the Escrow Fund to provide for the payment of the interest due on each of the Refunded Certificates to and including the Redemption Date, and to pay on the Redemption Date the principal or redemption price thereof, and (b) the computations of yield on the Certificates and of investments in the Escrow Fund. The report of the Verification Agent will include the statement that the scope of their engagement was limited to verifying the mathematical accuracy of the computations contained in such schedule; provided to them and that they have no obligations to update their report because of event occurring, or data or information coming to their attention,subject to the date of their report. CONTINUING DISCLOSURE The District has covenanted for the benefit of holders and beneficial owners of the Certificates(a) to provide certain financial information and operating data (the"Annual Report')relating to the District and the property in the District not later then eight(8)months after the and of the District's Fiscal Year (which currently would be March 1),commencing with the report for the 2006-07 Fiscal Year,and(b)to provide notices of the occurrence of certain enumerated events, if material. The Annual Report will be filed by the Trustee on behalf of the District, with each Nationally Recognized Municipal Securities Information Repository and with each State Repository, if any. The notices of material events will be filed by the Trustee on behalf of the District with the Municipal Securities Rulemaking Board and with each State Repository,if any. The specific nature of the information to be contained in the Annual Report or the notices of material events is set forth in the Continuing Disclosure Agreement. See"APPENDIX E —FORM OF CONTINUING DISCLOSURE AGREEMENT." These covenants have been made in order to assist the Initial Purchaser in complying with S.E.C.Rule 15c2-12(b)(5)(the"Rule'). The District has not failed to comply in all material respects with any previous undertaking with respect to the Rule to provide annual reports or notices of material events. RATINGS The Certificates are rate) " _," and"_" by Fitch Ratings, Moody's Investors Service and Standard & Pooes Ratings Services,a Division of The McGraw Hill Companies, Inc., respectively. OILS WM2601844184 41758-11 NOCK44CH 59 Book Page 91 Such ratings reflect only the views of the rating agencies,and do not constitute a recommendation to buy, sell or hold the Certificates. Explanation of the significance of such ratings may be obtained only from the respective organizations at: Fitch Ratings, One State Street Plaza, New York, New York 10004; Moody's Investors Service, 99 Church Street, New York, New York 10017; and Standard & Poor's Ratings Group, 55 Water Street, New York, New York 10041. There is no assurance that any such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by the respective rating agencies, if in the judgment of any such rating agency circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Certificates. PURCHASE AND REOFFERING (the "Initial Purchaser") has purchased the Certificates from the District at a competitive sale at an aggregate purchase price of $ (representing the aggregate principal amount of the Certificates, less a net original issue discount of$ and less an Initial Purchaser's discount of The public offering prices may be changed from time to time by the Initial Purchaser. The Initial Purchaser may offer and sell Certificates to certain dealers and others at prices lower than the offering prices shown on the cover page hereof. MISCELLANEOUS Included herein are brief summaries of certain documents and reports, which summaries do not purport to be complete or definitive, and reference is made to such documents and reports for full and complete statements of the contents thereof. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the District and the purchasers or Owners of any of the Certificates. The execution and delivery of this Official Statement has bean duly authorized by the District. ORANGE COUNTY SANITATION DISTRICT By: Chair of the Board of Directors OHS WM:260184418.4 41758-11 m GinvM 60 Book Page 92 APPENDIX A COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE ORANGE COUNTY SANITATION DISTRICT FOR FISCAL YEAR ENDED JUNE 30,2006 OHS Ww:26018491&4 41758-11 MKH/hMH A'I Book Page 93 APPENDIX B THE COUNTY OF ORANGE-ECONOMIC AND DEMOGRAPHIC INFORMATION The County is bordered on the north by Los Angeles County,on the east by Riverside County,on the southeast by San Diego County and on the west and southwest by the Pacific Ocean. Approximately 42 miles of ocean shoreline provide beaches.marinas and other recreational areas for use by residents and visitors. The climate in the County is mild with an average annual rainfall of 13 inches. Population The County is the third most populous county in the State and the sixth most populous in the nation. During the period 1997 through 2006, the population of the County increased by approximately 13.3%,compared to 13.3%for the State and 10.6%for the United States. TABLE B-1 COUNTY OF ORANGE,STATE OF CALIFORNIA AND UNITED STATES POPULATION GROWTH United States Year Orauae Couotr•t1 State ofCaliforalalti ofAmerlca01 1997 2,672.800 32,452,000 267,783,607 1998 2,724.500 32,962,000 270,248,003 1999 2,776,100 33,417,000 272,690,813 2000 2.963,706 34,098,740 292,216,592 2001 2,91&791 34,794,392 285,226,294 2002 2,963,394 35,392,960 288,125,973 2003 3,005,043 35.990,107 290,796,023 2004 3,037,949 36.522,026 293,638,158 2005 3.062,275 36,981,931 296,507,061 2006 3,083,994 37,444,385 299,398,494 as of January 1 of each year. to as of July I of each year. Source: Orange County atdSime ofCnlifornlo Statistics-Caljfwnia Stme Depanmem ofFiwnee.Demographic Research Unit. United Stares Swntier-Papdatinn Est-w-Program.Papulatiwt Dmsion. U.S.Cemur Bureau. OHS Wes026018441M 4173&I I ba(HMnCH B-1 Book Page 94 Public Schools(Elementary and Secondary) Public instruction in the County is provided by twelve elementary school districts, duce high school districts and twelve unified (combined elementary and high school) districts. For the 2005-06 academic year, the largest district, the Santa Ana Unified School District, had 59,310 students enrolled. Public school enrollment for the academic calendar years 2001-02 through 2005-06 is presented in Table B-2. TABLE B-2 COUNTY OF ORANGE PUBLIC SCHOOL ENROLLMENT 20DI-02 2002-03 2003-04 200405 Grade Level K-8 359.609 361.184 360,996 354,841 350,096 9-12 144,743 150 921 154,468 158,903_ 160,018 Total Enrollment 503�.53 _ 5] 515-464 U17M $J S..: California Depanmew afEdumrimG Edge .af Demog aphict Una. Colleges and Universities The County has a number of top-rated, college-level educational institutions, including the University of California at Irvine and California State University at Fullerton, several private colleges, universities and law schools and four community college districts. OHS West 2 W 18t418 4 41758-1) MKH/K%H B-2 Book Page 95 Employment The following table summarizes the historical numbers of workers in the County over the period 2001 through 2005 by industry. TABLE B-3 COUNTY OF ORANGE INDUSTRY EMPLOYMENT AND LABOR FORCE—ANNUAL AVERAGE 2001 2002 2003 2004 2005 Farm 7,100 7.300 7,200 6,700 5,300 Natuml Resources and Mining 600 600 500 600 700 Construction 80,700 79.20D 83,700 92200 99,300 Manufacturing 208,500 190.800 183.900 183.500 182.700 Wholesale Trade 83,900 82,400 93.200 82,400 83,000 Retail Trade 150.100 151.400 152.800 153,200 157.100 Transportation.Warehoming and 30A00 28,700 29.000 29.200 28,800 Utilities hdormation 40.200 36,800 35200 33,800 32,800 Financial Activities 105.900 110.200 122.200 132,300 138,200 Professional and Business Services 248,400 248,800 252.600 254.900 267,000 Educational and Health Services 114.600 118.400 126,300 151.000 133,300 Leisure and Hospitality 154,300 155.400 159,600 162.900 164,400 Other Services 45.200 45,900 46.700 47.400 49,200 Government 150 900900 155 100 154 200 1533 155.3 00 Total All hrdustries111 1A2A8Q0 J 411—M L438JV3 J.5]u82t1 11 800 rO Data my not add duc to rounding Source: Cnlifomla Emplmmreal Developmem Depmimem. Major Employers TABLE B4 COUNTY OF ORANGE MAJOR EMPLOYERS Employer Name Number of Employees Walt Disney Company 20.250 University of California,Irvine 16.374 Boeing Company 11,242 St.Joseph Health System 9,482 YUM! Brands Inc. 7,000 AT&T Inc. 6,116 California State University,Fullerton 5,337 Hope Depot Inc. 5,200 Memorial Health Services Inc. 4.961 Supervalu Inc. 4,819 Source: Orange C"u ,Ba,..✓mrrnd 1007 Book ofLwm OHS Wec260184418.4 41759-11 MKH/MKH B-3 Book Page% Labor Force,Employment and Unemployment Table B-5 summarizes the labor force, employment and unemployment figures over the period 2001 through 2005 for the County and the State. TABLE B-5 COUNTY OF ORANGE AND STATE OF CALIFORNIA LABOR FORCE,EMPLOYMENT AND UNEMPLOYMENT YEARLY AVERAGE Unemployment Year and Area Labor Form Employment Unemployment Rate 2001 Orange County 1,513,000 1,452,800 60,200 4.0 California 17,152.100 16.220,000 932,100 5.4 2002 Orange County 1,531,300 1,454,500 76,800 5.0 California 17,330,700 16,168,200 1,162,500 6.7 2003 Orange County 1,557,400 1,482,400 75,000 4.8 California 17,403,900 16.212,200 1,191,300 6.8 2004 Orange County 1,580,800 1,512.800 68,000 4.3 California 17,499,600 16,407,900 1,091,700 62 2005 Orange County 1.602.200 1,541,800 60,400 3.8 California 17,695,600 16,746,900 948,700 5.4 Source: California Emplovment Development Department. OHS Wea2601844154 41758-11 NWJVMKM B4 Book Page 97 Personal Income Table B-6 summarizes the total effective buying income for the County,the State and the United States for 2001 through 2005. TABLE B-6 COUNTY OF ORANGE,STATE OF CALIFORNIA AND UNITED STATES PERSONAL INCOME (In Thousands) Total Median Household Area ERective Buying Income" Effective Buying Income* 2001 Orange County 62,568,674 53,277 California 650,521,407 43,532 United States 5,303,481,498 38,365 2002 Orange County 60,602,515 49,726 California 647,879,427 42,494 United States 5.340,682,818 38,035 2003 Orange County 63,712.940 50,755 California 674,721,020 42,924 United States 5,466,880,008 38,201 2004 Orange County 66,473,235 51,823 California 705,108,410 43,915 United States 5,692,909,567 39.324 2005 Orange County 67,941.889 53,099 California 720,798,122 44,681 United States 5,894,664,154 40,529 Source: Sales and Marketing Management"Survey of8uving Pmver"(2001-2004);Demographics USA(2005). • "Effective Buying Income.-also referred to as"disposable"or"after tax'income,consists of personal income less personal tax and certain non-tax payments. Personal income includes wages and salaries, other labor-related income (such as employer contributions to private pension funds), and certain other income (e.g. proprietor's income: natal income; dividends and interest:pensions:Social Security;unemployment compensation;and welfare assistance).Deducted from this total are personal taxes (federal. mate and local)- certain non-tm payments (e.g. fines. fees and penalties), and personal contributions to a retirement program. OHS Wem:2 601 8 4 41 8.4 41758-11 MKH/MKH B-5 Book Page 98 Taxable Sales Table B-7 summarizes the annual volume of taxable transactions from 2001 to 2005. TABLE B-7 COUNTY OF ORANGE TAXABLE TRANSACTIONS (In Thousands) Type of Business jQQ,t 2002 2003 2004 2005 Apparel stores group $ 1,446,572 $ 1,508,011 $ 1,697,120 $ 1,881,882 $ 2.062.892 General merchandise group 4,432,881 4,618,932 4,955,674 5,205,075 5,467,357 Specialty stores group 4.999,099 4,937,212 5,085,612 5,700.317 6,028,089 Food stores group 1,534,244 1.551,611 1,574,528 1,563,145 1,716.228 Eating and drinking groups 3,749,604 3.894,388 4,149,117 4,475,791 4,798.676 Household group 1,501,585 L722,573 1,985,255 2,135,876 2,269,650 Building material group 2,157,196 2,275,964 2,480,249 2,950,592 3,000,086 Automotive group 7,957,760 8,492,604 9,651,049 10,585.091 119293,156 All other retail stores group 739,760 7659523 809,093 944,194 1,046,700 Retail Stores Totals 28.518,701 29,646,918 32,287,697 35,441,953 37,672,834 Business&Personal Services 2,673,666 2,615,150 2,699.250 2,819.934 2,938,129 All Other Outlets 13,402.947 12.607,188 12,530,119 13,420,172 14,452,293 TOTAL ALL OUTLETS $44,595,314 $44,869,156 $47,517,066 $51,692,059 $55,063,246 Saume: California Slate Board ofEqualhation. Housing Characteristics The total number of housing units in the County was estimated by the California State Department of Finance to be 1,013,842 as of January 1, 2005. This compares to 1,003,904 reported by the Department of Finance in January 2004.According to California Association of Realtors,the median resale price of single-family dwelling units in Orange County was$704,150 in May 2005. OHS wo1:2601s4116.4 4175E-111,600A CH B.6 Book Page 99 Building Permits The total valuation of building permits issued in the County reached $4.7 billion in 2006, which represents about a 25% increase relative to 2002. Table B-8 provides a summary of residential building permit valuations and the number of new dwelling units authorized in the County during the period 2002 through 2006. TABLE M COUNTY OF ORANGE BUILDING PERMIT ACTIVITY 2002-06 (In Thousands) 2002 2003 2004 2005 2006 Valued Residential $2,328,119 S2,076,977 $2,243,645 $2,100,436 $2,336,324 Non-Residential 1,208,626 1,005,547 1,132,846 1,494,755 32. 97,248 Total $3,536,746 $3,082,525 $3,376,491 $3,595,191 $4,733,572 New Housina Units: Single Family 6,423 5,565 4,395 4,058 3,121 Multiple Family 5.597 3.746 A4ZZ 3�48 5.219 Total 12,020 9,311 9,322 7,206 8,340 Source: Construction Industry Research Board. Water Supply Maintaining the County's water supply is the responsibility of the Orange County Water District ("OCWD"), manager of the County's groundwater basin, and the Municipal Water District of Orange County ("MWDOC"), the County's largest manager of imported water. More than 60% of the County's water is from local groundwater sources;the rest is imported.The County's natural underground reservoir is sufficient to carry it through temporary shortfall periods, but local supplies alone cannot sustain the present population. Recreation and Tourism The County is a tourist center in Southern California because of the broad spectrum of amusement parks and leisure, recreational and entertainment activities that it offers. These tourist attractions are complimented by the year-round mild climate. Along the County's Pacific Coast shoreline are five state beeches and parks, five municipal beaches and five County beaches.There are two small-craft docking facilities in Newport Harbor, a third located at Sunset Beach and a fourth at Dana Point. Other major recreational and amusement facilities include Disneyland, Disney's California Adventure, Knott's Berry Farm and the Spanish Mission of San Juan Capistrano. Also located within the County are the Anaheim Convention Center, Edison International Field of Anaheim, Honda Center, Orange County Performing Arts Center, Verizon Wireless Amphitheater and the Art Colony at Laguna Beach with its annual art festival. The Anaheim Convention Center is located adjacent to Disneyland. It is situated on 53 acres and OHS Weae260184418.4 41758-11 MKRNM B-7 Book Page 100 I is one of the largest convention centers on the West Coast. Table B-9 summaries the number of conventions held in the County,as well as attendance for the period 1997 through 2006. TABLE B-9 COUNTY OF ORANGE CONVENTION ACTIVITY Year Conventions Attendance 1997 431 979,259 1998• 450 750,698 1999' 473 767,689 2000 470 858,593 2001 489 959,000 2002 547 1,008,171 2003 590 1,093,787 2004 666 1,211,476 2005 619 1,113,224 2006 633 1,125,895 Smrme:Anahein✓OwnBe Counp,Visitor and Cor vemion Bumau,2006. " A portion of the decrees¢in 1998 end 1999 from anendance end expenditure levels ofprior years is attributable to the effects of the construction of Disney's California Adventure theme park and related infrastructure projects. Transportation The County is situated in the most heavily populated area in California and has access to excellent roads, mil, air and sea transportation. The Santa Ana Freeway (Interstate 5) provides direct access to downtown Los Angeles and connects with the San Diego Freeway(Interstate 405) southeast of the City of Santa Ana,providing a direct link with San Diego. The Garden Grove Freeway(State 22)and the Riverside Freeway (State 91) provide east-west transportation, linking the San Diego Freeway, Santa Ana Freeway and the Newport Freeway (State 55). The Newport Freeway provides access to certain beach communities. Drivers in the County have access to two toll road systems of the Transportation Corridor Agencies. The San Joaquin Toll Road (73) runs from Costa Mesa to San Joan Capistrano connecting to the 405 and 5 interstate freeways. The Eastern and Foothill Toll Roads (241, 261 and 133) connect the County to the 91 freeway in the north and the 5 freeway, City of Irvine other South County cities, as well as Laguna Canyon Road. The Transportation Condor Agencies are planning to extend 241 to connect to the 5 freeway near San Clemente. Rail freight service is provided by the Burlington Northern Santa Fe Railway and the Union Pacific Railroad Company. Amtrak provides passenger service to San Diego to the south, Riverside and San Bernardino Counties to the east, and Los Angeles and Santa Barbara to the north. Metro Link provides passenger service to San Bernardino and Riverside counties to the east,the City of Oceanside to the south and Los Angeles County to the north. Bus service is provided by Greyhound Bus Lines. The Orange County Transportation Authority provides bus service between most cities in the County. Most interstate common carrier truck lines operating in California serve the County. The John Wayne Airport, owned and operated by the County, is the only commercial service OHS wen20194418.4 41758-11 MKW KH B-8 Book Page 101 airport in the County. It is approximately thirty-five miles south of Los Angeles, between the cities of Coast Mesa, Wine, Newport Beach and Santa Ana. Major airlines, including Alaska, Aloha, America West, American, Continental, Delta, Frontier, Northwest, Southwest and United fly from the airport to major cities throughout the country. In 2004,approximately 9.2 million passengers were served. hi 1993,the Defense Base Realignment and Closure Commission directed the closure of Marine Corps Air Station (MCAS) El Toro ("El Tore' or "the base') effective July 1999. The County was designated the Local Redevelopment Authority (LRA) for development of a Community Reuse Plan to guide future development of the former MCAS El Toro. In 1994, Orange County voters narrowly approved Measure A which coned the property for use as an international airport. This touched off a multi year legal and political battle that ended when 58%of Orange County voters approved Measure W, the Orange County Central Park and Nature Preserve Initiative, on March 5, 2002. Measure W repeals Measure A and amends the County General Plan to prohibit aviation uses and limit future development for the unincorporated portion of El Toro to park, open space, nature preserve and education and compatible uses. The day after Measure W was approved, the Department of the Navy issued a press release stating that disposal of the former Base would be accomplished by means of a public auction. The City of Wine responded by developing the Great Park Plan for El Toro. The City of Irvine was approved by the Local Agency formation Commission (LAFCO) to annex to the City the property that comprises the former MCAS El Toro. In light of the passage of Measure W,the County has discontinued all work related to the planning or development of a commercial airport at El Toro. Natural Disasters; Seismic Activity/Fires Natural disasters, including floods, fires and earthquakes, have been experienced in the County. Seismic records spanning the past half century and historic records dating from the 1700s through the early 1900s indicate that the County is a seismically active area. The State Office of Emergency Services indicates that significant tremors are likely to occur in several fault zones during the next 50 to 100 years, including a tremor of 7.0 on the Richter scale within the Newport-Inglewood fault system.The chance of a Richter 7.0 earthquake occurring is estimated to be I to 2% in any year. For this reason, local building codes require that structures be designed to withstand the expected accelerations for the area without collapsing or suffering severe structural damage. Maps published by the State Department of Conservation indicate that portions of the County may be subject to the risk of earthquake-induced landslides or liquefaction. OHS wear:260194418.4 41758-11 rmtwna H B-9 Book Page 102 APPENDIX C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS OHS W=tMI8441&4 41758-11 NuainaO1 C-1 Book Page 103 APPENDIX D BOOK-ENTRY ONLY SYSTEM The description that follows of the procedures and recordPeeping with respect to beneficial ownership interests in the Certificates, payment of principal of and interest on the Certificates to Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interests in the Certfcares, and other Certificates-related transactions by and between DTC,Participants and Berreficial Owners, is based on information famished by DTC which the District and the Corporation each believes to be reliable, but the District and the Corporation take no responsibility for the completeness or accuracy thereof The Depository Trust Company—Book-Entry Only System The Depository Trust Company("DTC"),New York,NY,will act as securities depository for the securities(the"Certificates").The Certificates will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other time as may be requested by an authorized representative of DTC.One fully-registered Certificate will be issued for the Certificates in the aggregate principal amount of such issue,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, corporate and municipal debt issues, and money market instrument 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 At Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation, and Emerging Markets Clearing Corporation (NSCC, FICC, and EMCC, also subsidiaries of DTCC),as well as by the New York Stock Exchange, Inc.,the American Stock Exchange LLC,and the National Association of Securities Dealers,Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and deaters, 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 wwwAtcc.com and wwwAtc.org. The information on such websites is not incorporated herein by such reference or otherwise. Purchases of Certificates under the DTC system must be made by or through Direct Participants, which will receive a credit for the Certificates on DTC's records. The ownership interest of each actual purchaser of each Certificate (`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 OHS Wcr26a1S4419.4 41759-11 nixxmixH D-1 Book Page 104 Certificates 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 thew ownership interests in the Certificates, except in the event that use of the book-entry system for the Certificates is discontinued. To facilitate subsequent transfers, all Certificates deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. or such other time as may be requested by an authorized representative of DTC. The deposit of Certificates with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Certificates; DTC's records reflect only the identity of the Direct Participants to whose accounts such Certificates are credited,which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Certificates may wish to take certain steps to augment transmission to them of notices of significant events with respect to the Certificates,such as prepayments,tenders,defaults,and proposed amendments to the security documents. For example, Beneficial Owners of Certificates may wish to ascertain that the nominee holding the Certificates for their benefit has agreed to obtain and transmit notices to Beneficial Owners, in the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of the notices be provided directly to them. Prepayment notices shall be sent to DTC. If less than all of the Certificates within an issue are being prepaid DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be prepaid. Neither DTC nor Cede&Co. (nor such other DTC nominee)will consent or vote with respect to the Certificates unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the District 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 Certificates are credited on the record date (identified in a listing attached to the Omnibus Proxy). Prepayment proceeds, distributions, and dividend payments on the Certificates will be made to Cede &Co.,or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts, upon DTC's receipt of funds and corresponding detail information from the District or the Trustee on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, nor its nominee, the Trustee, or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of prepayment proceeds, distributions, and dividend payments to Cede&Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the District or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and hrdirect Participants. OHS weso260194418,4 41758-11 MKWMKH D_2 Book Page 105 A Beneficial Owner shall give notice to elect to have its Certificates purchased or tendered, through its Participant,to the Tender or Remarketing Agent,and shall effect delivery of such Certificates by causing the Direct Participant to transfer the Participant's interest in the Certificates, on DTC's records, to the Tender or Remarketing Agent. The requirement for physical delivery of Certificates in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Certificates are transferred by Direct Participants on DTC's records and followed by a book- entry credit of tendered Certificates to the Tender or Remarketing Agent's DTC account. DTC may discontinue providing its services as securities depository with respect to the Certificates at any time by giving reasonable notice to the District or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained,Certificates are required to be printed and delivered. The District may decide to discontinue use of the system of book-entrybnly transfers through DTC (or a successor securities depository). In that event, Certificates will be printed and delivered to DTC. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that the District believes to be reliable, but the District takes no responsibility for the accuracy thereof. Discontinuance of DTC Services In the event(i)DTC determines not to continue to act as securities depository for the Certificates, (ii) DTC shall no longer act and give notice to the Trustee of such determination or (iii) the District determines that it is in the best interest of the Beneficial Owners that they be able to obtain Certificates and delivers a written certificate to the Trustee to that effect, DTC services will be discontinued. If the District determines to replace DTC with another qualified securities depository,the District shall prepare or direct the preparation of a new single, separate, fully registered Certificate for each of the maturities of the Certificates,registered in the name of such successor or substitute qualified securities depository or its nominee. If the District fails to identify another qualified securities depository to replace DTC then the Certificates shall no longer be restricted to being registered in the certificate registration books in the name of Cede&Co., but shall be registered in such names as are requested in a certificate of the District, in accordance with the Trust Agreement. All Certificates may be presented for transfer by the Owner thereof, in person or by his attorney duly authorized in writing, at the Principal Office of the Trustee, on the books required to be kept by the Trustee pursuant to the provisions of the Trust Indenture, upon surrender of such Certifications for cancellation accompanied by delivery of a duly executed written instrument of transfer in a form acceptable to the Trustee. The Trustee may treat the Owner of any Certificate as the absolute owner of such Certificate for all purposes, whether or not such Certificate shall be overdue, and the Trustee shall not be affected by any knowledge or notice to the contrary; and payment of the interest and principal evidenced by such Certificate shall be made only to such Owner, which payments shall be valid and effectual to satisfy and discharge the liability evidenced by such Certificate to the extent of the sum or sums so paid. Whenever any Certificates shall be surrendered for transfer,the Trustee shall execute and deliver new Certificates representing the same principal amount in Authorized Denominations. The Trustee shall require the payment of any Owner requesting such transfer of any tax or other governmental charge required to be paid with respect to such transfer. Certificates may be presented for exchange at the Principal Office of the Trustee for a like aggregate principal amount of Certificates of other Authorized OHS west2601sMrs.e 417s& 1 I.t@Ilaa(H D-3 Bonk Page I06 i Denominations. The Trustee shall require the payment by the Owner requesting such exchange of any taxli or other governmental charge required to be paid with respect to such exchange. The Trustee shall not be required to transfer or exchange any Certificate during the period in which the Trustee is selecting Certificates for prepayment, nor shall the Trustee be required to transfer or exchange any Certificate or portion thereof selected for prepayment from and after the date of mailing the notice of prepayment thereof. OHS Wm:2 01844I84 41758-11 MKWb1KH D-4 Book Page 107 APPENDIX E FORM OF APPROVING OPINION OF SPECIAL COUNSEL Upon the execution and delivery of the Certificates, Orrick, Herrington & Sutcliffe LLP, Los Angeles, California, Special Counsel to the District,proposes to render its final approving opinion with respect to the Certificates in substantially the followingform: [Date of Delivery) Orange County Sanitation District 109"Ellis Avenue Fountain Valley,California Orange County Sanitation District Refunding Certificates of Participation.Series 2007A (Final Opinion) Ladies and Gentleman: We have acted as special counsel to the Orange County Sanitation District (the "District") in connection with the execution and delivery of Orange County Sanitation District Refunding Certificates of Participation, Series 2007A evidencing principal in the aggregate amount of $ (collectively, the "Certificates"). In such connection, we have reviewed the Master Agreement for District Obligations, dated as of August 1, 2000(the "Master Agreement"), by and between the District and the Orange County Sanitation District Financing Corporation (the "Corporation"), the Installment Purchase Agreement,dated as of 1,2007(the"Installment Purchase Agreement"),by and between the District and the Corporation, the Trust Agreement, dated as of _ 1, 2007 (the "Trust Agreement"),by and among the District,the Corporation, and Union Bank of California,N.A.,as trustee (the"Trustee"),the Tax Certificate of the District, dated the date hereof(the"Tax Certificate-), opinions of counsel to the District, the Corporation, the Trustee and others, certificates of the District, the Corporation, the Trustee and others, and such other documents, opinions and matters to the extent we deemed necessary to tender the opinions ad forth herein. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Installment Purchase Agreement. The opinions expressed herein are based on an analysis of existing laws, regulations,rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine,or to inform any person,whether any such actions are taken or omitted or events do occur or any other matters come to our attention after the date hereof. Our engagement with respect to the Certificates has concluded with their execution and delivery, and we disclaim any obligation to update this letter. We have assumed the genuineness of all documents and signatures;presented to us(whether as originals or as copies)and the due and legal execution and delivery thereof by, and validity against, any parties other than the District. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents, referred to in the first paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Master Agreement, the Installment Purchase Agreement, the Trust Agreement and the Tax Certificate, including (without limitation) covenants and agreements compliance with which is necessary to assure that future actions,omissions or events will not cause interest on the Installment Payments evidenced by the Certificates to be included in gross income for federal income tax purposes. OHS w�:zborsarsa ansa-u rawnacx E-1 Book Page 108 i i In addition, we call attention to the fact that the rights and obligations under the Certificates,the Master Agreement,the Installment Purchase Agreement,the Trust Agreement and the Tax Certificate and their enforceability are subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors' rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases, and to the limitations on legal remedies against public bodies such as the District in the State of California. We express no opinion with respect to the enforceability of any indemnification, contribution, penalty, choice of law, choice of fonrm,choice of venue or waiver provisions contained in the foregoing documents,nor do we express any opinion with respect to the state or quality of title to or interest in any of the real or personal property described in the Master Agreement or the Installment Purchase Agreement or the accuracy or sufficiency of the description contained therein of any such property. Finally, we express no opinion herein with respect to the accuracy, completeness or fairness of the Official Statement or other offering material relating to the Certificates. Based on and subject to the foregoing,and in reliance thereon,as of the date hereof,we are of the following opinions: 1. The Master Agreement, the Installment Purchase Agreement and the Trust Agreement have been duly executed and delivered by,and constitute valid and binding obligations of,the District. 2. The obligation of the District to pay the Installment Payments, and the interest thereon, , and other payments required to be made by it under the Installment Purchase Agreement is a special obligation of the District payable, in the manner provided in the Installment Purchase Agreement, solely from Net Revenues and other funds provided for in the Installment Purchase Agreement lawfully available therefor. 3. Assuming due authorization, execution and delivery of the Trust Agreement and the Certificates by the Trustee,the Certificates are entitled to the benefits of the Trust Agreement. 4. Interest on the Installment Payments paid by the District under the Installment Purchase Agreement and received by the registered owners of the Certificates 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. Such interest is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although we observe that it is included in adjusted current earnings when calculating corporate alternative minimum taxable income. We express no opinion regarding other tax consequences related to the accrual or receipt of such interest or the ownership or disposition of the Certificates. Faithfully yours, ORRIC&HERRINGTON& SUTCLIFFE LLP per On&WW:2601a4ir&4 4175s11 Nattveatx E-2 Book Page 109 APPENDIX F FORM OF CONTINUING DISCLOSURE AGREEMENT OHS War2Wl84418A 41758-11 M UIIMKH F-1 Book Page 110 APPENDIX G OFFICIAL NOTICE INVITING BIDS 0M Wm26a1B441&4 41759.11 MM i(NM G-1 Book Page I 1 I ADMINISTRATION COMMITTEE Meeting Date TUBG.MDIr. 04/11/07 09/zslo7 AGENDA REPORT Item Number Item Number ADM07-D Orange County Sanitation District FROM: James D. Ruth, General Manager Lorenzo Tyner, Director of Finance and Administrative Services SUBJECT: PROPOSED 2007-08 SEWER SERVICE USER FEES GENERAL MANAGER'S RECOMMENDATION Adopt Ordinance No. OCSD-32, An Ordinance of the Board of Directors of Orange County Sanitation District Establishing Sanitary Sewer Service Charges; Establishing Capital Facilities Capacity Charges; Adopting Miscellaneous Charges and Fees Relating to Industrial Charges, Source Control Permittees and Wastehaulers, and Repealing Ordinance No. OCSD-30B: ADOPTING REVISED TABLE A RE RESIDENTIAL USER FEES, REVISED TABLE B RE PROPERTY USE CLASSIFICATIONS FOR COMMERCIAL OR INDUSTRIAL USERS, REVISED TABLE C RE CAPITAL FACILITIES CAPACITY CHARGES, NEW TABLE D RE PLAN CHECK AND INSPECTION FEES, REVISED TABLE E RE SUPPLEMENTAL CAPITAL FACILITIES CAPACITY CHARGES (FORMERLY TABLE D), REVISED TABLE F RE ADMINISTRATIVE FEES AND CHARGES RELATING TO PERMITTEES (FORMERLY TABLE E), REDESIGNATED TABLE G (FORMERLY TABLE F), REVISED TABLE H RE CLASS I AND CLASS II PERMITTEES AND SPECIAL PURPOSE DISCHARGE PERMITTEES CHARGES FOR USE (FORMERLY TABLE G), REVISED TABLE I RE WASTEHAULER CHARGES FOR USE (FORMERLY TABLE H), AND REAFFIRMING ALL OTHER CHARGES a. Motion to read Ordinance No. OCSD-32 by title only and waive reading of said entire ordinance. (The waiver of the reading of the entire ordinance must be adopted by a unanimous vote of Directors present.) b. Motion to introduce Ordinance No. OCSD-32, and pass to second reading and public hearing on May 23, 2007. SUMMARY Historically, the District has increased our overall sewer user fees in fairly small annual increments, using some debt financing to smooth the impact of the capital improvement program. With the public interest in improved effluent quality and the Board's decision to meet secondary treatment discharge standards rapidly, it is appropriate to evaluate larger rate increases on the front-end of the capital improvement program in order to match the requirements of the program itself and to reduce the long-term rate impacts of additional future debt financing and interest costs. Book Page 112 The Directors adopted a plan in 2003 that included debt financing for $1.4 billion of the $2.8 billion capital improvement and rehabilitation, refurbishment and replacement program. By authorizing this amount of borrowing, the Directors were able to limit projected annual sewer user fee increases to approximately 15% (approximately $18 per year) each year through 2007-08. The Board agreed with this plan and asked that the proposed fee increases be considered annually by the Board for implementation. 2007-05 will be the fifth year of this 5-year plan. Staff has re-evaluated every project in the Validated Capital Improvement Program and many newly proposed projects as a part of the 2006-07 and 2007-08 budget preparation process. Approximately $474 million of budgeted construction costs will be delayed or deferred. In addition, the Sanitation District contracted with Carollo Engineers to complete a Revenue Program and Rate Analysis study. The result of these efforts was to reduce projected 2006-07 and 2007-08 single family residential rate (SFR) increases, the basis for all sewer service charges, from 20.0% to 9.8%. Included in staffs recommendation on "Adopting Revised Table B re Property Use Classifications for Commercial or Industrial Users" is new proposed use codes for the U.S. Post Office and Open Air Entertainment Venues. These use codes are necessary in order for the District to accurately bill these unique property uses, as further detailed on the attached Staff Report of March 14, 2007. One other proposed change of note pertains to refunding capital facilities capacity charges. The existing ordinance does not allow any refunds of capital facilities capacity charges because of non-use or change of use, or any other reason. Staff is proposing to allow for a capital facilities capacity charge refund for those instances where a connection has not made, and the request for connection is withdrawn within 12 months of the payment date. These capital facilities capacity charges will be refunded upon establishing proof from the City or County of a canceled permit. This revised refund policy will match most public agency refund policies pertaining to building permits. Without a Board action (by 2/3 majority), the SFR rate for 2007-08 will remain at $165.80 per year. The$182 rate recommended for 2007-08 will generate approximately $183.5 million of user fees; an annual increase of$17.0 million over the prior year. There are no extraordinary costs associated with the recommendation. ADDITIONAL INFORMATION Schedule for Implementing Sewer Service Fee Increase 1't Reading of Fee Ordinance April 25, 2007 2nd Reading, Public Hearing, & Adoption of Fee Ordinance May 23, 2007 Ordinance is Effective in 30 days, or in the New F.Y. July 1, 2007 Fees per parcel due to County Auditor-Controller August 11, 2007 N:Nq,tbaPo,CelLemmMeei W pmin LommMaol W OTD]-3].Pmo OM hura 31p]A0."cc Page 2 Book Page 113 Rate Increase Chronoloav June 2003 1) 1 n June 2003, the Board approved a revised Capital Improvement Plan (CIP). 2) To support this CIP, staff recommended a five-year plan which included rate increases averaging 20%. 3) The Board directed staff to issue a Proposition 218 public notice stating the rates would increase by an amount not to exceed a total of 20% annually increase over the next five year period. 4) While the increases were tentatively approved and noticed, the Board chose not to implement the full 20% increase for 2003/04. 5) The Board did discussed alternatives between 10-20%. 6) Ultimately, the Board acted to implement a 15% increase in 2003/04. 7) Staff reset the budget and long-term cash flow model to reflect the annual increases of 15% for the subsequent five-year period. 8) Board policy stated that 50% of all future capital improvements (approximate percentage of non-capacity related projects), would be funded from current revenues and the remaining 50% through debt financing. However, reducing the projected annual rate increases to 15% required as deviation from that policy in order to support the capital program. As of July 2003, the ratio of CIP funded debt increased to 62 percent. By July 2005, this ratio decreased to 58 percent. The debt fiscal policy has subsequently been changed to provide additional flexibility when addressing this District's capital program and debt issuances. 9) While the five-year plan was still in place, the Board directed staff that to bring back the rate schedule for annual adoption. June 2004 1. Through the adoption of the 2004/05 Budget, the Board acted to implement a portion of the 20% rate increase included in the five-year plan. 2. The Board acted to implement a 15% rate increase for 2004/05. June 2005 1. The CIP increased by $400M, from $1.94B to 2.38B. 2. Additionally, Operations costs increased by $400M, from $1.3B to $1.713. a:w•w W�•wommmeewamb c�m•.maarm-n wn•orate moae.aoc nanwa. „� Page 3 Book Page 114 i 3. To support these increased costs, rates needed to be increased above 15%. 4. The Board approved a 31% rate increase for 2005-06, instead of 15%. 5. The additional increase was based on only 15% increases in each of the previous two years. 6. Both the 2005-06 Adopted Budget and the existing ordinance include 20% rate increases for 06-07 and 07-08. 7. Proposition 218 notices were issued based on the 20% figure. 8. As the Board must act to implement any rate increase, it reserves the option to approve any rate increase, under the existing Proposition 218 notice, that does not exceed 20% in fiscal year 2006-07, or 40% over the next two years. June 2006 1. The CIP decreased by$549M, from $2.38B to $1.8313 as budgeted construction costs were delayed or deferred. 2. The Sanitation District contracted with Carollo Engineers to complete a Revenue Program and Rate Analysis study. The result of these efforts reduced projected 2006-07 and 2007-08 single-family residential rate (SFR) increases, the basis for all sewer service charges, from 20.0% to 9.8%. 3. The Carollo rate model developed proposed revised capital facility capacity charges (CFCC) that increases the benchmark 3-bedroom, SFR from $2,890 to $4,360, or 50.9 percent, and the average demand for commercial industrial from $1,050 to $1,306, or 24.4 percent. 4. The previous CFCC rates have not been increased over the last two-and-one-half years. It has generally been the practice of the Sanitation District not to update CFCC rates until the completion of an Interim Strategic Plan Update, which generally occurs only once in approximately five years. With the implementation of this new rate ordinance, staff recommended that these fees be adjusted annually, based on a commonly accepted price indicator, the Engineering News Record Construction Cost Index for Los Angeles, to reflect the current value of the facilities or the current cost of capital projects. ATTACHMENTS 1. Staff Report on Proposed Non-Residential Sewer Service Fee Billing Method Adjustments dated March 14, 2007. 2. Ordinance No. OCSD-32. Heomueaae�co�m�.wci wmmm.awanm,.n.i+m.aawrce aamm.e: nm�vee o✓wm� Page 4 Book Page 115 March 14, 2007 STAFF REPORT Proposed Non-Residential Sewer Service Fee Billing Method Adjustments Annually, the District considers the need to adjust sewer service fee rates to its residential, commercial, and industrial customers to ensure that the appropriate fees are captured to cover its costs, and that the fees are set proportionate to the service received. This process is completed through the update of the District's rate ordinance that becomes effective 30 days following Board adoption. The adoption process requires a reading at two separate board meetings and a public hearing. Staff is targeting the April board meeting for the first reading of the newly proposed ordinance with a tentative 9.8 percent increase in all rates. In addition, staff will be requesting a new U. S. Post Office user fee rate and an Entertainment Venue—Open Air Facilities rate, based on attendance, to ensure that these customers are paying their fair share. Background The major revenue source of the Sanitation District is the sewer service fee that is assessed on each improved parcel within the District's service area through the property tax bill of the County of Orange (County), and then subsequently collected and remitted by the County to the District. The sewer service fee covers the District's cost of collection,treatment and disposal of all wastewater received from the individual parcels. The fees are established by ordinance of the District Board and vary according to the use of the parcel and the level of service that is required. The Sanitation District service area includes over 550,000 parcels, approximately 526,500 of which indicate improvements and are included in the District's sewer service fee program. Of these 526,500 improved parcels, approximately 477,500 parcels are single or multi-family residential parcels. The remaining 49,000 parcels consist of commercial, industrial, and governmental classifications, and have the most potential for reclassification and additional revenue. The single-family residents (SFR) are assessed a flat rate fee, the multi-family residents are charged a flat rate fee on a per unit basis, and commercial, industrial, and governmental parcels are assessed a fee per 1,000 square foot of building improvements based on their individual property user fee code. OCSD • P,O.00.8107 • F..nMMWIW ,C W7284127 • (714)W2Q411 Book Page 116 i Sewer Service Fee Billing Methods i March 14, 2007 Page 2 of 3 1 Commercial user fees generate approximately $70 million each year. These properties are billed a rate per thousand square feet which corresponds to the specific use code of their property. The use code and square footage have been obtained through the Orange County Assessor Office Data Center, a main frame program, updated every 12 months. In October of 2003, the Revenue Division moved this database in-house and designed a program specific for our use. As a result, we have more flexibility and total control over how the database is used. For example, when construction or demolition takes place, we can ensure square footage changes are effective immediately. Our foremost concern is the accuracy of the use code and square footage information that we use to calculate the fees for our customers. During the course of the past fiscal year, staff has evaluated the use codes and billing methods that are currently in our ordinance and have established two areas for improvement or modification. This report outlines those areas and then a recommended solution for billing purposes. United States Post Offices Currently, there is no U.S. Post Office use code in the Sanitation District's sewer service fee ordinance and the District has no way of accurately billing parcels that contain only U.S. Post Offices. U.S. Post Offices are currently placed in the Governmental Use category (118) and the rate is 82 percent of the SFR rate, or$135.96 per 1,000 square feet. Based upon actual water consumption received from the U. S. Post Office on several post offices in our service area, the Governmental Use category may result in overcharges up to 300 percent. At the request of the U. S. Post Office, staff evaluated the current use code for U.S. Post Offices and determined that in order to accurately bill these parcels for their wastewater discharge, a separate use code for U.S. Post Offices should be established. Staff has obtained the flow, chemical oxygen demand (COD), and suspended solids (SS) assumptions used by the County Sanitation Districts of Los Angeles County (CSDLAC) within their sewer service fee program and converted their load measurement of COD to the District's load measurement of biochemical oxygen demand (BOD). Based on the proportion of flow, BOD, and SS concentrations for U.S. Post Offices used by CSDLAC to the District's flow, BOD, and SS concentrations for single-family residences (SFR), staff is recommending a new use code, U.S. Post Office (225), which will charge 35 percent of the SFR rate per 1,000 square feet. This rate would have been $58.03 per 1,000 square feet for FY 2006-07 compared to $135.96 per 1,000 square feet for the Governmental Use Code (118). Book Page 117 Sewer Service Fee Billing Methods March 14, 2007 Page 3 of 3 Entertainment Venues- Open Air Facilities Our current ordinance bills entertainment venues such as Knott's Berry Farm,Angel Stadium of Anaheim, Honda Center (formerly the Arrowhead Pond of Anaheim), Los Alamitos Race Course, Anaheim Convention Center and Soak City USA based upon the square footage of improvements that are currently listed by the assessor's office on their secured property tax bill. Disneyland and California Adventure are currently on Industrial Wastewater Discharge Permits that require the District to obtain flow data and perform annual reconciliations. A subset of entertainment venues are open-air facilities. Because open-air facilities such as Angel Stadium of Anaheim and the Los Alamitos Race Course have minimal square footages listed by the assessor's office, the current billing methodology does not accurately charge these venues for the wastewater that they are discharging. Based on a study performed by Carollo Engineers, a more fair and equitable billing methodology would be attendance rate based because of the large number of visitors that attend these venues throughout the year resulting in an abundance of wastewater discharged into the system. Angel Stadium of Anaheim is an excellent example. The assessor's office lists 46,575 square feet and their sewer service fee is only $11,199.87. The square footage captured on the property tax bill does not fully capture the amount of wastewater being discharged because the square footage is only for enclosed facilities. Staff has reviewed the entertainment venues and the information that we have regarding their discharge and sewer service fees. We are recommending that we charge open-air facilities based upon their attendance on an annual basis. The facilities would provide their annual attendance for the prior year and we would bill them 15gpd per attendee and place the fee on their annual secured property tax bill. This billing method provides a more accurate fee for the actual discharge into the system. The open-air facilities would pay a rate per MG based upon the related flow, bod and tss charge for single family residences. MG 2006-07 Est'd 2003 GIRD Per per Rate per Attendance Actual Entertainment Center Attendance Attendee" year MG" Based Fee 06-07 SSF Angel Stadium of Anaheim 3,250,000 15 48.75 $1,795.43 $87,527.21 $11,119.87 Los Alamitos Race Course 900,000 15 13.5 $1,795.43 $24.238.31 $2,176.29 'Last available attendance documentation "GPD per Attendee according to Entertainment Rate Class Evaluation prepared by Carollo Engineers ***Rate pr MG based upon SFR unit costs for flow, bod, and tee LT:mw Book Page 118 ORDINANCE NO. OCSD-XXX32 ADOPTING REVISED TABLE A RE RESIDENTIAL USER FEES, REVISED TABLE B RE PROPERTY USE CLASSIFICATIONS FOR COMMERCIAL OR INDUSTRIAL USERS. REVISED TABLE C RE CAPITAL FACILITIES CAPACITY CHARGES, NEW TABLE D RE PLAN CHECK AND INSPECTION FEES, REVISED TABLE E RE SUPPLEMENTAL CAPITAL FACILITIES CAPACITY CHARGES(FORMERLY TABLE D). REVISED TABLE F RE ADMINISTRATIVE FEES AND CHARGES RELATING TO PERMITTEES (FORMERLY TABLE E). REDESIGNATED TABLE G (FORMERLY TABLE F). REVISED TABLE H RE CLASS I AND CLASS II PERMITTEES AND SPECIAL PURPOSE DISCHARGE PERMITTEES CHARGES FOR USE(FORMERLY TABLE G). REVISED TABLE I RE WASTEHAULER CHARGES FOR USE (FORMERLY TABLE H). AND REAFFIRMING ALL OTHER CHARGES AN ORDINANCE OF THE BOARD OF DIRECTORS OF ORANGE COUNTY SANITATION DISTRICT ESTABLISHING SANITARY SEWER SERVICE CHARGES; ESTABLISHING CAPITAL FACILITIES CAPACITY CHARGES; ADOPTING MISCELLANEOUS CHARGES AND FEES RELATING TO INDUSTRIAL CHARGES, SOURCE CONTROL PERMITTEES AND WASTEHAULERS; AND REPEALING ORDINANCE NO. 00SD-30626. WHEREAS, the Board of Directors of the Orange County Sanitation District ('District") has previously adopted Ordinance No. OCSD-2630B, establishing annual Sanitary Sewer Service Charges for all uses, establishing Capital Facilities Capacity Charges to be imposed when properties either newly- connect to the District's system, or expand the use of the property previously connected to the District; establishing miscellaneous industrial discharger fees, source control/non-compliance sampling fees, and wastehauler charges, which Ordinance is presently in full force and effect; and WHEREAS, for purposes of improved efficiency and effectiveness of the District's operations, it is the intent, by the adoption of this Ordinance, to establish sanitary sewer service charges and capital facilities fees, and to provide for increases in certain miscellaneous charges and fees. NOW, THEREFORE, the Board of Directors of the Orange County Sanitation District does hereby ORDAIN: Section I. Fees and Charges Ordinance—Adopted TABLE OF CONTENTS ARTICLE I: RECITAL OF FINDINGS Section 1.01, Findings — Declaration of Intent wsas-SRH:olsoi6so:aaoft 1 ocsg-nosaasror Book Page 119 ARTICLE II: SANITARY SEWER SERVICE CHARGES Section 2.01, Purpose and Scope Section 2.02, Annual Sanitary Sewer Service Charge Section 2.03 A. Exemptions B. Application for Rebate C. Application for Refund D. Limitation Period E. Determination F. Administrative Fee Section 2.04, Annual Charge Based on Fiscal Year Section 2.05, Method of Collection Section 2.06, Credit for Industrial Permittees Section 2.07 Open-Air Facilities Table A Annual Sewer Service Charges for Residential Users Table B Annual Sewer Service Charges Property Use Classifications for Commercial or Industrial Users ARTICLE III: CAPITAL FACILITIES CAPACITY CHARGES i Section 3.01, Purpose and Scope Section 3.02, Definitions Section 3.03, Connection Permits: Required Section 3.04, Capital Facilities Capacity Charge: Payment Section 3.05, Capital Facilities Capacity Charge: Time of Payment Section 3.06, Capital Facilities Capacity Charge: Schedule of Amounts Table C Capital Facilities Capacity Charges Table D Plan Check and Inspection Fee Schedule Section 3.07, Supplemental Capital Facilities Capacity Charge: Significant Commercial— Industrial Users— Special Purpose Dischargers— Definitions Section 3.08, Supplemental Capital Facilities Capacity Charge: New Significant Commercial — Industrial Users Section 3.09, Supplemental Capital Facilities Capacity Charge: New Special Purpose Dischargers Section 3.10, Supplemental Capital Facilities Capacity Charge: Existing Significant Commercial — Industrial Users—Special Purpose Dischargers Table GE Supplemental Capital Facilities Capacity Charges Section 3.11, Capital Facilities Capacity Charge: Replacement Section 3.12, Capital Facilities Capacity Charge: Remodeled Section 3.13, Payment of Capital Facilities Capacity Charge: wSBS-BRH:pj:201660:04/20/05 2 OCSD-ADB 4/25/0� Book Page 120 Off-Site Sewers Not Part of Master Plan Relative to Reimbursement Agreements Section 3,14, No Refund or Transfer Section 3.15, Baseline Transferability Section 3.16 Annual Updates Section 3.17 Affordable Housing Projects ARTICLE IV: MISCELLANEOUS CHARGES AND FEES RELATING TO INDUSTRIAL DISCHARGERS, SOURCE CONTROL PERMITTEES AND WASTEHAULERS Section 4.01, Purpose and Scope Section 4.02, Administrative Fees and Charges Relating to Permittees Section 4.03, Industrial Discharger, Source Control, and Non-Compliance Sampling Fees Section 4.04, Special Purpose Discharge Permittees; Charges for Use Section 4.05, Class I and Class II Permittees—Charges for Use Section 4.06, Wastehauler Charges for Use Section 4.07, Administrative Appeals Table €F Administrative Fees and Charges Relating To Permittees Table FG Industrial Discharger, Source Control and Non-Compliance Sampling Fees Table GH Class I and Class II Permittees and Special Purpose Discharge Permittees Charges For Use Table HI Wastehauler Charges for Use ARTICLE V: MISCELLANEOUS Section 5.01,Application of Ordinance Section 5.02, Exceptions Section 5.03, Severability Section 5.04, Effective Date Section 5.05, Repeal Section 5.06, Certification and Publication ARTICLE I RECITAL OF FINDINGS Section 1.01. Findings — Declaration of Intent. The Board of Directors of District has previously adopted Master Plans, as more particularly described in Findings B, C, D, and E below, setting forth the financial and engineering needs of the District, and hereby adopts the following Findings supporting the amounts of charges and fees adopted pursuant to this Ordinance. wsas-8RH:pi2olaYo:OCr40W 3 OCso-aoeea5107 Book Page 121 A. That the former County Sanitation Districts Nos. 1, 2, 3, 5, 6, 7, 11, 13 and 14 of Orange County, California (the "Predecessor Districts"), were nine individual County Sanitation Districts, organized pursuant to the County Sanitation District Act (California Health & Safety Code Section 4700 at seq.). By action of the Board of Directors of the Predecessor Districts, pursuant to speck legislation enacted by the California State Legislature in 1996, an application was submitted to the Orange County Local Agency Formation Commission to legally consolidate the nine Predecessor Districts into one single Sanitation District for all purposes. The application was approved, with an effective date of July 1, j 1998- As of July 1, 1998, the Predecessor Districts ceased to exist, and one single consolidated County Sanitation District, known as the Orange County Sanitation District, came into existence in place of the Predecessor Districts. The District was formed to carry on the functions of the Predecessor Districts. B. That a comprehensive 30-year Master Plan of Capital � Facilities, entitled "Collection, Treatment and Disposal Facilities Master Plan — i 1989", hereinafter referred to as the "Master Plan", which includes detailed financial and engineering reports, was prepared, approved, and adopted by the Boards of Directors of the Predecessor Districts in 1989, setting forth and identifying the required future development of District Facilities, including the financial projections for providing sewer service to all properties within the individual service areas of each of the nine Predecessor Districts. C. That the financial and engineering reports of the Master Plan were made available to the public, both prior to and subsequent to the adoption of the Master Plan, and were subject to noticed public hearings, all in accordance with the provisions of the California Constitution and Government Code Section 66016, and other provisions of law. D. That the District, in 1997, as part of its maintenance and updating of its Master Plan, undertook a comprehensive evaluation and study of its operational and financial needs for the next 20 years, including a detailed assessment of all types and categories of users; the demands on the system and capacity needs of the system to provide necessary service to the multiple categories of users; the total costs of the existing and future facilities in the system; and alternate methodologies for establishing fair and equitable charges to connect to and gain access to the system. These comprehensive planning, engineering, and financial studies led to the development of an updated Comprehensive Master Plan of Capital Facilities, which was approved and adopted by OCSD Resolution No. 99-21 of the Board of Directors on October 27, 1999. E. That in support of this Ordinance and the revised charges for sewer service and/or Capital Facilities Capacity Charges as provided for on Tables A, C, D and G herein, the Board of Directors finds that the Capital Improvement Program ("CIP") Validation Study for Fiscal year 2003-04 and the Secondary Treatment Peer Review, as approved by the Board of Directors, has resulted in the development of a Capital Improvement Program that provides for the implementation of secondary treatment standards, thereby improving effluent quality in a reasonably short period of time, consistent with the goals and policies of the Board of Directors, the member agencies, and the public, while also providing for the construction of necessary improvements to accommodate WS&S-BRH:p1:201660:W20/05 4 0C5D-ADB425/07 Book Page 122 projected increased flows and the rehabilitation and refurbishment of existing facilities. The Board further finds that programming annual adjustments in sewer service charges over a period of years is appropriate and ensures adequate revenues to finance the improvements and programs necessary to implement secondary treatment standards, accommodate increased flows, rehabilitate and refurbish existing facilities, and retire any necessary or prudent debt incurred to finance such improvements in a reasonable manner and over a reasonable period of time. The Board of Directors also finds that such Sanitary Sewer Service Charges and Capital Facilities Capacity Charges are reasonably related to, and do not exceed the cost of providing sewer services. F. That the financial requirements of the District, as shown in reports prepared by Staff and Consultants relating to the Strategic Plan and the CIP validation studies, are based on current, reliable information and data relating to population projections, wastewater flow, and capital facilities' needs, and are expected to be realized in each year as described in the reports. G. That the revenues derived under the provisions of this Ordinance will be used for the acquisition, construction, reconstruction, maintenance, and operation of the sewage collection, wastewater treatment and disposal facilities of the District; to repay principal and interest on debt instruments; to repay federal and state loans issued for the construction and reconstruction of said sewerage facilities, together with costs of administration and provisions for necessary reserves; and to assist in the payment of costs to the District to provide all regulatory administration and laboratory services related to the industrial dischargers, source control permittees, and wastehauler users of the District's systems. H. That the owners or occupants of properties upon which all fees and charges established by this Ordinance are levied, discharge wastewater to the District's collection, treatment and disposal facilities. The costs of operating and maintaining said facilities have constantly increased due in part to increased regulatory requirements to upgrade the treatment process. I. That the need for upgraded and improved treatment of all wastewater collection, treatment and disposal facilities is required to protect the public health and safety, and to preserve the environment without damage. J. That the Sanitary Sewer Service Charges established and levied by this Ordinance are to allow the District to recover the reasonable costs to provide a service to individual properties which have been improved for any of numerous types of uses. The basis for the respective charge is the request of the owner of property or a structure thereon, for the benefit of him/her/itself, or the occupants of the property, to receive a service based upon actual use, consumption, and disposal of water to the District's system in lieu of disposal by other means. K. That the Sanitary Sewer Service Charges established by this Ordinance are not imposed as a condition of approval of a development project, as defined in California Government Code Section 66001, and do not exceed the estimated reasonable cost to provide the sewer service for which the fee is WSBS-8RH:PI:2016W:00/20/05 5 OCSD-ADB U25/07 Book Page 123 levied, as provided in Government Code Sections 66013 and 66016 and California Constitution Article XIIID. L. That the Sanitary Sewer Service Charges adopted herein will not necessarily result in an expansion of facilities to provide for growth outside the existing service area. The adoption of these Sanitary Sewer Service Charges will not result in any speck project, nor result in a direct physical change in the environment. i M. That the Sanitary Sewer Service Charges adopted herein are established upon a rational basis between the fees charged each customer and the service and facilities provided to each customer of the District, a portion of which are necessary to replace the loss of ad valorem property taxes to the State General Fund as a result of state legislative action on September 2, 1992, and in subsequent years. N. That the Board of Directors has previously, by duly adopted Ordinances, commencing in 1969, and most recently by Ordinance No. OCSD- 2630B, established Capital Facilities Capacity Charges, formerly known commonly as "connection charges" or "fees", to be paid by all persons obtaining a permit to connect to the District's system. Said Charges are required as a financial payment to have access to and use of the District's wastewater collection, treatment and disposal facilities in existence at the time of connecting to the system, and for future facilities to be constructed. O. That the Sanitary Sewer Service Charges and Capital Facilities Capacity Charges established here, are an incident but not a condition of development, payable only on request to receive service by the property owner for the benefit of those persons on the property that use the service. The charges are not an incident of property ownership, nor are they a property- related service having a direct relationship to property ownership. Accordingly, the provisions of California Constitution Article XIIID are not applicable. P. That the District's previous and present Capital Facilities Capacity Charges Ordinances, include[d] authority for the District to levy an excess or supplemental capacity charge upon commercial and industrial users who discharge quantities or high strength wastewater greater than the established base line of authorized discharge. Q. That the Capital Facilities Capacity Charges re-enacted by this Ordinance are non-discriminatory, as applied to all users of the system, and are established upon a rational basis between the fees charged each category of property that is connecting, and the service and facilities provided to each connected property or structure, by the District, within a given category. R. That the miscellaneous charges and fees re-enacted by this Ordinance without change are established upon a rational basis between the fees charged to each industrial discharger, source control permittee, or wastehauler and the service and facilities provided to each. S. That the District is required by federal and state law, including the Federal Water Pollution Control Act, also known as the Federal wsaS-aRH:pi2o18a0:04/20105 6 OCSD-ADB 4125107 Book Page 124 Clean Water Act (33 U.S.C. 1261, at seq.), the General Pretreatment Regulations (40 C.F.R. 403), and the Porter-Cologne Water Quality Control Act (California Water Code Sections 13000 at seq.) to implement and enforce a program for the regulation of wastewater discharges to the District's sewers. T. That the District is required by federal, state and local law, to meet applicable standards of treatment plant effluent quality. U. That pursuant to these requirements, the Board of Directors has adopted an ordinance establishing Wastewater Discharge Regulations. V. That the District incurs additional costs in conducting non- compliance sampling of those industrial wastewater dischargers who violate the District's Wastewater Discharge Regulations and in administering the industrial, wastehauler, and special discharge permit programs. W. That the ordinance establishing Wastewater Discharge Regulations provides that the Board of Directors is to establish various fees and charges to recover those costs to the District which are made necessary by industrial dischargers and wastehaulers who violate the District's Wastewater Discharge Regulations. X. That the industrial discharger, source control, and wastehauler fees and charges hereby established by this Ordinance do not exceed the estimated reasonable costs to the District of industrial discharger, source control, or wastehauler use of the District's facilities and for the administration and implementation of permit and fee processing, non-compliance sampling, and related services associated with the District's Source Control Program. Y. That all fees and charges established herein have been approved by the District's Board of Directors at a noticed public meeting, all in accordance with applicable provisions of law. Z. That the adoption of this Ordinance is statutorily exempt under the California Environmental Quality Act pursuant to the provisions of Public Resources Code Section 21080(b)(8) and California Code of Regulations Section 15273(a). AA. That each of the Findings set forth in previous Ordinances Nos. OCSD-05, OCSD-06, OCSD-11, OCSD-13, OCSD-15, OCSD-18, OCSD-19, OCSD-20, OCSD-22, apA-OCSD-24 OCSD-26. and OCSD 30B are reaffirmed and readopted hereat, except to the extent that they have been specifically superseded or otherwise amended by specific Findings herein. ARTICLE II SANITARY SEWER SERVICE CHARGES Section 2.01. Purpose and Scope. The purpose of this Ordinance is to establish Sanitary Sewer Service Charges required to be paid by property owners for the services and facilities furnished by the District in connection with VMS-8RH:p1:2p1660:04/2W05 7 OCSD-ADS 4125107 Book Page 125 its sanitation treatment works and sewage collection system. Revenues derived under the provisions of this Ordinance shall be used for the acquisition, construction, reconstruction, maintenance, and operation of the wastewater 1 collection, treatment and disposal facilities of the District; to repay principal and interest on debt instruments; or to repay federal and state loans issued for the construction and reconstruction of said sewerage facilities, together with costs of administration and provisions for necessary reserves. Section 2.02. Annual Sanitary Sewer Service Charge. Commencing with the effective date of this Ordinance, the owner of each parcel of real property located within the District which is improved with structures designed for residential, commercial, or industrial use and which, at the request of the owner or the owner's predecessor-in-interest, is connected to the District's system, shall pay an annual Sanitary Sewer Service Charge based on the respective class of users, in the sum or sums, as set forth in Tables A and B of this Ordinance, below. The annual Sanitary Sewer Service Charges for i residential users are set forth in Table A. The applicable single family residential rate shown in Table A is multiplied by the applicable percentage figure shown on Table B with respect to the particular use classification to arrive at the annual Sanitary Sewer Service Charge rate per 1,000 square feet for the commercial or industrial user. The annual Sanitary Sewer Service Charges for commercial or industrial users are dependent upon the respective classifications of property use, determined by reference to Table B. i Section 2.03. A. Exemptions. It is the intent of the District that the legal owner(s) of parcels of real property, otherwise subject to the levy and payment of the Sanitary Sewer Service Charges, as prescribed herein, be relieved, in whole or in part, from the payment of said charges, in certain circumstances and under conditions prescribed herein, and be entitled to either a rebate or a refund with respect to charges paid, as more specifically set forth in Subparagraphs 2.0313 and 2.03C below, provided an inequity is established or a billing error is proven, as specified in Subparagraphs B or C. B. Application for Rebate. Any property owner may apply to the District for a rebate of Sanitary Sewer Service Charges paid to the District by establishing that an unfair valuation of the property has been made by the District. An applicant for a rebate must establish, by proof satisfactory to the General Manager of the District, or his designee, that an inequity exists between the amount of the charge paid and the amount of wastewater discharged to the District's system, resulting in an unfair valuation. Satisfactory proof shall establish that either: (1) The principal water use is agricultural or horticultural; or (2) The property is devoted to any other use wherein the amount of wastewater discharged to the District's system is significantly less on a regular basis than the amount that would normally be expected to be discharged by the class of property in question. V=8-8RH:p1:201550:04/20/05 8 =13-AD13 4125107 Book Page 126 Satisfactory proof shall include, but not be limited to, documentation showing actual water usage for each billing cycle during the entire period for which the rebate is sought. The amount of any rebate shall not reduce the charge payable by any property owner, whose property is connected to the District's system, to less than the single family residential charge shown on the applicable Table attached hereto. C. Application for Refund. Any property owner may apply to the District for a refund of Sanitary Sewer Service Charges paid to the District by establishing that the amount paid was pursuant to an error in the amount billed or the amount paid. The applicant for a refund must submit proof satisfactory to the General Manager of the District, or his designee, that a billing error has been made by the District, or the County Tax Collector. Such proof shall include, but not be limited to, proof that: (1) The owner's parcel of property is not connected to the District's system; or (2) The property has not been classified in the proper property use classification code land-use-sategery; or (3) A clerical error has been made. D. Limitations Period. Applications for rebates and refunds shall be deemed to be governed by the provisions of California Revenue & Taxation Code Sections 5096 and 5097, allowing for refunds for a period of four (4) years from the date of payment of the second installment of the bill claimed to be either inequitable or incorrect. E. Determination. All applications for rebates or refunds of the Sanitary Sewer Service Charge will be determined by the General Manager of the District, or his designee, who, based on the submitted proof, may grant a full or partial rebate or refund. F. Administrative Fee. At the time of filing the application for rebate or refund, the property owner shall pay District an administrative fee for the processing of such application. The amount of the fee shall be equal to the total of all fees and charges imposed on the District by any other public entity, such as the Orange County Tax Collector, the Orange County Auditor, or the Orange County Recorder, in connection with the rebate or refund. Section 2.04. Annual Charge Based on Fiscal Year. The Sanitary Sewer Service Charges established by this Ordinance shall be effective as of July 1 of each year, as set forth in Tables A and B, attached hereto, for the District's fiscal year, and shall remain in effect until such time as the rates adopted herein are changed by District Ordinance. There shall be no proration of such charges in any fiscal year. Section 2.05. Method of Collection. WS&S-BRH:p1:201660:0420105 9 OCSD-ADB 425107 Book Page 127 A. Pursuant to the authority granted by California Health & Safety Code Section 5473, and except as otherwise provided in Subparagraph 2.05E below, all sanitary sewer service charges established herein shall be ; collected on the County Tax Roll in the same manner, by the same persons, and at the same time as, together with, and not separately from, its general taxes. The County Tax Collector is authorized and hereby ordered to make said collections in accordance with the terms and conditions of agreements between the County of Orange and the District. B. In the event District determines that, due to billing or payment error, or to inequity in the amount billed, a property owner has underpaid annual Sanitary Sewer Service Charges payable to District, District, within four (4) years after the date of mailing of the tax bill, may: (1) collect the amount of any deficiency directly on the County Tax Roll; , (2) off-set the amount of any deficiency against any amounts that District determines is owing, by District, to the property owner, as a rebate or refund under this Ordinance; or (3) submit, directly to the property owner, a bill for the amount of any deficiency, which shall be due and payable within thirty (30) days of the invoice date and which, if not paid, shall become a lien on said property. Section 2.06. Credit for Industrial Penmittees. A credit shall be allowed to all dischargers permitted pursuant to Article 3 of District Ordinance No. OCSD-01, as amended, in an amount equal to the annual Sanitary Sewer Service Charge established by Section 2.02 of this Ordinance, in the same manner as credit is allowed for ad valorem taxes pursuant to Sections 302.6(B), and 303.6(B) of District Ordinance No. OCSD-01, as amended. Section 2.07 Open-Air Facilities. Sanitary Sewer Service Charges for open-air facilities will be based on annual attendance records. Open-Air facilities will pay a rate per million gallons based urwn the related sewage flow. Biochemical Oxygen Demand ("BOD") and Suspended Solids ("SS") charge for single family residences. The usage per attendee will be 15 gallons. TABLE A ANNUAL SEWER SERVICE USER FEES RESIDENTIAL USERS FISCAL YEAR 2003-04 2004-05 2005-M 2006-07 2007-08 SFR" $100.00 $115.00 $151.00 $165.80 $182.00 MFR $ 70.00 $ 80.50 $105.70 $116.06 $127.40 SFR= SINGLE FAMILY RESIDENTIAL wsas-aRH:q:201660:oermms 10 OOSDAD13425/W Book Page 128 MFR = MULTI FAMILY RESIDENTIAL ' The SFR fee is the minimum sanitary sewer service charge any user must pay. All properties located within Revenue Area No. 14 pay no annual service fees. District costs relating to providing service to these properties are billed by the District directly to the Irvine Ranch Water District, the local agency providing the local sewer service. VMS-sRH:Pj20186a:0120W 11 OCSD-A084Q2 07 Book Page 129 TABLE B I ANNUAL SEWER SERVICE CHARGES PROPERTY USE CLASSIFICATIONS FOR COMMERCIAL OR INDUSTRIAL USERS Percentage of SFR Assessor Use Code Description Per 1.000 SF or Unit 1 Vacant Land Parcel 00/u 5 Common Area Parcel 0% 6 'Hold' Parcel 0% a Equivalent to Vacant 0% 121 Parcel of Minimal or No Value 0% 122 Subsurface Parcels 0% 124 OillMineral Rights 0% 125 Mineral Rights Equipment 0% 126 Vacant Comm. Area-IMP Alloc. 0% 201 Homeowners Exemption AddT 0% 666 Unassigned Vacant 0% 777 Septic Tank Property 0% 112 Steel Building 7% � 113 Mini-Warehouse 7% 58 Nurseries(Plants) 10% 100 Drive-In Theater 10% 44 Lumber/Constr. Material Yard 17% 71 Parking Garage 17% 72 Paved Parking Lot 17% 110 Warehouse—Single Tenant 17% 111 Warehouse—Multi Tenant 17% 115 Recreational Vehicle Storage 17% 116 Truck Terminal 17% 33 Church Buildings 20% 94 Department Store 23% 95 Discount Store 23% 96 Unattached Single Store 23% 97 Strip Store 23% 74 Recreational Vehicle Park 27% 36 Financial Buildings 27% 40 Health Club 29% 68 High Rise Office 30% 225 United States Post Office 35% 21 Automobile Dealership 41% 22 Auto Repair Shop 41% 23 Automotive Service 41% 24 Used Car Lot 41% 39 Golf Course 41% 57 Motorcycle/Small Vehicle Building 41% 83 Automotive Service Station 41% TABLE B (CONTINUED) ANNUAL SEWER SERVICE CHARGES VMS-BRH:pj2018B0:04/2005 12 OCSDApe 4/25107 Book Page 130 PROPERTY USE CLASSIFICATIONS FOR COMMERCIAL OR INDUSTRIAL USERS Percentage of SFR Assessor Use Code Description Per 1,000 SF or Unit 84 Marine Service Station 41% 86 Combin.-Service Station/Convenience 41% 65 Single Office Bldgs. to 3 Stories 41% 66 Small Office Center 41% 67 Office Complex 41% 69 Converted Residence to Office 41% 7 Mobile Home 50% 55 Mobile Home Park 50% 107 Light Industrial—Single Tenant 50% 108 Light Industrial—Multi Tenant 50% 109 Research and Development 500/0 114 Industrial Park 50% 37 Fraternal Buildings 51% 101 Unattached Theater 51% 26 Airport and Related Buildings 53% 45 Marinas 53% 88 Low Flow Shopping Center 53% 3 Two or More Residences 700/6 10 Duplex Only 70% 11 Triplex Only 70% 12 04-Units Only 70% 13 5 to 16 Units 70% 14 17 to 25 Units 70% 15 26 to 40 Units Only 70% 16 41-99 Units Only 70% 17 100 or More Units 70% 18 Developed with a Mix of Forms 70% 63 Low Rise Retirement Building 70% 64 High Rise Retirement Building 70% 56 Motels 70% 81 Pre-Schools, Nursery or Care 82% 82 Private Schools 82% 98 Store with Offices or Living Quarter 82% 99 Store with Office Upstairs 82% 118 Governmental Use Vacant/Develop. 82% 19 SFR with for 2 rental units 85% 34 Dormitory 97% 42 Hospital 97% 43 Hotel 97% 0 Conversion-C/1, Rural PC 1000/0 2 One Residence 100% VMS-BRH:p1201880:04r10N5 13 OCSDADB 4f2510'I Book Page 131 i TABLE B (CONTINUED) ANNUAL SEWER SERVICE CHARGES i PROPERTY USE CLASSIFICATIONS FOR I COMMERCIAL OR INDUSTRIAL USERS Percentage of SFR Assessor Use Code Description Per 1,000 SF or Unit 4 Miscellaneous Improvement 100% 85 Comb. Serv. Stn./Restaurant 1000/4 103 Chemical Tank and Bulk Storage 100% 104 Food Processing Plant 100% 105 Cold Storage Plant 100% 106 Factory 100% 119 Public Utility 100% 120 Water Mutual or Company 100% 888 Conversion-Composite Prop. 100% 32 Cemetery& Related Buildings 101% 38 Funeral Home 101% 60 Nursing Home 102% 61 Convalescent Hospitals 102% 62 Converted Res. Used as Nursing 102% 28 Bowling Alleys 112% � 92 Skating Rinks 112% 50 Single Medical Bldgs. to 3 Stories 124% 51 Small Medical Center 124% 52 Medical Center Complex 124% 53 High Rise Medical 124% 54 Converted Residence to Medical 124% 89 Average Flow Shopping Center 139% 20 Amusement Parks 144% 35 Entertainment Center 144% 73 Recreation 144% 30 Coin Operated Car Wash 151% 47 Supermarket 151% 48 Convenience Market 151% 224 Nightclub 2000/6 90 High Flow Shopping Center 226% 76 Restaurant—Take Out 300% 77 Restaurant—Coffee Shop 600% 78 Restaurant—Dinner House 600% 79 Restaurant—Conversion from SF 600% 29 Conventional Car Wash 796% 223 Laundromat 1,800% NOTE: Multiply the Table A Single Family Residential Rate by the percentage figure above In order to determine the rate per 1,000 square feet for the commercial or industrial user. VMS-eRKpi:201660:o4rzoros 14 ocsp-nos4125107 Book Page 132 i ARTICLE III CAPITAL FACILITIES CAPACITY CHARGES Section 3.01. Purpose and Scope. The purpose of this Ordinance is to impose Capital Facilities Capacity Charges when properties, either newly- connect to the District's system, or expand the use of the property previously connected to the District. Revenues derived under the provisions of this Ordinance will be used for the acquisition, construction, and reconstruction of the wastewater collection, treatment and disposal facilities of the District; to repay principal and interest on debt instruments; or to repay federal or state loans for the construction and reconstruction of said sewerage facilities, together with costs of administration and provisions for necessary reserves. Section 3.02. Definitions. A. "Actual construction costs" include the cost of all activities necessary or incidental to the construction of a District facility, such as financing, planning, designing, acquisition of the property or interests in the property, construction, reconstruction, rehabilitation, and repair. B. "Capital Facilities Capacity Charge" means a one-time, non- discriminatory charge imposed at the time a building or structure is newly connected to the District's system, directly or indirectly, or an existing structure or category of use is expanded or increased. Said charge is to pay for District facilities in existence at the time the charge is imposed, or to pay for new facilities to be constructed in the future, that are of benefit to the property being charged. This charge does not apply to temporary facilities or operations that are regulated under the provisions of a Special Purpose Discharge Permit. C. "Connection fee" means a fee equal to the cost necessary to physically connect a property to the District's system, including but not limited to, installation of meters, meter boxes, pipelines, and appurtenances to make the connection and which fee does not exceed the actual cost of labor, materials, and overhead for the installation of those facilities. D. "Non-discriminatory" means that the Capital Facilities Capacity Charge does not exceed an amount determined on the basis of the same objective criteria and methodology applicable to comparable public or non- public users, and is not in excess of the proportionate share of the cost of the District's facilities of benefit to the person or property being charged, based upon the proportionate share of use of those facilities. E. "Public agency" means the United States or any of its agencies, the State or any of its agencies, the Regents of the University of California, a county, city, district, school district, local or regional public authority, or any other political entity, subdivision or public corporation of the State. F. The Supplemental Capital Facilities Capacity Charge, as provided for in Sections 3.07, 3.08, 3.09, and 3.10 of this Ordinance, is an annual charge payable to the District on a quarterly or annual basis, as determined by WSSS-BRH:p1201660:0420N5 15 OCSD-ADS 425107 Book Page 133 the District. Said charge is required to be paid by dischargers that exceed the maximum quantity of flow or constituents (BOD or SS) allowed as a base use for which the CFCC is paid. Section 3.03. Connection Permits: Required. A. Connection permits are required of each and every dwelling unit, and each commercial or industrial building, and structure connecting directly or indirectly to the District's sewerage system facilities. Included are the connections of laterals to local municipal sewerage facilities, and the connection of local municipal sewerage facilities and laterals to the District's facilities. Multiple detached structures on a single parcel of property shall each be required to obtain a connection permit. I B. Except as authorized by the issuance of a Special Purpose Discharge Permit under Sections 305 — 305.6 of the District's Wastewater Discharge Regulations, or as authorized pursuant to a special extra territorial service agreement approved by the Board of Directors, no permit shall be valid unless the real property to be served by use of the permit is included within the boundaries of the District and within the boundaries of a local sewering agency authorized to maintain public sewering facilities. However, a permit, as authorized above, may be issued for property to be served outside the 1 boundaries of a local sewering agency if a local sewering agency makes application for the issuance of such permit. There will be a non-discriminatory Capital Facilities Capacity Charge assessed to public agencies for connecting directly or indirectly to the District's sewerage system facilities, and a connection permit must be obtained. Section 3.04. Capital Facilities Capacity Charqe: Payment Required. No application for a permit for a connection of a structure to a District sewerage facility, or to any sewerage facility which discharges into a District sewerage facility, shall be approved, nor a permit issued, until a District Capital Facilities Capacity Charge is paid by the applicant, except as provided for discharges under a Special Purpose Discharge Permit. No connection permit shall be issued unless there is an established category of use of the property to be served or a valid building permit issued which establishes the category of use of said property. Section 3.05. Capital Facilities Capacity Charge: Time of Pavment. A. Payment of the Capital Facilities Capacity Charge established by this Ordinance for connection to the District's sewerage system facilities shall be required at the time of issuance of the building permit for all construction within the District, excepting in the case of a building legally exempt from the requirement of obtaining a permit. The payment of the Capital Facilities Capacity Charge for such exempt buildings will be required at the time of and prior to the issuing of a plumbing connection permit for any construction within the territorial limits of the District, or if none, prior to the issuance of a Certificate of Occupancy. wSSS-BRH:p):261660:G4rA W 16 QCSD-ADR 412510 Book Page 134 B. Upon application of any property owner seeking to connect to the District's system, the Board of Directors of District, in its sole and absolute discretion and upon a finding of compelling need, may, pursuant to the authority of California Health & Safety Code Section 5474, approve of an agreement with the property owner for the payment of the applicable connection charge in installments over a period of not to exceed five (5) years, bearing an interest rate on the unpaid balance of not to exceed ten (10%) percent per annum, and that the charges and interest shall constitute a lien on the property. Section 3.06. Capital Facilities Capacity Charge and Plan Check and Inspection Fees: Schedule of Amounts. Am Every person or entity connecting any new or expanded building or structure to the District's system facilities shall pay a Capital Facilities Capacity Charge in the amount for the applicable category of use set forth on Table C, below. B. Every person or entity connecting any new or expanded building or structure directly to the District's local or regional system facilities shall pay Plan Check and Inspection Fees in the amount set forth on Table D, below. WSSS-BRH:p1:201880:04@0/05 17 OCSD-ADB 4/25107 Book Page 135 TABLE C CAPITAL FACILITIES CAPACITY CHARGES (CFCC) Use Category Rate Basis Base Charge Commercial — Industrial Per 1,000 square feet' Low Demand' Per 1,000 square feet $ 2108.00' Average Demand' Per 1,000 square feet $1,31957.00' High Demand' Per 1,000 square feet $3,440222.00' Single Family Residential (SFR)5- . % of Base Base Charge 5+ Bedrooms (Per Unit) 1.39 $6,060278.00 4 Bedrooms (Per Unit) 1.19 $5,490377.00 3 Bedrooms (Per Unit) 1.00 (Base) $4,360517.00 2 Bedrooms (Per Unit) 0.81 $3,530657.00 1 Bedroom (Per Unit) 0.62 $2,70097.00 Multi-Family Residential (MFR)� ' % of Base Base Charge 4+ Bedrooms (Per Unit) 1.08 $4,74i) 80.00 3 Bedrooms (Per Unit) 0.89 $34,880020.00 2 Bedrooms (Per Unit) 0.70 $3,050160.00 1 Bedroom (Per Unit) 0.50 $2,4-80258.00 Studio (Per Unit) 0.32 $1,40050.00 Supplemental CFCC for Permit Users, includes 5% cost of funds. Flow, gallons per day $0.00139244 BOD, pounds per day $0.755473081900 SS, pounds per day $0.0947205022 'Provided that the minimum Capital Facilities Capacity Charge for such new construction shall be $4360 Fa 517:and all calculations shall be on a 1,000 square foot,or portion thereof, basis. A schedule of the Capital Facilities Capacity Charges specified herein Will be on file in the Offica of the Board Secretary of the District,and in the Building Department of each City within the District. 2Low Demand connections are the following categories of Users: Nurseries;Warehouses; Churches. Truck Terminals _F_V Parks'. the restroom offices and areas related to the offices for Parking Structures_'. RV Storage Yards, Lumber/Construction Yards, Public Storage Buildings; and other dischargers whose flow is similar in volume to these listed categories. 2Hloh Demand connections are the following categories of users: Restaurants, Supermarkets; Car Washes; Coin Laundries; Amusement Parks; Shopping Centers with one or more Restaurants or Food Court; Food Processing Faclities;Textile Manufacturers;and other dischargers whose flow is similar in volume to these listed categories. WSSS-BRH:p1:201660:04/20/05 18 OCSO OB4125/07 Book Page 136 'All o1w connections are AveMe demand ueeB. 'Bedrooms include loft office.berm room or other additions which could potentially be used as a becroom. Bedroom additions are considered a change of use and a CFCC must be paid. 6MFR units consist of multiple units that receive one secured Property tax bill such as apartments 'SFR—The rates for each size of SFR and MFR are established with a 3-bedroom SFR having a base of 1.0.and all others are a relative percentage higher or lower than 1.0.depending on size of unit,as noted. MAS—BRH:R2Ot88O:04r2OM5 19 OCSDAOB A2S07 Book Page 137 TABLE D PLAN CHECK AND INSPECTION FEE TABLE 1 INSPECTION FEES FOR SINGLE CONNECTIONS FEE Normal lateral installation to property line with clean out $500.00 I Lateral Installation to existing manhole stub with clean out $500.00 Core drilling in to an existing manhole base - add $300.00 Installation of new manhole with stub over existing line $1,000.00 INSPECTION FEES FOR MULTIPLE CONNECTIONS Plan check and inspection fees of 20 percent of the sewer construction cost for new tract sewers, sewer extensions or special facilities are required when plans are submitted for plan check. If additional funds are needed, they must be deposited as soon as they are requested to complete the inspection on the proiect. If funds are required after the work is completed they must be paid before OCSD finals the sewer project. Section 3.07. Supplemental Capital Facilities Capacity Chame: Significant Commercial — Industrial Users and Special Purpose Dischargers — Definitions. A. A Significant Commercial — Industrial User ("SCIU") is any person or entity who discharges commercial or industrial process flow, but excluding domestic sewage flow, in an amount greater than 25,000 gallons per day ("gpd"), or Biochemical Oxygen Demand ("BOD") greater than 150 pounds per day, or Suspended Solids ("SS") greater than 150 pounds per day, or who is required to obtain a Waste Discharge Permit, as prescribed by Article 3 of the District's Wastewater Regulations, due to having federally or District regulated or significant discharges. B. A special purpose discharger ("SPD") is any person or entity who discharges to the sewer system wastewater or process flow in an amount greater than 25,000 gpd (excluding domestic, industrial or commercial) and who is required to obtain a Special Purpose Discharge Permit as prescribed in Section 305 of the District's Wastewater Regulations. C. An Existing SCIU or SPD is any SCIU or SPD connected and discharging to the District's system prior to January 1, 2000. D. A New SCIU or SPD is any user who connects and discharges to the District's system pursuant to a Waste Discharge Permit issued on or after January 1, 2000; or if previously connected and not an SCIU, as wsas-BRH:pj:P0169a:BC/LBNS 20 OcsD.aDB4125107 Book Page 138 defined in Subparagraphs 3.07A and B above, but, subsequent to January 1, 2000, increases flow, or BOD, or SS to a level as to constitute an SCIU or SPD. E. The maximum discharge allowed to a user, for which a base Capital Facilities Capacity Charge is paid, as per Table C, above, is 25,000 gallons per day ("gpd"), or 150 pounds each of BOD and SS (the "base use"). Discharge of flow, or BOD, or SS in amounts greater than allowed by this Subsection 3.07E shall be subject to the provisions of Sections 3.08 and 3.09 hereof. F. Each Existing SCIU shall have a baseline of allowed discharge of flow, and BOD, and SS established by the District as of January 1, 2000. The baseline shall be based upon the discharge for Fiscal Year 1998-99, or upon such other discharge data which the District determines is representative of the user's actual annual discharge to the sewerage system. Dischargers who are deemed to be SCIU's solely because of the requirements to obtain a Waste Discharge Permit, pursuant to Section 3.07A above, shall have a minimum baseline established as follows: Flow — 25,000 gallons per day; BOD — 150 pounds per day; and SS — 150 pounds per day. The SCIU shall be authorized to discharge flow, and BOD, and SS up to the baseline amounts without payment of a Supplemental Capital Facilities Capacity Charge. G. Each Existing SPD shall have a baseline of 25,000 gpd;a50 The Existing SPD shall be authorized to discharge flow up to 25,000 gpd without payment of a Supplemental Capital Facilities Capacity Charge. H. The Supplemental Capital Facilities Capacity Charge, as prescribed by Sections 3.08, 3.09, and 3.10 below, shall be payable commencing with the effective date of this Ordinance. I. Within two (2) years from the date of the District's written notice to the existing SCIU of its baseline amounts, the existing SCIU, as described in Section 3.07C, shall have a right to appeal the District's established baseline for the SCIU. The appeal shall be to the General Manager, or his designated representative, who shall have discretion, based upon extraordinary circumstances, wherein the established baseline is not representative of the historical average daily discharge by the SCIU for a yearly period, to modify the baseline amounts for the current year, or on a permanent basis, subject to terms and conditions as prescribed by the General Manager. The decision of the General Manager shall be final. Section 3.08. Supplemental Capital Facilities Capacity Charge: New Significant Commercial — Industrial Users. In addition to the base Capital Facilities Capacity Charge, as prescribed in Table C, for commercial — industrial use category properties, all New SCIU's shall pay a Supplemental Capital Facilities Capacity Charge for each gallon of flow, or pound of BOD, or SS, exceeding the base use discharge maximums, in the amount shown in Table BE. Section 3.09. Supplemental Capital Facilities Capacity Charge: New Special Purpose Dischargers. All New SPDs shall pay a Supplemental Willis-Bwi:pl2oiaio:oarzoroe 21 ocsaag5112sQ7 Book Page 139 i Capital Facilities Capacity Charge of $0494344.001392 per gallon per day for each gallon of flow exceeding 25,000 gallons per day. Upon issue of permission 4 to discharge, SPD with discharges above 25,000 gpd shall pay a nonrefundable Supplemental Capital Facilities Capacity Charge, prior to discharge, for one million gallons above 25,000 gpd. The deposit will be credited by the District against future Supplemental Capital Facilities Capacity Charges. i Section 3.10. Supplemental Capital Facilities Capacity Charge: 1 Existing Significant Commercial — Industrial Users and Special Purpose Dischargers. A. All Existing Significant Commercial — Industrial Users connected to and discharging to the District's system shall be required to pay a Supplemental Capital Facilities Capacity Charge upon the occurrence of either (i) an increase of discharge flow of 25,000 gallons per day ("gpd"), or 25% per day over its established baseline authorization, whichever is lesser; or (ii) an increase of either BOD or SS discharge of 150 pounds each per day, or 25% each per day, whichever is lesser, over its established baseline authorization. B. The Supplemental Capital Facilities Capacity Charge shall be in the following amounts for each component that is increased as provided in Section 3.10A above. 1 TABLE DE SUPPLEMENTAL CAPITAL FACILITIES CAPACITY CHARGES Daily Chame Flow Gallons Per Day $0.00134492 BOD Pounds Per Day $0.75473081900 SS Pounds Per Day $0.0917295022 C. All Existing SPDs connected and discharging to the sewer shall be required to pay a Supplemental Capital Facilities Capacity Charge upon occurrence of an increase of discharge flow over 25,000 gpd. The Supplemental Capital Facilities Capacity Charge shall be $ 0.001344392 per gallon per day of discharge for each gallon above 25,000 gpd. D. The Supplemental Capital Facilities Capacity Charge shall be calculated on the basis of the average daily quantity of discharge in excess of the User's baseline or 25,000 gpd for SPDs. The daily averages will be based on the daily discharges for a year, utilizing discharge records and reports of the District. Section 3.11. Capital Facilities Capacity Charge: Replacement Structures. For new construction replacing former structures, the Capital Facilities Capacity Charge shall be calculated and paid to the District on the rate WS&S-BRH:pf201880:0020105 22 OCSDADB 412510] Book Page 140 basis of the category of the new use and the amounts as set forth in Table C, less a credit amount, up to the amount of the new Capital Facilities Capacity Charge, equal to a charge, as prescribed in Table C that would be for the prior category of use which was terminated and removed. Section 3.12. Capital Facilities Capacity Charge: Remodeled Structures. In the case of existing structures connected to the District's system facilities, to which new construction or alteration is made to change or increase the category of use or number of bedrooms, a Capital Facilities Capacity Charge shall be calculated and paid to the District on the rate basis of the category of the new use and the amounts as set forth in Table C, less a credit amount, up to the amount of the new Capital Facilities Capacity Charge, equal to a charge, as prescribed in Table C for the prior category of use. Section 3.13. Payment of Capital Facilities Capacity Charge: Off- Site Sewers Not Part of Master Plan Relative to Reimbursement Agreements. A charge for connection to off-site sewers which are not included as part of the District Master Plan and for which a Non-Master Plan Reimbursement Agreement has been entered into between the District and the property owner, shall be paid in the amount provided for in said Agreement, to be known as a Non-Master Plan Capital Facilities Capacity Charge. The amount set forth in said Agreement shall be the amount due, provided the original Agreement is still in force. The Non-Master Plan Capital Facilities Capacity Charge shall be in addition to the other Capital Facilities Capacity Charges provided for in Sections 3.06 through 3.10 hereinabove, established for property connecting to said facilities. Section 3.14. No Refund or Transfer. A Capital Facilities Capacity Charge is paid for the connection of a specific building or structure on a parcel of property. No refund of any charge shall be made because of non-use or change of use, or any other reason once the connection has been made. If the connection is not maa: and the request for connection is withdrawn within 12 months of the paymer, date. the charges paid will be refunded upon establishing proof from the City_a ,ounty of a canceled permit. The connection permit is non-transferable to any other parcel of property. Section 3.15. Baseline Transferability. The baseline of allowed discharge of flow, BOD and SS used to calculate a Supplemental Capital Facilities Capacity Charge shall not be transferable, nor shall a credit for such previously existing baseline be provided to another SCIU concurrently or subsequently occupying the same property. Each such SCIU shall pay Supplemental Capital Facilities Capacity Charges in accordance with Section 3.08 above. Section 3.16 Capital Facilities Capacity Charge Annual Updates. The Capital Facilities Capacity Charge is based upon the most recently completed Capital Strategic Plan Update. This charge is Updated annually based upon the increase in the Engineering News-Record construction cost index for Los Angeles as of December of the prior year until the completion of the next Strategic Plan Update. WS&S-BRH:p1201660:0420105 23 OCSD-ADB 425107 Book Page 141 Section 3.17 Affordable Housing Projects. Per Resolution 06-18, development projects that include lower income housing units shall not be denied approval of an application for service, nor shall conditions be imposed thereon or services reduced which are applied for, unless the District makes specific written ! findings that the denial, condition, or reduction is necessary due to the existence of one or more of the following: j (a) insufficient water supply or insufficient water treatment or distribution capacity: I (b) a State Department of Health Services order prohibiting new water connections: (c) insufficient sewer treatment or collection capacity: (d) a Regional Water Quality Control Board order prohibiting new sewer connections (a) the applicant has failed to agree to reasonable terms and conditions ARTICLE IV I i MISCELLANEOUS CHARGES AND FEES RELATING TO INDUSTRIAL DISCHARGERS, SOURCE CONTROL PERMITTEES AND WASTEHAULERS t Section 4.01. Purpose and Scope. The purpose of this Ordinance is to recover those costs incurred by the District (i) on account of industrial dischargers' and wastehaulers' use of the District's facilities; (ii) when administering the District's Source Control Program; and (iii) when performing non-compliance sampling of industrial wastewater dischargers who have violated the District's Wastewater Discharge Regulations or the terms and conditions of the discharger's permit. Revenues derived under the provisions of this Ordinance shall be used to defray the costs incurred by the District (i) on account of such use of the District's facilities; and (ii) in performing these tasks. Section 4.02. Administrative Fees and Charges Relating to Permittees. Administrative fees and charges relating to permittees are hereby established in the sum or sums as set forth in Table€F, below. Section 4.03. Source Control Non-Compliance Fees. Source control noncompliance fees are hereby established for dischargers' non- compliance sampling and for self-monitoring and data reporting non-compliance, in the sum or sums as set forth in Table€G, below. Section 4.04. Special Purpose Discharge Permittees7 Charges for Use. As authorized by Sections 305.5 and 305.6 of the District's Wastewater Discharge Regulations, charges for use are hereby established for Special Purpose Discharge Permittees, as set forth in Table GH, below Section 4.05. Class I and Class II Permittees — Charges for Use. As authorized by Sections 302.3, 302.6, 303.3 and 303.6 of the District's wsas-BRH 2016eo:arz0m5 24 ocsD-A B4MWi Book Page 142 Wastewater Discharge Regulations, the charges for use are hereby established for Class I and Class II Permittees as set forth in Table GH, below. Section 4.06. Wastehauler Charges for Use. As authorized by Sections 306.3 and 306.7 of the District's Wastewater Discharge Regulations , the charges for use are hereby established for wastehaulers as set forth in Table Idl, below. Section 4.07. Administrative Appeals. A. Any user, permit applicant, or permittee affected by any decision, action, or determination by the District may, within forty-five (45) days of the date of mailing by the District of the initial invoice for fees imposed pursuant to this Ordinance, request that the District reconsider imposition of such fees. Following review of such a request, the District shall notify the user, permit applicant, or permittee by certified mail of the District's decision on the reconsideration request. B. Any user, permit applicant, or permittee adversely affected by the District's decision on the reconsideration request, may file an appeal in accordance with Sections 617 and 619 of the District's Wastewater Discharge Regulations. TABLE €F ADMINISTRATIVE FEES AND CHARGES RELATING TO PERMITTEES Permit Fees Charges A. Class I Wastewater Discharge Permit $765.00/year B. Class II Wastewater Discharge Permit $170.00/year C. Special Purpose Discharge Initial Permit Issue $1,050.00/year Nonrefundable Deposit for First 1 Million As Defined in Gallons— New Permit Only Table GH Special Purpose Discharge Permit Renewal $750.00/year D. Wastehauler Discharge Permit $190.00/year Wastehauler Fees Charges F. Permit Decal Initial Issue $25.00 G. Permit Decal Replacement $50.00 H. Entry Card Initial Issue $50.00 1. Entry Card Replacement $100.00 J. After Hours Discharge— Prearranged $102.00/event K. After Hours Discharge— Emergency $165.00.00/event Administrative/Processing Fees Charges L. District's Collection of Tax Data $100.00/permit VMS-BRH:pj201660:04MM 25 OCSDADB 9/2W7 Book Page 143 i M. District's Collection of Water Consumption Data $100.00/permit I N. Appeal Hearing Filing Fee $400/appeal i I 1 WSSS-BRH:P1:20168D:0420/B5 26 OCSD-ADB 425/0 Bwk Page 144 i TABLE G€ INDUSTRIAL DISCHARGER, SOURCE CONTROL AND NON-COMPLIANCE SAMPLING FEES Charge Cost of Processing and Sampling Following a Minor Violation $225.00/event Cost of Processing and Sampling Following a Major Violation $500.00/event Cost of Analysis Charge Heavy Metals: $35.00/each -Aluminum -Antimony -Arsenic - Cadmium - Chromium - Copper - Gold - Lead - Molybdenum - Nickel - Palladrum - Platinum - Selenium -Silver -Thallium -Zinc Mercury $78.00 601/602 $152.00 604 $223.00 606 $254.00 608 $523.00 610 $73.00 VMS-BRH:p1:20166D:D4/20/05 27 OOSD-ADB 4125/07 Book Page 145 TABLE€G (CONTINUED) 1 INDUSTRIAL DISCHARGER. SOURCE CONTROL AND NON-COMPLIANCE SAMPLING FEES Charge 612 $200.00 624 $355.00 625 $661.00 Ammonia Analysis as Nitrogen $ 21.00 Biochemical Oxygen Demand (BOD) $ 44.00 BOD and Suspended Solids (SS)Analysis $ 67.00 Chemical Oxygen Demand $ 44.00 Conductivity $ 15.00 Cyanide (Amenable) $ 70.00 Dissolved Mineral Solids $ 15.00 Gamma Radiation Determination $115.00 Gross Alpha and Beta Determination $ 50.00 Tritium Determination $ 50.00 Oil & Grease (Hexane Soluble Matter) $ 74.00 Oil & Grease (Mineral Partition) $ 74.00 Total Organic Nitrogen $ 48.00 pH $ 8.00 Fluoride $ 51.00 Suspended Solids (Total) $ 23.00 Suspended Solids (Total and Volatile) $ 44.00 Total Dissolved Solids $ 14.00 Total Sulfides $ 29.00 SELF-MONITORING AND DATA REPORTING NON-COMPLIANCE Cost of Processing and Issuing Significant Non-Compliance Notification $165.00 Cost of Processing Annual SNC and Publication $260.00 ws&s-BWpj:2me60:0armne 28 ocSo-noB arzsim Book Page 146 TABLE GH CLASS I AND CLASS II PERMITTEES AND SPECIAL PURPOSE DISCHARGE PERMITTEES CHARGES FOR USE Class I and II Permit User FY 2003-04 FY 2004-05 FY 2005-06 FY 2006-07 FY 2007-08 Flow(') $316.38 $577.30 $637.55 $700.03 7$ 68.63 B.O.D. (") $216.13 $270.68 $288.50 $316.77 $347.81 S.S. (—) $207.35 $414.27 $432.14 $474.49 5$ 20.99 Special Purpose Discharge Permit FY 2003.04 FY 2004-05 FY 2005-08 FY 2006-07 FY 2007-08 Flow(') $316.38 $577.30 $637.55 $70D.03 7$ 68.63 BBD. nr)$246 43 $270 a $28&.50 $34fi.7a S.S.. (T)s207.36 $444.2;tt (') Flow Per million gallons of Flow (") B.O.D. Per thousand pounds of Biochemical Oxygen Demand ("') S.S. Per thousand pounds of Suspended Solids All properties located within Revenue Area No. 14 pay no annual service fees. District costs relating to providing service to these properties are billed by OCSD directly to the Irvine Ranch Water District,the local agency providing the local sewer service. VMS-BRH:p:201660:D4/20A5 29 OCSD-ADB 425/07 Book Page 147 TABLEIH WASTEHAULER CHARGES FOR USE Wastehauler Fees Charges Charge for Use—Waste originating $0.05/gallon of truck capacity -within Orange County; -within service area: and -within District Boundaries Charge for Use-Waste originating $0.12/gallon of truck capacity outside-Orange-County -within Orange County: -within service area: and outside District Boundaries Charge for Use - Waste originating $0.12/gallon of truck capacity -Outside Orange County; and within service area Waste hauled from a source that is not wthin the District's service area is prohibited unless authorized by the General Manager. Service area is defined as any area the District has an agreement to serve. ARTICLE V MISCELLANEOUS Section 5.01. Application of Ordinance. The provisions of this Ordinance shall be in addition to the provisions of the District's Wastewater Discharge Regulations for use of District's sewage facilities, including provisions for payment of charges or fees related thereto; District's ordinance establishing Fees Concerning Annexations of Territory to the District; and any other District Ordinances and Resolutions not in conflict herewith. Section 5.02. Exceptions. The provisions of this Ordinance shall apply to all owners of properties within the District, including those properties otherwise deemed exempt from payment of taxes or assessments by provisions of the State Constitution or statute, including properties owned by other public agencies or tax-exempt organizations, except as expressly provided herein. Section 5.03 Out of Area Sewer Service Agreements. The District is empowered to contract for the transport, treatment and disposal of wastewaters originating within areas outside of the District if it is in the best interest of the District to do so. These Out of Area Sewer Service Agreements will establish fees and charges relative to the services provided by the District for each individual agreement. wsas-BBn:Pg20ieso:oarmAs 30 ocSD-AD85125ro1 Book Page 148 The Board of Directors of the Orange County Sanitation District does further hereby ORDAIN: Section II. Severabilitv. If any provision of this Ordinance, or the application to any person or circumstances is held invalid by order of Court, the remainder of the Ordinance, or the application of such provision to other persons or other circumstances, shall not be affected. Section 111. Effective Date. This Ordinance shall take effect July 1, 20067. Section IV. Repeal. Ordinance No. OCSD-2630B is hereby repealed. Section V. Certification and Publication. The Secretary of the Board shall certify to the adoption of this Ordinance, and shall cause a summary to be published in a newspaper of general circulation as required by law. WSBS-BRH:pj201660D420105 31 OCSD-ADB 41 6107 Book Page 149 i PASSED AND ADOPTED by a vote of not less than two-thirds of the Board of Directors of the Orange County Sanitation District at a Regular Meeting held CHAIR, BOARD OF DIRECTORS ORANGE COUNTY SANITATION DISTRICT ATTEST: i SECRETARY, BOARD OF DIRECTORS ORANGE COUNTY SANITATION DISTRICT BRADLEY R. HOGIN, GENERAL COUNSEL wsas-Brsrcaimiee0:04r2QW 32 OCSO 08 4n5107 Book Page 150 ADMINISTRATION COMMITTEE Meeting Date TOBtl.of Dir. 0,1"107 09/25I07 AGENDA REPORT rwn Nam IDem Number ADM07-28 Orange County Sanitation District FROM: James D. Ruth, General Manager Originator: Lorenzo Tyner, Director of Finance and Administrative Services SUBJECT: FEES FOR PROPERTIES ANNEXING TO THE DISTRICT GENERAL MANAGER'S RECOMMENDATION Adopt Ordinance No. OCSD-33, Adopting Fees, Revised Procedures and Policies Concerning Annexation of Properties to the District and Repealing Ordinance No. OCSD-29. SUMMARY • The current Ordinance governing annexations was adopted in 2004 and needs to be updated to include procedures for deferring annexation fees for large annexations until the time of a sewer connection to a public sewer. • A new Ordinance has been prepared that now includes a section regarding deferring payment of annexation fees. PRIOR COMMITTEE/BOARD ACTIONS The last Board action related to annexation fees was January 2004. ADDITIONAL INFORMATION The changes to the Ordinance are being requested to codify a procedure for the Orange County Sanitation District (Sanitation District) Board and staff where annexations may precede actual sewer connections. This procedure will require an action by the Board to defer annexation fee collection until a sewer connection is made for the property. There are still a few unincorporated areas within the County of Orange, also not within the Sanitation District. These areas are all on septic tanks which are subject to failures; recently leading to numerous residents requesting connections to public sewers. The annexation process can cost over $8,000 and require 6 to 18 months to complete. Staff has been working with residents in these areas to minimize their costs and time associated with the conversion to a public sewer. Fo,m No.V 1033 Hvimd NN1N7 Page 1 Book Page 151 The ability to process larger annexations prior to septic tank failures offers two benefits. The first benefit is a distribution of fixed administrative costs over a larger number of residents. This is estimated to save each resident about $4,000. The second benefit is j that pre-annexation can allow immediate connection to public sewers at any time the property owner chooses. The difficulty in proceeding with large annexations has been the immediate cost to property owners for administrative annexation fees. This is especially true for residents not planning to conned to a public sewer, or who are too far from a public sewer to 1 feasibly conned at this time. To date, the ability to delay these costs has reduced opposition in the areas annexing. This is because it balances the needs for residents in 4 these areas wishing to immediately conned to a public sewer and residents that do not have an immediate need to replace their septic tanks. [ JDR:LT:mw Form No.q io23 Re,ieM'.OW01M7 Page 2 Book Page 152 ORDINANCE NO. OCSD-2-9 XX33 AN ORDINANCE OF THE BOARD OF DIRECTORS OF ORANGE COUNTY SANITATION DISTRICT ADOPTING FEES, PROCEDURES, AND POLICIES CONCERNING ANNEXATIONS OF TERRITORY TO THE DISTRICT, AND REPEALING ORDINANCE NO. OCSD-2993 WHEREAS, the Board of Directors of the Orange County Sanitation District("District") has previously adopted Ordinance No. OCSD4429-adopting fees, procedures, and policies concerning annexations of territory to the District, which Ordinance is presently in full force and effect; and WHEREAS, for purposes of continued efficiency and effectiveness of the District's operations, preservation of the public health and safety, and in order to continue the provision of wastewater collection, treatment and disposal services, it is the intent, by adoption of this Ordinance, to continue said procedures and policies in effect, without interruption; and WHEREAS, the Board of Directors of the District has received a management report, including financial needs of the District, and wishes to reaffirm the policy of imposing annexation fees when new territory is annexed to the District, and to adopt findings supporting the amount of the fees adopted pursuant to this Ordinance. The Board of Directors of the Orange County Sanitation District does hereby FIND: A. That a comprehensive 30-year Master Plan of Capital Facilities, entitled "Collection, Treatment and Disposal Facilities Master Plan— 1989", hereinafter referred to as the "Master Plan", which includes detailed financial and engineering reports, was prepared, approved, and adopted by the Boards of Directors of the Predecessor Districts in 1989, setting forth and identifying the required future development of District facilities, including the financial projections for providing sewer service to all properties within the individual service areas of each of the nine Predecessor Districts; and B.That the financial and engineering reports of the Master Plan were made available to the public, both prior to and subsequent to the adoption of the Master Plan, and were subject to noticed public hearings, all in accordance with the provisions of the California Constitution and Government Code Section 66016, and other provisions of law; and C. That the District, in 1997, as part of its maintenance and updating of its Master Plan, undertook a comprehensive evaluation and study of its operational and financial needs for the next 20 years, including a detailed assessment of all types and categories of users; the demands on the system and capacity needs of the system to provide necessary service to the multiple categories of users; the total costs of the existing and future facilities in the system; and alternate methodologies for establishing fair and equitable charges to connect to and gain access to the system. These comprehensive planning, engineering, and financial studies led to the development of an updated Comprehensive Master Plan of Capital Facilities, which was approved and adopted by OCSD Resolution No. 99-21 of the Board of Directors on October 27, 1999; and D. That the properties upon which the fees established by this Ordinance are levied, will, subsequent to payment of an additional Capital Facilities Capacity Charge, be allowed to discharge wastewater to the District's collection, treatment and disposal facilities; that the costs of operating and maintaining said facilities have constantly increased due in Book Page 153 i part to increased regulatory requirements to upgrade the treatment process; and that f said costs will exceed the amounts of any ad valorem tax revenues derived from said property; and i E. That the District will not receive any tax exchange from said annexed properties because of an agreement with the County of Orange under which there is no tax exchange for newly-annexed property; and 1 F. That the annexation fees established here are an incident but not a condition of development, payable only on request to receive service by the property owner for the benefit of those persons on the property that use the service. The fees are not an incident of property ownership, nor are they a property-related service having a direct relationship to property ownership. Accordingly, the provisions of California Constitution Article MID are not applicable. G. That the annexation fees imposed by authority of this Ordinance do not exceed the 1 estimated amount required to provide access to the sewer service for which the fee is levied, as provided in California Government Code Section 66013: and H. That the fees established by this Ordinance will not necessarily result in an expansion of facilities to provide for growth outside the existing service area. The collection of these annexation fees will not result in any speck project, and will not result in a direct physical change in the environment; and I. That the fees adopted by this Ordinance are established upon a rational basis between the fees charged each property that is annexing, and the service and facilities provided to each annexed property by the District, a portion of which is necessary to replace the loss of ad valorem property taxes to the State General Fund as a result of State legislative action on September 2, 1992, and in subsequent years; and J. That all fees and charges established herein have been approved by the District's Board of Directors at a noticed public meeting, all In accordance with applicable provisions of law; and K. That the adoption of this Ordinance is statutorily exempt under the California Environmental Quality Act from further environmental assessment pursuant to the provisions of California Public Resources Code Section 21080(b)(8), and 14 California Code of Regulations Section 15273(a). NOW, THEREFORE, the Board of Directors of Orange County Sanitation District, does hereby ORDAIN: Section 1: That the purpose of this Ordinance is to establish fees required to be paid by property owners for the annexation of property to the District. Said fees are in lieu of property taxes not allocated to the District while the property was outside of the District, and in lieu of future property tax allocations through a Tax Exchange Agreement. Revenues derived under the provisions of this Ordinance may be used for the acquisition, construction, and reconstruction of the wastewater collection, treatment and disposal facilities of the District; to repay principal and interest on debt instruments; or to repay federal or state loans issued for the construction and reconstruction for said Book Page 154 sewerage facilities, together with costs of administration and provisions for necessary reserves. Section 2: That the proponents of any application for annexation of any territory to the District are requesting that the annexed property become a part of the District's jurisdiction, and that by doing so, they become entitled to receive the benefits of having access to the use of the extensive capital facilities system and to receive the District's service, and shall, as a condition to securing approval of the Board of Directors of the District to such annexation, agree to and comply with the following requirements: A. Payment of all administrative costs incurred by the District in processing the annexation. B. Payment of annexation acreage fees, as follows: Beginning January 1, 2004, the sum to be paid for annexation of territory to the District for which no tax exchange is negotiated between all affected agencies is hereby fixed: Consolidated Revenue Area Nos. 1-13: $4,235/acre Revenue Area No. 14: N/A C. The annexed territory shall be subject to the terms and conditions of all Ordinances and Resolutions pertaining to fees for connection to the District's facilities and use of said facilities, including but not limited to, industrial discharge permit fees, capital facilities capacity charges, and sewer service user fees. D. The annexed territory shall be annexed into an appropriate local sewering agency, or obtain the written approval of the designated local sewering agency, such as a city, for the purpose of obtaining access to and use of the local sewer system, including pumping stations and force mains, which connects to the District's facilities and system. E. The territory, upon annexation, shall be subject to all ad valorem taxes required for the retirement of the existing and future bonds of the District, and all other applicable ad valorem taxes of the District. F. In the case of territory outside of the District's adopted sphere of influence that is provided service pursuant to District Resolution 99-05, Section 2(as the same may be amended from time to time),the following areas shall not be subject to fees equivalent to annexation fees: • That portion of land that is subject to a permanent easement for open space preserve or dedication for open space preserve. This exception shall not apply to areas that are internal to developments. Portions of property to be used for public and private parks intended for recreation purposes shall be subject to the fees. Individual open space areas that are surrounded or substantially surrounded by development shall be subject to the fees, • Land that is designated for use as a golf course, except that all portions of golf course land which are utilized for access road, parking, and clubhouse shall be included. • Land designated for use as a flood control or water quality basin. Book Page 155 If the use of any portion of territory previously exempted from payment of the fees hereunder is changed to a non-exempt use, the then-owner of that portion of the territory shall pay the fees equivalent to annexation fees at the amount then in effect for that portion of the territory that is no longer exempt. i Section 3: The General Manager Is hereby authorized and directed to establish procedures and fees for processing annexation of territory to the District. Said procedures may include provisions for collection by the District of fees charged by other local and state agencies involved in the annexation process for submittal to said agencies by the District on behalf of the annexation proponent. 1 The District's Staff is hereby directed to provide the proponents of any proposed ; annexation a copy of procedures and fee schedules established pursuant to the authority of this Section. Not withstanding the foregoing, upon application of any property owner seeking permission to connect to the District's system. the District Board of Directors may defer payment of the applicable annexation fees until such time as the applicant actually connects to the District's system. Section 4: That the Staff be directed to transmit to the Orange County Local Agency Formation Commission a certified copy of this Ordinance. Section 5: If any of the provisions of this Ordinance, or the application to any persons or circumstance are held invalid by order of Court, the remainder of this Ordinance, or the application of such provision to other persons or other circumstances, shall not be affected. Section 6: That the provisions of this Ordinance shall become effective thirty(30) days after adoption and shall apply to all annexations to the District on or after said date. Section 7: That Ordinance No. OCSD-249 is repealed effective upon the effective date of this Ordinance. Section 8: That the Secretary of the Board shall certify to the adoption of this Ordinance and shall cause a summary to be published in a newspaper of general circulation as required by law. PASSED AND ADOPTED by the affirmative vote of not less than two-thirds of the Board of Directors of the Orange County Sanitation District at a regular meeting held 20067. Chair, Board of Directors Orange County Sanitation District Book Page 156 ATTEST: Sesretar�Clerk of the -Board of-Directers Orange County Sanitation District BRADLEY R. HOGIN GENERAL COUNSEL Book Page 157 ADMINISTRATION COMMITTEE Meetlng Date To Bd.of W. 04/11/07 AGENDA REPORT Item Number Ian Number ADM07-29 Orange County Sanitation District FROM: James D. Ruth, General Manager Originator: Lorenzo Tyner, Director of Finance and Administrative Services SUBJECT: 2007-08 DISTRICT BUDGET UPDATE GENERAL MANAGER'S RECOMMENDATION Informational item. SUMMARY For continued discussion of the update to the OCSD 2006-07 and 2007-08, line item detail for the operating budget has been included. The budget will be presented for adoption at the June 27, 2007 Board meeting. PRIOR COMMITTEE/BOARD ACTIONS N/A ADDITIONAL INFORMATION N/A ATTACHMENTS 1. 2007-08 Budget Development Operating Budget Detail JDR:LT:lc kWM'aeatlelCom,rtitlBMWUmin rommm.ewaoTm-2elow�e ewes oeul ea nanew: o,maoa Page 1 Book Page 158 FT 2007-08 BUDGET UPDATE-OPERATING BUDGET DETAIL Adopted Proposed Change$ Change% Salaries.Wages.&Benefits a Salary and Wages 55,446.900 55.708,100 261,200 0% b Retirement Costs 12,824,160 12,972,560 148,400 1% c Group Insurance 6,852,800 6,851,400 (1,400) 0°h d Other 774,600 792,500 17,900 2% 1)TOTAL SALARIES,WAGES AND BENEFITS 75,898,460 76,324,560 426,100 1% Chemicals a Disinfection 9.971,000 9,007,300 (963,700) -10% b Coagulants 6,327,200 5,913,460 (413,740) -7% c Odor Control 6,644.700 5.914.600 (730,100) -11% d Other Supplies and Tools 2,449,980 2,251,980 (198,000) -8% 2)TOTAL CHEMICALS AND OTHER SUPPLIES 25,392,880 23,087,340 (2,305,540) -9% Solids and Waste Disposal a Solids Removal 13,370.000 14,302,450 932,450 7% b Other Residual Solids and Waste 6501000 2,450,000 1,800,000 277% Total Solids and Waste Disposal 14,020,000 16,752,450 2,732,450 19% Other Contractual Services c Groundskeeping,Janitorial and Security 1,064,000 1,192,100 128,100 12% d Outside Lab Services 8 Oxygen Plant Ops 597,000 510,500 (86,500) -14% e County Service Fee 474,000 474,000 0 0% f Temporary Services 400,480 306,390 (94,090) -23% g Other 1,352,000 1.878,000 526,000 39% Total Other Contractual Services 3,887,480 4,360,990 473,510 12% Professional Services h Legal,Audit and Accounting Services 838,980 918,580 79,600 9% i Engineering and Environmental Consulting 711,000 789,900 78,900 11% j Technology Support and Software Consulting 387,060 347.360 (39.700) -10% k Advocacy Efforts 291,000 249,000 (42,000) -14% 1 Other 793,200 783,100 (10,100) -1% Total Professional Services 3,021,240 3,087,940 66,700 2% 3)TOTAL CONTRACTUAL AND PROFESSIONAI 2D,928,720 24,201,380 3,272,660 16% Repairs and Maintenance a Repairs and Maintenance-Services 4,156,850 3,632,6DO (524,250) -13% b Repairs and Maintenance-Materials 4,559,980 3,922,560 (637,420) -14% c Service Maintenance Agreements 1,659,040 1.499.690 (159,350) -10% 4)TOTAL REPAIRS AND MAINTENANCE 10,375,870 9,054,850 (1,321,020) -13% Utilities a Electricity 6,417,640 7,033.240 615,600 10% b Natural Gas 1,041,100 1,279.000 237,9D0 23% c Water 1,480,180 1,352,520 (127,660) -9% d Telephone 199,340 218,500 19,160 10% 5)TOTAL UTILITIES 9,138,260 9,883,260 746,000 8% Research and Monitoring a Environmental Monitoring 756,000 690,000 (66.000) -9% b Air Quality Monitoring 172,000 226,000 54,000 31% c Research 496,390 589,440 93,050 19% 6)TOTAL RESEARCH AND MONITORING 1,424,390 1,505,440 81,050 6% Book Page 159 FY 2007-08 BUDGET UPDATE-OPERATING BUDGET DETAIL Adopted Proposed Change $ Change% Other Expenses a Capital Grants to Member Agencies 2,500,000 2.500.000 0 0% It, Property and General Liability Insurance 1,998,2DO 1,998,200 0 0% c Operating Contingency Funds 1,137,800 1,137,800 0 0% d Administrative Expenses 1,259,080 1,505,740 246.660 20% e Training and Meetings 1,430,900 1,419,140 (11,760) -1°/ 1 Printing and Publication 5522M 636,730 84,450 15% g Regulatory Operating Fees 446,OD0 518,000 72,DDO 16% h Other Operating Supplies 406,390 389.160 (1923m -5% 7)TOTAL OTHER EXPENSES 9,732,650 10,104,770 372,120 4% SUB-TOTAL-OPERATING BUDGET 162,891,230 154,161,600 1.270,370 1% Cost Allocation Salaries (8,018,136) (7,503,400) 514,736 -6% Expenses (9,270,964) (8,675,800) 595,164 -6% 8)TOTAL COST ALLOCATION (17,289,100) (16,179,200) 1,109,900 B% TOTAL OPERATING BUDGET 136,602,130 137,982,400 2,380,270 2% Book Page 160 FY 2007-08 BUDGET UPDATE—OPERATING BUDGET DETAIL Adopted Proposed 1) SALARIES,WAGES AND BENEFITS $75.9 $76.3 1a) Salary and Wages $55.4 $55.7 1b) Retirement Costs $12.8 $13.0 District employees are members of the Orange County Employees' Retirement System (OCERS). Preliminary information from OCERS indicates that an increase in rates is expected. The employer's required contribution rate has been increased from 20.15% to 20.87%. In addition, the District pays 3.5% on behalf of each employee. 1c) Group Insurance $6.9 $6.8 Includes Medical, Dental, Vision, Life Insurance, Medicare, Disability. 1d) Other $0.8 $0.8 This category includes Workers' Compensation, Tuition Reimbursement, and Uniform Rental. The proposed appropriation of$559,000 for the workers' compensation item is needed to maintain the recommended level of reserve within the workers' compensation self-insurance fund. 2) CHEMICALS AND OTHER SUPPLIES $25.4 $23.1 2a) Disinfection $10.0 $ 9.0 The largest cost related to Disinfection is for chemicals, specifically bleach. Sodium Hypochlorite (Bleach) —Over 96%of the bleach is used for effluent disinfection. The remaining bleach usage is for odor control, disinfection of plant water, and the control of filamentous organisms in activated sludge in the secondary treatment process. It is anticipated that the District will use 11.69 million gallons in FY 2007-08. While this reflects an increase in projected use, the proposed disinfection budget for bleach of$8.5 million is less than what was adopted due to a lower than expected unit cost. Sodium Bisulfite—Sodium bisulfite is used for dechlorination of outfall effluent to ensure that no residual chlorine is discharged into the ocean. It is anticipated that the District will use 640,000 gallons of sodium bisulfate in FY 2007-08, for a proposed budget of$461,000. 1 Book Page 161 FY 2007-08 BUDGET UPDATE— OPERATING BUDGET DETAIL Adopted Proposed 2b) Chemical Coagulants $6.3 $6.9 Anionic Polymer—Anionic polymer is added to the primary clarifiers in combination with ferric chloride to enhance primary clarifier performance. The proposed budget for anionic polymer is $0.3 million. Cationic Polymer—Cationic polymer is added to digested sludge prior to dewatering in order to improve the sludge and water separation process. Cationic polymer is also added to the waste activated sludge dissolved air flotation thickeners (DAFTs)to improve solid(s) coagulation. Solution polymer will be used in the DAFTs at Plant No. 1 while Mannich polymer will be used in dewatering at Plant No. 1. Mannich polymer is used in both the DAFTs and dewatering at Plant No. 2. Approximately 19.5% of total polymer used for both plants is solution, and the remaining 81.5% of polymer used is Mannich. The total proposed budget for cationic polymer is $1.6 million. Ferric Chloride— Ferric chloride is an iron salt which is currently used to increase the solids removal efficiencies in the primary treatment process and to control digester hydrogen sulfide. As the amount of ferric chloride is optimized in primary treatment an additional amount of ferric chloride will be added to the digesters to control hydrogen sulfide. The projected ferric chloride usage for FY 2007-08 is 8,200 dry tons, a 3.5% decrease in estimated usage from the FY 2006-07 budget. The proposed budget for ferric chloride is $4.0 million, 2c) Odor Control $6.6 $5.9 Hydrogen Peroxide— Hydrogen peroxide is principally used in the trunk sewers for control of sulfides, and some is used in the foul air scrubbers to control hydrogen sulfide. Sulfide and odor control is dependent upon several factors including water temperature, pH of the water and level of upstream treatment and maintenance. Assuming FY 2006-07 environmental conditions with unchanged levels of upstream chemical treatment, hydrogen peroxide usage for FY 2007-08 is estimated at 1.23 million gallons at a cost of$1.5 million ($1.4 million and $0.1 million for Plants No. 1 and No. 2 respectively). Sodium Hydroxide (Caustic Soda)—Sodium hydroxide (caustic soda) is used in the foul air scrubbers and in the Districts' main trunk lines tributary to the treatment plants. It is estimated that the District will use 594 dry tons of caustic soda in the scrubbers and 395 dry tons in the trunk lines. In treating the trunk sewers for sulfides, it has been determined that 40% of the usage and cost applies to the treatment plant and the remaining 60% applies to the collection facilities. For FY 2007-08, staff projects the usage for the treatment plant to be 752 dry tons and the usage for the collection system to be 237 dry tons for a total caustic budget of$503,000. Murlatic Acid —Muriatic Acid (hydrochloric Acid) is used to backwash the media In the foul air scrubbers, associated piping, and pumps. This cleans deposits caused by hard water, sulfides from the reaction with the foul air, and caustic soda used in the scrubbing process. The projected usage for FY 2007- 08 is 40,000 gallons at a cost of$36,000. 2 Book Page 162 FY 2007-08 BUDGET UPDATE— OPERATING BUDGET DETAIL Odor Neutralizers— Odor neutralizers are used in the solids processing facilities of both plants to mask the odors from the processed biosolids as they are loaded into the trucks for reuse. Over 63% of the chemical neutralizer is used at Plant No. 2. During FY 2007-08, the anticipated usage is 40,000 gallons at a cost of$31,500. Peroxide Regenerated Iron for Sulfide Control (PRISC) This covers chemicals, tanks, pumps and servicing for continuous treatment for odor control for 3 trunklines. It includes 3 dosing locations for ferrous chloride and 3 dosing locations for hydrogen peroxide. Estimated usage for FY 2007-08 is 1.85 million gallons for a total projected cost of$2.9 million. Magnesium Hydroxide—Trunklines This includes chemicals for continuous odor control treatment for the Newport Beach trunkline, the chemical, tank, pumps and equipment servicing. The total projected cost is $663,000. Adopted Proposed 3) CONTRACTUALIPROFESSIONAL SERVICES $20.9 $24.2 3a) Solids Removal $13.4 $14.3 The proposed FY 2007-08 biosolids hauling and land application budget is $14.3 million. In FY 2007-08, biosolids production at Plant No. 1 is assumed to increase by 30% as a result of completing the secondary treatment plant. Plant No. 2 biosolids production is expected to remain similar to FY 2006-07. The total estimated biosolids production is 260,590 wet tons for FY 2007-08. The total estimated budget for biosolids reuse will increase by 12%, to $14.3 million. This significant increase is due to the anticipated change in land application facilities, the subsequent unit price increases at these facilities, and completion of the secondary plant expansion at plant 1. The cost per ton for biosolids reuse is estimated to be $55 for FY 2007-08. 3b) Other Residual Solids and Waste $0.7 $2.5 The other residuals solids and waste category includes disposal costs for grit and screening waste, digester cleaning waste, and hazardous materials. The FY 2007-08 budget is proposed to increase from the original estimate by $1.25 million resulting from increased costs for disposal of digester waste. The adopted budget was prepared assuming the District would have consolidated contracts for biosolids and digester disposal. However, it has been determined that the material removed during digester cleaning is not at a level that can be used for biosolids recycling. Consequently, a separate contract is needed for digester waste disposal. 3c) Grounds keeping/Janitorial/Security $1.1 $1.2 This line item represents the total of the District's contracted service accounts for grounds keeping,janitorial, and security services. 3 Book Page 163 FY 2007-08 BUDGET UPDATE— OPERATING BUDGET DETAIL Adopted Proposed 3d) Outside Lab Services & Oxygen Plant Operations $0.6 $0.5 The District contracts out certain laboratory services that are not cost efficient to perform in-house. Examples include bio-solids testing and hi-resolution mass spectroscopy. The first requires registration and certification which is cheaper to contract out as opposed to hiring and obtaining the skills required to do in-house. The second would require over $1 million in equipment and facilities to complete in-house as opposed to the $20,000 to $30,000 required to complete through an outside laboratory. OCSD is required to purchase oxygen for plant operations during plant facility shutdowns which result from construction activity. 3e) County Service Fee $0.5 $0.5 The County Service Fee is the fee charged by the County of Orange for the inclusion of the District's sanitation fees on the County of Orange Property Tax Bill and for the collection of these fees by the County on behalf of the District. 3f) Temporary Services $0.4 $0.3 Temporary services are used agency-wide as a stop gap measure for unplanned terminations of essential staff members as well as for short term projects that require additional staffing resources. 3g) Other $1.4 $1.9 Other smaller contractual services are collectively reported within this line item. The $500K proposed increase is for costs related to the groundwater replenishment program which will now treat for NDMA contaminants. 3h) Legal, Audit and Accounting $0.8 $0.9 Legal services are the services provided by General Counsel. Audit and accounting services represent the cost for the District's independent annual financial audit and contracted internal auditing services as well as required program audits. 31) Engineering & Environmental Consulting Services $0.7 $0.8 Engineering services are generally required to support the Districts regional assets and services. Environmental consulting services support the ocean monitoring program, the fats, oil, and grease inspection and monitoring program, and watershed management initiatives. 3j) Technology Support and Software Consulting $0.4 $0.3 These support costs are needed in order to maintain the District's software applications that include human resources, payroll, general ledger and financial reporting, budgeting, fixed assets, accounts payable, accounts receivable, purchasing, inventory, and contract administration processes. 3k) Advocacy Efforts $0.3 $0.2 Funds are for promoting the District's interests at the state and federal levels. 31) Other $0.8 $0.8 Other smaller professional services are collectively reported within this line. 4 Book Page 164 FY 2007-08 BUDGET UPDATE — OPERATING BUDGET DETAIL Adopted Proposed 4) REPAIRS AND MAINTENANCE $10.4 $9.1 4a) Repairs and Maintenance—Services $4.2 $3.6 The activated sludge facility at Plant 1 uses diffusers to supply aeration to the basins. The diffusers are operating at 50% efficiency. In FY 2007-08, the diffusers will be replaced at an estimated cost of$1 million, and this will reduce future power costs by approximately $822,000 annually. Four CenGen engine overhauls to preserve electrical reliability for the treatment plants are budgeted at $1 million. 4b) Repairs and Maintenance—Materials $4.6 $3.9 Other 2007-08 scheduled maintenance includes: Amount Mechanical maintenance base budget $1,716,000 Electrical maintenance base budget $900,000 CenGen catalytic oxidizer media replacement $350,000 Rehabilitation digesters $150,000 Rehaul belt filter presses $180,000 Total Other Maintenance $3,296,000 4c) Service Maintenance Agreements $1.7 $1.6 $1.2 million of these resources are allocated for computer-related hardware / software maintenance and licensing agreements in the following categories: Service Agreements Amount General/Enterprise Support $334,000 Computing Management Support $205,000 Financial Support $154,000 Process Support $100,000 Enterprise upgrade to Microsoft Enterprise License $ 96,000 Engineering Tools $ 78,000 Software Development $ 73,000 GIB Support $ 66,000 Safety/Security Support $ 45,000 Total Service Agreements 1,161,000 5 Book Page 165 FY 2007-08 BUDGET UPDATE— OPERATING BUDGET DETAIL Adopted Proposed 5) UTILITIES $9.1 $9.9 6a) Electricity $6.4 $7.0 The estimated consumption and resulting costs for electrical energy purchased from Southern California Edison for FY 2007-08 is shown below and totals $6,398,000. This budgetary number contains no contingency and excludes the electricity requirements of all pump stations. The FY 2007-08 proposed budget is 15% higher than the FY 2006-07 budget. The budget reflects an increase in energy imports because of reduced electrical power production at the District's Central Generation Facilities(CenGen). CenGen production has been reduced to meet new air emissions limits. The estimated consumption values are based on the actual values experienced for FY 2006-07 as shown the following table: FY 2007-08 Estimated Proposed Budget Item Consumption Cost per kWh Value (kWh/year) Plant No. 1 Energy Charges 22,400,000 1 @$0.095 $2,128,000 Plant No. 2 Energy Charges 19,000,000 @$0.085 $1,615,000 Plant No. 1 Demand Charges $ 942,000 Plant No. 2 Demand Charges $ 442,000 Plant No. 1 Fixed Charges $ 400,000 Plant No. 2 Fixed Charges $ 360,000 Plant No. 1 Control Center 0 @$0.13 $ 1,000 Total Plants $5,888,000 Laboratory 3,000, 0 @$0.13 $ 390,000 Administration Building 920,00006 @$0.13 $ 120,000 Total $6,398,000 5b) Natural Gas $1.0 $1.3 The District's budget for natural gas is$1,279,000 for FY 2007-08, based on projected use at the predicted natural gas commodity prices. The estimated natural gas to be purchased from SoCalGas and a gas marketer for Treatment Plant Nos. 1 and 2 for FY 2007-08 is shown below. The "core subscription" is natural gas purchased directly from the Gas Company and used mainly for building heating. The natural gas used for central generation is purchased from a gas marketer, Occidental Energy, and transported through the Gas Company conveyance system at an average cost of$0.93ftherm. 6 Book Page 166 FY 2007-08 BUDGET UPDATE—OPERATING BUDGET DETAIL FY 2007-08 User Estimated Cost Per Total Cost Consumption Therm Plant No. 1 Core Subscription 80,000 therms $1.00/therm $ 80,000 Plant No. 1 Central Generation 70,000 therms $0.93/therm $ 65,000 Plant No. 2 Core Subscription 18,000 therms $1.00ttherm $ 18,000 Plant No. 2 Central Generation 1,200,000 therms $0.93ttherm $1,116,000 Total 1,368,000 therms $1,279,000 5c) Water $1.5 $1.4 Green Acres Project(Gap)Water—GAP water is made up of secondary treated effluent from the District that is further treated by the Orange County Water District. GAP water is significantly less expensive then potable water and is used in the process wherever possible. The major uses of GAP water include cooling water, solids handling, and landscaping. The projected budget for FY 2007-08 is $880,000 and includes a 17% decrease in usage and a 25% increase in the rate. Potable Water—The potable water budget includes the water supplied by the City of Fountain Valley for Plant No. 1 and the City of Huntington Beach for Plant No. 2. Approximately 5% of the potable water at Plant No. 1 is used for domestic uses and less than 1% is used for irrigation. The majority of the irrigation at both plants uses reclaimed water. Less than 1% of the potable water used at Plant No. 2 is for domestic uses due to the relatively small number of employees at Plant No. 2. Plant 1 usage is estimated to increase by 5% and Plant 2 usage is estimated to increase by 2%; there is an anticipated increase in rates of 5%for each plant. The proposed total potable water cost for FY 2007-08 is $464,000. 5d) Telephone $0.2 $0.2 The telephone expense is essentially unchanged 7 Book Page 167 FY 2007-08 BUDGET UPDATE— OPERATING BUDGET DETAIL Adopted Proposed 6) RESEARCH AND MONITORING $1.4 $1.5 6a) Environmental Monitoring $0.8 $0.7 The budget line item for "Environmental Monitoring" includes costs associated with the District's National Pollution Discharge Elimination System (or NPDES) permit-required ocean monitoring program. This program consists of three elements: Core Monitoring represents routine, long-term sampling that is used to determine compliance with permit criteria and to determine changes in the coastal ocean over time. Strategic Process Studies are non-routine studies that address specific ocean processes or emerging issues that are not readily answered by the Core Monitoring program element. These studies are developed by District staff and approved and incorporated into our permit by the US Environmental Protection Agency, Region IX and Regional Water Quality Control Board, Region 8. Regional Monitoring occurs every 4-5 years and samples the coastal ocean from Point Conception in the north to the US-Mexico Border in the south. This is a cooperative, multi-agency effort; most recently, it included 65 other agencies and organizations. In addition to the funds needed to conduct the permit-required ocean monitoring program, Environmental Monitoring also includes operating funds for the District's ocean monitoring vessel, the MN Nerissa." 6b) Air Quality Monitoring $0.2 $0.2 Periodic monitoring and analysis of air emissions requires testing from various sources including the central generation facilities, validation of emissions from continuous monitoring equipment, source testing after CIP installation/ modification (i.e. P1 trickling filters, P1 primary basin install and modifications, etc.). Periodically, there is a requirement to test the waste gas flares. 6c) Other Research $0.5 $0.6 OCSD contributes annually to research organizations such as the Southern California Coastal Water Research Project and the Water Environmental Research Foundation. 8 Book Page 168 FY 2007-08 BUDGET UPDATE — OPERATING BUDGET DETAIL Adopted Proposed 7) Other District Expense $9.7 $10.1 7a) Cooperative Projects $2.5 $2.5 The Cooperative Projects Grants Program co-funds projects sponsored by a member agency to eliminate or reduce inflow and/or infiltration of storm water and groundwater from local wastewater collection lines and to repair or replace poor performing, aging local wastewater collection system infrastructure. The District will fund projects by contributing up to fifty percent matching funds against a member agency's contribution to an eligible project. All member agencies of the District are eligible to participate in this program. The annual cash flow budget is $2.5 million with a cap of$7.5 million for total outstanding obligations. 7b) Property and General Liability Insurance $2.0 $2.0 The District's outside excess general liability insurance coverage is $25 million with a self- insurance retention of$250,000. The District's property insurance coverage of$1 billion for perils other than flood and fire and $175 million for flood is subject to a self-insurance retention of 5 percent per unit of insurance up to $25,000 for fire and $100,000 for flood. The District is fully self-insured for earthquake. The proposed appropriation of$2.0 million is needed to maintain the recommended level of reserve within the general liability and property self- insurance fund. 7c) Operating Contingency $1.1 $1.1 These funds are centrally budgeted and expended at the discretion of and by specific approval of the General Manager. These funds are used to support unanticipated District needs or requests of the Board. Since the operating budget lapses at the end of each fiscal year, funds need to be set aside for contacts, purchases, commitments, and other legal obligations that have been incurred prior to June 30 but the goods or services have not been delivered until after June 30 in the new budget year. 9 Book Page 169 FY 2007-08 BUDGET UPDATE—OPERATING BUDGET DETAIL Adopted Proposed 7d) Administrative Expenses $1.3 $1.5 Administrative expenses include small, non-operating expenses collectively reported within this one line item. Small Computer Items $0.5 $0.6 In 1999, OCSD consolidated the budget for all non-CIP Office Automation and Small Computer items into a single line item. Memberships $0.4 $0.3 The General Manager has reviewed all membership requests for necessity and redundancy and has limited this amount to a responsible level. OCSD's largest membership costs are for district-wide participation in groups such as the National Association of Clean Water, the Orange County Business Council, the California Association of Sanitation Agencies, the Southern California Alliance of Publicly Owned Treatment Works, the Association of California Water Agencies, and the Center for Demographic Research. Office Supplies $0.1 $0.1 Office supplies include such items as envelopes, letterhead, notebooks, calendars, business cards, pens, and pencils, etc. Postage $0.1 $0.3 This line item is for postage costs associated with all District mailings and required notices. Other $0.2 $0.2 Other smaller expenses collectively reported within this one line item. 7e) Training and Meetings $1.4 $1A Training $1.0 $1.0 An amount equal to approximately 2% of the Regular Salaries budget is allocated to Training. Training activities are coordinated though the Human Resources Division. This category includes ongoing technical training and materials for staff; expansion of the supervisory training program, required training for computerized plant monitoring and control systems and training to allow for a more adaptive and flexible work force. Meetings $0.4 $0.4 The General Manager has reviewed all meeting request budgets for necessity, duplication, and redundancy and has limited this amount to a responsible level. 10 Book Page 170 FY 2007-08 BUDGET UPDATE - OPERATING BUDGET DETAIL Adopted Proposed 7f) Printing and Publishing $0.6 $0.7 In-House Publishing $0.5 $0.5 Although the budget provides for some outside printing costs, the majority of OCSD printing activities are completed In-house, reflecting an expanded management information system, administrative requirements, and a continuing demand by the public and regulatory agencies for information. These activities including printing of District's maps, brochures, Board reports and agenda items, budget materials, etc. 7g) Regulatory Fees $0.5 $0.5 This item is for payments to the South Coast Air Quality Management District, the County of Orange, and the State Water Resources Control Board for permit and operating fees. 7h) Other $0.4 $0.4 Other smaller expenses collectively reported within this one line item, including freight charges and miscellaneous equipment rentals. Adopted Proposed 6) COST ALLOCATION ($17.3) ($16.2) This represents direct and indirect labor, benefits, materials, and services charged to the Capital Improvement Program (CIP)for which the related work was performed. 11 Book Page 171 ADMINISTRATION COMMITf EE m4a19oatr ru etl.or ar. o trg D AGENDA REPORT 1ADM00 1en N°""' No m b Orange County Sanitation District FROM: James D. Ruth, General Manager Originator: Lorenzo Tyner, Director of Finance and Administrative Services SUBJECT: FY 2007/08 BENEFITS PROGRAM RENEWAL COSTS GENERAL MANAGER'S RECOMMENDATION Information only. SUMMARY The total cost of insurance coverage will increase approximately 13.3% for the forthcoming fiscal year. Staff has been working with the insurance broker, Alliant Insurance Services, to determine renewal rates so that appropriate funds are budgeted for the increases. Staff anticipates the following premium increases: Insurance Provider Rate Change Comments Medical Blue Cross 17.5% Medical Kaiser Permanents 21.9% Dental Della Dental 9.8% 2-year rate guarantee Vision VSP -4.7% 4-year rate guarantee EAP MHN/CSAC 10.0% Estimate-final rate available in May Llfe/Disabifity MetLife 6.3% 3-year rate guarantee The total cost increase for FY2007/2008 is $1,076,938, which is proportionally shared as follows: • OCSD cost: $ 871,411 • Employee cost: 205,527 • Total $1,076,938 Historical Summary: Anticipated Rate Rate Increase Pate Increase Rate Increase Increase FY 07108 1 FY 06107 FY 05106 FY 04105 Blue Cross 17.5% 8.8% 4.0% 3.0% Kaiser 21.9% -0.3% 4.7% 16.5% Dena Dental 9.8% 0.0% 1.5% 1 -4.2% Page 1 Hook Page 172 PRIOR COMMITTEE/BOARD ACTIONS N/A ADDITIONAL INFORMATION Staff and Alliant Insurance Services have been working together to determine how medical plan benefits can be modified to maintain a competitive benefits program while bringing plan benefits in line with industry trends. Prescription drugs remain the fastest growing component of healthcare costs, reflecting double digit increases since 1998; this also continues to be the most widely used employee health benefit. Alliant Insurance Services provided benchmarking information demonstrating that OCSD's pharmacy co-pays are 50% below the national average. Additionally, benchmarking information illustrated that OCSD's HMO office visit co-pay is 50% below that of other similarly-situated Southern California public sector agencies. ALTERNATIVES Alliant Insurance Services presented alternative renewal options which more closely reflect trends in pharmacy and HMO office co-pays. These options would potentially reduce the total Blue Cross medical premium. Changes to the benefits plan would be subject to the meet and confer process. JDR:LT:lc Form No.ow-192.e nwieea...1.7 Page 2 Book Page 173 I, ADMINISTRATION COMMITTEE meeting Date To ea or Dtr. 04/11/07 04/25/07 AGENDA REPORT Item Number IbynNumher eM NU 31 Orange County Sanitation District FROM: Jim Ruth, General Manager Originator: Lorenzo Tyner, Director of Finance and Administrative Services SUBJECT: PROPERTY TAX CREDIT ADJUSTMENTS FOR CLASS I AND CLASS II PERMITS GENERAL MANAGER'S RECOMMENDATION Informational Item. SUMMARY Currently the Sanitation District's rate structure calculates Class I and Class II permittee rates without taking into consideration property tax revenues received from the related parcels. Ordinance No. OCSD-01 then provides for a tax credit equal to the annual ad valorem tax basic levy allocated to the District for the property for which a permit has been issued by the District to be given to the permittee at year end. This tax credit is applied at the end of the year when the actual cost is determined based on actual flow, BOD, and SS discharges, and reconciled against the estimated payments made during the year by the permittee. Beginning with the proposed rate structure for FY 2008-09, staff will be proposing new permittee rates net of property tax revenues received. This methodology is consistent with the rest of the Sanitation District's current rate structure for all other customers. By taking into consideration property taxes received by the District in deriving the new permittee rates for FY 2008-09, the need to provide a property tax credit will no longer exist. 1970 to 1997-98 — rates based upon gross revenue needs allowing line item tax credit 1998 to 2004—rates incorrectly based upon net revenue needs while allowing line item tax credit 2005 to present— rates corrected based upon gross revenue needs allowing line item tax credit The financial cost to the Sanitation District of implementing the staff recommendation will be minimal. A notice of the proposed rates and methodology change will need to be mailed to every Permit User informing them of the change that is proposed and the rates that are projected for 2008-09. Of course, the Board will consider these rates separately each year along with the annual sewer service fee rates. Book Page 174 The cost to some Permit Users will be significant. A schedule that estimates the total annual cost to each Permit User will be provided at the meeting. There will be additional, but unquantified costs to the Sanitation District from explaining these costs to various Permit Users. PRIOR COMMITTEE/BOARD ACTIONS On July 1, 1998, the Board adopted Ordinance No. OCSD-01, An Ordinance of the Board of Directors of Orange County Sanitation District, Adopting Wastewater Regulations as a Reenactment of the Regulations Adopted and In Effect By Predecessor Districts. ADDITIONAL INFORMATION Since the inception of the Permit User Fee program in 1970, users of the District's system that discharge high volumes or high strength wastewater have been required to obtain a discharge permit (either a Class I or Class II Permit) and to pay fees directly to the District for the cost of service. The fees are initially calculated on the basis of actual flow, BOD and SS discharged to the sewer and subsequently reduced by the actual property taxes they have paid to the District. This practice was intended to ensure that these users paid their actual cost of service through a combination of user fees and property taxes. Beginning in 1998-99, an additional step was added to reduce the parameter rates even more. The intent of this adjustment was to make the Permit User parameter rates equivalent to those implicit in the annual flat rate sanitary sewer service user fee. These individual rates are the de facto rates paid by all of the users who do not have Source Control permits. From 1998-2004 these reduced de facto rates were presented to the Board for adoption as Permit User rates. There are approximately 500 Permit Users that pay for sewer services based upon their actual flow, BOO and SS discharge to the sewer. The individual user rate (reduced de facto rate) that was adopted from 1998-99 through 2004-05 for each of these parameters was calculated based upon net revenue requirements for operations and maintenance (O&M) and the validated capital improvement program (CIP), after subtracting other projected revenues, including property taxes, from our total revenue and spending requirements. The issue with using these rates came from the Ordinance that provides for Permit User rates. Ordinance No. OCS"l requires that the annual cost of service calculated from the actual Permit User discharge and the adopted Permit User rates must be reduced by the property tax paid by that individual user. However, these taxes were already considered during the calculation of the reduced rates that are equivalent to the flat rate sanitary sewer service user fee. In July of 2004, staff recommended that it was appropriate to modify the computation of the rates for flow, BOD and SS so that Permit Users were not allowed two reductions for property taxes. Correcting this calculation was approved by the Board effective January 1, 2005. H'baq�6%^de���eee`MMn G M-W=W2 �T .creene.aoc mum Page 2 Book Page 175 In April 2006, Carollo Engineers completed a comprehensive rate study on the District's total user fee program that considered the single-family residential rate (SFR), the underlying rate that is used in determining all commercial rates, the capital facilities capacity charges, and the supplemental facilities capacity charges. In addition, Carollo's rate study determined the individual BOD, TSS, and flow component rates used in billing high-strength dischargers under permit. These component rates for permittees were developed net of anticipated property tax revenues, the same methodology used for all other sewer service fees. In analyzing the impact to current permittees using this net cost of service methodology, staff estimated that approximately 75 percent of all permittees would be paying less than the SFR percentage increase while the remaining 25 percent would be paying a greater amount that, in some cases, totaling thousands of dollars. At that time, the Committee made the decision to stay with the current "gross of property to)C' rate methodology for permittees, and equally valid rate methodology as the "net cost of service" metholodgy", and implement a flat increase to the each permittee component unit equal to the SFR percentage increase. Staff was further directed staff to report back to the Committee in the future on options for implementing the net cost of service methodology that would minimize the rate increases to those permittees who would be heavily impacted. Staff is currently completing a strategic plan update to its capital improvement. This CIP update is completed approximately every five years unless there are substantial changes in variables and assumptions that would require one to be completed sooner. One component of this strategic plan update is the completion of a new rate study to that takes into consideration these changes in assumptions in developing the new rate plan. The strategic plan update and rate study are projected to be completed in time for consideration of the FY 2008-09 rate ordinance. Instead of considering significant adjustments to some individual permittee rates two consecutive years, staff is recommending the continuance of the "gross of property tax" rate methodology for permittees in the FY 2007-08 rate ordinance, and again tie the BOD, TSS, and flow component rates to the increase in the SFR. Alternative In future years, continue to calculate permit user rates for Flow, Bod and SS, gross of property tax revenue and allow line-item credit for property taxes paid by each individual permittee. Carollo Engineers has determined that the"gross of property tax revenue" rate methodology is a valid and acceptable alternative. JDR:LT:MW:lc x a.a�c�m�wmna�wm."cmMm".,oaoTma, T..aean:aoc Page 3 nw;aea. auwrm Book Page 176 ORANGE COUNTY SANITATION DISTRICT (714) 962-2411 www.ocsd.com Mailing Address: P.O. Box 8127 Fountain Valley, California 92728-8127 Street Address: 10844 Ellis Avenue Fountain Valley, California 92708-7018