STATE OF CALIFORNIA $15,330,000* LAKE ELSINORE PUBLIC

NEW ISSUE - BOOK-ENTRY ONLY RATINGS S&P:“AAA” (Insured)

S&P: “A” (underlying)

(See “CONCLUDING INFORMATION - RATINGS ON THE BONDS” herein)

In the opinion of Fulbright & Jaworski L.L.P., Los Angeles, California, Bond Counsel, under existing law interest on the Bonds is exempt from personal income taxes of the State of California and, assuming compliance with the tax covenants described herein, interest on the Bonds is excluded pursuant to section 103(a) of the Internal Revenue Code of 1986 (the “Code”) from the gross income of the owners thereof for federal income tax purposes and is not an item of preference under section 57(a) of the Code for purposes of the federal alternative minimum tax. See, however, “ LEGAL MATTERS - TAX MATTERS” herein regarding certain other tax considerations.

RIVERSIDE COUNTY STATE OF CALIFORNIA

$15,330,000* LAKE ELSINORE PUBLIC FINANCING AUTHORITY TAX ALLOCATION REVENUE BONDS (1999 SERIES C REFUNDING), 2010 SERIES A

Dated: Date of Delivery Due: September 1 as shown on the inside front cover.

The cover page contains certain information for quick reference only. It is not a summary of the issue. Potential investors must read the entire Official Statement to obtain information essential to making an informed investment decision. See “BONDOWNERS’ RISKS” herein for a discussion of special risk factors that should be considered in evaluating the investment quality of the Bonds.

Interest on the Bonds is payable semiannually on March 1 and September 1 of each year, commencing on September 1, 2010, until maturity or earlier redemption (see “THE BONDS - GENERAL PROVISIONS” and “THE BONDS - REDEMPTION” herein).

_____________________________________________________________________________________

The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under a financial guaranty insurance

policy to be issued concurrently with the delivery of the Bonds by Assured Guaranty Corp. (see “SOURCES OF PAYMENT FOR THE

BONDS – BOND INSURANCE” herein).

_____________________________________________________________________________________

The information contained within this Official Statement was prepared under the direction of the Lake Elsinore Public Financing

Authority (the “Authority”) by the following firm serving as Financing Consultant to the Authority:

ROD GUNN ASSOCIATES, INC.

_____________________________________________________________________________________

MATURITY SCHEDULE (see inside cover)

____________________________________________________________________________

The Bonds are payable solely from the revenues pledged under the Indenture (the “Revenues”), consisting primarily of proceeds from the repayment of Loans with respect to three separate Redevelopment Projects and the Low and Moderate Income Housing Fund, as described herein, to be made by the Redevelopment Agency of the City of Lake Elsinore (the “Agency”) to the Authority and certain other funds held under the Indenture as described herein. The Loans are payable by the Agency solely from Tax Revenues or Housing Set-Aside Revenues (as defined herein) attributable to the Redevelopment Project to which such loan relates, as described herein, or with respect to the Housing Loan solely from Housing Set-Aside Revenues attributable to the Redevelopment Projects deposited into the Low and Moderate Income Housing Fund (see “SOURCES OF PAYMENT FOR THE BONDS” and “BONDOWNERS’ RISKS” herein).

A portion of the proceeds from the Bonds will be used, on the delivery date of the Bonds, to refund the Lake Elsinore Public Financing Authority Tax Allocation Revenue Bonds, 1999 Series C.

It is anticipated that the Bonds, in book-entry form, will be available for delivery through the facilities of The Depository Trust Company in New York, New York, on or about February 4, 2010 (see “APPENDIX H – DTC AND BOOK-ENTRY–ONLY SYSTEM”).

The date of the Official Statement is ___________.

___________________________ * Preliminary, subject to change.

PRELIMINARY OFFICIAL STATEMENT DATED JANUARY 20, 2010Th

is P

relim

inar

y O

ffici

al S

tate

men

t and

info

rmat

ion

cont

aine

d he

rein

are

sub

ject

to c

ompl

etio

n or

am

endm

ent w

ithou

t not

ice.

The

se s

ecur

ities

may

not

be

sold

nor

an

offe

r to

buy

be a

ccep

ted

prio

r to

the

time

the

Offi

cial

Stat

emen

t is

deliv

ered

in fi

nal f

orm

. U

nder

no

circ

umst

ance

s sh

all t

his

Prel

imin

ary

Offi

cial

Sta

tem

ent c

onst

itute

an

offe

r to

sell

or th

e so

licita

tion

of a

n of

fer t

o bu

y, n

or s

hall

ther

e be

any

sal

e of

thes

e se

curit

ies

in a

nyju

risdi

ctio

n in

whi

ch s

uch

offe

r, so

licita

tion

or s

ale

wou

ld b

e un

law

ful p

rior t

o re

gist

ratio

n or

qua

lific

atio

n un

der t

he s

ecur

ities

law

s of

any

suc

h ju

risdi

ctio

n.

i

$15,330,000* LAKE ELSINORE PUBLIC FINANCING AUTHORITY

TAX ALLOCATION REVENUE BONDS (1999 SERIES C REFUNDING),

2010 SERIES A

MATURITY SCHEDULE (Base CUSIP®** ____)

$6,240,000* Serial Bonds

Maturity Date September 1_

Principal Amount*

Interest _Rate_

Reoffering __Rate__

CUSIP® Suffix**

2010 $680,000 2011 300,000 2012 305,000 2013 310,000 2014 320,000 2015 325,000 2016 340,000 2017 345,000 2018 360,000 2019 375,000 2020 390,000 2021 400,000 2022 420,000 2023 435,000 2024 455,000 2025 480,000

$9,090,000* _____% Term Bonds due September 1, 2033, Price ___% CUSIP® Suffix** ____

___________________________ * Preliminary, subject to change. ** CUSIP® Copyright 2010. American Bankers’ Association. CUSIP® data herein is provided by Standard & Poor’s CUSIP® Service Bureau, a Division of The McGraw-Hill Companies, Inc. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP® Service Bureau. CUSIP® numbers are provided for convenience of reference only. The Authority and the Underwriter do not guarantee the accuracy of the CUSIP® data herein.

ii

LAKE ELSINORE PUBLIC FINANCING AUTHORITY LAKE ELSINORE, CALIFORNIA

AUTHORITY GOVERNING BOARD Daryl Hickman, Chairperson

Amy Bhutta, Vice-Chairperson Robert E. Magee, Board Member Thomas Buckley, Board Member

Melissa A. Melendez, Board Member ______________________________________________

CITY COUNCIL Melissa A. Melendez, Mayor Amy Bhutta, Mayor Pro Tem

Thomas Buckley, Council Member, Robert E. Magee, Council Member Daryl Hickman, Council Member

______________________________________________ AGENCY BOARD OF DIRECTORS

Robert E. Magee, Chairperson Thomas Buckley, Vice-Chairperson

Amy Bhutta, Board Member Melissa A. Melendez, Board Member

Daryl Hickman, Board Member ______________________________________________

CITY, AUTHORITY AND AGENCY STAFF Robert A. Brady, City Manager /Authority and Agency Executive Director

Barbara Leibold, City Attorney / Authority and Agency Counsel James R. Riley, CPA, Acting Director of Administrative Services / Authority and Agency Treasurer

Debora Thomsen, City Clerk / Authority and Agency Secretary ________________________________________

PROFESSIONAL SERVICES

Bond Counsel and Disclosure Counsel Fulbright & Jaworski L.L.P.

Los Angeles, California City Attorney

Leibold, McClendon & Mann, P.C. Laguna Hills, California Financing Consultant

Rod Gunn Associates, Inc. Huntington Beach, California

Trustee and Fiscal Agent Union Bank, N.A.

Los Angeles, California

Fiscal Consultant HdL Coren & Cone

Diamond Bar, California Underwriter

O’Connor & Company Securities, Inc. Newport Beach, California Underwriter’s Counsel

McFarlin & Anderson LLP Lake Forest, California

_______________________________________

FOR ADDITIONAL INFORMATION James R. Riley, CPA, City of Lake Elsinore (951) 674-3124

O’Connor & Company Securities, Inc. (949) 706-0444

iii

GENERAL INFORMATION ABOUT THE OFFICIAL STATEMENT

Use of Official Statement. This Official Statement is submitted in connection with the offer and sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not to be construed as a contract with the purchasers of the Bonds.

Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure by the Agency, in any press release and in any oral statement made with the approval of an authorized officer of the Agency, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “forecast,” “expect,” “intend,” and similar expressions identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results and those differences may be material. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, give rise to any implication that there has been no change in the affairs of the Agency or any other entity described or referenced herein since the date hereof. Neither the Authority nor the Agency plan to issue any updates or revisions to the forward-looking statements set forth in this Official Statement.

Limited Offering. No dealer, broker, salesperson or other person has been authorized by the Authority or the Agency to give any information or to make any representations in connection with the offer or sale of the Bonds other than those contained herein and if given or made, such other information or representation must not be relied upon as having been authorized by the Authority, the Agency or the Underwriter. 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 Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale.

Involvement of Underwriter. The Underwriter has submitted the following statement for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. The information and expressions of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Authority, the Agency or any other entity described or referenced herein since the date hereof. All summaries of the documents referred to in this Official Statement are made subject to the provisions of such documents and do not purport to be complete statements of any or all of such provisions.

Bond Insurer. The Assured Guaranty Corp. (“AGC”) makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, AGC has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding AGC supplied by AGC and presented under the heading “SOURCES OF PAYMENT FOR THE BONDS - BOND INSURANCE” and “APPENDIX F - SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY.”

THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS CONTAINED IN SUCH ACT. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.

iv

TABLE OF CONTENTS INTRODUCTORY STATEMENT ............................1 THE AUTHORITY ......................................................1 Authorization and Formation ........................................1 Bond Authorization and Issuance..................................1 Financing Purpose of the Bonds ...................................2 THE AGENCY .............................................................2 Formation......................................................................2 Tax Allocation Financing ..............................................2 Housing Set-Aside Revenues ........................................2 Redevelopment Agency Project Area Boundaries.........3 THE REDEVELOPMENT PROJECTS.......................4 Redevelopment Project No. I........................................4 Formation......................................................................4 General Description. .....................................................4 Redevelopment Project No. II ......................................4 Formation......................................................................4 General Description. .....................................................4 Redevelopment Project No. III .....................................5 Formation......................................................................5 General Description ......................................................5 THE LOANS ................................................................5 Project No. I Loan ........................................................5 Authorization ................................................................5 Outstanding Bonded Indebtedness of

Redevelopment Project No. I .....................................6 Project No. II Loan .......................................................6 Authorization ................................................................6 Outstanding Bonded Indebtedness of

Redevelopment Project No. II....................................7 Project No. III Loan......................................................7 Authorization ................................................................7 Outstanding Bonded Indebtedness of

Redevelopment Project No. III ..................................7 The Housing Loan ........................................................7 Authorization ................................................................7 Outstanding Indebtedness of the Low and

Moderate Income Housing Fund................................8 SECURITY AND SOURCES OF REPAYMENT ........8 The Indenture................................................................8 The Loan Agreements ...................................................8 THE FINANCING PLAN ............................................8 Bond Insurance .............................................................8 The Refunding Program................................................8 REDEMPTION OF THE BONDS ...............................9 Mandatory Redemption from Optional Loan

Prepayments...............................................................9 Mandatory Sinking Payment Redemption.....................9 Mandatory Redemption upon Acceleration of the

Loans..........................................................................9 THE BONDS GENERAL PROVISIONS ....................9 Denominations ..............................................................9 Registration, Transfer and Exchange ............................9 Payment ........................................................................9 Notice..........................................................................10 LEGAL MATTERS ....................................................10

PROFESSIONAL SERVICES....................................10 FINANCIAL STATEMENTS.....................................11 CONTINUING DISCLOSURE..................................11 AVAILABILITY OF LEGAL DOCUMENTS............11

SELECTED ESSENTIAL FACTS .............................12 ESTIMATED SOURCES AND USES OF

FUNDS.......................................................................17 THE BONDS..............................................................17 THE LOANS..............................................................18

THE BONDS................................................................19 GENERAL PROVISIONS .........................................19 Repayment of the Bonds.............................................19 Transfer or Exchange of Bonds ..................................19 Bonds Mutilated, Lost, Destroyed or Stolen...............19 REDEMPTION ..........................................................20 Mandatory Sinking Payment Redemption ..................20 Mandatory Redemption from Optional Loan

Prepayments.............................................................20 Mandatory Redemption upon Acceleration of the

Loans .......................................................................20 Notice of Redemption; Rescission..............................20 Open Market Purchase of Bonds ................................21 Selection of Bonds for Redemption............................21 Effect of Redemption..................................................21 Partial Redemption .....................................................21 SCHEDULED DEBT SERVICE ON THE

BONDS....................................................................22 SCHEDULED DEBT SERVICE ON THE

LOANS....................................................................23 Redevelopment Project No. I Loan ............................23 Redevelopment Project No. II Loan ...........................24 Redevelopment Project No. III Loan..........................25 Housing Loan .............................................................26

SOURCES OF PAYMENT FOR THE BONDS........27 REPAYMENT OF THE BONDS ...............................27 The Bonds ..................................................................27 Reserve Fund ..............................................................27 REPAYMENT OF THE LOANS................................28 Tax Allocation Financing............................................28 In General ...................................................................28 Allocation of Taxes.....................................................28 Pledge of Tax Revenues or Housing Set-Aside

Revenues..................................................................29 Project No. I Loan ......................................................29 Project No. II Loan.....................................................29 Project No. III Loan....................................................29 Housing Loan .............................................................30 Alternative Method of Tax Apportionment

(“Teeter Plan”).........................................................30 ISSUANCE OF ADDITIONAL DEBT......................31 The Authority..............................................................31 The Agency.................................................................31 Subordinate Debt ........................................................32 BOND INSURANCE.................................................33

v

The Insurance Policy ..................................................33 The Insurer..................................................................33

BONDOWNERS’ RISKS............................................35 THE BONDS..............................................................35 General........................................................................35 No Liability of the Authority to the Owners................35 No Effective Acceleration on Default .........................35 Enforceability of Remedies.........................................35 Bond Insurer Default ..................................................35 Investment of Funds....................................................36 Secondary Market .......................................................36 THE LOANS ..............................................................36 Risk Factors Relating to the Reduction of Tax

Increment Revenues .................................................36 General........................................................................36 Reduction in Inflationary Rate. ...................................37 Assessment Appeals. ...................................................38 Proposition 8 Adjustments ..........................................38 Levy and Collection....................................................39 Property Owner Bankruptcy .......................................39 Risk Factors Related to Real Estate Market

Conditions................................................................39 Development Risks .....................................................39 Current Real Estate Market Conditions ......................39 Adjustable Rate and Unconventional Mortgage

Structures .................................................................40 Risk Factors Related to Natural and Man-Made

Disasters...................................................................41 Risk Factors Relating to the Loans and the

Redevelopment Law.................................................41 Loans are a Limited Obligation...................................41 Redevelopment Plan Limitations on Tax Revenues

.................................................................................41 Risk Factors Related to Bankruptcy of the

Authority and the Agency ........................................42 Risk Factors Related to State Budget Legislation .......42 Risk Factors Related to Assumptions and

Projections of Tax Revenues....................................44 PROPERTY TAXATION IN CALIFORNIA............45

CONSTITUTIONAL AMENDMENTS AFFECTING TAX INCREMENT REVENUES.....45

IMPLEMENTING LEGISLATION ...........................45 CONSTITUTIONAL CHALLENGES TO

PROPERTY TAX SYSTEM....................................46 PROPERTY TAX COLLECTION

PROCEDURES........................................................46 SUPPLEMENTAL ASSESSMENTS..........................46 TAX COLLECTION FEES ........................................47 UNITARY PROPERTY TAX .....................................47 BUSINESS INVENTORY AND

REPLACEMENT REVENUE.................................47 PROPOSITION 87 .....................................................47 FUTURE INITIATIVES.............................................48

THE AUTHORITY .....................................................49 GENERAL..................................................................49 AUTHORIZATION....................................................49 The Bonds...................................................................49

The Loans ...................................................................49 AUTHORITY FINANCIAL STATEMENTS.............49 DEBT SERVICE PAYMENTS ON THE LOANS

AND DEBT SERVICE COVERAGE ON THE AUTHORITY BONDS............................................50

THE AGENCY ............................................................52 GOVERNMENT ORGANIZATION .........................52 AGENCY POWERS ..................................................53 REDEVELOPMENT PLANS....................................53 General .......................................................................53 Amended and Restated Redevelopment Plans............53 Redevelopment Plan Limitations................................54 Redevelopment Plan Expiration .................................54 Receipt of Tax Increment Time Limits .......................55 Time Limit on Incurring Indebtedness........................55 Limitation on the Amount of Tax Increment

Receipts ...................................................................55 Limit on the Amount of Bonded Indebtedness ...........56 AGENCY FINANCIAL ADMINISTRATION...........56 Annual Budget............................................................56 Agency Accounting Records and Financial

Statements................................................................56 Annual Financial Report.............................................57 Filing of Statement of Indebtedness............................57

THE REDEVELOPMENT PROJECTS ...................59 REDEVELOPMENT PROJECT NO. I......................59 General Description....................................................59 Assessed Value by Land Use ......................................59 Top Ten Taxable Property Owners .............................60 Redevelopment Project No. I Aerial Views ................61 REDEVELOPMENT PROJECT NO. II ....................64 General Description....................................................64 Assessed Value by Land Use ......................................64 Top Ten Taxable Property Owners .............................65 Redevelopment Project No. II Map............................66 REDEVELOPMENT PROJECT NO. III ...................70 General Description....................................................70 Assessed Value by Land Use ......................................70 Top Ten Taxable Property Owners .............................71 Redevelopment Project No. III Aerial ........................72

TAX INCREMENT REVENUES...............................76 HISTORICAL TAXABLE VALUATIONS ................76 Value of Residential Parcels .......................................78 ASSESSMENT APPEALS.........................................79 General .......................................................................79 Base Year Appeals ......................................................79 Redevelopment Project No. I......................................79 Redevelopment Project No. II ....................................80 Redevelopment Project No. III ...................................80 Proposition 8 Adjustments..........................................81 General. ......................................................................81 Prior Proposition 8 Adjustments.................................81 Current Market Conditions .........................................82 TRANSFERS OF OWNERSHIP ...............................83 Redevelopment Project No. I......................................83 Redevelopment Project No. II ....................................83 Redevelopment Project No. III ...................................83

vi

DELINQUENCIES.....................................................83 FORECLOSURES......................................................83 Redevelopment Project No. I......................................84 Redevelopment Project No. II ....................................84 Redevelopment Project No. III ...................................85 PASS-THROUGH AGREEMENTS AND

STATUTORY PAYMENTS .....................................85 Pass-Through Agreements ..........................................85 Statutory Tax Sharing..................................................88 County Property Tax Collection Reimbursement........89 HOUSING SET-ASIDE..............................................90 FUTURE DEVELOPMENT IN THE

REDEVELOPMENT PROJECTS...........................90 PROJECTED TAX REVENUES AND DEBT

SERVICE COVERAGE...........................................92 Projected Tax Revenues and Housing Set-Aside

Revenues ..................................................................92 Debt Service Coverage Based Upon Projected

Tax Revenues ...........................................................93 LEGAL MATTERS .....................................................98

ENFORCEABILITY OF REMEDIES........................98 APPROVAL OF LEGAL PROCEEDINGS................98 TAX MATTERS .........................................................98 ABSENCE OF LITIGATION...................................100

CONCLUDING INFORMATION ...........................101 RATINGS ON THE BONDS ...................................101 UNDERWRITING ...................................................101 EXPERTS .................................................................101 FINANCIAL STATEMENTS OF THE AGENCY...101 THE FINANCING CONSULTANT.........................102 FORWARD-LOOKING STATEMENTS..................102 ADDITIONAL INFORMATION .............................102 REFERENCES .........................................................102 EXECUTION ...........................................................103

APPENDIX A............................................................ A-1 SUMMARY OF THE INDENTURE....................... A-1 APPENDIX B.............................................................B-1 SUMMARY OF THE LOAN AGREEMENTS .......B-1

FORM OF LOAN AGREEMENT............................B-1 FORM OF HOUSING FUND LOAN

AGREEMENT.......................................................B-1

APPENDIX C ............................................................C-1 FISCAL CONSULTANT REPORT .........................C-1 APPENDIX D ............................................................D-1 AGENCY AUDITED FINANCIAL

STATEMENTS FOR FISCAL YEAR ENDING JUNE 30, 2009 ........................................................D-1

APPENDIX E.............................................................E-1 FORM OF CONTINUING DISCLOSURE

AGREEMENT........................................................E-1 APPENDIX F............................................................. F-1 SPECIMEN FINANCIAL GUARANTY

INSURANCE POLICY.......................................... F-1 APPENDIX G FORM OF OPINION OF BOND

COUNSEL.............................................................. G-1 APPENDIX H ........................................................... H-1 DTC AND BOOK-ENTRY-ONLY SYSTEM......... H-1

vii

VICINITY MAP

customerservice

Stamp

1

OFFICIAL STATEMENT

$15,330,000* LAKE ELSINORE PUBLIC FINANCING AUTHORITY

TAX ALLOCATION REVENUE BONDS (1999 SERIES C REFUNDING), 2010 SERIES A

This Official Statement which includes the cover page and appendices (the “Official Statement”) is provided to furnish certain information concerning the sale by the Lake Elsinore Public Financing Authority (the “Authority”) of its Tax Allocation Revenue Bonds (1999 Series C Refunding), 2010 Series A (the “Bonds”), in the aggregate principal amount of $15,330,000.*

INTRODUCTORY STATEMENT This Introductory Statement contains only a brief description of this issue and does not purport to be complete. The Introductory Statement is subject in all respects to more complete information in the entire Official Statement and the offering of the Bonds to potential investors is made only by means of the entire Official Statement and the documents summarized herein. Potential investors must read the entire Official Statement to obtain information essential to make an informed investment decision (see “BONDOWNERS’ RISKS” herein).

THE AUTHORITY Authorization and Formation The Authority is a joint exercise of powers authority organized and existing under and by virtue of the Joint Exercise of Powers Act, constituting Articles 1 through 4 (commencing with Section 6500) of Chapter 5, Division 7, Title 1 of the Government Code of the State (the “Joint Powers Act”). The City of Lake Elsinore (the “City”), pursuant to Resolution No. 89-32, adopted on July 25, 1989, and the Redevelopment Agency of the City of Lake Elsinore (the “Agency”), pursuant to Resolution No. 89-4, adopted on July 25, 1989, formed the Authority by the execution of a joint exercise of powers agreement (see “THE AUTHORITY” herein).

Bond Authorization and Issuance Pursuant to the Joint Powers Act, the Authority is authorized, among other things, to issue revenue bonds to provide funds to acquire local obligations issued by local agencies or to make loans to local agencies to finance or refinance public capital improvements, such revenue bonds to be repaid from the repayment of the local obligations so acquired by the Authority or repayment of a loan, such as the Loans (the “Loans”) described herein (see “INTRODUCTORY STATEMENT – THE LOANS” and “INTRODUCTORY STATEMENT – SECURITY AND SOURCES OF REPAYMENT” below). The Bonds are being issued pursuant to the Indenture, as defined herein (see “APPENDIX A – SUMMARY OF THE INDENTURE”). The Bonds are being sold to the Underwriter pursuant to, and subject to the terms and conditions of, the Purchase Contract, by and among the Underwriter, the Authority and the Agency (the “Purchase Contract”). The Indenture and the Purchase Contract were approved by the Authority pursuant to a resolution, adopted on November 10, 2009. It is anticipated that the Bonds, in book-entry form, will be available for delivery through the facilities of The Depository Trust Company, on or about February 4, 2010 (see “APPENDIX H – DTC AND BOOK-ENTRY-ONLY SYSTEM”).

It is anticipated that the Authority will issue other series of bonds. Each series will be separately secured under the terms of an indenture for such other series of bonds. The Authority is not authorized to issue any additional bonds under the Indenture secured by repayment of the Loans except for refunding purposes. However, the Authority may in the future loan money to the Agency, which loan may be payable on a parity with the Loans (see “SOURCES OF PAYMENT FOR THE BONDS – ISSUANCE OF ADDITIONAL DEBT” herein). ___________________________ * Preliminary, subject to change.

2

Financing Purpose of the Bonds Pursuant to Resolution No. PFA 99-3, adopted by the Authority on September 14, 1999, the Authority issued its Tax Allocation Revenue Bonds, 1999 Series C (the “Authority 1999C Bonds”) in the principal amount of $14,180,000 of which $13,170,000 remains outstanding. On the date of delivery of the Bonds, a portion of the proceeds of the Bonds, together with certain other funds, will be used to redeem the Authority 1999C Bonds (see “- THE FINANCING PLAN - The Refunding Program” below). The Bonds are also being issued:

1. To provide funds to make the Loans on the date of delivery of the Bonds; 2. To fund the Reserve Fund (see “SOURCES OF PAYMENT FOR THE BONDS - REPAYMENT OF THE BONDS - Reserve Fund” herein); and 3. To pay the expenses of the Authority in connection with the issuance of the Bonds.

(see “ESTIMATED SOURCES AND USES OF FUNDS” and “SOURCES OF PAYMENT FOR THE BONDS – REPAYMENT OF THE BONDS” herein).

THE AGENCY Formation The Agency is a public body, corporate and politic, existing under and by virtue of the Community Redevelopment Law of the State, constituting Part 1 of Division 24 (commencing with Section 33000) of the Health and Safety Code of the State (the “Redevelopment Law”). The Agency was activated in July 1980. The City Council of the City (the “City Council”), at the same time, declared itself to be the members of the Agency and appointed the City Manager to be the Agency’s Executive Director (see “THE AGENCY” herein). The Agency is comprised of 3 Redevelopment Projects: (i) the Rancho Laguna Redevelopment Project No. I (“Redevelopment Project No. I”); (ii) the Rancho Laguna Redevelopment Project No. II (“Redevelopment Project No. II”) and (iii) the Rancho Laguna Redevelopment Project No. III (“Redevelopment Project No. III”). Collectively Redevelopment Project No. I, Redevelopment Project No. II and Redevelopment Project No. III are referred to herein as the “Redevelopment Projects” (see map entitled “Project Area Boundaries” below).

Tax Allocation Financing The Redevelopment Law provides a means for financing redevelopment projects based upon an allocation of taxes collected within a redevelopment project. The taxable valuation of a redevelopment project last equalized prior to adoption of the redevelopment plan, or base roll, is established and, except for any period during which the taxable valuation drops below the base year level, the taxing agencies within the redevelopment project thereafter receive the taxes produced by the levy of the then current tax rate upon the base roll. Taxes collected upon any increase in taxable valuation over the base roll (except such portion generated by rates levied to pay voter-approved bonded indebtedness on or after January 1, 1989, for the acquisition or improvement of real property) are allocated to a redevelopment agency (the “Tax Increment Revenues”) and may be pledged by a redevelopment agency to the repayment of any indebtedness incurred in financing or refinancing a redevelopment project. Redevelopment agencies themselves have no authority to levy property taxes and must look specifically to the allocation of taxes produced as above indicated.

Housing Set-Aside Revenues In accordance with Section 33334.2 of the Redevelopment Law, not less than twenty percent (20%) of all taxes which are allocated to the Agency from the Redevelopment Projects (see “Tax Allocation Financing” above) are required to be deposited in a low and moderate income housing fund (the “Low and Moderate Income Housing Fund”) to be used by the Agency for purposes of improving, increasing and preserving the City’s supply of housing for persons and families of low or moderate income (including the payment of indebtedness issued or incurred for such purposes) (the “Housing Set-Aside Revenues”). The Housing Set-Aside Revenues are calculated at 20% of gross Tax Increment Revenues within each of the Redevelopment

PROJECT AREA NO. 2AREA B

PROJECT AREA NO. 3PARCEL NO. 1

PROJECT AREANO. 2

AREA D

PROJECT AREA NO. 2 AREA A

PROJECT AREA NO. 1

PROJECT AREA NO. 2AREA C

Lake \ Elsinore




AREA NO.1 ORIGINAL

AREA NO.1

AREA NO.2

AREA NO.3

CITY OF LAKE ELSINOREREDEVELOPMENT AGENCY

PROJECT AREA BOUNDARIES

Prepared By:City of Lake Elsinore GISMay, 2006Data Sources:County of Riverside GIS,City of Lake Elsinore GISStateplane NAD83

3

Redevelopment Agency Project Area Boundaries

4

Projects; therefore the amount of Housing Set-Aside Revenues is not affected by payments under any tax sharing agreements or any statutory pass-through requirements.

THE REDEVELOPMENT PROJECTS

Redevelopment Project No. I

Formation. The original Redevelopment Plan (as defined herein) for Redevelopment Project No. I was adopted by Ordinance No. 607 on September 23, 1980, and, thereafter, has been amended four times: by Ordinance No. 624, adopted on July 20, 1981, to add territory; by Ordinance No. 987 on November 22, 1994, to conform limits to Assembly Bill 1290 (AB1290); by Ordinance No. 1249 on February 26, 2008, to repeal the debt establishment limit as provided by Senate Bill 211 (SB211), to extend the effectiveness date and time limit to repay debt and collect tax increment revenues as provided by Senate Bill 1045 (SB1045) and to make certain technical corrections; and by Ordinance No. 1260 on April 28, 2009, to adopt an Amended and Restated Redevelopment Plan (as defined herein). The Amended and Restated Redevelopment Plan (i) reflects changes in the Community Redevelopment Law that impose additional requirements and restrictions not reflected in the original text, (ii) incorporates all prior amendments, (iii) updates the land use provisions, (iv) clarifies and restates the time limits and financial limits, and (v) improves the format and presentation of the text and the project areas maps.

General Description. The 1,910-acre Redevelopment Project No. I is divided between two non-contiguous areas of the City (see “THE REDEVELOPMENT PROJECTS – REDEVELOPMENT PROJECT NO. I” herein for a description of Redevelopment Project No. I). Redevelopment Project No. I generally consists of three areas in terms of land use (see map entitled “Redevelopment Agency Project Area Boundaries” above). The first area is adjacent to, and southerly of, Interstate 15. Major land uses include the Lake Elsinore Outlet Center, the Central Business Park, and 2 retail centers that include Target and Home Depot. The second area includes the central business district and governmental offices. The third area is a commercial district near the municipal baseball stadium. Redevelopment Project No. I also includes several small non-contiguous areas at the western end of Lake Elsinore. 648.37 acres of the 1,910 acres within Redevelopment Project No. I are vacant. In terms of total taxable value, residential uses comprise 35.65% of the assessed value, commercial uses comprise 25.18% of the assessed value, industrial uses comprise 19.84% of the assessed value and vacant land comprises 10.94% of the assessed value within Redevelopment Project No. I.

Redevelopment Project No. II

Formation. The Redevelopment Plan for Redevelopment Project No. II was adopted by Ordinance No. 671 on July 18, 1983, and, thereafter, has been amended three times: by Ordinance No. 987 on November 22, 1994, to conform time limits to AB1290; by Ordinance No. 1249 on February 26, 2008, to repeal the debt establishment limit for affordable housing debt as provided by SB211, to extend the effectiveness date and time limit to repay debt and collect tax increment revenues as provided by SB1045, and to make certain technical corrections; and by Ordinance No. 1261 on April 28, 2009, to adopt an Amended and Restated Redevelopment Plan. The Amended and Restated Redevelopment Plan (i) reflects changes in the Community Redevelopment Law that impose additional requirements and restrictions not reflected in the original text, (ii) incorporates all prior amendments, (iii) updates the land use provisions, (iv) clarifies and restates the time limits and financial limits, and (v) improves the format and presentation of the text and the project areas maps.

General Description. Redevelopment Project No. II has an area of 4,859 acres in three non-contiguous areas. The first area runs parallel on both sides of Interstate 15, extending in each direction from Railroad Canyon Road, a major arterial highway (see map entitled “Redevelopment Agency Project Area Boundaries” above). This area includes the City Shopping Center, anchored by a 126,000 square foot Wal-Mart. This area also includes two major subdivisions, Summerhill and Tuscany Hills. Summerhill includes 428 completed single family homes. Tuscany Hills is a planned community, ultimately consisting of 2,000 homes. 1,020 homes have been constructed and occupied. The second area includes the municipal baseball stadium area and the Summerly Planned Community, which is located in both Redevelopment Project No. II

5

and Redevelopment Project No. III. Approximately 833 single family homes are planned in the first phase of the Summerly Planned Community. The Summerly Planned Community is in the early development stages. The third area is located at the west end of Lake Elsinore and is developed with commercial and single family homes. Of the 4,859 acres within Redevelopment Project No. II, 2,398.13 are vacant. In terms of total taxable value, residential uses comprise 60.25% of the assessed value, commercial uses comprise 19.64% of the assessed value, industrial uses comprise 4.3% of the assessed value and vacant land comprises 11.51% of the assessed value within Redevelopment Project No. II (see “THE REDEVELOPMENT PROJECTS – REDEVELOPMENT PROJECT NO. II” herein for a description of Redevelopment Project No. II).

Redevelopment Project No. III

Formation. The Redevelopment Plan for Redevelopment Project No. III was adopted by Ordinance No. 815 on September 8, 1987, and, thereafter, has been amended three times: by Ordinance No. 987 on November 22, 1994, to conform time limits to AB1290; by Ordinance No. 1249 on February 26, 2008, to repeal the debt establishment limit for affordable housing debt as provided by SB211 and to extend the effectiveness date and time limit to repay debt and collect tax increment revenues as provided by SB1045, and to make certain technical corrections; and by Ordinance No. 1262 on April 28, 2009, to adopt an Amended and Restated Redevelopment Plan. The Amended and Restated Redevelopment Plan (i) reflects changes in the Community Redevelopment Law that impose additional requirements and restrictions not reflected in the original text, (ii) incorporates all prior amendments, (iii) updates the land use provisions, (iv) clarifies and restates the time limits and financial limits, and (v) improves the format and presentation of the text and the project areas maps.

General Description. Redevelopment Project No. III, as shown on the map “Redevelopment Agency Project Area Boundaries” above, consists of four (4) non-contiguous parcels of land.

PARCEL 1 is in the Summerly Specific Plan area adjacent to the southeasterly shore line of Lake Elsinore (the “Lake”) and some of the commercial operations adjacent to and associated with the municipal airport facility. Parcel 1 contains approximately 1,886 acres. PARCEL 2 is adjacent to the municipal airport facility and is used for agricultural purposes and a five (5) acre commercial site. Parcel 2 contains approximately 84.5 acres. PARCEL 3 is generally referred to as “the Avenues.” This area is characterized by older single family residential units, many of which have been converted to multiple family units, on partially developed roadways. Parcel 3 contains approximately 466 acres. PARCEL 4, know as “the Heights,” is also a residential area. The roads are generally unpaved. The area is dominated by steep slopes. Parcel 4 contains approximately 1,104 acres.

1,151.73 acres of the 3,541 acres within Redevelopment Project No. III are vacant. In terms of taxable value, residential uses comprise 67.12% of the assessed value, commercial uses comprise 2.55% of the assessed value, industrial uses comprise 0.32% of the assessed value and vacant land comprises 26.52% of the assessed value within Redevelopment Project No. III (see “THE REDEVELOPMENT PROJECTS – REDEVELOPMENT PROJECT NO. III” herein for a description of Redevelopment Project No. III).

THE LOANS The proceeds of the Bonds will be loaned to the Agency pursuant to the Project No. I Loan (the “Project No. I Loan”), the Project No. II Loan (the “Project No. II Loan”), the Project No. III Loan (the “Project No. III Loan”), and the Housing Loan (the “Housing Loan”). Collectively, the Project No. I Loan, the Project No. II Loan, the Project No. III Loan and the Housing Loan are referred to herein as the “Loans.”

Project No. I Loan Authorization. The Authority will be making the Project No. I Loan to the Agency with respect to the Redevelopment Project No. I in the amount of $3,035,000.* The Agency authorized the Project No. I Loan by resolution, adopted on November 10, 2009. The Agency has pledged a lien on Redevelopment Project

6

No. I Tax Revenues to the repayment of the Project No. I Loan. “Redevelopment Project No. I Tax Revenues” consist of Tax Increment Revenues from the Agency’s Redevelopment Project No. I, excluding (i) amounts required to be deposited into the Agency’s Low and Moderate Income Housing Fund, (ii) the SB 2557 County Administrative fees and collection charges and (iii) amounts required to be paid pursuant to certain Pass-Through Agreements and Statutory Tax Sharing (as these terms are defined herein) (see “SOURCES OF PAYMENT FOR THE BONDS,” “BONDOWNERS’ RISKS” and “TAX INCREMENT REVENUES” herein). The pledge of Redevelopment Project No. I Tax Revenues is on a subordinate basis with any payments required under the Agency’s Loan Agreement, dated as of January 1, 1999, with respect to Redevelopment Project No. I (the “Project No. I 1999A Loan”) and relating to the Lake Elsinore Public Financing Authority Tax Allocation Revenue Bonds, 1999 Series A (see “Outstanding Bonded Indebtedness of Redevelopment Project No. I” below). Debt service on the Project No. I Loan and the Project No. I 1999A Loan is estimated to be covered by Redevelopment Project No. I Tax Revenues initially by a ratio of approximately 2.24 to 1* and after the annual Redevelopment Project No. I Tax Revenue Cap is reached, as described herein, by a ratio of 1.51 to 1.* In addition, in the event there are not sufficient Redevelopment Project No. I Tax Revenues to pay debt service on the Project No. I Loan, the Agency has covenanted to make an interfund loan from Redevelopment Project No. II, Redevelopment Project No. III and the Low and Moderate Income Housing Fund (see “SOURCES OF PAYMENT FOR THE BONDS – REPAYMENT OF THE LOANS – Pledge of Tax Revenues or Housing Set-Aside Revenues” herein). For an indication of amounts that may be available see Table Nos. 21, 22 and 23 Surplus Revenues herein.

Outstanding Bonded Indebtedness of Redevelopment Project No. I. Pursuant to an Indenture of Trust, dated as of January 1, 1999, the Authority issued its Tax Allocation Revenue Bonds, 1999 Series A Bonds (the “Authority 1999A Bonds”) in the aggregate principal amount of $33,450,000, of which $28,255,000 currently remains outstanding. Proceeds of the Authority 1999A Bonds were loaned, in part, by the Authority to the Agency pursuant to a Project No. I Loan Agreement, dated as of January 1, 1999 (the “Project No. I 1999A Loan Agreement”). The loan pursuant to the Project No. I 1999A Loan Agreement (the “Project No. I 1999A Loan”) was in the principal amount of $18,420,000, of which $15,255,000 currently remains outstanding. The Project No. I 1999A Loan matures on September 1, 2030.

Project No. II Loan Authorization. The Authority will be making the Project No. II Loan to the Agency with respect to the Redevelopment Project No. II, in the amount of $5,465,000.* The Agency authorized the Project No. II Loan by resolution, adopted on November 10, 2009. The Agency has pledged a lien on Redevelopment Project No. II Tax Revenues to the repayment of the Project No. II Loan. “Redevelopment Project No. II Tax Revenues” consist of Tax Increment Revenues from the Agency’s Redevelopment Project No. II, excluding (i) amounts required to be deposited into the Agency’s Low and Moderate Income Housing Fund, (ii) the SB 2557 County Administrative fees and collection charges and (iii) amounts required to be paid pursuant to certain Pass-Through Agreements (as this term is defined herein) (see “SOURCES OF PAYMENT FOR THE BONDS,” “BONDOWNERS’ RISKS” and “TAX INCREMENT REVENUES” herein). The pledge of Redevelopment Project No. II Tax Revenues is on a parity basis with any payments required under the Agency’s Loan Agreement, dated as of January 1, 1999, with respect to Redevelopment Project No. II (the “Project No. II 1999A Loan”) and relating to the Authority 1999A Bonds (see “Outstanding Bonded Indebtedness of Redevelopment Project No. II” below). Debt service on the Project No. II Loan and the Project No. II 1999A Loan is estimated to be covered by Redevelopment Project No. II Tax Revenues by a ratio of approximately 2.62 to 1.* In addition, in the event there are not sufficient Redevelopment Project No. II Tax Revenues to pay debt service on the Project No. II Loan, the Agency has covenanted to make an interfund loan from Redevelopment Project No. I, Redevelopment Project No. III and the Low and Moderate Income Housing Fund (see “SOURCES OF PAYMENT FOR THE BONDS – REPAYMENT OF THE LOANS – Pledge of Tax Revenues or Housing Set-Aside Revenues” herein). For an indication of amounts that may be available see Table Nos. 20, 22 and 23 Surplus Revenues herein. ___________________________ * Preliminary, subject to change.

7

Outstanding Bonded Indebtedness of Redevelopment Project No. II. Proceeds of the Authority 1999A Bonds were also loaned, in part, by the Authority to the Agency pursuant to a Project No. II Loan Agreement, dated as of January 1, 1999 (the “Project No. II 1999A Loan Agreement). The loan pursuant to the Project No. II 1999A Loan Agreement (the “Project No. II 1999A Loan”) was in the principal amount of $15,030,000, of which $13,000,000 currently remains outstanding. The Project No. II 1999A Loan matures on September 1, 2030.

Project No. III Loan Authorization. The Authority will be making the Project No. III Loan to the Agency with respect to the Redevelopment Project No. III in the amount of $2,060,000.* The Agency authorized the Project No. III Loan by resolution, adopted on November 10, 2009. The Agency has pledged a lien on Redevelopment Project No. III Tax Revenues to the repayment of the Project No. III Loan. “Redevelopment Project No. III Tax Revenues” consist of Tax Increment Revenues from the Agency’s Redevelopment Project No. III, excluding (i) amounts required to be deposited into the Agency’s Low and Moderate Income Housing Fund, (ii) the SB 2557 County Administrative fees and collection charges and (iii) amounts required to be paid pursuant to certain Pass-Through Agreements (as this term is defined herein) (see “SOURCES OF PAYMENT FOR THE BONDS,” “BONDOWNERS’ RISKS” and “TAX INCREMENT REVENUES” herein). Debt service on the Project No. III Loan is estimated to be covered by Redevelopment Project No. III Tax Revenues by a ratio of approximately 5.42 to 1. In addition, in the event there are not sufficient Redevelopment Project No. III Tax Revenues to pay debt service on the Project No. III Loan, the Agency has covenanted to make an interfund loan from Redevelopment Project No. I, Redevelopment Project No. II and the Low and Moderate Income Housing Fund (see “SOURCES OF PAYMENT FOR THE BONDS – REPAYMENT OF THE LOANS – Pledge of Tax Revenues or Housing Set-Aside Revenues” herein). For an indication of amounts that may be available see Table Nos. 20, 21 and 23 Surplus Revenues herein. Outstanding Bonded Indebtedness of Redevelopment Project No. III. Redevelopment Project No. III will not have any other Bonded indebtedness after the closing date for the Bonds.

The Housing Loan Authorization. The Authority will be making a loan to the Agency with respect to the Low and Moderate Income Housing Fund (see “Housing Set-Aside Revenues” above), in the amount of $4,770,000.* The Agency authorized the Housing Loan by resolution, adopted on November 10, 2009. The Agency has pledged Housing Set-Aside Revenues to the repayment of the Housing Loan. The pledge of Housing Set-Aside Revenues is on a parity basis with any payments required under the Agency’s housing loan incurred in 1995 (the “1995 Housing Loan”) relating to the Lake Elsinore Public Financing Authority Tax Allocation Revenue Bonds, 1995 Series A. The term “Housing Set-Aside Revenues” means all amounts required to be deposited by the Agency in the Low and Moderate Income Housing Fund of the Agency in any Fiscal Year (as defined in the Indenture) pursuant to Section 33334.3 of the Redevelopment Law (see “INTRODUCTORY STATEMENT – THE AGENCY - Housing Set-Aside Revenues” above), which amounts are derived from the taxes annually allocated to the Agency with respect to the Redevelopment Projects pursuant to Article 6 of Chapter 6 (commencing with Section 33670) of the Redevelopment Law and Section 16 of Article XVI of the Constitution of the State and as provided in the redevelopment plans (see “INTRODUCTORY STATEMENT – THE AGENCY - Tax Allocation Financing” above and “SOURCES OF PAYMENT FOR THE BONDS,” “BONDOWNERS’ RISKS” and “TAX INCREMENT REVENUES” herein). Debt service on the Housing Loan and the 1995 Housing Loan is estimated to be covered by Housing Set-Aside Revenues by a ratio of approximately 2.98 to 1.* In addition, in the event there are not sufficient Housing Set-Aside Revenues to pay debt service on the Housing Loan, the Agency has covenanted to make an interfund loan from Redevelopment Project No. I, Redevelopment Project No. II and Redevelopment Project No. III (see “SOURCES OF PAYMENT FOR THE BONDS – REPAYMENT OF THE LOANS – Pledge of Tax Revenues or Housing Set-Aside Revenues” herein). For an indication of amounts that may be available see Table Nos. 20, 21 and 22 Surplus Revenues herein. ___________________________ * Preliminary, subject to change.

8

Outstanding Indebtedness of the Low and Moderate Income Housing Fund. Pursuant to an Indenture of Trust, dated as of December 1, 1995, the Authority issued its 1995 Housing Bonds in the aggregate principal amount of $13,345,000, of which $10,065,000 currently remains outstanding. Proceeds of the 1995 Housing Bonds were loaned by the Authority to the Agency pursuant to a Loan Agreement, dated as December 1, 1995 (the “1995 Housing Loan”). The 1995 Housing Loan matures on September 1, 2025.

SECURITY AND SOURCES OF REPAYMENT The Indenture The Bonds are secured under an Indenture of Trust, dated as of February 1, 2010 (the “Indenture”), by and between the Authority and Union Bank, N.A., Los Angeles, California, as trustee (the “Trustee”) (see “APPENDIX A - SUMMARY OF THE INDENTURE”). The proceeds of the Bonds will be loaned by the Authority to the Agency pursuant to the Loans. The Bonds are payable from loan payments to be made to the Authority under the Loans, from amounts in the Reserve Fund created under the Indenture and from certain funds and accounts created under the Indenture, and from investment earnings thereon (see “SOURCES OF PAYMENT FOR THE BONDS” and “BONDOWNERS’ RISKS” herein). The Bonds are limited obligations of the Authority. The Bonds do not constitute a debt or liability of the City, the State of California (the “State”) or of any political subdivision thereof, other than the Authority. The Authority shall be obligated to pay the principal of the Bonds, and the interest thereon, only from the funds described herein, and neither the faith and credit nor the taxing power of the City, the State or any of its political subdivisions is pledged to the payment of the principal of or the interest on the Bonds. The Authority has no taxing power.

The Loan Agreements The Loans are to be made and secured pursuant to the Loan Agreements (the “Loan Agreements”) authorized by Resolution No. 2009-15 of the Agency, adopted on November 10, 2009. A description of the Loan Agreements is set forth in “APPENDIX B - SUMMARY OF THE LOAN AGREEMENTS.” The Loans are made in accordance with the laws of the State, and particularly the Community Redevelopment Law of the State, constituting Part 1 of Division 24 (commencing with Section 33000) of the Health and Safety Code of the State.

The Loans are limited obligations of the Agency. The Loans do not constitute a debt or liability of the State or of any political subdivision thereof, other than the Agency. The Agency shall be obligated to pay the principal of the Loans, and the interest thereon, only from the funds described herein, and neither the faith and credit nor the taxing power of the City, the State or any of its political subdivisions is pledged to the payment of the principal of or the interest on the Loans. The Agency has no ad valorem taxing power.

THE FINANCING PLAN Bond Insurance The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under a financial guaranty insurance policy (the “Insurance Policy”) to be issued concurrently with the delivery of the Bonds by Assured Guaranty Corp. (“AGC” or the “Bond Insurer”) (see “SOURCES OF PAYMENT FOR THE BONDS - BOND INSURANCE,” “BONDOWNERS’ RISKS – THE BONDS - Bond Insurer Default” and “CONCLUDING INFORMATION - RATINGS ON THE BONDS” herein and “APPENDIX F –SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY”).

The Refunding Program Pursuant to an Indenture of Trust, dated as of November 1, 1999, between the Authority and Union Bank, N.A., Los Angeles, California, as trustee (the “Prior Indenture”), the Authority issued its 1999C Bonds in the aggregate principal amount of $14,180,000 of which $13,170,000 currently remains outstanding. The Authority 1999C Bonds were used to acquire loans made by Redevelopment Project No. I (the “Project No. I

9

1999C Loan”), Redevelopment Project No. II (the “Project No. II 1999C Loan”), Redevelopment Project No. III (the “Project No. III 1999C Loan”) and the Low and Moderate Income Housing Fund (the “1999 Housing Loan”). Collectively, the Project No. I 1999C Loan, the Project No. II 1999C Loan, the Project No. III 1999C Loan and the 1999 Housing Loan are referred to herein as the “1999C Loans.” On the Date of Delivery, a portion of the proceeds of the Bonds, together with certain other funds, will be deposited in trust with Union Bank, N.A., Los Angeles, California, as escrow holder (the “Escrow Bank”) pursuant to an Escrow Deposit and Trust Agreement, dated as of February 1, 2010, between the Authority and the Escrow Bank (the “Escrow Agreement”). The deposit will be in an amount sufficient to pay interest on the Authority 1999C Bonds through and including March 22, 2010, and to pay the redemption price with respect to the remaining Authority 1999C Bonds on March 22, 2010. The lien of the Authority 1999C Bonds created by the Prior Indenture, including, without limitation, the pledge of Revenues pursuant to the Prior Indenture, will be discharged, terminated and of no further force and effect. Upon such redemption, the 1999C Loans will be canceled.

REDEMPTION OF THE BONDS Mandatory Redemption from Optional Loan Prepayments The Bonds are subject to mandatory redemption from optional prepayments under the respective Loan prior to maturity, in whole or in part, on a pro rata basis and by lot within a maturity, on September 1, 2019, and on any date thereafter, at a redemption price equal to the principal amount thereof, plus accrued interest to the date of redemption, as described herein (see “THE BONDS - REDEMPTION – Mandatory Redemption From Optional Loan Prepayments” herein).

Mandatory Sinking Payment Redemption The Bonds maturing September 1, 2033, are subject to mandatory sinking payment redemption, without premium, prior to their maturity date, in part by lot on September 1 in each year commencing September 1, 2026, from mandatory sinking payments under the Indenture (see “THE BONDS - REDEMPTION – Mandatory Sinking Payment Redemption” herein).

Mandatory Redemption upon Acceleration of the Loans The Bonds are also subject to mandatory redemption, without premium, prior to maturity, in whole or in part, on any date, from amounts credited toward the payment of principal of the respective Loan coming due and payable solely by reason of acceleration of the respective Loan (see “THE BONDS - REDEMPTION - Mandatory Redemption upon Acceleration of the Loans ” herein).

THE BONDS GENERAL PROVISIONS Denominations The Bonds will be issued in the minimum denomination of $5,000 each or any integral multiple thereof (see “THE BONDS - GENERAL PROVISIONS” herein).

Registration, Transfer and Exchange The Bonds will be issued in fully-registered form without coupons. Any Bond may, in accordance with its terms, be transferred or exchanged, pursuant to the provisions of the Indenture (see “THE BONDS - GENERAL PROVISIONS - Transfer or Exchange of Bonds” herein). When delivered, the Bonds will be registered in the name of The Depository Trust Company, New York, New York (“DTC”), or its nominee. DTC will act as securities depository for the Bonds. Individual purchases of Bonds will be made in book-entry form only in the principal amount of $5,000 or any integral multiple thereof. Purchasers of beneficial interests in the Bonds will not receive certificates representing their ownership interests in Bonds purchased (see “APPENDIX H – DTC AND BOOK-ENTRY–ONLY SYSTEM”).

Payment Principal of the Bonds and any premium upon redemption will be payable in each of the years and in the amounts set forth on the inside cover page hereof upon surrender at the corporate trust office of the Trustee

10

in Los Angeles, California. Interest on the Bonds will be paid by check of the Trustee mailed by first-class mail on the Interest Payment Date (as defined in the Indenture) to the person entitled thereto (except as otherwise described herein for interest paid to an account in the continental United States of America by wire transfer as requested in writing no later than the applicable Record Date (as defined in the Indenture) by owners of $1,000,000 or more in aggregate principal amount of Bonds) (see “THE BONDS - GENERAL PROVISIONS” herein). Initially, interest on and principal and premium, if any, of the Bonds will be payable when due by wire of the Trustee to DTC which will in turn remit such interest, principal and premium, if any, to DTC’s Direct Participants (as defined herein), which will in turn remit such interest, principal and premium, if any, to Beneficial Owners (as defined herein) of the Bonds (see “APPENDIX H – DTC AND BOOK-ENTRY-ONLY SYSTEM”).

Notice Notice of any redemption will be mailed by first-class mail by the Trustee at least thirty (30) but no more than sixty (60) days prior to the date fixed for redemption to the registered owners of any Bonds designated for redemption and to the Securities Depositories and one or more Information Services provided in the Indenture. Neither failure to receive such notice nor any defect in the notice so mailed will affect the sufficiency of the proceedings for redemption of such Bonds or the cessation of accrual of interest on the redemption date (see “THE BONDS - REDEMPTION - Notice of Redemption; Recission” herein). The Authority shall have the right to rescind any optional redemption by written notice to the Trustee on or prior to the date fixed for redemption. Any notice of optional redemption shall be cancelled and annulled if for any reason funds will not be or are not available on the date fixed for redemption for the payment in full of the Bonds then called for redemption, and such cancellation shall not constitute an Event of Default under the Indenture.

LEGAL MATTERS The legal proceedings in connection with the issuance of the Bonds are subject to the approving opinion of Fulbright & Jaworski L.L.P., Los Angeles, California, as Bond Counsel. Such opinion, and certain tax consequences incident to the ownership of the Bonds, including certain exceptions to the tax treatment of interest, are described more fully under the heading “LEGAL MATTERS” herein. Certain legal matters will be passed on for the City and the Agency by Leibold, McClendon & Mann, P.C., Laguna Hills, California, as City Attorney and Agency Counsel and by Fulbright & Jaworski L.L.P., Los Angeles, California, as Disclosure Counsel. Certain legal matters will be passed on for the Underwriter by McFarlin & Anderson LLP, Lake Forest, California.

PROFESSIONAL SERVICES Union Bank, N.A., Los Angeles, California, will serve as Trustee under the Indenture. The Trustee will act on behalf of owners of the Bonds (the “Bondowners”) for the purpose of receiving all moneys required to be paid to the Trustee, to allocate, use and apply the same, to hold, receive and disburse the Revenues and other funds held under the Indenture, and otherwise to hold all the offices and perform all the functions and duties provided in the Indenture to be held and performed by the Trustee. Rod Gunn Associates, Inc., Huntington Beach, California, Financing Consultant (the “Financing Consultant”), advised the Authority as to the financial structure and certain other financial matters relating to the Bonds and assisted the Authority and the Agency with the preparation of this Official Statement. HdL Coren & Cone, Diamond Bar, California (the “Fiscal Consultant”), prepared the Fiscal Consultant Report containing certain background information on the Agency and the Redevelopment Projects, including the projection of Tax Increment Revenues and Housing Set-Aside Revenues used in sizing and structuring the Bonds. See “APPENDIX C - FISCAL CONSULTANT REPORT” for more complete information regarding Tax Revenues and Housing Set-Aside Revenues. Fees payable to Bond Counsel, Disclosure Counsel, Underwriter’s Counsel and the Financing Consultant are contingent upon the sale and delivery of the Bonds.

11

FINANCIAL STATEMENTS The Agency’s financial statements for the fiscal year ended June 30, 2009, are attached hereto as “APPENDIX D” and have been audited by Diehl, Evans & Company, LLP, Certified Public Accountants & Consultants, Irvine, California. The Agency’s audited financial statements are public documents and are included within this Official Statement without the prior approval of the auditor. The auditor has not performed any post-audit of the financial condition of the Agency. The Agency represents that there have been no material adverse changes in its financial position since June 30, 2009.

CONTINUING DISCLOSURE The Agency has undertaken all responsibilities for any required continuing disclosure to Bondowners as described below. The Authority shall have no liability to the Bondowners or any other person with respect to such disclosures provided by the Agency. The Agency will covenant to provide annually certain financial information and operating data relating to the Redevelopment Projects by not later than February 15 of each year, commencing February 15, 2011, and to provide the audited financial statements of the Agency for the fiscal year ending June 30, 2010, and for each subsequent fiscal year when they are available (together, the “Annual Report”), and to provide notices of the occurrence of certain other enumerated events. The Annual Report and the notice of material events will be filed by the Trustee, acting as dissemination agent, on behalf of the Agency with the Municipal Securities Rulemaking Board (“MSRB”) in an electronic format as prescribed by the MSRB. The specific nature of the information to be contained in the Annual Report or the notices of material events and certain other terms of the continuing disclosure obligation are summarized in “APPENDIX E - FORM OF CONTINUING DISCLOSURE AGREEMENT.”

The Agency has not previously failed to comply with any undertaking to provide any required continuing disclosure.

AVAILABILITY OF LEGAL DOCUMENTS The summaries and references contained herein with respect to the Indenture, the Loan Agreements, the Bonds, the Loans and other statutes or documents do not purport to be comprehensive or definitive and are qualified by reference to each such document or statute, and references to the Bonds are qualified in their entirety by reference to the form thereof included in the Indenture. Copies of the documents described herein are available for inspection during the period of initial offering of the Bonds at the offices of the Underwriter, O’Connor & Company Securities, Inc., 620 Newport Center Drive, Suite 1100, Newport Beach, California, 92660 (949) 706-0444. Copies of these documents may be obtained after delivery of the Bonds from the City at 130 S. Main Street, Lake Elsinore, California 92530, telephone (951) 674-3124.

12

SELECTED ESSENTIAL FACTS The following summary does not purport to be complete. Reference is hereby made to the complete Official Statement in this regard.

THE BONDS Principal Amount of Bonds: $15,330,000* Additional Bonds: No Additional Bonds are authorized to be

secured by the Loans except bonds issued to refund the Bonds. However, the Agency is authorized to issue additional indebtedness secured by the Tax Revenues or Housing Set-Aside Revenues on a parity with the Loans, and the Authority may issue bonds to acquire the additional indebtedness of the Agency. When and if issued, the Bonds and such additional bonds of the Authority would be secured by separate indebtedness of the Agency which in turn, will be secured by the same Tax Revenues or Housing Set-Aside Revenues on a parity with each other (see “SOURCES OF PAYMENT FOR THE BONDS – ISSUANCE OF ADDITIONAL DEBT” herein).

First Optional Redemption Date: September 1, 2019, at 100% of principal amount (see “THE BONDS - REDEMPTION – Mandatory Redemption From Optional Loan Prepayments” herein).

Primary Source of Revenues for Repayment: The Bonds are repayable from Revenues, as defined herein, which primarily consist of repayment of the Loans (see “SOURCES OF PAYMENT FOR THE BONDS” and “BONDOWNERS’ RISKS” herein).

Priority: All the Bonds are equally secured by a first pledge of and lien on the Revenues as described herein (see “SOURCES OF PAYMENT FOR THE BONDS – REPAYMENT OF THE BONDS” and “BONDOWNERS’ RISKS”).

Debt Service Coverage from Repayment of the Loans (see “THE AUTHORITY – DEBT SERVICE PAYMENTS ON THE LOANS AND DEBT SERVICE COVERAGE ON THE AUTHORITY BONDS” herein):

100%

THE LOANS Project No. I Loan

Principal Amount of the Project No. I Loan: $3,035,000*

Outstanding Principal Amount of the Project No. I 1999A Loan:

$15,255,000


13

Additional Loans: Additional indebtedness on a parity with the Project No. I Loan is permitted subject to certain conditions (see “SOURCES OF PAYMENT FOR THE BONDS – ISSUANCE OF ADDITIONAL DEBT” herein). No additional indebtedness senior to the Project No. I Loan is allowed (other than to refund the Project No. I 1999A Loan). Subordinate debt is permitted.

Primary Source of Revenues for Repayment of the Project No. I Loan:

Redevelopment Project No. I Tax Revenues on a subordinate basis to the Project No. I 1999A Loan (see “TAX INCREMENT REVENUES” herein).

Priority: The Agency has pledged a lien on Redevelopment Project No. I Tax Revenues, on a subordinate basis to the Project No. I 1999A Loan (see “SOURCES OF PAYMENT FOR THE BONDS” and “BONDOWNERS’ RISKS” herein).

Minimum Ratio of Estimated Redevelopment Project No. I Tax Revenues in any Fiscal Year to Maximum Annual Debt Service on the Project No. I Loan and the Project No. I 1999A Loan:

Initially 224%,* after the Redevelopment Project No. I Tax Increment Revenues Cap is reached, as described herein, 151%* (see “TAX INCREMENT REVENUES - PROJECTED TAX REVENUES AND DEBT SERVICE COVERAGE” herein).

Interfund Loans: In the event there are not sufficient Redevelopment Project No. I Tax Revenues to pay debt service on the Project No. I Loan, the Agency has covenanted to make an interfund loan from Redevelopment Project No. II, Redevelopment Project No. III and the Low and Moderate Income Housing Fund (see “SOURCES OF PAYMENT FOR THE BONDS – REPAYMENT OF THE LOANS – Pledge of Tax Revenues or Housing Set-Aside Revenues” herein). For an indication of amounts that may be available see Table Nos. 21, 22 and 23 Surplus Revenues herein.

Project No. II Loan

Principal Amount of the Project No. II Loan: $5,465,000*

Outstanding Principal Amount of the Project No. II 1999A Loan:

$13,000,000

Additional Loans: Additional indebtedness on a parity with the Project No. II Loan and the Project No. II 1999A Loan is permitted subject to certain conditions (see “SOURCES OF PAYMENT FOR THE BONDS – ISSUANCE OF ADDITIONAL DEBT” herein). Subordinate debt is permitted.


14

Primary Source of Revenues for Repayment of the Project No. II Loan :

Redevelopment Project No. II Tax Revenues on a parity basis with the Project No. II 1999A Loan. (see “TAX INCREMENT REVENUES” herein).

Priority: The Agency has pledged a lien on Redevelopment Project No. II Tax Revenues, on a parity basis with the Project No. II 1999A Loan (see “SOURCES OF PAYMENT FOR THE BONDS” and “BONDOWNERS’ RISKS” herein).

Minimum Ratio of Estimated Redevelopment Project No. II Tax Revenues in any Fiscal Year to Maximum Annual Debt Service on the Project No. II Loan and the Project No. II 1999A Loan:

262%* (see “TAX INCREMENT REVENUES - PROJECTED TAX REVENUES AND DEBT SERVICE COVERAGE” herein).

Interfund Loans: In the event there are not sufficient Redevelopment Project No. II Tax Revenues to pay debt service on the Project No. II Loan, the Agency has covenanted to make an interfund loan from Redevelopment Project No. I, Redevelopment Project No. III and the Low and Moderate Income Housing Fund (see “SOURCES OF PAYMENT FOR THE BONDS – REPAYMENT OF THE LOANS – Pledge of Tax Revenues or Housing Set-Aside Revenues” herein). For an indication of amounts that may be available see Table Nos. 20, 22 and 23 Surplus Revenues herein.

Project No. III Loan

Principal Amount of the Project No. III Loan: $2,060,000*

Additional Loans: Additional indebtedness on a parity with the Project No. III Loan is not permitted (see “SOURCES OF PAYMENT FOR THE BONDS – ISSUANCE OF ADDITIONAL DEBT” herein). Subordinate debt is permitted.

Primary Source of Revenues for Repayment of the Project No. III Loan:

Redevelopment Project No. III Tax Revenues on a senior lien basis (see “TAX INCREMENT REVENUES” herein).

Priority: The Agency has pledged a lien on Redevelopment Project No. III Tax Revenues, on a senior lien basis (see “SOURCES OF PAYMENT FOR THE BONDS” and “BONDOWNERS’ RISKS” herein).

Minimum Ratio of Estimated Redevelopment Project No. III Tax Revenues in any Fiscal Year to Maximum Annual Debt Service on the Project No. III Loan:

542%* (see “TAX INCREMENT REVENUES - PROJECTED TAX REVENUES AND DEBT SERVICE COVERAGE” herein).


15

Interfund Loans: In the event there are not sufficient Redevelopment Project No. III Tax Revenues to pay debt service on the Project No. III Loan, the Agency has covenanted to make an interfund loan from Redevelopment Project No. I, Redevelopment Project No. II and the Low and Moderate Income Housing Fund (see “SOURCES OF PAYMENT FOR THE BONDS – REPAYMENT OF THE LOANS – Pledge of Tax Revenues or Housing Set-Aside Revenues” herein). For an indication of amounts that may be available see Table Nos. 20, 21 and 23 Surplus Revenues herein.

Housing Loan

Principal Amount of the Housing Loan: $4,770,000*

Outstanding Principal Amount of the 1995 Housing Loan:

$10,065,000

Additional Housing Loans: Additional indebtedness on a parity with the Housing Loan and 1995 Housing Loan is permitted subject to certain conditions (see “SOURCES OF PAYMENT FOR THE BONDS – ISSUANCE OF ADDITIONAL DEBT” herein). Subordinate debt is permitted.

Primary Source of Revenues for Repayment of the Loans:

Housing Set-Aside Revenues (see “TAX INCREMENT REVENUES” herein).

Priority: The Agency has pledged Housing Set-Aside Revenues, as defined herein, to the repayment of the Housing Loan and the 1995 Housing Loan. (see “SOURCES OF PAYMENT FOR THE BONDS” and “BONDOWNERS’ RISKS” herein).

Minimum Ratio of Estimated Housing Set-Aside Revenues in any Fiscal Year to Maximum Annual Debt Service on the Housing Loan, and the 1995 Housing Loans:

298%* (see table entitled “HOUSING SET-ASIDE REVENUES AND DEBT SERVICE” herein).

Interfund Loans: In the event there are not sufficient Housing Set-Aside Revenues to pay debt service on the Housing Loan, the Agency has covenanted to make an interfund loan from Redevelopment Project No. I, Redevelopment Project No. II and Redevelopment Project No. III (see “SOURCES OF PAYMENT FOR THE BONDS – REPAYMENT OF THE LOANS – Pledge of Tax Revenues or Housing Set-Aside Revenues” herein). For an indication of amounts that may be available see Table Nos. 20, 21 and 22 Surplus Revenues herein.


16

THE REDEVELOPMENT PROJECTS Redevelopment Project No. I

Year Established: 1980 Last Date to Receive Tax Increment Revenues: July 20, 2032 Size (in Acres): 1,910 Acres (648.37 acres are vacant) Ten Largest Taxpayers (expressed as a percentage of total Secured and Unsecured 2009-10 Assessed Value):

21.27% (see “THE REDEVELOPMENT PROJECTS - REDEVELOPMENT PROJECT NO. I – Top Ten Taxable Property Owners” herein).

Land Use as a percentage of 2009-10 Fiscal Year assessed value:

Residential 35.65%, Commercial 25.18%, Industrial 19.84%, Vacant Land 10.94%, Other 8.39% (see “THE REDEVELOPMENT PROJECTS - REDEVELOPMENT PROJECT NO. I – Assessed Value By Land Use” herein).


Year Established: 1983 Last Date to Receive Tax Increment Revenues: July 18, 2034 Size (in Acres): 4,859 Acres (2,398.13 acres are vacant) Ten Largest Taxpayers (expressed as a percentage of total Secured and Unsecured 2009-10 Assessed Value):

13.51% (see “THE REDEVELOPMENT PROJECTS - REDEVELOPMENT PROJECT NO. II – Top Ten Taxable Property Owners” herein).


Residential 60.25%, Commercial 19.64%, Industrial 4.13%, Vacant Land 11.51%, Other 4.46% (see “THE REDEVELOPMENT PROJECTS - REDEVELOPMENT PROJECT NO. II – Assessed Value By Land Use” herein).


Year Established: 1987 Last Date to Receive Tax Increment Revenues: September 8, 2038 Size (in Acres): 3,540 Acres (1,151.73 acres are vacant) Ten Largest Taxpayers (expressed as a percentage of total Secured and Unsecured 2009-10 Assessed Value):

12.67% (see “THE REDEVELOPMENT PROJECTS - REDEVELOPMENT PROJECT No. III – Top Ten Taxable Property Owners” herein).


Residential 67.12%, Commercial 2.55%, Industrial 0.32%, Vacant Land 26.52%, Other 3.49% (see “THE REDEVELOPMENT PROJECTS - REDEVELOPMENT PROJECT NO. III – Assessed Value By Land Use” herein).

17

ESTIMATED SOURCES AND USES OF FUNDS THE BONDS

Proceeds from the sale of the Bonds will be used to refund the Authority 1999C Bonds and to make the Loans to the Agency in the aggregate principal amounts indicated below. Under the provisions of the Indenture, the Trustee will receive the proceeds from the sale of the Bonds and will apply them as follows: Sources of Funds

Principal Amount of the Bonds

Original Issue Discount

Underwriter’s Discount

Net Bond Proceeds

Other Available Funds (1)

Total

Uses of Funds

Authority 1999C Bonds Escrow Fund (2)

Loan Fund (3)

Costs of Issuance Fund (4)

Reserve Fund (5)

Total __________________________________ (1) Includes the Reserve Accounts for the 1999C Loans and certain other available funds. (2) A portion of the proceeds of the Bonds will be deposited into the Escrow Fund and will be used to refund the

Authority 1999C Bonds (see “INTRODUCTORY STATEMENT – THE FINANCING PLAN - The Refunding Program” herein).

(3) To be used to acquire the Loans. (4) Amounts in the Costs of Issuance Fund will be used to pay bond insurance premium, fees and expenses of Bond

Counsel, the Financing Consultant, Disclosure Counsel, Agency Counsel, Underwriter’s Counsel and the Trustee, rating agency fees, printing costs and other costs associated with the issuance of the Bonds.

(5) An amount equal to the Reserve Requirement (see “SOURCES OF PAYMENT FOR THE BONDS –REPAYMENT OF

THE BONDS – Reserve Fund”).

18

THE LOANS Under the provisions of the Loan Agreements, the Trustee will receive the proceeds of the Loans and will apply or credit them as follows:

Sources of Funds

Project No. I Loan Project No. II Loan Project No. III Loan Housing Loan

Principal Amount of the Loans

Less Imputed Value of the 1999C Loans (1)

Total Available Funds

Uses of Funds

Costs of Issuance (2)

Total _________________________________________

(1) The Authority will cancel the 1999C Loans after the deposits to the Escrow Fund (see “INTRODUCTORY STATEMENT – THE FINANCING PLAN - The Refunding Program” herein).

(2) Costs of Issuance include fees of Bond Counsel, Agency Counsel, the Financing Consultant, the Trustee and other costs related to the making of the Loans.

19

THE BONDS GENERAL PROVISIONS Repayment of the Bonds

Interest is payable on the Bonds at the rates per annum set forth on the inside cover page hereof. Interest with respect to the Bonds will be computed on the basis of a year consisting of 360 days and twelve 30-day months.

Each Bond will be dated as of the closing date, and interest with respect thereto will be payable from the Interest Payment Date next preceding the date of authentication thereof, unless (a) it is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event it shall bear interest from such Interest Payment Date; (b) it is authenticated on or before August 15, 2010, in which event interest thereon will be payable from the closing date; or (c) interest on any Bond is in default as of the date of authentication, in which event interest thereon will be payable from the date to which interest has been paid in full, payable on each Interest Payment Date.

Interest on the Bonds will be payable by check of the Trustee mailed by first-class mail on the applicable Interest Payment Date to the person appearing on the registration books as the owner thereof, initially Cede & Co., or by wire transfer made on such Interest Payment Date to any owner of $1,000,000 or more in aggregate principal amount of outstanding Bonds, who shall have requested such transfer pursuant to written instructions provided prior to the applicable Record Date to the Trustee. The owners of the Bonds shown on the registration books on the Record Date for the Interest Payment Date will be deemed to be the owners of the Bonds on said Interest Payment Date for the purpose of the paying of interest. Principal of the Bonds and any premium upon early redemption is payable upon presentation and surrender thereof, at the corporate trust office of the Trustee in Los Angeles, California.

Transfer or Exchange of Bonds

Any Bond, in accordance with its terms, may be transferred or exchanged, pursuant to the provisions of the Indenture, upon surrender of such Bond for cancellation at the corporate trust office of the Trustee. Whenever any Bond or Bonds shall be surrendered for transfer or exchange, the Trustee shall authenticate and deliver a new Bond or Bonds for like aggregate principal amount or maturity amount of authorized denominations. The Trustee is not required to transfer or exchange any Bonds or portions thereof during the period established by the Trustee for selection of Bonds for redemption, or any Bonds selected for redemption. The cost of printing Bonds and any services rendered or expenses incurred by the Trustee in connection with any transfer shall be paid by the Authority.

Bonds Mutilated, Lost, Destroyed or Stolen

If any Bond becomes mutilated, the Authority, at the expense of the Bondowner, will execute, and the Trustee will thereupon authenticate and deliver, a new Bond of like series and tenor in exchange and substitution for the Bond so mutilated, but only upon surrender to the Trustee of the Bond so mutilated. Every mutilated Bond so surrendered to the Trustee will be canceled by it. If any Bond is lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee and, if such evidence is satisfactory to the Trustee and indemnity for the Trustee and the Authority satisfactory to the Trustee shall be given, the Authority, at the expense of the Bondowner, will execute, and the Trustee will thereupon authenticate and deliver, a new Bond of like series and tenor in lieu of and in replacement for the Bond so lost, destroyed or stolen (or if any such Bond has matured or has been called for redemption, instead of issuing a replacement Bond, the Trustee may pay the same without surrender thereof upon receipt of indemnity satisfactory to the Trustee). The Trustee may require payment of a fee for preparing and authenticating each new Bond issued pursuant to the Indenture. Any Bond issued under the provisions of the Indenture in lieu of any Bond alleged to be lost, destroyed or stolen will be entitled to the benefits of the Indenture with all other Bonds secured by the Indenture.

20

REDEMPTION Mandatory Sinking Payment Redemption The Bonds maturing on September 1, 2033, are subject to mandatory redemption, in part by lot, on September 1 in each year commencing September 1, 2026, from mandatory sinking payments made by the Authority pursuant to the Indenture at a redemption price equal to the principal amount thereof to be redeemed, without premium, plus accrued interest thereon to the date of redemption as set forth in the following schedule; provided, however, that (i) in lieu of redemption thereof, the Bonds may be purchased by the Authority and tendered to the Trustee, and (ii) if some but not all of the Bonds have been redeemed pursuant to mandatory redemption from optional loan prepayments and mandatory redemption upon acceleration of the Loans provisions described herein, the total amount of all future sinking payments will be reduced by the aggregate principal amount of the Bonds so redeemed, to be allocated among such sinking payments on a pro rata basis (as nearly as practicable) in integral multiples of $5,000 as determined by the Authority.

SCHEDULE OF MANDATORY SINKING PAYMENT REDEMPTIONS

TERM BONDS MATURING SEPTEMBER 1, 2033 September 1

Year Principal Amount *

September 1 Year

Principal Amount *

2026 $500,000 2030 $625,000 2027 530,000 2031 2,910,000 2028 565,000 2032 1,670,000 2029 590,000 2033 1,700,000 (maturity)

Mandatory Redemption from Optional Loan Prepayments The Bonds are subject to mandatory redemption from optional prepayments under the Loans prior to maturity on any date on or after September 1, 2019, as a whole or in part, on a pro rata basis and by lot within a maturity, from loan prepayments by the Agency of all or any portion of the Loans at 100% of the principal amount of the Bonds to be redeemed, together with accrued interest thereon to the date fixed for redemption.

Mandatory Redemption upon Acceleration of the Loans The Bonds will also be subject to mandatory redemption on any date, from amounts credited towards the payment of principal of the Loans coming due and payable solely by reason of an event of default and acceleration of the Loans pursuant to the Loan Agreements at a redemption price equal to the principal amount of the Bonds to be redeemed, without premium, together with accrued interest thereon to the redemption date (see “APPENDIX B - SUMMARY OF THE LOAN AGREEMENTS - Events of Default and Acceleration of Maturities” herein). The Bonds will be subject to mandatory redemption pursuant to the provisions of the Indenture solely from amounts credited towards the payment of principal of the Loans which has become due and payable by reason of such event of default and acceleration only.

Notice of Redemption; Rescission

When redemption is authorized or required, written notice of redemption is required to be mailed by the Trustee to the respective Owners of any Bonds designated for redemption at their addresses appearing on the bond registration books, to the Securities Depositories, and to the Information Services, all as provided in the Indenture, by first-class mail, postage prepaid, no less than thirty (30), nor more than sixty (60), days prior to the date fixed for redemption. Neither failure to receive such notice nor any defect in the notice so mailed will affect the sufficiency of the proceedings for redemption of such Bonds or the cessation of accrual of interest on the redemption date.


21

In addition to the foregoing notice, further notice will be given by the Trustee to any Bondowner whose Bond has been called for redemption but who has failed to tender his or her Bond for payment by the date which is sixty (60) days after the redemption date, but no defect in such further notice will in any manner defeat the effectiveness of a call for redemption.

The Authority shall have the right to rescind any optional redemption by written notice to the Trustee on or prior to the date fixed for redemption. Any notice of optional redemption shall be cancelled and annulled if for any reason funds will not be or are not available on the date fixed for redemption for the payment in full of the Bonds then called for redemption, and such cancellation shall not constitute an Event of Default under the Indenture. The Authority and the Trustee shall have no liability to the Owners or any other party related to or arising from such rescission of redemption. The Trustee shall mail notice of such rescission of redemption in the same manner as the original notice of redemption was sent.

Open Market Purchase of Bonds

The Agency may at any time buy Bonds of any series at public or private sale at a price which, inclusive of brokerage fees, will not exceed the par amount of the Bonds so purchased, plus any applicable fee, and any Bonds so purchased shall be tendered to the Trustee for cancellation.

Selection of Bonds for Redemption

Except as otherwise set forth in the Indenture, whenever provision is made in the Indenture for the redemption of less than all of the Bonds of any maturity, the Trustee shall select the Bonds to be redeemed from all Bonds of such maturity not previously called for redemption, by lot in any manner which the Trustee, in its sole discretion, shall deem appropriate. For purposes of such selection, all Bonds shall be deemed to be comprised of separate $5,000 portions and such portions shall be treated as separate Bonds which may be separately redeemed.

Effect of Redemption

From and after the date fixed for redemption, if funds available for the payment of the principal of and interest (and premium, if any) on the Bonds so called for redemption shall have been duly provided, such Bonds so called shall cease to be entitled to any benefit under the Indenture other than the right to receive payment of the redemption price, and no interest shall accrue thereon from and after the redemption date specified in such notice. All Bonds redeemed pursuant to the Indenture shall be cancelled and destroyed.

Partial Redemption

In the event only a portion of any Bond is called for redemption, then upon surrender of such Bond the Authority will execute and the Trustee will authenticate and deliver to the Bondowner thereof, at the expense of the Authority, a new Bond or Bonds of the same series and maturity date, of authorized denominations equal in an aggregate principal amount to the unredeemed portion of the Bond to be redeemed.

22

SCHEDULED DEBT SERVICE ON THE BONDS The following table sets forth semi-annual debt service on the Bonds.

Interest Payment Date Principal Interest Annual Debt Service September 1, 2010 March 1, 2011 September 1, 2011 March 1, 2012 September 1, 2012 March 1, 2013 September 1, 2013 March 1, 2014 September 1, 2014 March 1, 2015 September 1, 2015 March 1, 2016 September 1, 2016 March 1, 2017 September 1, 2017 March 1, 2018 September 1, 2018 March 1, 2019 September 1, 2019 March 1, 2020 September 1, 2020 March 1, 2021 September 1, 2021 March 1, 2022 September 1, 2022 March 1, 2023 September 1, 2023 March 1, 2024 September 1, 2024 March 1, 2025 September 1, 2025 March 1, 2026 September 1, 2026 March 1, 2027 September 1, 2027 March 1, 2028 September 1, 2028 March 1, 2029 September 1, 2029 March 1, 2030 September 1, 2030 March 1, 2031 September 1, 2031 March 1, 2032 September 1, 2032 March 1, 2033 September 1, 2033

23

SCHEDULED DEBT SERVICE ON THE LOANS

The following tables sets forth semi-annual debt service on the Loans.

Redevelopment Project No. I Loan

Interest Payment Date Principal Interest Annual Debt Service September 1, 2010 March 1, 2011 September 1, 2011 March 1, 2012 September 1, 2012 March 1, 2013 September 1, 2013 March 1, 2014 September 1, 2014 March 1, 2015 September 1, 2015 March 1, 2016 September 1, 2016 March 1, 2017 September 1, 2017 March 1, 2018 September 1, 2018 March 1, 2019 September 1, 2019 March 1, 2020 September 1, 2020 March 1, 2021 September 1, 2021 March 1, 2022 September 1, 2022 March 1, 2023 September 1, 2023 March 1, 2024 September 1, 2024 March 1, 2025 September 1, 2025 March 1, 2026 September 1, 2026 March 1, 2027 September 1, 2027 March 1, 2028 September 1, 2028 March 1, 2029 September 1, 2029 March 1, 2030 September 1, 2030 March 1, 2031 September 1, 2031

24

Redevelopment Project No. II Loan


25

Redevelopment Project No. III Loan


26

Housing Loan


27

SOURCES OF PAYMENT FOR THE BONDS REPAYMENT OF THE BONDS

The Bonds

The Bonds are secured under an Indenture of Trust, dated as of February 1, 2010, by and between the Authority and Union Bank, N.A., Los Angeles, California, as trustee (see “APPENDIX A - SUMMARY OF THE INDENTURE”). The proceeds of the Bonds will be loaned to the Agency pursuant to the Loan Agreements. The Bonds are payable from loan payments to be made to the Authority under the Loan Agreements, from certain funds and accounts created under the Indenture, and from investment earnings thereon.

Loan payments to be made under the Loan Agreements are pledged to the payment of principal of and interest on the Bonds pursuant to the Indenture until the Bonds have been paid, or until sufficient moneys have been set aside irrevocably for that purpose. The Trustee will covenant to exercise such rights and remedies as may be necessary to enforce the Loan payments when due under the Loan Agreements and otherwise to attempt to protect the interests of the Bondowners in the event of default by the Authority.

The Bonds are limited obligations of the Authority. The Bonds do not constitute a debt or liability of the State or of any political subdivision thereof, other than the Authority. The Authority shall be obligated to pay the principal of the Bonds and the interest thereon, only from the funds described herein and neither the faith and credit nor the taxing power of the City, the State or any of its political subdivisions is pledged to the payment of the principal of or the interest on the Bonds. The Authority has no taxing power.

Reserve Fund

In order to further secure the payment of principal of and interest on the Bonds, the Trustee is required to deposit in the Reserve Fund, under the Indenture, an amount sufficient to maintain the Reserve Requirement on deposit in the Reserve Fund. The “Reserve Requirement” means, in respect of any Bond Year (as defined in the Indenture) as computed by the Authority, the least of (i) 10% of the original proceeds of the Bonds, (ii) 125% of the average annual debt service as of the date of issuance, or (iii) the maximum annual debt service. In the event that the Agency fails to deposit with the Trustee the full amount required by the Loan Agreements to pay principal and interest due on the Bonds, the Trustee will withdraw from the Reserve Fund the difference between the amount required to be on deposit and the amount available on such date. Amounts in excess of the Reserve Requirement will be transferred to the Revenue Fund under the Indenture to be applied as a credit against the next succeeding loan payment under the Loan Agreements. The amount of Bond proceeds deposited into the Reserve Fund will be $1,480,901* (an amount equal to the Reserve Requirement) (see “ESTIMATED SOURCES AND USES OF FUNDS”).

The Indenture provides that in lieu of a cash deposit, the Authority may satisfy the Reserve Requirement by means of a Qualified Reserve Fund Credit Instrument, which consists of a qualifying surety bond, insurance policy or similar financial undertaking (see “APPENDIX A - SUMMARY OF THE INDENTURE”).


28

REPAYMENT OF THE LOANS

Tax Allocation Financing

In General. The Redevelopment Law provides a means for financing redevelopment projects based upon an allocation of taxes collected within a redevelopment project. The taxable valuation of a redevelopment project last equalized prior to adoption of the redevelopment plan, or base roll, is established and, except for any period during which the taxable valuation drops below the base year level, the taxing agencies within the redevelopment project thereafter receive the taxes produced by the levy of the then current tax rate upon the base roll. Taxes collected upon any increase in taxable valuation over the base roll (except such portion generated by rates levied to pay voter-approved bonded indebtedness approved by the voters on or after January 1, 1989, for the acquisition or improvement of real property) (herein, the “Tax Increment Revenues”) are allocated to a redevelopment agency and may be pledged by a redevelopment agency to the repayment of any indebtedness incurred in financing or refinancing a redevelopment project. Redevelopment agencies themselves have no authority to levy property taxes and must look specifically to the allocation of taxes produced as above indicated.

Allocation of Taxes. As provided in the redevelopment plans of the Redevelopment Projects, and pursuant to Article 6 of Chapter 6 of the Redevelopment Law and Section 16 of Article XVI of the Constitution of the State of California, taxes levied upon taxable property in the Redevelopment Projects each year by or for the benefit of the State of California and any city, county, city and county, district or other public corporation (herein collectively referred to as “taxing agencies”) for fiscal years beginning after the effective date of the Redevelopment Projects are divided as follows:

(1) To Taxing Agencies: That portion of the taxes which would be produced by the rate upon which the tax is levied each year by or for each of said taxing agencies upon the total sum of the assessed value of the taxable property in the Redevelopment Projects as shown upon the assessment roll used in connection with the taxation of such property by such taxing agency last equalized prior to the effective date of the ordinance approving the Redevelopment Projects (or ordinances approving amendments to the redevelopment plan adding to the Redevelopment Projects), shall be allocated to, and when collected shall be paid into the funds of the respective taxing agencies as taxes by or for said taxing agencies on all other property are paid; and

(2) To the Agency: Except for the taxes which are attributable to a tax rate levy by a taxing agency for the purpose of producing revenues to repay bonded indebtedness approved by the voters of the taxing agency on or after January 1, 1989, which shall be allocated to and when collected shall be paid to such taxing agency, that portion of said levied taxes each year in excess of the amounts provided in paragraph (1) above, shall be allocated to, and when collected, shall be paid into a special fund of the Agency to pay the principal of and interest on bonds, loans, moneys advanced to, or indebtedness (whether funded, refunded, assumed, or otherwise) incurred by the Agency to finance or refinance, in whole or in part, redevelopment activities within the Redevelopment Projects. Unless and until the total assessed valuation of the taxable property in the Redevelopment Projects exceeds the total assessed value of the taxable property in the Redevelopment Projects as shown by the last equalized assessment roll referred to in paragraph (1) above, all of the taxes levied and collected upon the taxable property in the Redevelopment Projects shall be paid into the funds of the respective taxing agencies. When said bonds, loans, advances, and indebtedness, if any, and interest thereon, have been paid, all moneys thereafter received from taxes upon the taxable property in the Redevelopment Projects shall be paid into the funds of the respective taxing agencies as taxes on all other property are paid.

The Agency is authorized to make pledges of the portion of taxes mentioned in paragraph (2) above to repay specific advances, loans and indebtedness as appropriate in carrying out the redevelopment plans of the Redevelopment Projects.

29

Pledge of Tax Revenues or Housing Set-Aside Revenues

Project No. I Loan. The Agency has pledged a lien on Redevelopment Project No. I Tax Revenues to the repayment of the Project No. I Loan. “Redevelopment Project No. I Tax Revenues” consist of Tax Increment Revenues from the Agency’s Redevelopment Project No. I, excluding (i) amounts required to be deposited into the Agency’s Low and Moderate Income Housing Fund, (ii) the SB 2557 County Administrative fees and collection charges and (iii) amounts required to be paid pursuant to certain Pass-Through Agreements and Statutory Tax Sharing (as these terms are defined herein). The pledge of Redevelopment Project No. I Tax Revenues is on a subordinate basis with any payments required under the Agency’s Loan Agreement, dated as of January 1, 1999, with respect to Redevelopment Project No. I and relating to the Lake Elsinore Public Financing Authority Tax Allocation Revenue Bonds, 1999 Series A.

In the event that Redevelopment Project No. I Tax Revenues and other moneys pledged for the payment of the Project No. I Loan are insufficient to pay the principal and interest on the Project No. I Loan coming due on any Loan Interest Payment Date, the Agency agrees to make an interfund loan to the Project No. I Special Fund from (i) all amounts in the Project Area No. II Special Fund available therefor, (ii) all amounts in the Project Area No. III Special Fund available therefor, and (iii) all amounts in the Housing Loan Payment Account available therefor, to the extent required to make up any deficiency in the amounts available for payment of principal and interest on the Project No. I Loan coming due on such Loan Interest Payment Date. Such interfund loan shall be repaid to the Project Area No. II Special Fund, to the Project Area No. III Special Fund, and to the Housing Loan Payment Account out of any moneys of the Agency available therefor, semiannually, on each March 2 and September 2, with interest at the rate on the Bonds. For an indication of amounts that may be available see Table Nos. 21, 22 and 23 Surplus Revenues herein.

Project No. II Loan. The Agency has pledged a lien on Redevelopment Project No. II Tax Revenues to the repayment of the Project No. II Loan. “Redevelopment Project No. II Tax Revenues” consist of Tax Increment Revenues from the Agency’s Redevelopment Project No. II, excluding (i) amounts required to be deposited into the Agency’s Low and Moderate Income Housing Fund, (ii) the SB 2557 County Administrative fees and collection charges and (iii) amounts required to be paid pursuant to certain Pass-Through Agreements and Statutory Tax Sharing (as these terms are defined herein). The pledge of Redevelopment Project No. II Tax Revenues is on a parity basis with any payments required under the Agency’s Loan Agreement, dated as of January 1, 1999, with respect to Redevelopment Project No. II and relating to the Authority 1999A Bonds. In the event that Redevelopment Project No. II Tax Revenues and other moneys pledged for the payment of the Project No. II Loan are insufficient to pay the principal and interest on the Project No. II Loan coming due on any Loan Interest Payment Date, the Agency agrees to make an interfund loan to the Project Area No. II Special Fund from (i) all amounts in the Project Area No. I Special Fund available therefor, (ii) all amounts in the Project Area No. III Special Fund available therefor, and (iii) all amounts in the Housing Loan Payment Account available therefor, to the extent required to make up any deficiency in the amounts available for payment of principal and interest on the Project No. II Loan coming due on such Loan Interest Payment Date. Such interfund loan shall be repaid to the Project Area No. I Special Fund, to the Project Area No. III Special Fund, and to the Housing Loan Payment Account out of any moneys of the Agency available therefor, semiannually, on each March 2 and September 2, with interest at the rate on the Bonds. For an indication of amounts that may be available see Table Nos. 20, 22 and 23 Surplus Revenues herein.

Project No. III Loan. The Agency has pledged a lien on Redevelopment Project No. III Tax Revenues to the repayment of the Project No. III Loan. “Redevelopment Project No. III Tax Revenues” consist of Tax Increment Revenues from the Agency’s Redevelopment Project No. III, excluding (i) amounts required to be deposited into the Agency’s Low and Moderate Income Housing Fund, (ii) the SB 2557 County Administrative fees and collection charges and (iii) amounts required to be paid pursuant to certain Pass-Through Agreements and Statutory Tax Sharing (as these terms are defined herein).

30

In the event that the Redevelopment Project No. III Tax Revenues and other moneys pledged for the payment of the Project No. III Loan are insufficient to pay the principal and interest on the Project No. III Loan coming due on any Loan Interest Payment Date, the Agency agrees to make an interfund loan to the Project Area No. III Special Fund from (i) all amounts in the Project Area No. I Special Fund available therefor, (ii) all amounts in the Project Area No. II Special Fund available therefor, and (iii) all amounts in the Housing Loan Payment Account available therefor, to the extent required to make up any deficiency in the amounts available for payment of principal and interest on the Project No. III Loan coming due on such Loan Interest Payment Date. Such interfund loan shall be repaid to the Project Area No. I Special Fund, to the Project Area No. II Special Fund, and to the Housing Loan Payment Account out of any moneys of the Agency available therefor, semiannually, on each March 2 and September 2, with interest at the rate on the Bonds. For an indication of amounts that may be available see Table Nos. 20, 21 and 23 Surplus Revenues herein. Housing Loan. The Agency has pledged Housing Set-Aside Revenues to the repayment of the Housing Loan. The pledge of Housing Set-Aside Revenues is on a parity basis with any payments required under the Agency’s housing loan incurred in 1995 (the “1995 Housing Loan”) relating to the Lake Elsinore Public Financing Authority Tax Allocation Revenue Bonds, 1995 Series A. The term “Housing Set-Aside Revenues” means all amounts required to be deposited by the Agency in the Low and Moderate Income Housing Fund of the Agency in any Fiscal Year (as defined in the Indenture) pursuant to Section 33334.3 of the Redevelopment Law, which amounts are derived from the taxes annually allocated to the Agency with respect to the Redevelopment Projects pursuant to Article 6 of Chapter 6 (commencing with Section 33670) of the Redevelopment Law and Section 16 of Article XVI of the Constitution of the State and as provided in the redevelopment plans.

In the event that the Housing Set-Aside Revenues and other moneys pledged for the payment of the Housing Loan are insufficient to pay the principal and interest on the Housing Loan coming due on any Loan Interest Payment Date, the Agency agrees to make an interfund loan to the Housing Loan Payment Account from (i) all amounts in the Project Area No. I Special Fund available therefor, (ii) all amounts in the Project Area No. II Special Fund available therefor, and (iii) all amounts in the Project Area No. III Special Fund available therefor, to the extent required to make up any deficiency in the amounts available for payment of principal and interest on the Housing Loan coming due on such Loan Interest Payment Date. Such Interfund loan shall be repaid to the Project Area No. I Special Fund, to the Project Area No. II Special Fund, and to the Project Area No. III Special Fund out of any moneys of the Agency available therefor, semiannually, on each March 2 and September 2, with interest at the rate on the Bonds. For an indication of amounts that may be available see Table Nos. 20, 21 and 22 Surplus Revenues herein.

The Loans are a limited obligation of the Agency payable solely from Tax Revenues (as defined in the Loan Agreements) or Housing Set-Aside Revenues (as defined in the Housing Fund Loan Agreement), and further, from certain funds and accounts created under the Loan Agreements and investment earnings thereon. The Loans do not constitute a debt or liability of the State or of any political subdivision thereof or a pledge of the faith and credit of the City, the State, or any such political subdivision, other than the Agency. Neither the City, the State nor the Agency shall be obligated to pay the principal of the Loans, or the interest thereon, except from the funds described herein, and neither the faith and credit nor the taxing power of the City, the State or any of its political subdivisions is pledged to the payment of the principal of or the interest on the Loans. The Agency has no ad valorem property taxing power.

Alternative Method of Tax Apportionment (“Teeter Plan”)

Sections 4701 through 4717 of the California Revenue and Taxation Code permit counties to use a method of apportioning taxes (commonly referred to as the “Teeter Plan”) whereby all local agencies with historical delinquency rates less that 3%, including redevelopment agencies, receive from the County 100% of their respective shares of the amount secured ad valorem taxes levied, without regard to actual collections of taxes. Due to this allocation method, the Agency is held harmless from tax delinquencies and, as a consequence, the Agency receives no adjustments for redemption payments of

31

delinquent collections. The unsecured taxes are allocated based on actual unsecured tax collections. The County makes a one-time adjustment for changes in the tax roll in the following year.

The County of Riverside has adopted this method of distributing taxes and will continue to do so unless the County Board of Supervisors takes action to discontinue the practice. There is no assurance that the County will continue to allocate tax revenues in this manner. If this method of distributing taxes is discontinued, significant delinquencies in the payment of ad valorem taxes may have an adverse affect on the Agency’s ability to make payments under the Loans as such payments come due and payable and accordingly the Authority’s ability to pay debt service on the Bonds.

ISSUANCE OF ADDITIONAL DEBT

The Authority

The Authority will not have any indebtedness secured by the Revenues other than the Bonds, except bonds issued to refund the Bonds. However, the Agency is authorized to issue additional obligations secured by Tax Revenues or the Housing Set-Aside Revenues on a parity with the Loans, and the Authority may issue bonds to acquire the additional obligations of the Agency. When and if issued, each series of bonds of the Authority would be secured by a separate obligation of the Agency.

The Agency

No additional obligations on a parity with the Project No. III Loan are permitted other than to refund the Project No. III Loan.

The Agency has covenanted under the Project No. I Loan Agreement that it will not issue any obligations senior to the Project No. I Loan other than to refund the Project No. I 1999A Loan. In addition to the Project No. I Loan, the Project No. II Loan and the Housing Loan, the Agency may issue or incur Parity Debt (as defined in the Project No. I Loan Agreement, the Project No. II Loan Agreement and the Housing Fund Loan Agreement) secured by Tax Revenues or Housing Set-Aside Revenues in such principal amount as shall be determined by the Agency. The Agency may issue and deliver any Parity Debt subject to the following specific conditions which are conditions precedent to the issuance and delivery of such Parity Debt issued under the Project No. I Loan Agreement and the Housing Fund Loan Agreement:

(a) No event of default shall have occurred and be continuing, and the Agency shall otherwise be in compliance with all covenants set forth in the Project No. I Loan Agreement, the Project No. I 1999A Loan Agreement, the Project No. II Loan Agreement, the Project No. II 1999A Loan Agreement, the Housing Fund Loan Agreement and the 1995 Housing Fund Loan Agreement provided that the requirements of this Subsection (a) will not apply to any issue of Parity Debt all of the available proceeds of which will be applied to refund the applicable Loan or any other Parity Debt in whole or in part.

(b) The Tax Revenues or Housing Set-Aside Revenues for the then current fiscal year, as set forth in a written certificate of the Agency, as defined in the Indenture, based on assessed valuation of property in the Redevelopment Projects as evidenced in the written records of the County of Riverside (the “County”), plus, at the option of the Agency, the Additional Revenues (as defined in the Loan Agreements) shall be at least equal to one hundred fifty percent (150%) of maximum annual debt service with respect to the Project No. I Loan and the Project No. I 1999A Loan, the Project No. II Loan and the Project No. II 1999A Loan, and the Housing Loan and the 1995 Housing Loan and all Parity Debt payable from Tax Revenues or Housing Set-Aside Revenues as applicable; provided that (i) the requirements of this Subsection (b) will not apply to any issue of Parity Debt all of the available proceeds of which will be applied to refund the Loans or other Parity Debt in whole or in part, and (ii) debt service on any Parity Debt the proceeds of which are

32

deposited into an escrow fund meeting the requirements of Subsection (d) below will be disregarded for purposes of measuring maximum annual debt service.

(c) The related parity debt instrument shall provide that:

(I) Interest on such parity debt shall be payable on March 1 and September 1 in each year of the term of such parity debt except the first twelve-month period, during which interest may be payable on any March 1 or September 1; and

(II) The principal of such parity debt shall not be payable on any date other than September 1 in any year.

(d) The proceeds of such Parity Debt may be deposited into an escrow fund to be held by a trustee, from which amounts may not be released to the Agency unless the Tax Revenues or Housing Set-Aside Revenues for the most recent Fiscal Year (as evidenced in the written records of the County) at least equal one hundred fifty percent (150%) of maximum annual debt service with respect to the Project No. I Loan and the Project No. I 1999A Loan, the Project No. II Loan and the Project No. II 1999A Loan or the Housing Loan and the 1995 Housing Loan, portion of the Parity Debt to be released and any then outstanding Parity Debt.

(e) For purposes of calculation of Tax Revenues under the Loan Agreements, Tax Revenues shall be calculated by using the most recent assessed values as evidenced in the written records of the County and a 1% tax rate (without regard to overrides).

(f) The issuance of such Parity Debt shall not cause the Agency to exceed any applicable redevelopment plan limitations with respect to any Redevelopment Project.

(g) The Agency shall file with the Trustee a Written Certificate of the Agency certifying that all of the foregoing conditions to the issuance of such Parity Debt have been satisfied (including any additional certifications as may be required by the Loan Agreements).

(h) Parity Debt may be issued, without the consent of the Bond Insurer, to refund the Bonds, provided that such refunding results in a decrease in annual debt service and a decrease in total debt service.

(i) Notwithstanding other provisions of the Indenture, refunding Parity Debt, which does not defease all of the Bonds, may be issued without the consent of the Bond Insurer, provided there is no increase in Maximum Annual Debt Service.

Subordinate Debt. The Agency may issue or incur obligations having a lien on Tax Revenues or Housing Set-Aide Revenues which is subordinate to the pledge of Tax Revenues or Housing Set-Aside Revenues to the Loans, provided that the issuance of such obligations will not cause the Agency to exceed any applicable plan limitations.

33

BOND INSURANCE The Insurance Policy Concurrently with the issuance of the Bonds, Assured Guaranty Corp. (“AGC” or the “Insurer”) will issue its financial guaranty insurance policy (the “Policy”) for the Bonds. The Policy guarantees the scheduled payment of principal of and interest on the Bonds when due as set forth in the form of the Policy included as Appendix F to this Official Statement.

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

The Insurer

AGC is a Maryland-domiciled insurance company regulated by the Maryland Insurance Administration and licensed to conduct financial guaranty insurance business in all fifty states of the United States, the District of Columbia and Puerto Rico. AGC commenced operations in 1988. AGC is a wholly-owned, indirect subsidiary of Assured Guaranty Ltd. (“AGL”), a Bermuda-based holding company whose shares are publicly traded and are listed on the New York Stock Exchange under the symbol “AGO.” AGL, through its operating subsidiaries, provides credit enhancement products to the U.S. and global public finance, structured finance and mortgage markets. Neither AGL nor any of its shareholders is obligated to pay any debts of AGC or any claims under any insurance policy issued by AGC. AGC’s financial strength is rated “AAA” (negative outlook) by Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. (“S&P”), “Aa3” (negative outlook) by Moody’s Investors Service, Inc. (“Moody’s”) and “AA-” (negative outlook) by Fitch, Inc. (“Fitch”). Each rating of AGC should be evaluated independently. An explanation of the significance of the above ratings may be obtained from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold any security, and such ratings are subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of any security guaranteed by AGC. AGC does not guaranty the market price of the securities it guarantees, nor does it guaranty that the ratings on such securities will not be revised or withdrawn. Recent Developments In a press release, dated December 18, 2009, Moody’s announced that it had confirmed its “Aa3” insurance financial strength rating of AGC, with a negative outlook. Reference is made to the press release, a copy of which is available at www.moodys.com, for the complete text of Moody’s comments. In a press release, dated October 12, 2009, Fitch announced that it had downgraded the insurer financial strength rating of AGC to “AA-” (negative outlook) from “AA” (ratings watch negative). Reference is made to the press release, a copy of which is available at www.fitchratings.com, for the complete text of Fitch’s comments. On July 1, 2009, S&P published a Research Update in which it affirmed its “AAA” counterparty credit and financial strength ratings on AGC. At the same time, S&P revised its outlook on AGC to negative from stable. Reference is made to the Research Update, a copy of which is available at www.standardandpoors.com, for the complete text of S&P’s comments. There can be no assurance as to any further ratings action that Moody’s, Fitch or S&P may take with respect to AGC. For more information regarding AGC’s financial strength ratings and the risks relating thereto, see AGL’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, which was filed by AGL with the Securities and Exchange Commission (“SEC”) on February 26, 2009, AGL’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2009, which was filed by AGL with the SEC on May 11, 2009, AGL’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009, which was filed by AGL with the SEC on August 10, 2009, and AGL’s Quarterly Report on Form 10-Q

34

for the quarterly period ended September 30, 2009, which was filed by AGL with the SEC on November 16, 2009.

Capitalization of Assured Guaranty Corp. As of September 30, 2009, AGC had total admitted assets of $2,096,784,037 (unaudited), total

liabilities of $1,917,777,236 (unaudited), total surplus of $179,006,801 (unaudited) and total statutory capital (surplus plus contingency reserves) of $951,037,548 (unaudited), determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. Incorporation of Certain Documents by Reference

The portions of the following documents relating to AGC are hereby incorporated by reference into this Official Statement and shall be deemed to be a part hereof:

the Annual Report on Form 10-K of AGL for the fiscal year ended December 31, 2008 (which was filed by AGL with the SEC on February 26, 2009);

the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2009 (which was filed by AGL with the SEC on May 11, 2009);

the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009 (which was filed by AGL with the SEC on August 10, 2009);

the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 (which was filed by AGL with the SEC on November 16, 2009);

the filed portion of the Current Report on Form 8-K of AGL, dated December 11, 2009; and

the Current Reports on Form 8-K filed by AGL with the SEC relating to the periods following the fiscal year ended December 31, 2008.

All consolidated financial statements of AGC and all other information relating to AGC included in documents filed by AGL with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, subsequent to the date of this Official Statement and prior to the termination of the offering of the Bonds shall be deemed to be incorporated by reference into this Official Statement and to be a part hereof from the respective dates of filing such consolidated financial statements. Any statement contained in a document incorporated herein by reference or contained herein under the section “SOURCES OF PAYMENT FOR THE BONDS - BOND INSURANCE-The Insurer,” shall be modified or superseded for purposes of this Official Statement to the extent that a statement contained herein or in any subsequently filed document which is incorporated by reference herein also modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Official Statement. Copies of the consolidated financial statements of AGC incorporated by reference herein and of the statutory financial statements filed by AGC with the Maryland Insurance Administration are available upon request by contacting AGC at 31 West 52nd Street, New York, New York 10019 or by calling AGC at (212) 974-0100. In addition, the information regarding AGC that is incorporated by reference in this Official Statement that has been filed by AGL with the SEC is available to the public over the Internet at the SEC’s web site at http://www.sec.gov and at AGL’s web site at http://www.assuredguaranty.com, from the SEC’s Public Reference Room at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the office of the New York Stock Exchange at 20 Broad Street, New York, New York 10005. AGC makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, AGC has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding AGC supplied by AGC and presented under the heading “SOURCES OF PAYMENT FOR THE BONDS - BOND INSURANCE.”

35

BONDOWNERS’ RISKS BEFORE PURCHASING ANY OF THE BONDS, ALL PROSPECTIVE INVESTORS AND THEIR PROFESSIONAL ADVISORS SHOULD CAREFULLY CONSIDER, AMONG OTHER THINGS, THE FOLLOWING RISK FACTORS, WHICH ARE NOT MEANT TO BE AN EXHAUSTIVE LISTING OF ALL RISKS ASSOCIATED WITH THE PURCHASE OF THE BONDS. MOREOVER, THE ORDER OF PRESENTATION OF THE RISK FACTORS DOES NOT NECESSARILY REFLECT THE ORDER OF THEIR IMPORTANCE.

The purchase of the Bonds involves investment risk. If a risk factor materializes to a sufficient degree, it could delay or prevent payment of principal of and/or interest on the Bonds. Such risk factors include, but are not limited to, the following matters:

THE BONDS General

The ability of the Authority to pay the principal of and interest on the Bonds depends upon the receipt by the Trustee of sufficient Revenues from repayment of the Loans, amounts on deposit in the Reserve Fund and interest earnings on amounts in the funds and accounts for the Bonds established by the Indenture. A number of risks that could adversely impact the security or payment of the Bonds are outlined below.

No Liability of the Authority to the Owners

Except as expressly provided in the Indenture, the Authority will not have any obligation or liability to the owners of the Bonds with respect to the payment when due of the Loans, or with respect to the observance or performance by the Agency of other agreements, conditions, covenants and terms required to be observed or performed by it under the Loans, the Loan Agreements, the Indenture or any related documents or with respect to the performance by the Trustee of any duty required to be performed by it under the Indenture.

No Effective Acceleration on Default

In the event of default under the Indenture, as a practical matter, Bondowners will be limited to obtaining the moneys in the Reserve Fund and enforcing the obligation of the Agency to repay the Loans on an annual basis to the extent of the Tax Revenues or the Housing Set-Aside Revenues. No real or personal property in the Redevelopment Projects is pledged to secure the Bonds or the Loans and it is not anticipated that the Agency will have available moneys sufficient to redeem all of the Bonds or the Loans in the event of an acceleration resulting from an event of default.

Enforceability of Remedies

The remedies available to the Trustee and the registered owners of the Bonds upon an event of default under the Indenture or any other document described herein are in many respects dependent upon regulatory and judicial actions which are often subject to discretion and delay. Under existing law and judicial decisions, the remedies provided for under such documents may not be readily available or may be limited. The various legal opinions to be delivered concurrently with the delivery of the Bonds will be qualified to the extent that the enforceability of the legal documents with respect to the Bonds is subject to limitations imposed by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally and by equitable remedies and proceedings generally.

Bond Insurer Default

The Bond Insurer’s obligation to pay the principal of and interest on the Bonds when due under the terms set forth in the Insurance Policy are subject to the risk that the Bond Insurer is unable or unwilling to make payment in amounts equal to such obligations as a result of bankruptcy, insolvency, reorganization,

36

moratorium, or other similar laws relating to or affecting the enforcement of creditors’ rights generally, now or hereafter in effect against the Bond Insurer or other adverse financial conditions affecting the Bond Insurer. Further, the market price of the Bonds may be adversely affected by the financial condition of the Bond Insurer, notwithstanding the absence of a material adverse financial matter affecting the Agency. See “CONCLUDING INFORMATION – RATINGS ON THE BONDS” herein.

Investment of Funds

The Reserve Fund and all other funds held under the Indenture are required to be invested in Permitted Investments as provided in the Indenture (see “APPENDIX A – SUMMARY OF THE INDENTURE”). All investments, including Permitted Investments, authorized by law from time to time for investments by redevelopment agencies contain a certain degree of risk. Such risks include, but not limited to, a lower rate of return than expected, decline in market value and loss or delayed receipt of principal. The occurrence of these events with respect to amounts held under the Indenture, or the funds and accounts held by the Agency could have a material adverse effect on the security for the Bonds and/or the financial condition of the Agency.

Secondary Market

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

THE LOANS

Risk Factors Relating to the Reduction of Tax Increment Revenues

General. Tax Increment Revenues allocated to the Agency are a portion of the taxes allocated to the Agency each year which are determined by the amount of incremental valuation of taxable property in the Redevelopment Projects, the current rate or rates at which property in the Redevelopment Projects is taxed and the percentage of taxes collected in the Redevelopment Projects. The Agency has no taxing power, nor does the Agency have the power to affect the rate at which property is taxed.

At least four types of events that are beyond the control of the Agency could occur and cause a reduction in Tax Increment Revenues arising from the Redevelopment Projects, thereby impairing the ability of the Agency to make payments of principal of and interest and premium (if any) when due on the Loans and consequently, the Authority’s ability to pay debt service on the Bonds. First, a reduction of taxable values of property or tax rates in the Redevelopment Projects or a reduction of the rate of increase in taxable values of property in the Redevelopment Projects caused by economic or other factors beyond the Agency’s control (such as a relocation out of the Redevelopment Projects by one or more major property owners, successful appeals by property owners for a reduction in a property’s assessed value, a reduction of the general inflationary rate, a reduction in transfers of property, construction activity or other events that permit reassessment of property at lower values, or the destruction of property caused by natural or other disasters, including earthquake) could occur, thereby causing a reduction in Tax Increment Revenues. Second, the California electorate or legislature could adopt limitations with the effect of reducing Tax Increment Revenues payable to the Agency. Such limitation already exists under Article XIIIA of the California Constitution, which was adopted pursuant to the initiative process. For a further description of Article XIIIA, see “PROPERTY TAXATION IN CALIFORNIA -- CONSTITUTIONAL AMENDMENTS AFFECTING TAX INCREMENT REVENUES” herein.

37

Third, a reduction in the tax rate applicable to property in the Redevelopment Projects by reason of discontinuation of certain override tax levies in excess of the 1% basic levy will reduce Tax Increment Revenues otherwise available to pay debt service. Such override can be expected to decline over time until it reaches the 1% basic levy and may be discontinued at any time, which may cause a reduction in Tax Increment Revenues and consequently Tax Revenues and Housing Set-Aside Revenues. Fourth, delinquencies in the payment of property taxes by the owners of land in the Redevelopment Projects could have an adverse effect on the Agency’s ability to make timely payments of principal of and interest on the Loans and consequently, the Authority’s ability to pay debt service on the Bonds (see “SOURCES OF PAYMENT FOR THE BONDS – REPAYMENT OF THE LOANS – Alternative Method of Tax Apportionment (“Teeter Plan”)” herein). Tax Increment Revenues allocated to the Agency are distributed throughout the year in installments, with the first major installment in February, a second major installment in May of the succeeding year and a final payment by the end of July in that year. The payments are adjusted to reflect actual collections. Any reduction in Tax Increment Revenues, and, consequently, Tax Revenues and Housing Set-Aside Revenues, whether for any of the foregoing reasons or any other reason, could have an adverse effect on the Agency’s ability to make timely payments of principal of and interest on the Loans and consequently, the Authority’s ability to pay debt service on the Bonds. Reduction in Inflationary Rate. As described in greater detail below, Article XIIIA of the California Constitution provides that the full cash value basis of real property used in determining taxable value may be adjusted from year to year to reflect the inflationary rate. Following the year a base year value is first enrolled, the base year value is factored annually for inflation. Pursuant to Article XIIIA, section 2(b), and Revenue and Taxation Code Section 51, the percentage increase cannot exceed 2 percent of the prior year’s value.

To interpret Section 51, the State Board of Equalization (Board) promulgated Property Tax Rule 460, General Application. Subdivision (a) of Rule 460 provides the general interpretation of Proposition 13 as follows:

(a) Sections 1 and 2 of Article XIIIA of the Constitution provide for a limitation on property taxes and a procedure for establishing the current taxable value of locally assessed real property by reference to a base year full cash value which is then modified annually to reflect increase in the inflation rate not to exceed two percent per year or declines in value from whatever cause.

Specifically, with respect to the applicable inflation rate, Rule 460, subdivision (b)(5) states that: (b)(5) INFLATION RATE. For each lien date after the lien date in which the base year value is determined, the full value of real property shall be modified to reflect the percentage change in cost of living, as defined in Section 51 of the Revenue and Taxation Code; provided that such value shall not reflect an increase in excess of 2 percent of the taxable value of the preceding lien date.

Because Section 51 does not distinguish between positive and negative changes in the California Consumer Price Index (“CCPI”), and because Article XIIIA, section 2(b) of the California Constitution specifically provides adjustments based upon reductions in the CCPI, it is the opinion of the Board that Section 51 requires inflation factor adjustments that may be positive or negative. If positive, the increase is limited to 2 percent, however, there is no such limitation to downward adjustments, including instances in which the net change to the CCPI is zero or less than zero percent. Utility property assessed by the Board may be revalued annually and such assessments are not subject to the inflation limitations of Article XIIIA. The taxable value of personal property is also established on the lien dates and is not subject to the annual two percent limit of locally assessed real property. Secured property includes property on which any property tax levied by a county becomes a lien on that property. Unsecured property typically includes value for tenant improvements, fixtures, inventory and personal property. A tax levied on unsecured property does not become a lien against the taxed unsecured property, but may become a lien on certain other secured property owned by the taxpayer. The taxes levied on unsecured property are levied at the previous year's secured property tax rate.

38

The Fiscal Consultant has based its projections on an adjustment of negative (0.237%) percent inflation growth for Fiscal Year 2010-11 and assumed resumption of 2 percent annual growth thereafter. A 2 percent growth rate has been assumed by the Fiscal Consultant because it is the maximum inflationary growth rate permitted by law and this rate of growth has been achieved in all but six years since 1981. The years in which less than 2 percent growth was realized were 1983-84 (1.0%), 1995-96 (1.19%), 1996-97 (1.11%), 1999-00 (1.85%), 2004-05 (1.87%) and a (negative 0.237%) for Fiscal Year 2010-11. Should the assessed value of real property not increase at the allowed annual rate of 2 percent, the Agency’s receipt of future Tax Increment Revenues, and, consequently, Tax Revenues and Housing Set-Aside Revenues may be adversely affected. See “PROPERTY TAXATION IN CALIFORNIA - CONSTITUTIONAL AMENDMENTS AFFECTING TAX INCREMENT REVENUES” herein.

Assessment Appeals.

An assessee of locally-assessed or state-assessed property may contest the taxable value enrolled by the county assessor or by the State Board of Equalization (“SBE”), respectively. The assessee of SBE-assessed property or locally-assessed personal property, the valuation of which is subject to annual reappraisal, actually is contesting the determination of the full cash value of property when filing an assessment appeal.

Because of the limitations to the determination of the full cash value of locally-assessed real property by Article XIIIA (described herein), however, an assessee of locally-assessed real property generally is contesting only the original determination of the base assessment value of the parcel, i.e., the value assigned after a change of ownership or completion of new construction. At the time of reassessment, after a change of ownership or completion of new construction, the assessee may appeal the base assessment value of the property. Under an appeal of a base assessment value, the assessee appeals the actual underlying market value of the sales transaction or the recently completed improvement. A base assessment appeal has significant future revenue impact because a reduced base year assessment will then reduce the compounded value of the property prospectively. Except for the 2% inflation factor, the value of the property cannot be increased until a change of ownership occurs or additional improvements are added. The taxable value of utility property may be contested by utility companies and railroads to the SBE. Generally, the impact of utility appeals is on the Statewide value of a utility determined by the SBE. As a result, the successful appeal of a utility may not affect the taxable value of a redevelopment project but could affect a redevelopment project’s allocation of unitary property taxes. The actual impact on Tax Increment Revenues is dependent upon the actual revised value of assessments resulting from values determined by the Riverside County Assessment Appeals Board or through litigation and the ultimate timing of successful appeals. Because the County Controller adjusts revenues to the Agency to reflect roll corrections from successful appeals, the Agency may bear the burden of appeals. The actual valuation impact to the Redevelopment Projects from successful assessment appeals will occur on the assessment roll prepared after the actual valuation reduction. See “TAX INCREMENT REVENUES – ASSESSMENT APPEALS” for information regarding current appeals and the Fiscal Consultant’s assumptions regarding the projection of Tax Revenues. Proposition 8 Adjustments. The assessee of locally-assessed real property also may contest the current assessment value (the base assessment value plus the compounded annual inflation factor) when specified conditions have caused the full cash value to drop below the current assessment value. Pursuant to Section 51(b) of the Revenue and Taxation Code, the assessor may place a value on the tax roll lower than the compounded base assessment value, if the full cash value of real property has been reduced by damage, destruction, depreciation, obsolescence, removal of property or other factors causing a decline in the value. Reductions in value pursuant to Section 51(b), commonly referred to as “Proposition 8 appeals,” can be achieved either by formal appeal or administratively by assessor staff appraising the property. A reduced full cash value placed on the tax roll does not change the base assessment value. The future impact of a parcel subject to a Proposition 8 appeal is dependent upon a change in the conditions which caused the drop in value. In fiscal years subsequent to a successful Proposition 8 appeal, the assessor may determine that the value of the property has increased as a result

39

of corrective actions or improved market conditions and enroll a value on the tax roll up to the parcel’s compounded base assessment value. See “TAX INCREMENT REVENUES – ASSESSMENT APPEALS - Proposition 8 Adjustments” for information regarding recent Proposition 8 Adjustments. Levy and Collection. Neither the Agency nor the Authority has an independent power to levy and collect property taxes. Any reduction in the tax rate or the implementation of any constitutional or legislative property tax decrease could reduce the Tax Increment Revenues and therefore Tax Revenues and Housing Set-Aside Revenues, and accordingly, could have an adverse impact on the ability of the Agency to pay debt service on the Loans, and, consequently, the Authority’s ability to pay debt service on the Bonds. Likewise, delinquencies in the payment of property taxes could have an adverse effect on the Agency’s ability to make timely debt service payments. The Agency receives from the County 100% of its respective share of the secured ad valorem taxes levied, without regard to actual collections of taxes (see “SOURCES OF PAYMENT FOR THE BONDS – REPAYMENT OF THE LOANS – Alternative Method of Tax Apportionment (“Teeter Plan”)” herein). Due to this allocation method, the Agency is held harmless from tax delinquencies and, as a consequence, the Agency receives no adjustments for redemption payments of delinquent collections. The unsecured taxes are allocated based on actual unsecured tax collections. The County makes a one-time adjustment for changes in the tax roll in the following year. However, there is no assurance that the County will continue to allocate tax revenues in this manner (see “TAX INCREMENT REVENUES – DELINQUENCIES” and “-FORECLOSURES” herein).

Property Owner Bankruptcy. On July 30, 1992 the United States Court of Appeals for the Ninth Circuit issued an opinion in a bankruptcy case entitled In re Glasply Marine Industries holding that ad valorem property taxes levied by a county in the State of Washington after the date that the property owner filed a petition for bankruptcy would not be entitled to priority over the claims of a secured creditor with a prior lien on the property. Similar results were reached by several circuit courts in other circuits. Subsequently, however, Section 362(b)(18) of the Bankruptcy Code was enacted, effectively overturning this line of decisions and providing that local governments may rely on statutory property tax liens to secure payment of property taxes even after the filing of a bankruptcy petition.

Risk Factors Related to Real Estate Market Conditions

Development Risks. Generally, the Agency’s ability to pay debt service on the Loans, and, consequently, the Authority’s ability to pay debt service on the Bonds, will be dependent upon the economic strength of the Redevelopment Projects. The general economy of the Redevelopment Projects will be subject, in part, to the development risks generally associated with real estate development projects. Projected development within the Redevelopment Projects may be subject to unexpected delays, disruptions and changes. For example, real estate development operations may be adversely affected by changes in general economic conditions, fluctuations in the real estate market, fluctuations in interest rates, unexpected increases in development costs and by other factors. Further, real estate development operations within the Redevelopment Projects could be adversely affected by future governmental policies, including governmental policies to restrict or control development. If projected development in the Redevelopment Projects is delayed or halted, the economy of the Redevelopment Projects could be adversely affected, causing a reduction of the Tax Increment Revenues and therefore Tax Revenues and Housing Set-Aside Revenues available to pay debt service on the Loans and consequently, the Authority’s ability to pay debt service on the Bonds.

Current Real Estate Market Conditions. Prior to 2006, the housing market in Southern California experienced significant price appreciation and accelerated demand. Subsequently, the housing market significantly weakened. Starting in 2006, home developers, appraisers and market absorption consultants began to report weakening of the new home market evidenced by (i) lower demand for new homes, (ii) significant increases in cancellation rates for homes under contract, (iii) the exit of speculators from the new home market, (iv) a growing supply of new and existing homes available for purchase, (v) increases in competition for new homes orders, (vi) prospective home buyers having a more difficult time selling their existing homes in the more competitive environment, and (vii) higher incentives required to stimulate new home orders or to induce home buyers not to cancel purchase contracts.

40

According to information provided by DataQuick and Empire Economics, Inc., the median price of homes in Lake Elsinore peaked in Fiscal Year 2005-06 at $422,063. Since that time, the median price of homes has declined to $177,050 for the period between July and November 2009. The last time the median price of homes was at this level was Fiscal Year 2001-02 ($177,729) (see “TAX INCREMENT REVENUES – ASSESSMENT APPEALS - Proposition 8 Adjustments – Current Market Conditions”). The current median price is significantly below a broad measure for determining the affordability of home prices (approximately the Fiscal Year 2003-04 median price or $281,125) developed by Empire Economics Inc., Capistrano Beach, California, and the City’s market consultant. This has contributed to brisk sales where more than one offer is not uncommon and the inventory of unsold homes in the City, at times, would theoretically take just two months to completely sell. This has resulted in an increase in the median price of homes in November to $184,250. The median price of homes in November 2008 was $205,000. This may be an indicator that the assessor, who determines market value as of January 1, 2010, will make a Proposition 8 adjustment for the 2010-11 assessment roll although not to the extent experienced in the Fiscal Year 2009-10 assessment roll.

The price declines experienced between Fiscal Year 2005-06 and Fiscal Year 2009-10 were driven in large part by the sale of foreclosed properties and short sales. Some economists believe, despite good affordability metrics, homes prices may experience further declines in 2010. They cite the uncertainty surrounding the size of the foreclosure pool, combined with the elimination of the federal home buyer tax credit (April 30, 2010), which may lead home prices downward. In addition, recent reports indicate that the housing slowdown may have spread to the commercial sector. Retail sales have declined and the value of commercial property has also decreased from its peak in 2007. This may lead to a Proposition 8 adjustment which in the past has been limited to residential properties.

Decreasing land values could have an adverse affect on the Assessed Value within the Redevelopment Projects and thus Tax Increment Revenues. “Assessed Value” represents market value of an assessed parcel as of its most recent assessment, plus a 2% per year inflation factor since such assessment. In the absence of a Proposition 8 adjustment, a new assessment of an assessed parcel to its then current market value will only occur upon a change of ownership or new construction with respect to such parcel. Therefore, in general, market value is often in excess of assessed value except for those parcels reassessed preceding the economic downturn and after the end of 2002.

Adjustable Rate and Unconventional Mortgage Structures. Since the end of 2002, many persons have financed the purchase of new homes using loans with little or no down payment and with adjustable interest rates that start low and are subject to being reset at higher rates on a specified date or upon the occurrence of specified conditions. Many of these loans allow the borrower to pay interest only for an initial period, in some cases up to 10 years. Currently, in Southern California, a substantial portion of outstanding home loans are adjustable rate loans which were obtained at historically low interest rates. In the opinion of some economists, the significant increase in home prices in this time period has been driven, in part, by the ability of home purchasers to access adjustable rate and non-conventional loans.

Increases in interest rates on new loans, which have resulted in increased loan payments, have contributed to a decrease in home sales as purchasers are unable to qualify for loans with higher interest rates. Such decrease in home sales has resulted in a decrease in home prices. Such reduction in home prices has resulted in recent homebuyers having loan balances that exceed the value of their homes, given their low down payments and small amount of equity in their homes.

Furthermore, there has been tightening of underwriting criteria for mortgage loans such that lenders no longer offer 100% financing or require stricter verification, higher income-to-loan ratio, higher credit ratios or some combination of such factors. There has also been tightening of the credit market, especially with respect to the availability of “jumbo” loans. As a result, potential homeowners may have difficulty finding financing and rising interest rates may price potential homeowners out of the market.

In addition, many borrowers who purchased homes in recent years may not be able to access replacement financing for their adjustable rate mortgage loans, which has reset or will soon reset at a significantly higher interest rate, for a number of reasons. Many borrowers have financed 100% of the price of their

41

home with adjustable rate loans. As home values decline, such borrowers may not be able to obtain replacement financing because the outstanding loan balances exceed the value of their homes.

For the reasons discussed above, homeowners who purchased their homes with adjustable rate loans may experience difficulty in making their loan payments and paying property taxes levied on their property (see “SOURCES OF PAYMENT FOR THE BONDS – Alternative Method of Tax Apportionment (“Teeter Plan” and “TAX INCREMENT REVENUES – FORECLOSURES” herein).

Risk Factors Related to Natural and Man-Made Disasters The value of the assessed property in the Redevelopment Projects in the future could be adversely affected by a variety of factors, particularly those which may affect infrastructure and other public improvements and private improvements on the parcels of assessed property and the continued habitability and enjoyment of such private improvements. Such additional factors include, without limitation, geologic conditions such as earthquakes, topographic conditions such as earth movements, landslides, liquefaction, floods or fires, and climatic conditions such as tornadoes, droughts, and the possible reduction in water allocation or availability. It is possible that one or more of the conditions referenced above may occur and may result in damage to improvements of varying seriousness, that the damage may entail significant repair or replacement costs and that repair or replacement may never occur either because of the cost or because repair or replacement will not facilitate habitability or other use, or because other considerations preclude such repair or replacement. Under any of these circumstances, the value of the assessed property may well depreciate or disappear.

According to the Safety Element of the City’s General Plan, the City is located in a seismically active region and could be impacted by a major earthquake originating from several faults in the area. Seismic hazards encompass both potential surface rupture and ground shaking.

An environmental condition that may result in the reduction in the assessed value of parcels would be the discovery of a hazardous substance that would limit the beneficial use of a property within the Redevelopment Projects. In general, the owners and operators of a property may be required by law to remedy conditions of the property relating to releases or threatened releases of hazardous substances. The owner may be required to remedy a hazardous substance condition of property whether or not the owner or operator had anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the property within the Redevelopment Projects be affected by a hazardous substance would be to reduce the marketability and value of the property by the costs of remedying the condition, causing a reduction of Tax Revenues and Housing Set-Aside Revenues available to pay debt service on the Loans and consequently, the Authority’s ability to pay debt service on the Bonds.

Risk Factors Relating to the Loans and the Redevelopment Law Loans are a Limited Obligation. The Agency has no power to levy and collect property taxes, and any property tax limitation, legislative measure, voter initiative or provision of additional sources of income to taxing agencies having the effect of reducing the property tax rate must necessarily reduce the amount of Tax Revenues and Housing Set-Aside Revenues that would otherwise be available to pay the principal of, interest on and premium, if any, on the Loans and consequently, the Authority’s ability to pay debt service on the Bonds.

Redevelopment Plan Limitations on Tax Revenues. The Redevelopment Law requires, in certain circumstances, a redevelopment agency to either include in the redevelopment plan or to adopt by ordinance a limitation on the amount of taxes that may be divided and allocated to the redevelopment agency with respect to the Redevelopment Projects. Pursuant to the Redevelopment Law, taxes may not be allocated to a redevelopment agency beyond this limitation except by amendment of the redevelopment plan. The redevelopment plans for the Redevelopment Projects contain such tax increment revenue limitations. In addition, under the provisions of Assembly Bill 1290 (“AB 1290”), enacted by the State Legislature in 1993, AB 1290 limits the time a redevelopment agency may pay indebtedness or receive property taxes pursuant to Section 33670 of the Redevelopment Law (see “THE

42

AGENCY – REDEVELOPMENT PLANS – Redevelopment Plan Limitations” herein for the applicable redevelopment plan limitations for the Redevelopment Projects).

Risk Factors Related to Bankruptcy of the Authority and the Agency

The Authority and the Agency are public agencies and, like the City, are not subject to the involuntary procedures of the Bankruptcy Code. The Authority and/or the Agency may seek voluntary protection under Chapter 9 of the Bankruptcy Code. In the event the Authority and/or the Agency were to become a debtor under the Bankruptcy Code, the Authority and/or the Agency would be entitled to all of the protective provisions of the Bankruptcy Code as applicable in a Chapter 9 proceeding. Such a bankruptcy could adversely impact the payments under the Indenture and the Loan Agreements. Among the adverse effects might be: (i) the application of the automatic stay provisions of the Bankruptcy Code, which, until relief is granted, would prevent collection of payments from the Authority and/or the Agency or the commencement of any judicial or other action for the purpose of recovering or collecting a claim against the Authority and/or the Agency; (ii) the avoidance of preferential transfers occurring during the relevant period prior to the filing of a bankruptcy petition; (iii) the occurrence of unsecured or secured debt which may have priority of payment superior to that of the owners of the Bonds; and (iv) the possibility of the adoption of a plan for the adjustment of the Authority’s and/or the Agency’s debt without the consent of the Trustee or all of the owners of the Bonds, which plan may restructure, delay, compromise or reduce the amount of any claim against the Authority. However, the bankruptcy of the Authority, and not the Agency, should not affect the Trustee’s rights under the Loan Agreements. The Authority could still challenge the assignment, and the Trustee and/or the owners of the Bonds may have to litigate these issues in order to protect their interests.

Risk Factors Related to State Budget Legislation

In connection with its approval of the budget for the 1992-93, 1993-94, 1994-95, 2002-03, 2003-04, 2004-05, 2005-06, and 2008-09 Fiscal Years, the State Legislature enacted legislation which, among other things, reallocated funds from redevelopment agencies to school districts by shifting a portion of each agency’s tax increment, net of amounts due to other taxing agencies, to school districts for such fiscal years for deposit in the Education Revenue Augmentation Fund (“ERAF”). The amount required to be paid by a redevelopment agency under such legislation was apportioned among all of its redevelopment project areas on a collective basis, and was not allocated separately to individual project areas.

In 2008, the State Legislature adopted, and the Governor of the State signed, legislation, Chapter 751, Statutes 2008 (AB 1389) (“AB 1389”), that among other things required redevelopment agencies to pay into ERAF in Fiscal Year 2008-09 prior to May 10, 2009, an aggregate amount of $350 million, of which the Agency was to pay approximately $1,435,000. AB 1389 provides that part of the ERAF obligation of the Agency is calculated based on the gross tax increment received by the Agency and the other part of the ERAF obligation of the Agency is calculated based on net tax increment revenues (after any pass-through payments to other taxing entities). AB 1389 provided that required transfers to ERAF are subordinate to payments on bonds secured by tax increment revenues. AB 1389 provides that in the event a redevelopment agency does not make the required ERAF payment, it shall be prohibited from issuing new bonds, notes, interim certificates, debentures, or other obligations. On April 30, 2009, a California superior court in California Redevelopment Association v. Genest (County of Sacramento) (Case No. 34-2008-00028334) held that the required payment by redevelopment agencies into ERAF in Fiscal Year 2008-09 pursuant to AB 1389 violated the California constitution and invalidated and enjoined the operation of the California Health and Safety Code section requiring such payment. On May 26, 2009, the State did file a notice that it would appeal the decision of the superior court but subsequently dropped its appeal.

In connection with various legislation related to the budget for the State for its Fiscal Year 2009-10, in late July 2009, the State legislature adopted, and the Governor of the State signed, Assembly Bill No. 26 (“AB 26”) (the “2009 SERAF Legislation”).

43

The 2009 SERAF Legislation mandates that redevelopment agencies in the State make deposits to the Supplemental Educational Revenue Augmentation Fund (“SERAF”) that is established in each county treasury throughout the State the aggregate amounts of $1.7 billion for Fiscal Year 2009-10, which are due prior to May 10, 2010, and $350 million for Fiscal Year 2010-11, which are due prior to May 10, 2011.

The Agency has preliminarily estimated that the total amount payable by it pursuant to the 2009 SERAF Legislation for all of its redevelopment project areas will be $6,970,262 for Fiscal Year 2009-10 and $1,435,054 for Fiscal Year 2010-11. Pursuant to the 2009 SERAF Legislation, redevelopment agencies may use any funds that are legally available and not legally obligated for other uses, including reserve funds, proceeds of land sales, proceeds of bonds or other indebtedness, lease revenues, interest and other earned income.

The Agency intends to fund the Fiscal Year 2009-10 and Fiscal Year 2009-10 SERAF payments using existing fund balances.

The 2009 SERAF Legislation contains provisions that subordinate the obligation of redevelopment agencies to make the SERAF payments specified therein to certain indebtedness. Section 6 of AB 26, to be codified at California Health and Safety Code, § 33690 (a) (3), states: “The obligation of any agency to make the payments required pursuant to this subdivision shall be subordinate to the lien of any pledge of collateral securing, directly or indirectly, the payment of the principal, or interest on any bonds of the agency including, without limitation, bonds secured by a pledge of taxes allocated to the agency pursuant to Section 33670 [of the California Health and Safety Code].”

The 2009 SERAF Legislation imposes various restrictions on redevelopment agencies that fail to timely make the required SERAF payments, including (i) a prohibition on adding or expanding project areas, (ii) a prohibition on the incurrence of additional debt, (iii) limitations on the encumbrance and expenditure of funds, including funds for operation and administration expenses, and (iv) commencing with the July 1 following the due date of a SERAF annual payment that is not timely made, a requirement that the applicable redevelopment agency allocate an additional five percent (5%) of all taxes that are allocated to the redevelopment agency under the Redevelopment Law for low and moderate income housing for the remainder of the time that the applicable redevelopment agency receives allocations of tax revenues under the Redevelopment Law. The five percent (5%) additional housing set-aside penalty provision referred to in the 2009 SERAF Legislation (the “Penalty Set-Aside Requirement”) would be in addition to the twenty percent (20%) of such tax revenues already required to be used for low and moderate income housing purposes. A redevelopment agency that borrows from amounts required to be allocated to its housing set-aside funds or that suspends its Fiscal Year 2009-10 housing set-aside payments to make required SERAF payments, but does not timely repay the funds, may also be subject to the Penalty Set-Aside Requirement.

While the 2009 SERAF Legislation contains provisions that subordinate that obligation of redevelopment agencies to make the SERAF payments specified therein to certain indebtedness (which would include a subordination of the Agency’s obligations with respect to the new SERAF payments to the Agency’s obligation to pay debt service on the Loans), there is no provision in the 2009 SERAF Legislation subordinating the Penalty Set-Aside Requirement to any indebtedness of a redevelopment agency that fails to timely make the SERAF payments mandated by the SERAF Legislation.

The Agency has reserved sufficient moneys to pay its 2009-10 and 2010-11 SERAF payments.

The Agency cannot predict what actions will be taken in the future by the State Legislature and the Governor to deal with changing State revenues and expenditures and the repercussions they may have on the Fiscal Year 2009-10 State Budget and future State budgets. These developments at the State level may, in turn, affect local governments and agencies, including the Agency. The State Legislature may adopt other legislation requiring redevelopment agencies to make other payments to ERAF or SERAF or to make other payments. The impact that current and future State fiscal shortfalls will have on the

44

Agency is unknown at this time. In prior years, the State has experienced budgetary difficulties and balanced its budget by requiring local political subdivisions, such as the City and the Agency, to fund certain costs theretofore borne by the State.

Information about the State budget and State spending is regularly available from various State offices, including the Department of Finance, the Office of the Legislative Analyst and the State Treasurer. However, none of such information is incorporated by such reference.

Risk Factors Related to Assumptions and Projections of Tax Revenues

Any reduction in Tax Increment Revenues, whether for any of the foregoing reasons or any other reason, could have an adverse effect on Tax Revenues and on the Agency’s ability to make timely payments of principal of, premium, if any, and interest on the Loans, which is secured by such Tax Revenues or Housing Set-Aside Revenues. To estimate the total Tax Revenues or Housing Set-Aside Revenues available to pay debt service on the Agency’s obligations, the Fiscal Consultant has made certain assumptions with regard to the assessed valuation in the Redevelopment Projects, future tax rates, and the percentage of taxes collected. See “APPENDIX C – FISCAL CONSULTANT REPORT” for a full discussion of the assumptions underlying the projections set forth herein with respect to Tax Revenues or Housing Set-Aside Revenues. The Agency believes these assumptions to be reasonable, but to the extent that the assessed valuations, the tax rates, and the percentage of taxes collected are less than the Agency’s assumptions, the total Tax Revenues or Housing Set-Aside Revenues available will, in all likelihood, be less than those projected herein and consequently, the Authority’s ability to pay debt service on the Bonds may be adversely affected. See “TAX INCREMENT REVENUES” herein.

45

PROPERTY TAXATION IN CALIFORNIA CONSTITUTIONAL AMENDMENTS AFFECTING TAX INCREMENT REVENUES

The Tax Increment Revenues include a portion of the ad valorem taxes levied on real property within the Redevelopment Projects. Article XIIIA of the California Constitution limits the amount of ad valorem tax on real property to 1% of “full cash value,” as determined by the County Assessor. Article XIIIA defines “full cash value” to mean “the County Assessor’s valuation of real property as shown on the 1975-76 tax bill under “full cash value,” or thereafter the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment period.” Furthermore, all real property valuation may be increased to reflect the inflationary rate, as shown by the consumer price index, not to exceed 2% per year, or may be reduced in the event of declining property values caused by damage, destruction or other factors. Article XIIIA exempts from the 1% tax limitation any taxes to repay indebtedness approved by the voters prior to July 1, 1978, and any bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978, by two-thirds of the voters voting on the proposition approving such bonds, and requires a vote of two-thirds of the qualified electorate to impose special taxes, while totally precluding the imposition of any additional ad valorem, sales or transaction tax on real property. In addition, Article XIIIA requires the approval of two-thirds of all members of the State legislature to change any State tax law resulting in increased tax revenues. Article XIIIB of the California Constitution limits the annual appropriations from the proceeds of taxes of the State and any city, county, school district, authority or other political subdivision of the State to the level of appropriations for the prior fiscal year, as adjusted for changes in the cost of living, population and services rendered by the governmental entity. Article XIIIB includes a requirement that if an entity’s revenues in any year exceed the amount permitted to be spent, the excess would have to be returned by revising tax or fee schedules over the subsequent two years. Section 33678 of the Redevelopment Law provides that the allocation of taxes to a redevelopment agency for the purpose of paying principal of, or interest on, loans, advances or indebtedness incurred for redevelopment activity shall not be deemed the receipt by such agency of proceeds of taxes within the meaning of Article XIIIB, nor shall such portion of taxes be deemed receipt of proceeds of taxes by, or any appropriation subject to the limitation of, any other public body within the meaning or the purpose of the Constitution and laws of the State, including Section 33678 of the Redevelopment Law. Two California appellate court decisions have upheld the constitutionality of Section 33678, and in the one case in which a petition for review was filed in the California Supreme Court, such petition was denied.

IMPLEMENTING LEGISLATION

Legislation enacted by the California Legislature to implement Article XIIIA (Statutes of 1978, Chapter 292, as amended) provides that, notwithstanding any other law, local agencies may not levy any property tax, except to pay debt service on indebtedness approved by the voters prior to July 1, 1978, and that each county will levy the maximum tax permitted by Article XIIIA of $4.00 per $100 assessed valuation (based on the traditional practice of using 25% of full cash value as the assessed value for tax purposes). The legislation further provided that, for Fiscal Year 1978-79 only, the tax levied by each county was to be appropriated among all taxing agencies within the county in proportion to their average share of taxes levied in certain previous years. Effective as of the 1981-82 Fiscal Year, assessors in California no longer record property values in the tax rolls at the assessed value of 25% of market values. All taxable property value is shown at full market value. In conformity with this change in procedure, all taxable property value included in this Official Statement (except as noted) is shown at 100% of market value and all general tax rates reflect the $1 per $100 of taxable value.

46

Future assessed valuation growth allowed under Article XIIIA (i.e., new construction, change of ownership, and 2 percent annual value growth) will be allocated on the basis of “situs” among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and schools will share the growth of “base” revenue from the tax rate area. Each year’s growth allocation becomes part of each agency’s allocation in the following year. The Agency is unable to predict the nature or magnitude of future revenue sources which may be provided by the State to replace lost property tax revenues. Article XIIIA effectively prohibits the levying of any other ad valorem property tax above those described above, even with the approval of the affected voters.

CONSTITUTIONAL CHALLENGES TO PROPERTY TAX SYSTEM

There have been many challenges to Article XIIIA of the California Constitution. The United States Supreme Court heard the appeal in Nordlinger v. Hahn, a challenge relating to residential property. Based upon the facts presented in Nordlinger, the United States Supreme Court held that the method of property tax assessment under Article XIIIA did not violate the federal Constitution. The Agency cannot predict whether there will be any future challenges to California’s present system of property tax assessment and cannot evaluate the ultimate effect on the Agency’s receipt of Tax Increment Revenues should a future decision hold unconstitutional the method of assessing property.

PROPERTY TAX COLLECTION PROCEDURES

In California, property that is subject to ad valorem taxes is classified as “secured” or “unsecured.” The secured classification includes property on which any property tax levied by a county becomes a lien on that property sufficient, in the opinion of the county assessor, to secure payment of the taxes. Every tax levied by a county that becomes a lien on secured property has priority over all present and future private liens arising pursuant to State law on the secured property, regardless of the time of the creation of the other liens. A tax levied on unsecured property does not become a lien against the taxed unsecured property, but may become a lien on other property owned by the taxpayer. Secured and unsecured property are entered on separate parts of the assessment roll maintained by the county assessor. The payment of delinquent taxes with respect to property on the secured roll may be enforced only through the sale of the property securing the taxes to the State for the amount of taxes that are delinquent. Such property may thereafter be redeemed by payment of the delinquent taxes and penalties. Unsecured personal property taxes may be collected, in the absence of timely payment by the taxpayer, through (1) a civil action against the taxpayer; (2) filing a certificate of delinquency for record in the county recorder’s office, in order to obtain a lien on property of the taxpayer; (3) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the taxpayer; and (4) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer. Except for property assessed by the State, the valuation of taxable property is determined as of January 1 each year, and equal installments of taxes levied upon secured property become delinquent on the following December 10 and March 10. Taxes on unsecured property are due February 1 and become delinquent August 31, and such taxes are levied at the prior year’s secured tax rate. The valuation of State-assessed property is determined on January 1 of each year.

SUPPLEMENTAL ASSESSMENTS

A bill enacted in 1983, SB 813 (Statutes of 1983, Chapter 498), provides for the supplemental assessment and taxation of property as of the occurrence of a change of ownership or completion of new construction. Previously, statutes enabled the assessment of such changes only as of the next tax lien date following the change, and thus delayed the realization of increased property taxes from the new assessments for up to 14 months. As enacted, Chapter 498 provides increased revenue to redevelopment agencies to the extent that supplemental assessments, as a result of new construction or changes of ownership, occur within the boundaries of redevelopment projects subsequent to the lien date. To the extent such supplemental assessments occur within the Redevelopment Projects, Tax Increment Revenues and, consequently, Housing Set-Aside Revenues may increase.

47

TAX COLLECTION FEES

SB 2557, enacted in 1990 (Statutes of 1990, Chapter 466), authorized county auditors to determine property tax administration costs proportionately attributable to local jurisdictions and to submit invoices to the jurisdictions for such costs. Subsequent legislation, SB 1559 (Chapter 697, Statutes of 1992), specifically includes redevelopment agencies among entities subject to a property tax administration charge. The projections of Tax Revenues take such administrative costs into account.

UNITARY PROPERTY TAX

AB 454 (Statutes of 1987, Chapter 921) provides a revised method of reporting and allocating property tax revenues generated from most State-assessed unitary properties commencing with Fiscal Year 1988-89. Under AB 454, the State reports to each county auditor-controller only the countywide unitary taxable value of each utility, without an indication of the distribution of the value among tax rate areas. AB 454 provides two formulas for auditor-controllers to use in order to determine the allocation of unitary property taxes generated by the countywide unitary value, which are: (i) for revenue generated from the 1% tax rate, each jurisdiction is to receive up to 102% of its prior year unitary property Tax Increment Revenue; however, if countywide revenues generated from unitary properties are greater than 102% of prior year revenues, each jurisdiction receives a percentage share of the excess unitary revenues equal to the percentage of each jurisdiction’s share of secured property taxes; and (ii) for revenue generated from the application of the debt service tax rate to countywide unitary taxable value, each jurisdiction is to receive a percentage share of revenue based on the jurisdiction’s annual debt service requirements and the percentage of property taxes received by each jurisdiction from unitary property taxes. The provisions of AB 454 apply to all State-assessed property, except railroads and non-unitary properties, the valuation of which will continue to be allocated to individual tax rate areas. The provisions of AB 454 do not constitute an elimination or a revision of the method of assessing utilities by the State Board of Equalization. AB 454 allows, generally, valuation growth or decline of State-assessed unitary property to be shared by all jurisdictions within a county.

BUSINESS INVENTORY AND REPLACEMENT REVENUE

Prior to 1979, the State reimbursed cities, counties, special districts and redevelopment agencies that portion of taxes which would have been generated by the exempted portion of business inventory value (50%). In 1979, the California Legislature enacted AB 66 (Statutes of 1979, Chapter 1150), eliminating the assessment and taxation of business inventory property and providing for replacement revenue for local agencies, except redevelopment agencies. In 1980, the California Legislature enacted AB 1994 (Statutes of 1980, Chapter 610), providing partial replacement revenue for the loss of business inventory revenues by redevelopment agencies. In 1990, the California Legislature amended Section 16112.7 of the California Government Code (Chapter 449, Statutes of 1990) which precludes redevelopment agencies from pledging special subvention revenues toward the payment of debt service for bonded indebtedness incurred after July 31, 1990 (the effective date of the legislation). The 1992-93 State Budget reduced the State’s funding for the special subvention. As enacted under AB 222 (Chapter 188, Statutes of 1991), the Budget Act eliminated 1991-92 subvention payments for most redevelopment projects, including the Redevelopment Projects. Additionally, the 1992-93 State Budget implemented further cuts in funding for the State’s special subvention to redevelopment agencies. As a result, these revenues are not included in the projections of estimated Tax Revenues.

PROPOSITION 87

Under prior State law, if a taxing entity increased its tax rate to obtain revenues to repay general obligation bonds approved by two-thirds of the voters, the redevelopment agency with a redevelopment project that includes property affected by the tax rate increase would have realized a proportionate increase in tax increment revenues.

48

Proposition 87, approved by the voters of the State on November 8, 1988, requires that all revenues produced by such a tax rate increase (approved by the voters on or after January 1, 1989) go directly to the taxing entity that increased the tax rate to repay the general obligation bonded indebtedness. As a result, redevelopment agencies no longer receive an increase in tax increment revenues when taxes on property in a redevelopment project are increased to repay voter-approved general obligation debt.

FUTURE INITIATIVES

Each of Article XIIIA, Article XIIIB and Proposition 87 was adopted as a measure that qualified for the ballot pursuant to California’s initiative process. From time to time other initiative measures could be adopted, further affecting revenues of the Agency or the Agency’s ability to expend revenues. The nature and impact of these measures cannot be anticipated by the Authority or the Agency. Article XIIIB. On September 6, 1979, California voters approved Proposition 4, or the Gann Initiative, which added Article XIIIB to the California Constitution. The principal thrust of Article XIIIB is to limit the annual appropriations of the State and any city, county, school district, authority or any other political subdivision of the State. The amendment includes a requirement that if an entity’s revenues in any year exceed amounts permitted to be spent, the excess will be returned to the taxpayer by revising the tax override rate over the subsequent two years. To the extent such tax rates are revised, Tax Increment Revenues may be affected, since Tax Increment Revenues allocated to the Agency are a function of the combinations of tax rates levied by certain taxing agencies having jurisdiction within the Redevelopment Projects and assessments of property located within the Redevelopment Projects.

49

THE AUTHORITY

GENERAL

The Authority is a joint exercise of powers authority organized and existing under and by virtue of the Joint Powers Act. The City, pursuant to Resolution No. 89-12, adopted on July 25, 1989, and the Agency, pursuant to Resolution No. 89-4, adopted on July 25, 1989, formed the Authority by the execution of a Joint Exercise of Powers Agreement (the “Joint Powers Agreement”). The Authority is governed by a five-member board which consists of all members of the City Council. The Authority reorganizes its officers, a chair and vice-chair, annually. The City Manager acts as the Executive Director and the Secretary and the Director of Administrative Services of the City acts as the Treasurer of the Authority. The current Authority governing board is as follows:

AUTHORITY GOVERNING BOARD Daryl Hickman, Chairperson

Amy Bhutta, Vice-Chairperson Robert E. Magee, Board Member Thomas Buckley, Board Member

Melissa A. Melendez, Board Member The Bond Law provides for the issuance of revenue bonds of joint exercise of powers authorities, such as the Authority, to be repaid solely from the revenues of certain public obligations, such as the Loans. The Authority has no taxing power.

AUTHORIZATION The Bonds

The Bonds are to be issued and secured pursuant to the Indenture, and are to be sold to the Underwriter, as authorized by a resolution, adopted on November 10, 2009. The Bonds are being sold to provide moneys to enable the Authority to fund the Loans and to refund the Authority 1999C Bonds (see “INTRODUCTORY STATEMENT – THE FINANCING PLAN – The Refunding Program” herein). The Authority authorized the execution of the Indenture and the funding of the Loans pursuant to a resolution, adopted November 10, 2009. The Bonds are also issued in accordance with the laws of the State, and particularly the Marks-Roos Local Bond Pooling Act of 1985, as amended, constituting Article 4 (commencing with Section 6584), of Chapter 5, Division 7, Title 1 of the Government Code of the State.

The Loans The Loans were authorized by Resolution No. 2009-15 of the Agency, adopted on November 10, 2009. The Loans are governed by the laws of the State, and particularly the Community Redevelopment Law of the State, constituting Part 1 of Division 24 (commencing with Section 33000) of the Health and Safety Code of the State (the “Redevelopment Law”).

AUTHORITY FINANCIAL STATEMENTS The Authority is authorized to finance or refinance indebtedness in connection with public capital improvements undertaken and completed by making loans for such purposes. The Authority, as required by the California Government Code, conducts an annual audit. The minimum requirements of the audit are required to be those prescribed by the State Controller for special districts and are required to conform to generally accepted auditing standards.

50

DEBT SERVICE PAYMENTS ON THE LOANS AND DEBT SERVICE COVERAGE ON THE AUTHORITY BONDS The Bonds are special obligations of the Authority payable solely from and secured by revenues from repayment of the Loans, and certain funds and accounts established under the Indenture. The receipt of revenues from repayment of the Loans is subject to several variables described herein (see “BONDOWNERS’ RISKS – THE LOANS” herein). The District provides no assurance that the Revenues and the coverage ratios shown will be achieved.

51

TABLE NO. 1 LAKE ELSINORE PUBLIC FINANCING AUTHORITY

TAX ALLOCATION REVENUE BONDS (1999 SERIES C REFUNDING), 2010 SERIES A DEBT SERVICE PAYMENTS ON THE LOANS

AND DEBT SERVICE COVERAGE ON THE BONDS

Bond Year

D.S. Payments on the Project No. I Loan*

D.S. Payments on the Project No. II Loan*

D.S. Payments on the Project No. III Loan*

D.S. Payments on the

Housing Loan*

Total D.S. Payments on the Loans*

Debt Service Payments on the Bonds*

Coverage Ratio

2010 $227,096 $360,315 $147,904 $357,285 $1,092,600 $1,092,600 100% 2011 194,875 331,013 145,106 332,969 1,003,963 1,003,963 100% 2012 193,775 329,713 144,006 335,469 1,002,963 1,002,963 100% 2013 197,675 318,413 147,906 337,869 1,001,863 1,001,863 100% 2014 196,175 327,038 146,406 334,494 1,004,113 1,004,113 100% 2015 194,375 325,088 144,606 335,444 999,513 999,513 100% 2016 197,575 328,138 142,806 336,244 1,004,763 1,004,763 100% 2017 195,300 320,688 145,706 336,169 997,863 997,863 100% 2018 192,944 328,331 143,350 335,731 1,000,356 1,000,356 100% 2019 190,344 330,331 145,750 334,531 1,000,956 1,000,956 100% 2020 192,663 327,031 147,863 332,931 1,000,488 1,000,488 100% 2021 194,600 318,531 144,581 335,713 993,425 993,425 100% 2022 196,225 315,156 146,206 337,838 995,425 995,425 100% 2023 192,525 316,688 147,506 334,281 991,000 991,000 100% 2024 193,725 317,888 143,469 335,256 990,338 990,338 100% 2025 194,475 318,638 144,219 335,256 992,588 992,588 100% 2026 194,975 314,138 144,719 334,756 988,588 988,588 100% 2027 194,869 314,300 144,613 337,931 991,713 991,713 100% 2028 199,494 319,194 144,238 335,300 998,226 998,226 100% 2029 193,581 318,550 143,594 337,131 992,856 992,856 100% 2030 197,669 317,638 147,681 333,156 996,144 996,144 100% 2031 1,396,219 1,371,456 146,231 333,644 3,247,550 3,247,550 100% 2032 1,373,300 144,513 333,325 1,851,138 1,851,138 100% 2033 1,306,650 147,525 337,200 1,791,375 1,791,375 100%


52

THE AGENCY GOVERNMENT ORGANIZATION The Agency is a public body, corporate and politic, existing under and by virtue of the California Community Redevelopment Law, being Part 1 of Division 24 (commencing with Section 33000) of the Health and Safety Code of the State (the “Redevelopment Law”). The Agency was activated on July 15, 1980, and is governed by a five-member board (the “Governing Board”) which consists of all members of the City Council. The Chairperson and Vice Chairperson are appointed to a one-year term by the Agency Governing Board from among its members. The City Council and Agency’s members and term expiration dates are as follows:

City Council Member Term Expires

Melissa A. Melendez, Mayor November 2012Amy Bhutta, Mayor Pro Tem November 2012Robert E. Magee, Council Member November 2012Thomas Buckley, Council Member November 2010Daryl Hickman, Council Member November 2010

Agency Member

Robert E. Magee, ChairpersonThomas Buckley, Vice ChairpersonDaryl Hickman, Board MemberAmy Bhutta, Board MemberMelissa A. Melendez, Board Member

The City performs certain general administrative functions for the Agency. The City Manager serves as the Agency’s Executive Director, the City Clerk serves as Agency Secretary and the Director of Administrative Services serves as Agency Treasurer. The costs of such functions, as well as additional services performed by City staff are allocated annually to the Agency. The Agency reimburses the City for such allocated costs out of available Tax Increment Revenues. Such reimbursement is subordinate to any outstanding loans and indebtedness of the Agency. Current City Staff assigned to administer the Agency include:

CITY AND AGENCY STAFF Robert A. Brady, City Manager and Agency Executive Director

Barbara Leibold, City Attorney and Agency Counsel James R. Riley, CPA, Acting Director of Administrative Services and Agency Treasurer

Debora Thomsen, City Clerk / Agency Secretary

The City Attorney is appointed by and serves at the pleasure of the Lake Elsinore City Council. Legal services are performed under contract with the firm of Leibold, McClendon & Mann, P.C.:

Barbara Leibold, City Attorney David Mann, Assistant City Attorney

53

AGENCY POWERS All powers of the Agency are vested in its members. Pursuant to the Redevelopment Law, the Agency is a separate public body and exercises governmental functions, including planning and implementing redevelopment projects. The Agency may exercise the right to issue or incur loans, advances or other indebtedness for authorized purposes and to expend their proceeds, and the right to acquire, sell, rehabilitate, develop, administer or lease property. The Agency may demolish buildings, clear land and cause to be constructed certain improvements, including streets, sidewalks and utilities, and can further prepare for use as a building site any real property which it owns or administers. The Agency may, from any funds made available to it for such purposes, pay for all or part of the value of land and the cost of buildings, facilities or other improvements to be publicly owned and operated, provided that such improvements are of benefit to a redevelopment project and cannot be financed by any other reasonable method. The Agency may not construct or develop buildings, with the exception of public buildings and housing, and must sell or lease cleared property which it acquires within a redevelopment project for redevelopment in conformity with a particular redevelopment plan, and may further specify a period within which such redevelopment must begin and be completed.

REDEVELOPMENT PLANS General Under the Redevelopment Law, the City Council is required to adopt, by ordinance, a redevelopment plan (the “Redevelopment Plan” and collectively, the “Redevelopment Plans”) for each of the Redevelopment Projects. The Agency may only undertake those activities within the Redevelopment Projects specifically authorized in the adopted Redevelopment Plans. A redevelopment plan is a legal document, the content of which is largely prescribed in the Redevelopment Law rather than a “plan” in the customary sense of the word. The general objective of each of the Agency’s Redevelopment Plans is to encourage investment in the Redevelopment Projects by the private sector. The Redevelopment Plans provide for the acquisition of property, the demolition of buildings and improvements, the relocation of any displaced occupants, and the construction of streets, parking facilities, utilities and other public improvements. The Redevelopment Plans also allow the redevelopment of land by private enterprise, the rehabilitation of structures, the rehabilitation or construction of low and moderate income housing, and participation by owners and the tenants of properties in the Redevelopment Projects.

Amended and Restated Redevelopment Plans

Each of the Agency’s Redevelopment Plans was originally adopted in the 1980s and the format and presentation was generally outdated. Subsequent amendments were separately documented and it was difficult to sort through these documents to determine the governing provisions of the Redevelopment Plans. In April, 2009, the Agency adopted “Amended and Restated Redevelopment Plans” for each of the three Redevelopment Projects. Each of the Amended and Restated Redevelopment Plans now (i) reflect changes in the Redevelopment Law that impose additional requirements and restrictions not reflected in the original Redevelopment Plans, (ii) incorporate all prior amendments to the original Redevelopment Plans, (iii) incorporate updated land use provisions, and (iv) clarify and restate the time limits and financial limits (see “Redevelopment Plan Limitations” below).

54

Redevelopment Plan Limitations The applicable redevelopment plan limitations for the Redevelopment Projects are shown on the following table and are discussed below:

TABLE NO. 2 REDEVELOPMENT PLAN LIMITATIONS

Redevelopment

__Project__

Redevelopment Plan Expiration

Last Date to Incur

New Debt

Last Date to Repay Debt with Tax

Increment Revenues

Tax Increment Revenues Limit

Limit on Total

___Bond Debt___

Redevelopment Project No. I (Original Area)

September 23, 2021 Repealed September 23, 2031

Combined with Added Area

Combined with Added Area

Redevelopment Project No. I (Added Area)

July 20, 2022 Repealed July 20, 2032 $3 million net annually (1)

$30 million


July 18, 2024 Expired except for Housing

July 18, 2034 $15 million net annually

$120 million


September 8, 2028 Expired except for Housing

September 8, 2038 $20 million net annually

$150 million

(1) The maximum amount of Tax Increment Revenues to be allocated to the Agency pursuant to the Redevelopment Plan shall not exceed $3,000,000 during any one fiscal tax year; provided, however, that any shortfall within the allowable annual allocation of Tax Increment Revenues shall be carried forward to the following year or years and shall be available to the Agency until the period for receipt of Tax Increment Revenues/repayment of debt has terminated. The Agency cannot receive Tax Increment Revenues in any fiscal year that exceeds the sum of the annual limit plus any unallocated Tax Increment Revenues that have rolled over from previous years (the “Redevelopment Project No. I Tax Increment Revenues Cap”); nor can the total amount of Tax Increment Revenues received by the Agency pursuant to the Redevelopment Plan exceed the aggregate of the annual limit over the period to receive Tax Increment Revenues/repayment of debt as provided in the Redevelopment Plan. The limits on the allocation of Tax Increment Revenues applies to Tax Increment Revenues received and deposited by the Agency and is net of pass-through agreements, statutory tax sharing payments to taxing entities, County administrative charges and ERAF payments.

Redevelopment Plan Expiration. Chapter 942, Statutes of 1993, as codified in Section 33333.6 of the Redevelopment Law, limits the life of redevelopment plans adopted prior to January 1, 1994, to 40 years from the date of adoption or January 1, 2004, whichever is later. For the Redevelopment Projects, the initial redevelopment plan expiration dates were September 23, 2020, in the case of the Redevelopment Project No. I (Original Area), July 20, 2021, in the case of the Redevelopment Project No. I (Added Area), July 18, 2023, in the case of the Redevelopment Project No. II and September 8, 2027, in the case of the Redevelopment Project No. III. In enacting Senate Bill 1045 (“SB 1045”), the State Legislature amended the time limits specified in Section 33333.6 of the Redevelopment Law. Section 33333.6(e) of the Redevelopment Law now provides that the City Council may adopt an ordinance to extend the limit for the duration of a redevelopment plan by one additional year. Pursuant to SB 1045, the City Council adopted an ordinance for each Redevelopment Project on November 22, 1994, to extend the term of the redevelopment plan of each of the Redevelopment Projects by one year. Senate Bill 1096 (“SB 1096”) further amended Section 33333.6(e) of the Redevelopment Law to provide that the City Council may adopt an ordinance to extend the limits for certain redevelopment projects by an additional year for each year that a payment was made to a countywide Education Revenue Augmentation Fund (“ERAF”) (2 years maximum) by a redevelopment agency. However, to qualify under SB 1096, a redevelopment plan must meet one of the following criteria:

55

1. SB 1096 provides that for redevelopment plans with less than twenty years of time remaining prior to expiration from June 30, 2005, the redevelopment plans may be extended by one year for each year that the required ERAF payment was made. 2. SB 1096 provides that if a redevelopment plan has more than ten years but less than twenty years of time remaining prior to expiration of the redevelopment plan, the time limit may be extended only if certain findings are made by the City Council. 3. If a redevelopment project has less than ten years remaining before the expiration of the redevelopment plan, the time limit may be extended without making specific findings.

The Agency has determined that currently the Redevelopment Plans do not satisfy the findings required by SB 1096.

Receipt of Tax Increment Time Limits. In addition, under the provisions of Assembly Bill 1290 (“AB 1290”), enacted by the State Legislature in 1993, Chapter 942, Statutes of 1993, as codified in Section 33333.6 of the Redevelopment Law, for redevelopment plans adopted prior to January 1, 1994, a redevelopment agency may not pay indebtedness or receive property taxes pursuant to Section 33670 of the Redevelopment Law after ten years from the termination of the redevelopment plan except to accommodate certain specific low and moderate income housing obligations or to pay debt service on bonds, indebtedness or other financial obligations authorized prior to January 1, 1994. Pursuant to SB 1045, the City Council adopted an Ordinance relating to each Redevelopment Project on November 22, 1994, to extend the term of the redevelopment plans of the Redevelopment Projects by one year. This extension in turn extended the period within which the Redevelopment Projects may repay indebtedness by one year. Time Limit on Incurring Indebtedness. For redevelopment plans adopted prior to 1994, Chapter 942, Statutes of 1993, as codified in Section 33333.6 of the Redevelopment Law, stipulates that the time limit for establishing indebtedness shall not exceed 20 years from the adoption of the redevelopment plan or January 1, 2004, whichever is later. Pursuant to Senate Bill 211, which was signed into law as Chapter 741, Statutes of 2001, a city council may amend a redevelopment plan to eliminate the time limit to establish indebtedness in redevelopment projects adopted prior to January 1, 1994, by ordinance. If the redevelopment plan is so amended, existing tax sharing agreements will continue and certain statutory tax sharing for entities without pass-through agreements will be required beginning in the fiscal year following the year the eliminated limit would have taken effect.

On February 26, 2008, the City Council amended the redevelopment plan for the Redevelopment Project No. I to eliminate the time limit on establishment of indebtedness by the adoption of Ordinance No. 1249.

The time limit for incurring new indebtedness for Redevelopment Project No. II and Redevelopment Project No. III has expired.

Limitation on the Amount of Tax Increment Receipts. The Redevelopment Law requires each redevelopment agency, for redevelopment plans adopted prior to 1994, to either include in each redevelopment plan or to adopt by ordinance a limitation on the amount of taxes that may be divided and allocated to the redevelopment agency with respect to the related redevelopment project. Pursuant to Section 33333.2, taxes may not be allocated to a redevelopment agency beyond this limitation except by amendment of the redevelopment plan.

The net amount of Tax Increment Revenues that may be collected by the Agency for the Redevelopment Project No. I is $3 million annually. The net amount of Tax Increment Revenues that may be collected by the Agency for the Redevelopment Project No. II is $15 million annually. The net amount of Tax Increment Revenues that may be collected by the Agency for the Redevelopment Project No. III is $20 million annually.

56

Limit on the Amount of Bonded Indebtedness. Redevelopment plans of an agency are required to include a limit on the amount of bonded indebtedness to be repaid with tax increment revenues that can be outstanding at one time. These limits can be extended only by an amendment of the redevelopment plan.

The limit on the amount of bonded indebtedness for the Redevelopment Project No. I is $30 million. The limit on the amount of bonded indebtedness for the Redevelopment Project No. II is $120 million. The limit on the amount of bonded indebtedness for the Redevelopment Project No. III is $150 million.

AGENCY FINANCIAL ADMINISTRATION

Annual Budget

The law requires redevelopment agencies to adopt an annual budget. All expenditures and indebtedness of the Agency are required to be in conformity with the adopted or amended budget. The Executive Director of the Agency is responsible for preparing the proposed budget and submitting it to the Agency Governing Board. After reviewing the proposed budget at a public meeting, the Agency Governing Board holds a public hearing. The Agency Governing Board adopts the budget prior to the start of each fiscal year. The Director of Administrative Services of the City is responsible for controlling expenditures within budgeted appropriations.

Agency Accounting Records and Financial Statements

Every redevelopment agency is required to present an annual report to its legislative body within six months of the end of the fiscal year. The annual report is required, among other things, to include an independent financial “audit report” and a fiscal statement for the previous fiscal year. The California Health and Safety Code defines “audit report” to mean an examination of and opinion on the financial statements of the agency which presents the results of the operations and financial position of the agency. The independent financial audit is required to be conducted in accordance with generally accepted auditing standards and the rules governing audit reports promulgated by the Governmental Accounting Standards Board. The independent financial audit report is also required to include an opinion of the agency’s compliance with laws, regulations and administrative requirements governing activities of the agency. The California Health and Safety Code requires the fiscal statement to contain the following information:

(1) The amount of outstanding indebtedness of the agency and each Redevelopment Project. (2) The amount of Tax Increment Revenues generated in the Agency and in each Redevelopment

Project. (3) The amount of Tax Increment Revenues paid to a taxing agency, other than school or

community college district, pursuant to a tax sharing agreement. (4) The financial transactions report required to be submitted to the State Controller. (5) The amount allotted to school or community college districts pursuant to the Redevelopment

Law. (6) The amount of existing indebtedness and the total amount of payments required to be paid on

existing indebtedness for that fiscal year. (7) Any other fiscal information which the Agency believes is useful to describe its programs.

57

The Loan Agreements require the Agency to keep, or cause to be kept, proper books and accounts separate from all other records and accounts of the Agency and the City in which complete and correct entries are made of all transactions relating to the Redevelopment Projects and the Tax Increment Revenues. The Loan Agreements require the Agency to file with the Trustee annually, within 180 days after the close of each fiscal year, so long as the Loans are outstanding, its audited financial statements showing the Tax Revenues or Housing Set-Aside Revenues and the financial condition of the Redevelopment Projects, including the balances in all funds and accounts related to the Redevelopment Projects as of the end of such fiscal year. The audited financial statements are required to be accompanied by a Written Certificate of the Agency stating that the Agency is in compliance with its obligations under the Loan Agreements. The Agency covenants under the Loan Agreements to furnish a copy of such statements upon reasonable request to any Bondowner.

Annual Financial Report

The Agency retained the firm of Diehl, Evans & Company, LLP, Certified Public Accountants & Consultants, Irvine, California, to examine the component unit financial statements of the Agency as of and for the fiscal year ended June 30, 2009, which is included as “APPENDIX D.” The firm’s examination was made in accordance with generally accepted auditing standards and the “Guidelines for Compliance Audits of California Redevelopment Agencies” issued by the State Controller. The Agency’s audited financial statements are public documents and are included within this Official Statement without the prior approval of the auditor. The auditor has not performed any post-audit of the financial condition of the Agency. The Agency represents that there have been no material adverse changes in its financial position since June 30, 2009.

Filing of Statement of Indebtedness

Section 33675 of the Redevelopment Law requires that the Agency file, not later than the first day of September of each year with the county auditor, a statement of indebtedness certified by the chief financial officer of the Agency for each redevelopment project for which the redevelopment plan provides for the division of taxes pursuant to Section 33670 of the Redevelopment Law. The statement of indebtedness is required to contain, among other things, the date on which the bonds were delivered, the principal amount, term, purpose, interest rate and total interest of the bonds, the principal amount and the interest due in the fiscal year in which the statement of indebtedness is filed and the outstanding balance and amount due on the bonds. Similar information must be given for each loan, advance or indebtedness that the Agency has incurred or entered into which is payable from tax increment revenues. As amended by Assembly Bill 1290 (Statutes of 1993, Chapter 942) (“AB 1290”), Section 33675 requires each redevelopment agency to file a reconciliation statement for each redevelopment project for which the redevelopment agency receives tax increment revenues pursuant to Section 33670. The reconciliation statement is to show, among other things, (i) for each loan, advance or indebtedness, for each redevelopment project, the total debt service obligations of the redevelopment agency to be paid in the fiscal year for which the statement of indebtedness is filed; (ii) the total debt service remaining to be paid on such indebtedness; and (iii) the available revenues as of the end of that fiscal year. “Available revenues” consist of all Tax Increment Revenues held by the redevelopment agency as cash or cash equivalents and all cash or cash equivalents held by the redevelopment agency that are irrevocably pledged or restricted to payment of a loan, advance or indebtedness that the redevelopment agency has listed on a statement of indebtedness. For purposes of Section 33675, amounts held in a redevelopment agency’s Low and Moderate Income Housing Fund do not constitute available revenues, and amounts deposited by a redevelopment agency in its Low and Moderate Income Housing Fund constitute indebtedness of the redevelopment agency. Section 33675(g) has been amended by AB 1290 to provide that payments of Tax Increment Revenues from the county auditor to a redevelopment agency may not exceed the redevelopment agency’s aggregate total outstanding debt service obligations, minus the available revenues of the redevelopment agency, as shown on the reconciliation statement. Payments to a trustee under a bond resolution or

58

indenture or payments to a public agency in connection with payments by such public agency pursuant to a bond issue shall not be disputed in any action under Section 33675. The Agency believes that the amendments to Section 33675 limiting the payment of Tax Increment Revenues to an amount not greater than the difference between a redevelopment agency’s total outstanding debt obligations and total available revenues, as reported on the redevelopment agency’s reconciliation statement, will not have an adverse impact on the Agency’s ability to meet its debt service obligations.

59

THE REDEVELOPMENT PROJECTS

REDEVELOPMENT PROJECT NO. I General Description The 1,910-acre Redevelopment Project No. I is divided between two non-contiguous areas of the City. Redevelopment Project No. I generally consists of three areas in terms of land use. The first area is adjacent to, and southerly of, Interstate 15. Major land uses include the Lake Elsinore Outlet Center, the Central Business Park, and 2 retail centers that include Target and Home Depot. The second area includes the central business district and governmental offices. The third area is a commercial district near the municipal baseball stadium.

Assessed Value by Land Use

The following table represents the breakdown of land use in the Redevelopment Project No. I by assessed value for Fiscal Year 2009-10. Unsecured and SBE Non-Unitary values are assigned to secured parcels already accounted for in the other land use categories and do not, therefore, have numbers of parcels listed.

TABLE NO. 3 REDEVELOPMENT AGENCY OF THE

CITY OF LAKE ELSINORE REDEVELOPMENT PROJECT NO. I

2009-10 ASSESSED VALUES BY LAND USE CATEGORY

Category Parcels Assessed Value Percentage

Residential 1,443 $250,009,440 35.65%

Commercial 134 176,601,786 25.18%

Industrial 157 139,160,347 19.84%

Recreational 3 6,812,431 0.97%

Institution 15 1,192,849 0.17%

Vacant Land 677 76,696,986 10.94%

Miscellaneous 2 3,643,615 0.52%

Exempt 418 __________0 0.00%

Subtotal 2,849 $654,117,454 93.28%

SBE Non-Unitary 0 0.00%

Possessory Int. 3,491,112 0.50%

Unsecured 43,664,203 6.22%

Subtotal $47,155,315 6.72%

Totals: 2,849 $701,272,769 100.00%

Source: Fiscal Consultant Report (see “Appendix C – Fiscal Consultant Report”).

60

Top Ten Taxable Property Owners

Set forth in the table below are the ten largest property taxpayers for the Redevelopment Project No. I for Fiscal Year 2009-10 (current as of September 4, 2009).

TABLE NO. 4 REDEVELOPMENT AGENCY OF THE CITY OF LAKE ELSINORE

REDEVELOPMENT PROJECT NO. I TEN LARGEST PROPERTY TAXPAYERS (2009-10 SECURED AND UNSECURED)

Property Owner

Assessed Value

% of Redevelopment Project Assessed

__Value__

% of

Incremental __Value__

Primary Land Use

1 Castle and Cooke Lake Elsinore Outlet (1)

$43,214,483 6.16% 6.46% Commercial (Lake Elsinore Outlet Center – anchor tenants include Nike Factory Store, Pottery Barn, Old Navy, Gap Outlet and Guess Factory Store)

2 Harbor Grand Apartments Investment (1)

24,923,963 3.55% 3.73% Residential (Harbor Grand Apartment Homes – 192 unit apartment)

3 Target Corporation 15,127,212 2.16% 2.26% Commercial (Oak Grove Crossing – shopping center includes Target, Bank of America, Oak Grove Dental Group, Fantastic Sams, Papa Johns, Subway and Starbucks)

4 Lake Elsinore Office Park

13,084,176 1.87% 1.96% Commercial (Riverside County Social Services Offices), Vacant Land

5 RSM Properties 12,673,884 1.81% 1.89% Commercial (neighborhood retail center includes Walgreens, El Pollo Loco and small retail stores)

6 HD Development Of Maryland Inc.

10,036,928 1.43% 1.50% Commercial (Lake Elsinore Square, includes Home Depot, 99 Cent Store, Petco, Big 5, IHOP and small retail stores)

7 Toyota Motor Sales USA Inc.

8,670,000 1.24% 1.30% Vacant Land

8 Louis F. Depasquate Trust (1)

8,047,613 1.15% 1.20% Commercial (Camelot Center,. includes Trevi Lanes Entertainment Center, Diamond 8 Cinema, and small retail stores)

9 Miramar West Auto Center (1)

6,892,005 0.98% 1.03% Commercial (neighborhood retail center includes Stater Bros, Del Taco, KC Wholesale Flooring and small retail stores)

10 MKJ Adnoff Investment (1)

6,500.352 0.93% 0.97% Commercial (Pasadena Commerce Center – business park)

Total $149,170,616 21.27% 22.30% (1) Pending Appeal (see “Table No. 13” herein).

Source: Fiscal Consultant Report.

Redevelopment Project No. I Aerial Views

61


62


63

64

REDEVELOPMENT PROJECT NO. II

General Description Redevelopment Project No. II has an area of 4,859 acres in three non-contiguous areas. The first area runs parallel on both sides of Interstate 15, extending in each direction from Railroad Canyon Road, a major arterial highway. This area includes the City Shopping Center, anchored by a 126,000 square foot Wal-Mart and a 53,000 square foot Von’s Grocery Store. The area also includes two major subdivisions, Summerhill and Tuscany Hills. Summerhill includes 428 completed single family homes. Tuscany Hills is a planned community, ultimately consisting of 2,000 homes. 1,020 homes have been constructed and occupied. The second area includes the municipal baseball stadium, a portion of the auto center, and the Summerly Planned Community, which is located in both Redevelopment Project No. II and Redevelopment Project No. III. Approximately 833 single family homes are planned in the first phase of the Summerly Planned Community. The Summerly Planned Community is in the early development stages. The third area is located at the west end of Lake Elsinore and is developed with commercial and single family homes.

Assessed Value by Land Use The following table represents the breakdown of land use in the Redevelopment Project No. II by assessed value for Fiscal Year 2009-10. Unsecured and SBE Non-Unitary values are assigned to secured parcels already accounted for in the other land use categories and do not, therefore, have numbers of parcels listed.


REDEVELOPMENT PROJECT NO. II 2009-10 ASSESSED VALUES BY LAND USE CATEGORY

Category Parcels Assessed Value Percentage

Residential 3,148 $660,089,863 60.25%

Commercial 299 215,223,918 19.64%

Industrial 60 45,207,264 4.13%


Institutional 6 1,841,696 0.17%

Vacant Land 1,315 126,213,931 11.51%


Exempt 204 ___________0 0.00%

Subtotal 5,037 $1,054,479,155 96.25%

SBE Non-Unitary 4,800 0.00%


Unsecured 35,141,310 3.21%

Subtotal 41,130,994 3.75%

Totals: 5,037 1,095,610,149 100.00%


65

Top Ten Taxable Property Owners Set forth in the table below are the ten largest property taxpayers for the Redevelopment Project No. II for Fiscal Year 2009-10 (current as of September 4, 2009).


REDEVELOPMENT PROJECT NO. II TEN LARGEST PROPERTY TAXPAYERS (2009-10 SECURED AND UNSECURED)

Property Owner

Assessed Value

% of

Redevelopment Project Assessed

___Value___

% of Redevelopment

Project Incremental ___Value___

Primary Land Use (Planned Land Use)

1 Bradstone Rivers Edge Alliance

$28,109,172 2.57% 2.79% Residential (Broadstone River Edge Apartments - 184 unit apartment )

2 Wal-Mart Stores Inc. 16,042,308 1.46% 1.59% Commercial (Wal-Mart store)

3 Elsinore Veto 14,468,111 1.32% 1.43% Commercial (neighborhood retail center includes Denny’s, Starbucks, Von’s, Kragen, GNC, Payless Shoes, Wachovia and El Pollo Loco)

4 Albertsons Inc. (1) 13,942,840 1.27% 1.38% Commercial (Lake Elsinore Town Center - Albertson’s )

5 Lake Elsinore Medical Campus

13,895,581 1.27% 1.38% Commercial (The Plaza recently completed, includes Remax and vacant offices)

6 Blue Canary Inc. (1) 13,180,751 1.20% 1.31% Commercial (Lake Elsinore Town Center, includes Rent-A-Center, Auto Zone, Big Lots, Radio Shack, Rite-Aid and H&R Block)

7 Grand Oaks Apartments 13,122,714 1.20% 1.31% Residential (apartment complex)

8 Dav A North Lake (1) 12,062,377 1.10% 1.20% Residential (North Lake Apartments – 128 unit apartment)

9 LEVC Group 11,730,000 1.07% 1.16% Commercial (neighborhood shopping center includes Riverside County Lake Elsinore Heath Center, Big Lots, Bank of America, Century 21, small retail stores and restaurants)

10 Stebor Properties 11,444,400 1.04% 1.13% Commercial (auto dealership - Lake Elsinore Ford)

Total $147,998,254 13.51% 14.67% (1) Pending Appeal (see “Table No. 14” herein). Source: Fiscal Consultant Report (see “Appendix C – Fiscal Consultant Report”).

Redevelopment Project No. II Map

66

Redevelopment Project No. II Aerial

67

Redevelopment Project No. II Aerial

68

69

70

REDEVELOPMENT PROJECT NO. III General Description Redevelopment Project No. III consists of four (4) non-contiguous parcels of land.

PARCEL 1 is in the Summerly Specific Plan area adjacent to the southeasterly shore line of Lake Elsinore (the “Lake”) and some of the commercial operations adjacent to and associated with the municipal airport facility. Parcel 1 contains approximately 1,886 acres. PARCEL 2 is adjacent to the municipal airport facility and is used for agricultural purposes and includes a five (5) acre commercial site. Parcel 2 contains approximately 84.5 acres. PARCEL 3 is generally referred to as “the Avenues.” This area is characterized by older single family residential units, many of which have been converted to multiple family units, on partially developed roadways. Parcel 3 contains approximately 466 acres. PARCEL 4, know as “the Heights,” is also a residential area. The roads are generally unpaved. The area is dominated by steep slopes. Parcel 4 contains approximately 1,104 acres.

Assessed Value by Land Use The following table represents the breakdown of land use in the Redevelopment Project No. III by assessed value for Fiscal Year 2009-10. Unsecured and SBE Non-Unitary values are assigned to secured parcels already accounted for in the other land use categories and do not, therefore, have numbers of parcels listed.


REDEVELOPMENT PROJECT NO. III 2009-10 ASSESSED VALUES BY

LAND USE CATEGORY Category Parcels Assessed Value Percentage

Residential 1,730 $242,984,065 67.12%

Commercial 12 9,216,875 2.55%

Industrial 2 1,143,944 0.32%


Institutional 6 0 0.00%

Vacant Land 6,303 95,986,964 26.52%

Exempt 451 0 0.00%

Miscellaneous ____4 654,642 0.18%

Subtotal 8,511 $357,392,858 98.73%

SBE Non-Unitary


Unsecured 2,655,927 0.73%

Subtotal $4,602,463 1.27%

Totals 8,511 $361,995,321 100.00%


71

Top Ten Taxable Property Owners

Set forth in the table below are the ten largest property taxpayers for the Redevelopment Project No. III for Fiscal Year 2009-10 (current as September 4, 2009).


REDEVELOPMENT PROJECT NO. III TEN LARGEST PROPERTY TAXPAYERS (2009-10 SECURED AND UNSECURED)

Property Owner

Assessed Value

% of Redevelopment Project Assessed

__Value__

% of Incremental __Value__

Primary Land Use

1 Lake Elsinore (CA) – Malaga/Mission Residential Syndicated Properties, LLC

$9,528,014 2.63% 3.22% Vacant Land - residential

2 Bank of America NA (1) 9,171,921 2.53% 3.10% Vacant Land - residential

3 Robert C. Gregory Trust 8,056,354 2.23% 2.72% Commercial (auto dealership – Lake Chevrolet)

4 Laing CP Lake Elsinore 4,004,333 1.11% 1.35% Recreational (golf course – The Links at Summerly)

5 JIC DP Diamond Development

3,789,523 1.05% 1.28% Vacant Land (Lake Elsinore Diamond Stadium and parking lot)

6 County Club Holdings (1) 3,437,236 0.95% 1.16% Vacant Land (residential)

7 Indymac Bank (1) 2,366,400 0.65% 0.80% Residential / Vacant land

8 SITL Investment Inc. (1) 2,330,820 0.64% 0.79% Vacant Land (residential)

9 Quantum Entertainment Group Inc.

1,626,104 0.45% 0.55% Possessory Interest (Lake Elsinore Diamond Stadium)

10 Chen Hung H and Chen 1,547,000 0.43% 0.52% Vacant Land

Total $45,857,705 12.67% 15.49%

(1) Pending Appeal (see “Table No. 15” herein).


Redevelopment Project No. III Aerial

72


73


74


75

76

TAX INCREMENT REVENUES HISTORICAL TAXABLE VALUATIONS

The Agency’s source of Tax Revenues pledged to pay debt service on the Loans is the Tax Increment Revenues from the Redevelopment Projects as reported by the Riverside Auditor-Controller’s office. The following tables provide a summary of the historical taxable values for Redevelopment Project No. I, Redevelopment Project No. II and Redevelopment Project No. III for Fiscal Years 2005-06 through 2009-10. This summary of historical assessed valuations is not intended to aid in the prediction of future Tax Increment Revenues and/or Housing Set-Aside Revenues.


REDEVELOPMENT PROJECT NO. I HISTORICAL VALUES

Secured (1) 2005-06 2006-07 2007-08 2008-09 2009-10 Land $174,498,749 $188,493,818 $222,928,952 $238,693,727 $219,766,316

Improvements 351,439,082 374,628,416 464,606,321 474,467,177 455,471,276

Personal Prop 638,120 626,576 646,418 793,822 2,165,187

Exemptions (17,907,589) (17,900,509) (18,788,800) (19,387,149) (19,794,213)

TOTAL SECURED $508,668,362 $545,848,301 $669,392,891 $694,567,577 $657,608,566 Unsecured

Land $7,170 $7,112 $6,966 $220,503 $6,397

Improvements 25,265,909 25,182,893 30,297,271 25,687,714 19,577,504

Personal Prop 21,981,489 20,772,925 30,906,589 27,858,083 24,080,302

Exemptions _________0 __________0 __________0 _________0 __________0

TOTAL UNSECURED $47,254,568 $45,962,930 $61,210,826 $53,766,300 $43,664,203

GRAND TOTAL $555,922,930 $591,811,231 $730,603,717 $748,333,877 $701,272,769

Incremental Value $523,554,102 $559,442,403 $698,234,889 $715,965,049 $668,903,941

Annual Change 13.05% 6.85% 24.81% 2.54% (6.57%)

(1) Secured values include state assessed non-unitary utility property.

Source: County of Riverside Lien Date Rolls.

77


REDEVELOPMENT PROJECT NO. II HISTORICAL VALUES

Secured (1) 2005-06 2006-07 2007-08 2008-09 2009-10 Land $288,835,712 $351,273,467 $439,150,900 $489,440,608 $392,095,346 Improvements 587,040,312 707,451,682 870,627,427 798,152,763 680,157,236 Personal Prop 2,785,135 2,798,583 2,862,152 2,798,906 2,493,957 Exemptions (8,879,025) (9,405,238) (13,523,375) (13,647,579) (14,277,700) TOTAL SECURED $869,782,134 $1,052,118,494 $1,299,117,104 $1,276,744,698 $1,060,468,839 Unsecured Land $926 $221 $921 $930 $728 Improvements 14,456,800 13,611,310 16,220,442 16,350,258 15,617,297 Personal Prop 17,565,141 17,206,107 19,951,950 23,125,803 19,613,665 Exemptions _________0 ________0 ____(40,000) ____(46,050) ____(90,380) TOTAL UNSECURED $32,022,867 $30,817,638 $36,133,313 $39,430,941 $35,141,310 GRAND TOTAL $901,805,001 $1,082,936,132 $1,335,250,417 $1,316,175,639 $1,095,610,149 Incremental Value $815,333,177 $996,464,308 $1,248,778,593 $1,229,703,815 $1,009,138,325 Annual Change 29.59% 22.22% 25.32% (1.53%) (17.94%) (1) Secured values include state assessed non-unitary utility property.


78


REDEVELOPMENT PROJECT NO. III HISTORICAL VALUES

Secured (1) 2005-06 2006-07 2007-08 2008-09 2009-10 Land $98,645,052 $142,677,232 $182,838,902 $207,938,071 $171,713,976

Improvements 138,196,330 176,406,367 243,339,281 232,372,320 188,658,328

Personal Prop 29,520 27,360 24,294 16,434 14,768

Exemptions (937,744) (976,768) (1,002,074) (1,025,504) (1,047,678)

TOTAL SECURED $235,933,158 $318,134,191 $425,200,403 $439,301,321 $359,339,394 Unsecured

Land $0 $0 $0 $34,808 $0

Improvements 289,090 247,723 512,090 463,199 457,930

Personal Prop 1,087,746 997,453 2,790,913 2,373,819 2,197,997

Exemptions _________0 _________0 _________0 _________0 _________0

TOTAL UNSECURED $1,376,836 $1,245,176 $3,303,003 $2,871,826 $2,655,927

GRAND TOTAL $237,309,994 $319,379,367 $428,503,406 $442,173,147 $361,995,321

Incremental Value $171,297,155 $253,366,528 $362,490,567 $376,160,308 $295,982,482

Annual Change 43.53% 47.91% 43.07% 3.77% (21.31%)

(1) Secured values include state assessed non-unitary utility property


Value of Residential Parcels

The assessed value of residential parcels grew substantially from Fiscal Year 2002-03 through Fiscal Year 2007-08. Within the Redevelopment Projects there was a modest decline in residential property values for Fiscal Year 2008-09 of $71,311,809 (4.46%). It appears that for Fiscal Year 2008-09 there was sufficient growth from new development and among existing residential parcels unaffected by Proposition 8 to result in this modest residential value decline. This is partly the result of ongoing inflationary increases in assessed value for those parcels that have been owned by the property owners for many years and that are enrolled at values significantly below the current reduced market values. In addition, parcels that have been owned for long periods of time will, even when sold in a down market, be enrolled at significantly higher values relative to their previously enrolled assessed values. This is characteristic of the older residential neighborhoods within the Redevelopment Projects. In Fiscal Year 2008-09 the combined values within the Redevelopment Projects were up by 0.53% over values for Fiscal Year 2007-08 owing to growth in commercial and industrial values. In Fiscal Year 2009-10, residential values within the Redevelopment Projects suffered a decline of $375,968,066 (24.59%). The changes in value among residential parcels in the Redevelopment Projects from Fiscal Year 2000-01 through Fiscal Year 2009-10 are shown in Table 12 below.

79


HISTORICAL VALUE OF RESIDENTIAL PARCELS

Fiscal Year




Combined Areas

Annual % Change

2000-01 $122,924,367 $234,742,172 $88,361,915 $446,928,454 - 2001-02 135,929,897 301,551,913 95,084,928 532,566,738 19.40% 2002-03 144,564,771 360,591,590 102,880,366 608,036,727 14.17% 2003-04 178,899,220 423,272,182 127,000,946 729,172,348 19.92% 2004-05 203,731,952 479,988,519 141,945,146 825,665,617 13.23% 2005-06 239,226,435 613,575,011 180,094,096 1,032,895,542 25.10% 2006-07 277,292,463 752,050,008 222,774,038 1,252,116,509 21.22% 2007-08 326,356,944 955,325,926 318,680,373 1,600,363,243 27.81% 2008-09 311,072,797 903,364,828 314,613,809 1,529,051,434 (4.46%) 2009-10 250,009,440 660,089,863 242,984,065 1,153,083,368 (24.59%)


ASSESSMENT APPEALS General In California, there are two types of appeals: a base year appeal and a Proposition 8 appeal. The first type of appeal is a base year assessment appeal where owners challenge the original, or base year, valuation assigned by the County Assessor. Any reduction resulting from a base year assessment appeal is permanent and can only increase above the allowable inflationary adjustment if the property is sold or experiences new construction. Any base year appeal must be made within 4 years of the change of ownership or new construction date. The second type of appeal is a Proposition 8 appeal based on Section 51 of the Revenue and Taxation Code which allows for temporary reductions in the taxes paid on properties where the assessed value of property becomes higher than its actual market value. Once the market value of the property subject to the Proposition 8 appeal increases, the assessment can be increased up to its pre-appeal value.

Base Year Appeals

Historically only a small percentage of appeals requested by property owners have been granted. While the outcome of pending appeals cannot be determined in advance, the Fiscal Consultant has estimated the assessed value reduction that may result from the pending appeals based on an analysis of pending and historical appeals data (see “APPENDIX C – FISCAL CONSULTANT REPORT”). The projections of Tax Revenues prepared by the Fiscal Consultant have incorporated any such reductions to the Fiscal Year 2010-11 assessed value. Redevelopment Project No. I. Within the Redevelopment Project No. I, there have been 102 assessment appeals filed since Fiscal Year 2003-04. Of the 102 appeals filed, 7 have been allowed with a reduction in value and 28 have been denied. There are 67 appeals currently pending on 59 properties within the Redevelopment Project No. I. Based on the historical averages, the Fiscal Consultant expects that 12 of the currently pending appeals will be allowed and these successful appeals will result in an assessed value reduction of $13,266,199. This reduction has been incorporated by the Fiscal Consultant in the projection as a reduction to the Fiscal Year 2010-11 assessed value. Reductions in revenue for refunds resulting from these successful appeals have not been estimated.

80

Shown on Table No. 13 below is the pending base year appeals for the top ten property taxpayers as of October 6, 2009.


REDEVELOPMENT PROJECT NO. I TOP TEN PROPERTY TAXPAYERS PENDING APPEALS

2008-09 Assessed

Value Property Owners Opinion of Value

Value Reduction

1. Castle and Cooke Lake Elsinore Outlet Center 1 $41,960,262 $37,000,000 $4,960,292

2. Harbor Grand Apartments Investments $24,437,057 $19,496,000 $4,941,057

8. Louis F. Depasquale $7,510,623 $3,000,000 $4,510,623

9. Miramar West Auto Center $6,756,872 $4,836,612 $1,920,260

10. MKJ Adnoff Investment $6,372,895 $4,700,000 $1,672,895

Redevelopment Project No. II. Within the Redevelopment Project No. II, there have been 288 assessment appeals filed since Fiscal Year 2003-04. All appeals filed for fiscal years prior to 2004-05 have been resolved. Of the 288 appeals filed, 15 have been allowed with a reduction in value and 121 have been denied. There are 152 appeals currently pending on 149 parcels within the Redevelopment Project No. II. Based on the historical averages, the Fiscal Consultant expects that 16 of the currently pending appeals will be allowed and that these successful appeals will result in an assessed value reduction of $727,905. This reduction has been incorporated by the Fiscal Consultant in the projection as a reduction to the Fiscal Year 2010-11 assessed value. Reductions in revenue for refunds resulting from these successful appeals have not been estimated. Shown on Table No. 14 below is the pending base year appeals for the top ten property taxpayers as of October 6, 2009.


REDEVELOPMENT PROJECT NO. II TOP TEN PROPERTY TAXPAYERS PENDING APPEALS

2008-09 Assessed Value

2009-10 Assessed Value

Property Owners Opinion of Value

Value Reduction

4. Albertson’s Inc. $5,993,231 $3,630,000 $2,363,231

6. Blue Canary Inc. $465,774 $398,788 $66,986

8. Dav A North Lake $11,816,354 $9,500,000 $2,316,354

10. Stebor Properties $9,457,236 $6,300,000 $3,157,236

Redevelopment Project No. III. Within the Redevelopment Project No. III, there have been 179 assessment appeals filed since 2003-04. All appeals filed for fiscal years prior to Fiscal Year 2006-07 have been resolved. Of the 179 appeals filed, one has been allowed with a reduction in value and 83

81

have been denied. There are 95 appeals currently pending on properties within the Redevelopment Project No. III. Based on the historical averages, the Fiscal Consultant expects that one of the currently pending appeals will be allowed and that this successful appeal will result in an assessed value reduction of $7,921. This reduction has been incorporated by the Fiscal Consultant in the projection as a reduction to the Fiscal Year 2010-11 assessed value. Reductions in revenue for refunds resulting from these successful appeals have not been estimated. Shown on Table No. 15 below is the pending base year appeals for the top ten property taxpayers as of October 6, 2009.


REDEVELOPMENT PROJECT NO. III TOP TEN PROPERTY TAXPAYERS PENDING APPEALS

2008-09 Assessed Value Property Owners Opinion of Value

Value Reduction

Bank of America (Summerly Project)

$3,494,328 $3,017,250 $477,078

Country Club Holdings $307,481 $107,000 $200,481

SITL Investment Inc $227,229 $104,500 $122,729

Proposition 8 Adjustments General. In 1978, California voters passed Proposition 8. This constitutional amendment allows a temporary reduction in assessed value when a property suffers a “decline in value.” A decline in value occurs when the current market value of a property is less than the current assessed value as of the lien date. Under the terms of Proposition 8, it is the Assessor’s obligation to assess all properties at the lesser of current market value or at the property’s base value, as adjusted for inflation and for any changes that have occurred to the property since it was last purchased. Properties that have their values reduced to the current market value are annually reviewed by the Assessor to determine the new market value of the property. The value that is enrolled each year is the lesser of the current market value or the property’s adjusted base value. Adjusting the property’s value to the current market value may entail a further decrease in value or an increase in value that is not limited by constitutional restriction on annual value increases. Once the property has again reached its adjusted base value, it may be increased in value only by the rate of inflation to a maximum annual rate of two percent as required by the State constitution. Prior Proposition 8 Adjustments. The Assessor completed an annual review of properties in the County, including the Redevelopment Projects, and made adjustments for “decline in value.” Such adjustments are included in the 2009-10 Fiscal Year assessment roll. Within the assessment rolls for Fiscal Year 2009-10, there were a number of properties that had already been reduced in value under Proposition 8. For Fiscal Year 2009-10 there were a total of 7,980 parcels in the City of Lake Elsinore that at some point had their values reduced pursuant to Proposition 8. If a property’s value had been reduced in some earlier year, its value may have been adjusted either upward or downward for the current year depending on what the Assessor had determined the market value of that property to be as of January 1, 2009, the lien date for Fiscal Year 2009-10. Below is a summary of the parcels reduced under Proposition 8 for the 2009-10 Fiscal Year.

82

TABLE NO. 16

REDEVELOPMENT AGENCY OF THE CITY OF LAKE ELSINORE PROPOSITION 8 REDUCTIONS IN VALUE

No. of Parcels

2008-09 Value

2009-10 Value

Change

Percent Change

City (non-Redevelopment)

4,552 $1,460,990,633 $1,008,066,737 ($452,923,896) (31.00%)


608 169,486,667 108,204,852 (61,281,815) (36.16%)


1,949 569,049,069 364,264,313 (204,784,756) (35.99%)


871 182,335,907 112,598,488 (69,737,419) (38.25%)

Redevelopment Total

3,428 $920,871,643 $585,067,653 ($335,803,990) (36.47%)


Current Market Conditions. Based on current residential market conditions, the County Assessor may make further blanket reductions to assessed values for the 2010-11 Fiscal Year. Although data from DataQuick indicates the median price of homes sold has experienced a further reduction of (10.98%) for the period of July 2009 thru November 2009 from Fiscal Year 2008-09, the median price of homes sold in November 2009, was $184,250. Proposition 8 adjustments are based on the County Assessor determination of the market value as of January 1, 2010. Data was not available by Redevelopment Project.

TABLE NO. 17 CITY OF LAKE ELSINORE

HOMES SOLD AND MEDIAN PRICES BY FISCAL YEAR Fiscal Year Number of Homes Sold Median Price Percent Change

2000-01 1,152 $157,858 --

2001-02 1,248 $177,729 12.59%

2002-03 1,809 $233,979 31.65%

2003-04 1,836 $281,125 20.15%

2004-05 2,029 $371,233 32.05%

2005-06 2,497 $422,063 13.69%

2006-07 1,760 $411,458 (2.51%)

2007-08 1,192 $314,979 (23.45%)

2008-09 2,172 $198,877 (36.86%)

2009 (July – November) 865 $177,050 (10.98%)

Source: Empire Economics, Inc./DataQuick

83

TRANSFERS OF OWNERSHIP

A review of recent transfers of ownership was conducted by the Fiscal Consultant and a number of transfers were found to have occurred after the January 1, 2009 lien date for the current fiscal year. These transfers of ownership occurred from January 1, 2009 through September 4, 2009. As a result, the sales values on these transfers of ownership are expected to be reflected in the tax rolls for 2010-11.


Within the Redevelopment Project No. I, 99 transfers of ownership were found (of the 99 transfers, 58 were sales of foreclosed properties). These transfers of ownership occurred between January 1, 2009 and September 4, 2009, and are expected to result in a decrease of value in the amount of $4,719,806 to the Fiscal Year 2010-11 tax roll for the Redevelopment Project No. I. The impacts of these transfers are included in the projections by the Fiscal Consultant of Tax Increment Revenue (see “APPENDIX C – FISCAL CONSULTANT REPORT”).


Within the Redevelopment Project No. II, 308 transfers of ownership were found (of the 308 transfers, 229 were sales of foreclosed properties). These transfers of ownership occurred between January 1, 2009 and September 4, 2009, and are expected to result in a decrease of value in the amount of $5,255,036 to the Fiscal Year 2010-11 tax roll for the Redevelopment Project No. II. The impacts of these transfers are included in the projections by the Fiscal Consultant of Tax Increment Revenue (see “APPENDIX C – FISCAL CONSULTANT REPORT”).


Within the Redevelopment Project No. III, 203 transfers of ownership were found (of the 203 transfers, 124 were sales of foreclosed properties). These transfers of ownership occurred between January 1, 2009 and September 4, 2009, and are expected to result in a decrease of value in the amount of $4,955,538 to the Fiscal Year 2010-11 tax roll for the Redevelopment Project No. III. The impacts of these transfers are included in the projections by the Fiscal Consultant of Tax Increment Revenue (see “APPENDIX C – FISCAL CONSULTANT REPORT”).

DELINQUENCIES

The Agency receives from the County 100% of its respective share of the secured ad valorem taxes levied, without regard to actual collections of taxes (see “SOURCES OF PAYMENT FOR THE BONDS – REPAYMENT OF THE LOANS – Alternative Method of Tax Apportionment (“Teeter Plan”)” herein). Due to this allocation method, the Agency is held harmless from tax delinquencies and, as a consequence, the Agency receives no adjustments for redemption payments of delinquent collections. The unsecured taxes are allocated based on actual unsecured tax collections. The County makes a one-time adjustment for changes in the tax roll in the following year. However, there is no assurance that the County will continue to allocate tax revenues in this manner.

If the County does not allocate taxes in accordance with its Teeter Plan, tax delinquencies could cause temporary disruptions of the receipt of Housing Set-Aside Revenues to the extent delinquencies exceeded redemption payments of delinquent collections.

FORECLOSURES

As a result of the recent nationwide increase in defaults on residential mortgages there has been concern expressed in the financial markets over the possible impact that these defaults may have on

84

redevelopment agency revenues in general. Reliable information on foreclosure activity is difficult to find and information that is available is not readily applicable to discrete areas within cities and redevelopment project areas. Much of the information available is segregated by county or ZIP Code. The information within the following table is based on information available for the ZIP Codes identified as containing the City of Lake Elsinore from the RealtyTrac U.S. Foreclosure Market Report as of October, 2009. Since the City ZIP Codes encompass areas that are outside of the Redevelopment Projects and areas that are outside of the city limits, this information is illustrative only.


CITY OF LAKE ELSINORE FORECLOSURE DATA FOR THE CITY OF

LAKE ELSINORE ZIP CODES 92530 THROUGH 92532

As of:

Notices of Default Filed

Notices of Trustee Sale Filed

Real Estate Owned by Lender

Total City Residential Parcels

October 2009 722 780 724 13,057

According to RealtyTrac, the “Notices of Default” are based on the number of properties where a publicly recorded notice has been given that a property owner has missed scheduled loan payments for a loan secured by a property. “Notices of Trustee Sale” are based on the number of properties where a document has been filed announcing the public sale of a property to recover a debt owed by the owner of the property. These notices are mailed to the parties affected by the sale of the property, are advertised in local publications and are recorded as public records. “Real Estate Owned by Lender” reflects the number of properties that are owned by the lender as the result of a foreclosure.

Real Estate Owned by Lender occurs after or in lieu of foreclosure. Generally the foreclosure process may be halted by the property owner by paying the amount that is in default on the loan and bringing the loan current.

The number of parcels on which Notices of Default or Notices of Trustee’s Sale have been filed or are Lender owned total 17% of all residential parcels within the City. The City is located within ZIP Codes 92530, 92531 and 92532, which also include unincorporated areas of Riverside County. The Fiscal Consultant was unable to determine how many of the parcels represented in Table No. 18 above may be located within the Redevelopment Projects or that are located within the city limits.

Redevelopment Project No. I According to foreclosure data reported by DataQuick, there are 41 parcels within the Redevelopment Project No. I that appear to have foreclosure activity. Based on data provided by DataQuick, the 41 parcels in foreclosure yet to be sold may result in a reduction of $1,320,286 in assessed value. The impact of these transfers is included in the projections by the Fiscal Consultant of incremental taxable value and tax increment revenue (see “APPENDIX C – FISCAL CONSULTANT REPORT”).

Redevelopment Project No. II According to foreclosure data reported by DataQuick, there are 209 parcels within the Redevelopment Project No. II that appear to have foreclosure activity. Based on data provided by DataQuick, the 209 parcels in foreclosure yet to be sold may result in a reduction of $5,583,319 in assessed value. The impact of these transfers is included in the projections by the Fiscal Consultant of incremental taxable value and tax increment revenue (see “APPENDIX C – FISCAL CONSULTANT REPORT”).

85


According to foreclosure data reported by DataQuick, there are 187 parcels within the Redevelopment Project No. III that appear to have foreclosure activity. Based on data provided by DataQuick, the 187 parcels in foreclosure yet to be sold may result in a reduction of $5,704,316 in assessed value. The impact of these transfers is included in the projections by the Fiscal Consultant of incremental taxable value and tax increment revenue (see “APPENDIX C – FISCAL CONSULTANT REPORT”).

PASS-THROUGH AGREEMENTS AND STATUTORY PAYMENTS

Prior to the enactment of Assembly Bill 1290 (“AB 1290”), enacted by the State Legislature in 1993, under the Redevelopment Law a redevelopment agency could enter into an agreement to pay tax increment revenues to any taxing agency that has territory located within a redevelopment project in an amount which, in the agency’s determination, was appropriate to alleviate any financial burden or detriment caused by the redevelopment project. These agreements normally provide for a pass-through of tax increment revenue directed to the affected taxing agency, and, therefore, are commonly referred to as “pass-through agreements.” The Agency has entered into pass-through agreements with respect to Tax Increment Revenues relating to the Redevelopment Projects. Although AB 1290 prohibits redevelopment agencies from entering into pass-through agreements, AB 1290 does not affect existing pass-through agreements. In place of such agreements, AB 1290 provides a statutory formula for the allocation of tax increment revenues (“Statutory Tax Sharing”), which formula applies to all redevelopment projects created after enactment of AB 1290 and to territory that is added to existing redevelopment projects (see “APPENDIX C – FISCAL CONSULTANT REPORT”).

Pass-Through Agreements The Agency has the following pass-through agreements with respect to the Redevelopment Projects: REDEVELOPMENT PROJECT NO. I Riverside County Riverside County, including the County Library and County Fire Department, was allocated approximately 29.60% of the 1% General Levy generated in Redevelopment Project No. I (the “County Share”) in Fiscal Year 2009-10. Pursuant to the tax sharing agreement with the County, until such time as the annual amount of Tax Increment Revenues exceed $500,000, the Agency will receive 100% of the County Share. When annual Tax Increment Revenues are between $500,000 and $1 million, the County will receive 20% and the Agency will receive the remaining 80% of the County Share. When annual Tax Increment Revenues are between $1 million and $2 million, the County will receive 25% and the Agency will receive the remaining 75% of the County Share. When annual Tax Increment Revenues exceed $2 million, the County will receive 50% and the Agency will receive the remaining 50% of the County Share.

Riverside County Flood Control District Riverside County Flood Control District (the “Flood Control District”) was allocated approximately 3.40% of the 1% General Levy generated in Redevelopment Project No. I (the “Flood Control District Share”) in Fiscal Year 2009-10. Pursuant to the tax sharing agreement with the Flood Control District, the Flood Control District will receive 100% of the Flood Control District Share following the completion of the Lake Elsinore Outlet Channel. Prior to such time, the Agency will receive 100% of the Flood Control District Share to be set aside in the “Lake Elsinore Outlet Channel Fund” to be used by the Agency to construct specific flood control facilities. Elsinore Valley Municipal Water District Elsinore Valley Municipal Water District (the “Municipal Water District”) was allocated approximately 8.13% of the 1% General Levy generated in Redevelopment Project No. I (the “Municipal Water District Share”) in Fiscal Year 2009-10. Pursuant to the tax sharing agreement with the Municipal Water District,

86

the Municipal Water District will receive 100% of the Municipal Water District Share, to be used to construct improvements of benefit to Redevelopment Project No. 1. In addition, the Municipal Water District will also receive any Tax Increment Revenues generated by any tax override levied to service any Municipal Water District debt established after formation of the Redevelopment Project No. I. REDEVELOPMENT PROJECT NO. II Riverside County Riverside County was allocated approximately 29.46% of the 1% General Levy generated in Redevelopment Project No. II (the “County Share”) in Fiscal Year 2009-10. Pursuant to the tax sharing agreement with the County, the County will receive 50% and the Agency will receive the remaining 50% of the County Share relating to subareas A, B and C of the project area, and the County will receive 100% of the County Share relating to subarea D of the project area. The cumulative amount of the County Share that may be distributed to the Agency is $8,000,000. The Agency may only spend its portion of the County Share on “Mutually Agreeable Projects.” Riverside County Flood Control District The Flood Control District was allocated approximately 3.61% of the 1% General Levy generated in Redevelopment Project No. II (the “Flood Control District Share”) in Fiscal Year 2009-10. Pursuant to the tax sharing agreement with the Flood Control District, the Flood Control District will receive 80% of the Flood Control District Share and the Agency will receive 20% of the Flood Control District Share. Elsinore Valley Municipal Water District The Municipal Water District was allocated approximately 7.88% of the 1% General Levy generated in Redevelopment Project No. II (the “Municipal Water District Share”) in Fiscal Year 2009-10. Pursuant to the tax sharing agreement with the Municipal Water District, the Municipal Water District will receive 100% of the Municipal Water District Share, to be used to pay debt service on indebtedness incurred to finance or refinance construction of improvements of benefit to Redevelopment Project No. II. When all such indebtedness has been repaid, the Municipal Water District Share will thereafter be distributed to the Agency. In addition, the Municipal Water District will also receive any Tax Increment Revenues generated by any tax override levied to service any Municipal Water District debt established after formation of Redevelopment Project No. II. Elsinore Water District Elsinore Water District (the “Water District”) was allocated approximately 0.70% of the 1% General Levy generated in Redevelopment Project No. II (the “Water District Share”) in Fiscal Year 2009-10. Pursuant to the tax sharing agreement with the Water District, the Water District will receive 100% of the Water District Share. In addition, the Water District will also receive any Tax Increment Revenues generated by any tax override levied to service any Water District debt established after formation of Redevelopment Project No. II. Elsinore Valley Cemetery District Elsinore Valley Cemetery District (the “Cemetery District”) was allocated approximately 1.06% of the 1% General Levy generated in Redevelopment Project No. II (the “Cemetery District Share”) in Fiscal Year 2009-10. Pursuant to the tax sharing agreement with the Cemetery District, the Cemetery District will receive 100% of the Cemetery District Share.

REDEVELOPMENT PROJECT NO. III Riverside County Flood Control District On June 27, 1989, the Agency entered into a Cooperation Agreement with the Flood Control District and the City under which the following agreement was made:

Taxes attributable to that area within the territorial limits of the Flood Control District which would have otherwise been levied upon taxable property in Redevelopment Project No. III shall be paid by the Agency into a fund of the Flood Control District designated “Project Area III Flood Control

87

Fund” to be used to finance or refinance flood control facilities which benefit Redevelopment Project No. III.

Elsinore School District On June 14, 1988, the Agency entered into a Cooperation Agreement with the Elsinore School District (the “School District”) and the City under which the following agreement was made:

The School District shall be entitled to receive in each year fifty percent (50%) of its tax revenues which the School District would have been entitled to receive in the absence of the adoption of a Redevelopment Plan for Redevelopment Project No. III.

Elsinore Union High School District On June 14, 1988, the Agency entered into a Cooperation Agreement with the Elsinore Union High School District (the “Union High District”) and the City under which the following agreement was made: The Union High District shall be entitled to receive in each year fifty percent (50%) of its tax

revenues which the Union High District would have been entitled to receive in the absence of the adoption of a Redevelopment Plan for Redevelopment Project No. III.

The School District and Union High District merged into the Lake Elsinore Unified School District effective July 1, 1990. All pass-through revenues still apply. Mt. San Jacinto Community College District On June 14, 1988, the Agency entered into a Cooperation Agreement with the Mt. San Jacinto Community College District (the “Community College District”) and the City under which the following agreement was made: The Community College District shall be entitled to receive in each year fifty percent (50%) of its

tax revenues which the Community College District would have been entitled to receive in the absence of the adoption of a Redevelopment Plan for Redevelopment Project No. III.

Riverside County Superintendent of Schools On June 14, 1988, the Agency entered into a Cooperation Agreement with the Riverside County Superintendent of Schools (the “School Superintendent”) and the City under which the following agreement was made: The School Superintendent shall be entitled to receive in each year one hundred percent (100%) of

its tax revenues which the School Superintendent would have been entitled to receive in the absence of the adoption of a Redevelopment Plan for Redevelopment Project No. III.

Elsinore Valley Municipal Water District On June 14, 1988, the Agency entered into a Cooperation Agreement with the Municipal Water District and the City under which the following agreement was made: Taxes attributable to that area within the territorial limits of the Municipal Water District which

would have otherwise been levied upon taxable property in Redevelopment Project No. III shall be paid by the Agency into a fund of the Municipal Water District designated “Rancho Laguna Redevelopment Project Water Facilities Fund” to be used to finance or refinance water facilities which benefit Redevelopment Project No. III.

Elsinore Water District On June 14, 1988, the Agency entered into an Agreement with the City and the Water District under which the following agreement was made: All tax and assessment revenues that would have been received by the Water District had there

been no provision for tax increment financing of Redevelopment Project No. III will continue to be received by the Water District.

88

County Agreement The Agency and the City attempted to enter into a cooperation agreement with the County with respect to Redevelopment Project No. III. In an agreement, dated June 23, 1990, the City, the Agency and the County negotiated a settlement which the County signed on July 27, 1993. The agreement was subsequently modified by an amendment, dated February 8, 1994. The agreement provides that the County is entitled to receive for each year in which the tax revenues are (a) at least $500,000 but less than $1,500,000 for such year, twenty-five percent (25%) of the tax revenues which the County would have been entitled to receive in the absence of the adoption of the Redevelopment Plan for Redevelopment Project No. III, (b) at least $1,500,000 but less than $2,500,000 for such year, thirty-seven and one-half percent (37½%) of the tax revenues which the County would have been entitled to receive in the absence of the adoption of the Redevelopment Plan for Redevelopment Project No. III, (c) at least $2,500,000 but less than $4,000,000 for such year, fifty percent (50%) of the tax revenues which the County would have been entitled to receive in the absence of the adoption of the Redevelopment Plan for Redevelopment Project No. III, (d) at least $4,000,000 but less than $6,000,000 for such year, sixty-two and one-half percent (62½%) of the tax revenues which the County would have been entitled to receive in the absence of the adoption of the Redevelopment Plan for Redevelopment Project No. III, (e) at least $6,000,000 but less than $8,000,000 for such year, seventy-five percent (75%) of the tax revenues which the County would have been entitled to receive in the absence of the adoption of the Redevelopment Plan for Redevelopment Project No. III, and (f) over $8,000,000 for such year, one hundred percent (100%) of the tax revenues which the County would have been entitled to receive in the absence of the adoption of the Redevelopment Plan for Redevelopment Project No. III, provided that in the fiscal year in which the total exceeds $8,000,000 for such year, the Agency and the County agree to review the conditions then current to determine the possible payback to the County of its increment paid to the Agency. Furthermore, the County agreed to defer receipt of tax revenues it should receive under the above formula through January, 1997, and that in January 1999, all moneys so deferred by the County would be paid back by the Agency from the then-current tax revenues, without interest, in equal payments over five (5) years.

Statutory Tax Sharing Pursuant to Section 33607.7 of the Health and Safety Code, for redevelopment projects adopted prior to January 1, 1994, any amendment that increases the amount of tax increment revenues to be received by a redevelopment project or extends any of the measure’s required time limits triggers payments to taxing entities with whom the agency does not have a pass-through agreement. The AB 1290 payments, which are to begin the fiscal year following the year that the redevelopment project’s original plan limitations would have taken effect, are calculated using the increase in assessed value above the amount of assessed value in the redevelopment project in the year that the former limit would have been reached. On, February 26, 2008, the City Council adopted Ordinance No. 1249 eliminating the last date for Redevelopment Project No. I to issue new debt. The AB 1290 time limit on incurring debt for the Redevelopment Project was January 1, 2004. Commencing with the 2009-10 Fiscal Year and using the 2008-09 Fiscal Year valuations as an adjusted base year value, the Agency is required to pay to the affected taxing entities an amount that is 25% of all tax increment revenue derived from the incremental increase in assessed value above the adjusted base year value after deducting the 20% housing set-aside obligation (the “First Tier Tax Sharing”). This First Tier Tax Sharing continues for the life of Redevelopment Project No. I. Payments are only to those entities without pass-through agreements. The City may, and has elected to, receive the First Tier Tax Sharing. In addition, beginning in Fiscal Year 2018-19, using the values for Fiscal Year 2017-18 as an adjusted base year value, the Agency must pay to affected taxing entities, after deducting the 20% housing set-aside obligation, an amount that is 21% of the revenue derived from the increase in assessed value above the new adjusted base year value (the “Second Tier Tax Sharing”). This Second Tier Tax Sharing will also continue for the life of Redevelopment Project No. I and be paid only to the taxing entities that have not entered into pass-through agreements. The City may not elect to receive the Second Tier Tax Sharing. A third tier of tax sharing payments will not be applicable because the Redevelopment Plan terminates on July 20, 2022.

89

Legislation, AB 1389, enacted with the 2008-09 state budget requires redevelopment agencies to report their statutory payments pursuant to AB 1290 and SB 211 to the County Auditor. The Agency was required to report to the County Auditor its Statutory Tax Sharing payments for each Redevelopment Project, and for each taxing agency for the first time for Fiscal Year 2009-10 by September 1, 2009. In addition, the Agency is required to report to the County Auditor annually by September 1 for the next five years. This information is to be consolidated by the County Auditor and reported to the State Controller. The State Controller is then responsible for disseminating the appropriate information, including to redevelopment agencies whose calculations are determined by the County Auditor not to be in concurrence with the requirements of AB 1290, to the Legislative Analyst, the State Department of Finance, the State Board of Education and the Board of Governors of the California Community Colleges. In the event of a dispute, the Agency has 15 days to revise and resubmit its report, submit a statement of dispute identifying the issues, amend the report or submit the report to the State Controller with the county’s analysis. The legislation allows the State Controller to revoke a County Auditor finding of concurrence and direct an agency to resubmit a report to the county if the Controller finds significant errors in the report. When the State Controller submits its report to the Legislative Analyst and the Department of Finance, it is required to summarize the statements of dispute including whether the Controller or other State entity has provided instructions as to how these disputes should be resolved. Ultimately, for agencies with unresolved disputes, the State Controller, with the concurrence of the State Director of Finance, may waive the penalties and interest charges for late payments for 12 months for redevelopment agencies that filed a statement of dispute that, in the opinion of the Controller, is likely to be resolved in a manner consistent with an redevelopment agency’s position. After February 1, 2009, an agency listed on the most recent State Controller’s report, for which the County Auditor has not issued a finding of concurrence or that has outstanding Statutory Tax Sharing payments to a local educational agency, will be subject to penalties and interest charges. The penalties would prevent the agency from adding new redevelopment projects or expanding existing redevelopment projects, issuing new bonds or other obligations, including refunding, encumbering or expending any funds derived from any source except to pay existing loans, contractual obligations, tax-sharing agreements or housing set-aside deposits. Administrative costs would be limited to 75% of the average monthly amount spent on administration in the previous fiscal year. Such identified agencies would also incur interest costs on any Statutory Tax Sharing payment that is not paid by 60 days after the close of the fiscal year in which the Statutory Tax Sharing Payment was required. The interest rate would be 150% of the current Pooled Money Investment Account earnings annual yield beginning 60 days after the close of the fiscal year for which the Statutory Payment was due. The State Controller, with the concurrence of the State Director of Finance, may waive the penalties and interest for up to 12 months for agencies identified as not in concurrence when a dispute by an agency is likely to be sustained, when the agency has paid the local educational agencies or had the County Auditor withhold a disputed amount, or if the redevelopment agency would sustain a fiscal hardship if it made the payments in the amount estimated by the County Auditor. The County Auditor had not concurred with the Agency’s calculations for Redevelopment Project No. I and the Agency has filed a letter of dispute with the County Auditor. In order to avoid the penalties, the Agency has made payments to the local educational agencies in the amounts specified by the County Auditor and will pay both the disputed and undisputed amounts to other taxing entities by the February 1, 2010, deadline. This procedure will allow the Agency to avoid the penalties while pursuing a resolution to the disputed issues. The Fiscal Consultant has reflected the County methodology in their projections. The County Auditor has concurred the Agency is in compliance with the requirement of AB 1389.

County Property Tax Collection Reimbursement

Chapter 466, adopted by Senate Bill 2557, allows counties to recover charges for property tax administration in an amount equal to their Fiscal Year 1989-90 property tax administration costs, as adjusted annually (the “County Administrative Fee”). The amounts that are reimbursed are the costs connected with the collection and distribution of property taxes for the Tax Collector, the Auditor Controller and the Assessor. The portions of the reimbursement amount that are allocated to each taxing

90

entity within the County are based on the percentage of the total assessed value in the County that each taxing entity’s assessed value represents.

The County Administrative Fee for Fiscal Year 2008-09 and the percentage that this amount represents of each of the Redevelopment Project’s actual 2008-09 gross revenue is shown in Table No. 19 below.


CITY OF LAKE ELSINORE COUNTY PROPERTY TAX COLLECTION REIMBURSEMENT

2008-09 Allocation Future Year Percentage

Redevelopment Project No. I $84,615 1.158%

Redevelopment Project No. II 143,870 1.158%

Redevelopment Project No. III 43,863 1.158%

For purposes of the Fiscal Consultant’s projections, it was assumed that the County Administrative Fee will annually be the same percentage of the Redevelopment Projects’ gross revenue as in Fiscal Year 2008-09.

HOUSING SET-ASIDE In accordance with Section 33334.2 of the Redevelopment Law, not less than twenty percent (20%) of all taxes which are allocated to the Agency from the Redevelopment Projects (see “INTRODUCTORY STATEMENT – THE AGENCY - Tax Allocation Financing” herein) are required to be deposited in the Low and Moderate Income Housing Fund to be used by the Agency for purposes of improving, increasing and preserving the City’s supply of housing for persons and families of low or moderate income (including the payment of indebtedness issued or incurred for such purposes) (the “Housing Set-Aside Revenues”).

Funds available from the twenty percent (20%) requirement may be used outside a redevelopment project on a finding by the Agency and the City Council that such use will be of benefit to such redevelopment project. The Redevelopment Law also permits agencies with more than one redevelopment project to set aside less than twenty percent (20%) of the taxes allocated to the agency from one redevelopment project if the difference is made up from another redevelopment project in the same year and if the agency and the legislative body of the community find that such use of funds will benefit such other redevelopment project.

The Housing Set-Aside Revenues are calculated as 20% of Tax Increment Revenues (including Unitary Tax Revenues); therefore the amount of Housing Set-Aside Revenues is not affected by payments under any pass-through agreements or statutory pass-through requirements. The Agency has pledged Housing Set-Aside Revenues to the repayment of the Housing Loan on a parity basis with the Agency’s 1995 Housing Loan.

FUTURE DEVELOPMENT IN THE REDEVELOPMENT PROJECTS

The following proposed developments are identified to give an indication of the longer range potential for future development in the Redevelopment Projects. Due to the current economic downturn, development has slowed significantly and has largely been suspended. Therefore, no assurance can be given that the development of the land described within the Redevelopment Projects will occur, or that it will occur in a timely manner or in the configuration or intensity described, or that the proposed Developers will obtain or retain ownership of any land within the Redevelopment Projects.

91

The City maintains an information website. The City’s internet address is www.lake-elsinore.org. In particular, click on “Documents” at the top of the home page ,then Economic Development, then “Downtown Master Plan” for a description of current planning in the downtown area. For an overview of economic activity, see also “A Conversation with Bob Brady, City Manager.” The website also maintains a list of major projects undertaken by the Redevelopment Agency. The City’s website is included for reference only and the information on such web site is not a part of this Official Statement or incorporated by reference into this Official Statement. No representation is made in this Official Statement as to the accuracy or adequacy of the information included in such internet site. Significant development opportunities remain in the Redevelopment Projects. This is reflected in the availability of vacant land. There are 4,198.23 acres of vacant land in the Redevelopment Projects (648.37 acres in Redevelopment Project No. I; 2,398.13 acres in Redevelopment Project No. II; and 1,151.73 acres in Redevelopment Project No. III). Vacant land is 10.95% of the total assessed value in Redevelopment Project No. I, 11.51% of the total assessed value in Redevelopment Project No. II and 26.52% of the total assessed value in Redevelopment Project No. III. The relative large Redevelopment Projects (1,910 acres in Redevelopment Project No. I; 4,859 acres in Redevelopment Project No. II; and 3,541 acres in Redevelopment Project No. III) represent a single economic development area in which a single development may be in 2 or more Redevelopment Projects. Examples include the Auto Center where Toyota has acquired land in Redevelopment Project No. I, Ford has a dealership in Redevelopment Project No. II and Chevrolet, Buick and GMC have dealerships in Redevelopment Project No. III; the Summerly Development is in Redevelopment Project Nos. II and III; the “downtown” includes Redevelopment Projects Nos. I and III; and the Municipal Stadium is in Redevelopment Project No. III but borders on Redevelopment Project No. II. Summerly Project Summerly is a 1,489 lot planned community in Redevelopment Project Nos. II and III. An 18-hole golf course, “The Links,” has been completed and is open for play. The entire site has been mass graded and there are 421 nearly completed finished lots and 11 completed model homes. The property was initially being developed by a limited liability company whose managing member, John Laing Homes, declared bankruptcy and is being liquidated. Bank of America has foreclosed on the property and is actively marketing the property to the development community. Pursuant to a DDA, all the Tax Increment Revenues are required to be accrued, on a subordinate basis, to reimburse the developer for certain public infrastructure improvements upon meeting certain conditions precedent. The conditions precedent to payment have not been met.

North Tuscany Hills The Tuscany Hills Specific Plan describes a master planned community of 2,000 homes of which 1,020 homes are completed. All the undeveloped property in Tuscany Hills is owned by Centex Homes (in April 2009, Pulte Homes announced it was acquiring Centex Homes). Although Centex Homes began predevelopment activities, including engineering of the extensive offsite improvements required, site development, including grading, has not commenced. Centex Homes is not currently actively working on the project. Tuscany Hills is in Redevelopment Project No. II.

Diamond Project

The Diamond Specific Plan project site consists of 87.2 acres, generally located along Diamond Drive between Lakeshore Drive and south of Malaga Road. Existing uses within the Diamond Specific Plan include Diamond Stadium and approximately 80,000 square-feet of commercial uses in an existing center called Lake Elsinore Valley Center along Lakeshore Drive. The balance of the site is undeveloped. The Diamond Specific Plan area is accessed from Interstate15 by existing roadways including Diamond Drive and Lakeshore Drive. The Diamond Project is in Redevelopment Project Nos. II and III.

Anticipated uses identified in the specific plan include retail, restaurants, entertainment, hotel, office, stadium, trails, education center, residential, and plazas. The developer is proposing to develop the project in five (5) phases, depending upon economic conditions, over a seven-to-ten (7-10) year period.

92

Marina Project The Marina Specific Plan for Waters Edge is a 77-acre property located between the Lake and Lakeshore Drive at Lucerne Street in Redevelopment Project No. I. The area within the Marina Specific Plan for Waters Edge is proposed to include a 8.3-acre marina including 300 boat slips, a commercial area to include watercraft dealers, various retail establishments, office lofts, restaurants and a 150-unit hotel. The project also includes 3 residential areas for the development of townhomes and condominium type units. The Specific Plan is currently undergoing environmental review and is expected to be considered for approval in the first quarter of 2010.

Toyota – Auto Center Toyota has acquired a site in the City’s Auto Center for the development of a new car dealership. The site is in Redevelopment Project No. I. The site is currently being graded and construction is expected to commence at a later date. Downtown Master Plan The Agency sponsored the drafting of a downtown master plan (the “Downtown Master Plan”) prepared by Cooper Carry, a national consulting firm. The Downtown Master Plan boundary is generally located south of Interstate 15 and north of the lakefront between Riley Street and Chestnut Street and includes a portion of all three Redevelopment Projects. The major concept of the Downtown Master Plan is to connect the downtown to Lake Elsinore (the “Lake”). This would require the re-alignment of Main Street and Lakeshore Drive to physically connect the downtown to the Lake. The Master Plan will require various public improvements including a public pier, street improvements and a new city hall. It is expected to stimulate new private development. Pottery Court The Agency has committed approximately $4,000,000 to Bridge Housing Corporation for the development of a 113-unit affordable housing apartment complex on 4.29 acres in Redevelopment Project No. I. The Agency received a $1 million grant from the U.S. Department of Housing and Urban Development for this project. Construction is expected to commence in 2010. Outlet Center Expansion and Upgrading The 100 store Lake Elsinore Outlet Center recently announced an expansion and rehabilitation. Work is expected to start in the spring of 2010. The Outlet Center is in Redevelopment Project No. I. County Club Heights Residential Development Three different investor groups have accumulated a significant amount of vacant property in the “Heights” for future residential development. Development of this area currently has not been scheduled. The Heights is in Redevelopment Project No. III.

Lake Elsinore Technology Center

The Agency received a $2.6 million grant from the U.S. Economic and Development Administration to assist in the development of the Lake Elsinore Technology Center (“LETC”) in Redevelopment Project No. I. As proposed, the LETC consists of a 13,200 square-foot business incubator that will provide 10-15 businesses with professional office space at below market-rate rents.

PROJECTED TAX REVENUES AND DEBT SERVICE COVERAGE

Projected Tax Revenues and Housing Set-Aside Revenues

The Agency’s Fiscal Consultant has prepared the projections of Tax Revenues and Housing Set-Aside Revenues for the Redevelopment Projects, as set forth in the Fiscal Consultant’s Report. See “APPENDIX

93

C – FISCAL CONSULTANT REPORT” for more detailed information on projected Tax Revenues and Housing Set-Aside Revenues for the Redevelopment Projects, including an explanation of the assumptions on which such projections are based. Receipt of projected Tax Revenues and Housing Set-Aside Revenues in the amounts and at the times projected by the Agency depends on the realization of certain assumptions relating to the Tax Increment Revenues (including Unitary Tax Revenues). Based upon the projected Tax Increment Revenues (including Unitary Tax Revenues), the Agency expects sufficient Tax Revenues and Housing Set-Aside Revenues should be available to the Agency to pay principal of and interest on the Loans. Although the Agency believes that the assumptions upon which the projected Tax Revenues and Housing Set-Aside Revenues are based are reasonable, the Agency, the Fiscal Consultant and the Financing Consultant provide no assurance that the projected Tax Revenues and Housing Set-Aside Revenues will be achieved. To the extent that the assumptions are not actually realized, the Agency’s ability to timely pay principal and interest on the Loans may be adversely affected.

Debt Service Coverage Based Upon Projected Tax Revenues

The tables on the following pages show debt service coverage based upon projected Tax Revenues contained in the Fiscal Consultant Report (see “APPENDIX C – FISCAL CONSULTANT REPORT”). All of the projections of Tax Revenues commence with the reported values for Fiscal Year 2009-10. Certain deductions for Base Year Assessment Appeals, based on projections by the Fiscal Consultant, are reflected in the projections commencing with Fiscal Year 2010-11. The Fiscal Consultant also adjusted the projections for certain “Transfer Sales,” “Foreclosure Sales” and “Foreclosures” (as those terms are defined in the Fiscal Consultant Report) that occurred between January 1, 2009 and September 4, 2009. The projections include a negative (0.237%) inflation factor for Fiscal Year 2010-11 and 2% growth in real property taxable values thereafter. The projections by the Fiscal Consultant do not include estimated growth in assessed value due to new development (see “BONDOWNERSS’ RISKS” herein and “APPENDIX C – FISCAL CONSULTANT REPORT”).

94

TABLE NO. 20

REDEVELOPMENT AGENCY OF THE CITY OF LAKE ELSINORE REDEVELOPMENT PROJECT NO. I


Fiscal Year


Projected Tax Revenues (1)(2)

Project No. I 1999 Series A

Loan Payments

Project No. I

Loan Payments*

Total Loans Payments*

Projected Surplus

Tax Revenues (3)

Coverage (percentage)*

2009-10 $3,300,000 $1,241,080 $227,096 $1,468,176 $1,831,824 225% 2010-11 3,214,000 1,239,965 194,875 1,434,840 1,779,160 224% 2011-12 3,268,000 1,242,820 193,775 1,436,595 1,831,405 227% 2012-13 3,322,000 1,239,388 197,675 1,437,063 1,884,937 231% 2013-14 3,378,000 1,239,925 196,175 1,436,100 1,941,900 235% 2014-15 3,435,000 1,244,175 194,375 1,438,550 1,996,450 239% 2015-16 3,493,000 1,240,025 197,575 1,437,600 2,055,400 243% 2016-17 3,552,000 1,239,500 195,300 1,434,800 2,117,200 248% 2017-18 3,613,000 1,242,325 192,944 1,435,269 2,177,731 252% 2018-19 3,647,000 1,243,225 190,344 1,433,569 2,213,431 254% 2019-20 3,695,000 1,242,200 192,663 1,434,863 2,260,137 258% 2020-21 3,716,000 1,239,250 194,600 1,433,850 2,282,150 259% 2021-22 2,261,000 1,239,375 196,225 1,435,600 825,400 157% 2022-23 2,173,000 1,242,300 192,525 1,434,825 738,175 151% 2023-24 2,172,000 1,242,750 193,725 1,436,475 735,525 151% 2024-25 2,172,000 1,240,725 194,475 1,435,200 736,800 151% 2025-26 2,172,000 1,241,225 194,975 1,436,200 735,800 151% 2026-27 2,172,000 1,238,975 194,869 1,433,844 738,156 151% 2027-28 2,172,000 1,238,975 199,494 1,438,469 733,531 151% 2028-29 2,172,000 1,240,950 193,581 1,434,531 737,469 151% 2029-30 2,172,000 1,239,625 197,669 1,437,294 734,706 151% 2030-31 2,172,000 1,396,219 1,396,219 775,781 156%

(1) Source: Fiscal Consultant Report (see “Appendix C – Fiscal Consultant Report”). (2) The maximum amount of Tax Increment Revenues to be allocated to the Agency pursuant to the Redevelopment

Plan shall not exceed $3,000,000 during any one fiscal tax year; provided, however, that any shortfall within the allowable annual allocation of Tax Increment Revenues shall be carried forward to the following year or years and shall be available to the Agency until the period for receipt of Tax Increment Revenues/repayment of debt has terminated. The Agency cannot receive Tax Increment Revenues in any fiscal year that exceeds the sum of the annual limit plus any unallocated Tax Increment Revenues that have rolled over from previous years (the “Redevelopment Project No. 1 Tax Increment Revenues Cap”); nor can the total amount of Tax Increment Revenues received by the Agency pursuant to the Redevelopment Plan exceed the aggregate of the annual limit over the period to receive Tax Increment Revenues/repayment of debt as provided in the Redevelopment Plan. The limits on the allocation of Tax Increment Revenues applies to Tax Increment Revenues received and deposited by the Agency and is net of pass-through agreements, statutory tax sharing payments to taxing entities, County administrative charges and ERAF payments. The reduction of Tax Revenues shown, commencing in Fiscal Year 2021-22, is due to reaching the Redevelopment Project No. 1 Tax Increment Revenues Cap and does not reflect a reduction of assessed values or Gross Tax Increment Revenues. After the Redevelopment Project No. 1 Tax Increment Revenues Cap is reached, assessed values could decrease without necessarily reducing the amount of Tax Revenues available to the Agency.

(3) In the event there are not sufficient Redevelopment Project No. I Tax Revenues to pay debt service on the Project No. I Loan, the Agency has covenanted to make an interfund loan from Redevelopment Project No. II, Redevelopment Project No. III and the Low and Moderate Income Housing Fund (see “SOURCES OF PAYMENT FOR THE BONDS – REPAYMENT OF THE LOANS – Pledge of Tax Revenues or Housing Set-Aside Revenues” herein). For an indication of amounts that may be available see Table Nos. 21, 22 and 23 Surplus Revenues.


95

TABLE NO. 21

REDEVELOPMENT AGENCY OF THE CITY OF LAKE ELSINORE REDEVELOPMENT PROJECT NO. II


Fiscal Year

Redevelopment Project No. II Projected Tax Revenues (1)

Project No. II1999 Series A

Loan Payments

Project No.

II Loan Payments*

Total Loans Payments*

Projected

Surplus Tax Revenues (2)

Coverage (percentage)*

2009-10 $3,711,000 $1,058,228 $360,315 $1,418,543 $2,292,457 262% 2010-11 3,648,000 1,060,203 331,013 1,391,216 2,256,784 262% 2011-12 3,726,000 1,056,148 329,713 1,385,861 2,340,139 269% 2012-13 3,804,000 1,056,320 318,413 1,374,733 2,429,267 277% 2013-14 3,884,000 1,055,463 327,038 1,382,501 2,501,499 281% 2014-15 3,966,000 1,058,575 325,088 1,383,663 2,582,337 287% 2015-16 4,050,000 1,058,825 328,138 1,386,963 2,663,037 292% 2016-17 4,135,000 1,057,700 320,688 1,378,388 2,756,612 300% 2017-18 4,221,000 1,060,200 328,331 1,388,531 2,832,469 304% 2018-19 4,310,000 1,056,050 330,331 1,386,381 2,923,619 311% 2019-20 4,400,000 1,055,525 327,031 1,382,556 3,017,444 318% 2020-21 4,492,000 1,058,350 318,531 1,376,881 3,115,119 326% 2021-22 4,586,000 1,059,250 315,156 1,374,406 3,211,594 334% 2022-23 4,682,000 1,058,225 316,688 1,374,913 3,307,087 341% 2023-24 4,780,000 1,055,275 317,888 1,373,163 3,406,837 348% 2024-25 4,879,000 1,055,400 318,638 1,374,038 3,504,962 355% 2025-26 4,981,000 1,058,325 314,138 1,372,463 3,608,537 363% 2026-27 5,085,000 1,058,775 314,300 1,373,075 3,711,925 370% 2027-28 5,191,000 1,056,750 319,194 1,375,944 3,815,056 377% 2028-29 5,298,000 1,057,250 318,550 1,375,800 3,922,200 385% 2029-30 5,409,000 1,055,000 317,638 1,372,638 4,036,362 394% 2030-31 5,521,000 1,371,456 1,371,456 4,149,544 403% 2031-32 5,635,000 1,373,300 1,373,300 4,261,700 410% 2032-33 5,752,000 1,306,650 1,306,650 4,445,350 440%

(1) The Lake Elsinore Unified School District (the “District”) and the Riverside County Office of Education (“RCOE”) have informed the Agency that certain prior actions taken by the Agency with respect to Redevelopment Project II triggered the statutory pass-through payment obligations under Section 33607.7 of the Redevelopment Law. The Agency believes that the statutory pass-through payment obligations have not been triggered and disputes the District’s and RCOE’s claim. No assurance can be made as to the ultimate outcome of this dispute. If the parties are not able to resolve the dispute and such matter is litigated, and if a court of competent jurisdiction were to rule in favor of the District and RCOE, the Projected Tax Revenues would be reduced by $548,000 in Fiscal Year 2009-10. Commencing with the 2004-05 Fiscal Year and using the 2003-04 Fiscal Year valuations as an adjusted base year value, the Agency could be required to pay to the affected taxing entities an amount that is 25% of all tax increment revenue derived from the incremental increase in assessed value above the adjusted base year value after deducting the 20% housing set-aside obligation (the “First Tier Tax Sharing”). This First Tier Tax Sharing continues through expiration of the redevelopment plan effectiveness. Payments would be only to those entities without pass-through agreements. In addition, beginning in Fiscal Year 2014-15, using the values for Fiscal Year 2013-14 as an adjusted base year value, the Agency would be required to pay to affected taxing entities, after deducting the 20% housing set-aside obligation, an amount that is 21% of the revenue derived from the increase in assessed value above the new adjusted base year value (the “Second Tier Tax Sharing”). This Second Tier Tax Sharing would also continue through expiration of the redevelopment plan and be paid only to the taxing entities that have not entered into pass-through agreements.

(2) In the event there are not sufficient Redevelopment Project No. II Tax Revenues to pay debt service on the Project No. II Loan, the Agency has covenanted to make an interfund loan from Redevelopment Project No. I, Redevelopment Project No. III and the Low and Moderate Income Housing Fund (see “SOURCES OF PAYMENT FOR THE BONDS – REPAYMENT OF THE LOANS – Pledge of Tax Revenues or Housing Set-Aside Revenues” herein). For an indication of amounts that may be available see Table Nos. 20, 22 and 23 Surplus Revenues.

Source: Fiscal Consultant Report (see “Appendix C – Fiscal Consultant Report”). ___________________________ * Preliminary, subject to change

96


CITY OF LAKE ELSINORE REDEVELOPMENT PROJECT NO. III


Fiscal Year*

Redevelopment Project No. IIIProjected Tax Revenues (1)

Project No.

III Loan Payments**

Projected

Surplus Tax Revenues (2)

Coverage (Percentage)**

2009-10 $819,000 $147,904 $671,096 554% 2010-11 787,000 145,106 641,894 542% 2011-12 806,000 144,006 661,994 560% 2012-13 826,000 147,906 678,094 558% 2013-14 846,000 146,406 699,594 578% 2014-15 866,000 144,606 721,394 599% 2015-16 887,000 142,806 744,194 621% 2016-17 908,000 145,706 762,294 623% 2017-18 930,000 143,350 786,650 649% 2018-19 952,000 145,750 806,250 653% 2019-20 974,000 147,863 826,137 659% 2020-21 997,000 144,581 852,419 690% 2021-22 1,020,000 146,206 873,794 698% 2022-23 1,044,000 147,506 896,494 708% 2023-24 1,069,000 143,469 925,531 745% 2024-25 1,093,000 144,219 948,781 758% 2025-26 977,000 144,719 832,281 675% 2026-27 999,000 144,613 854,387 691% 2027-28 1,022,000 144,238 877,762 709% 2028-29 1,046,000 143,594 902,406 728% 2029-30 1,070,000 147,681 922,319 725% 2030-31 1,094,000 146,231 947,769 748% 2031-32 1,119,000 144,513 974,487 774% 2032-33 1,144,000 147,525 996,475 775%

* Debt service is presented on a bond-year basis. (1) Source: Fiscal Consultant Report (see “Appendix C – Fiscal Consultant Report”).

(2) In the event there are not sufficient Redevelopment Project No. III Tax Revenues to pay debt service on the Project No.III Loan, the Agency has covenanted to make an interfund loan from Redevelopment Project No. I, Redevelopment Project No. II and the Low and Moderate Income Housing Fund (see “SOURCES OF PAYMENT FOR THE BONDS – REPAYMENT OF THE LOANS – Pledge of Tax Revenues or Housing Set-Aside Revenues” herein). For an indication of amounts that may be available see Table Nos. 20, 21 and 23 Surplus Revenues.

___________________________ ** Preliminary, subject to change.

97


CITY OF LAKE ELSINORE HOUSING SET-ASIDE REVENUES AND DEBT SERVICE COVERAGE

Fiscal Year*

Total Housing Set-Aside

Revenues (1)

1995 Housing Loan

Payments

The Housing Loan

Payments**

Total Loans Payments**

Surplus Housing Set-Aside Revenues

Coverage

(Percentage)**

2009-10 $4,010,000 $979,600 $357,285 $1,336,885 $2,673,115 300% 2010-11 3,914,000 982,000 332,969 1,314,969 2,599,031 298% 2011-12 3,997,000 982,988 335,469 1,318,457 2,678,543 303% 2012-13 4,082,000 982,563 337,869 1,320,432 2,761,568 309% 2013-14 4,168,000 980,725 334,494 1,315,219 2,852,781 317% 2014-15 4,256,000 982,475 335,444 1,317,919 2,938,081 323% 2015-16 4,345,000 982,530 336,244 1,318,774 3,026,226 329% 2016-17 4,437,000 980,050 336,169 1,316,219 3,120,781 337% 2017-18 4,530,000 980,830 335,731 1,316,561 3,213,439 344% 2018-19 4,625,000 979,580 334,531 1,314,111 3,310,889 352% 2019-20 4,722,000 981,300 332,931 1,314,231 3,407,769 359% 2020-21 4,814,000 980,700 335,713 1,316,413 3,497,587 366% 2021-22 4,342,000 977,780 337,838 1,315,618 3,026,382 330% 2022-23 4,174,000 982,540 334,281 1,316,821 2,857,179 317% 2023-24 4,245,000 979,400 335,256 1,314,656 2,930,344 323% 2024-25 4,318,000 978,650 335,256 1,313,906 3,004,094 329% 2025-26 4,393,000 -.- 334,756 334,756 4,058,244 1312% 2026-27 4,469,000 -.- 337,931 337,931 4,131,069 1322% 2027-28 4,547,000 -.- 335,300 335,300 4,211,700 1356% 2028-29 4,626,000 -.- 337,131 337,131 4,288,869 1372% 2029-30 4,706,000 -.- 333,156 333,156 4,372,844 1413% 2030-31 4,789,000 -.- 333,644 333,644 4,455,356 1435% 2031-32 4,873,000 -.- 333,325 333,325 4,539,675 1462% 2032-33 4,131,000 -.- 337,200 337,200 3,793,800 1225%

* Debt service is presented on a bond-year basis. (1) Source: Fiscal Consultant Report (see “Appendix C – Fiscal Consultant Report”). (2) In the event there are not sufficient Housing Set-Aside Revenues to pay debt service on the Housing Loan, the Agency has covenanted to make an interfund loan from Redevelopment Project No. I, Redevelopment Project No. II and Redevelopment Project No. III (see “SOURCES OF PAYMENT FOR THE BONDS – REPAYMENT OF THE LOANS – Pledge of Tax Revenues or Housing Set-Aside Revenues” herein). For an indication of amounts that may be available see Table Nos. 20, 21 and 22 Surplus Revenues.

___________________________ ** Preliminary, subject to change.

98

LEGAL MATTERS ENFORCEABILITY OF REMEDIES

The remedies available to the Trustee and the owners of the Bonds upon an event of default under the Indenture, the Loan Agreements or any other document described herein are in many respects dependent upon regulatory and judicial actions which are often subject to discretion and delay. Under existing law and judicial decisions, the remedies provided for under such documents may not be readily available or may be limited. The various legal opinions to be delivered concurrently with the delivery of the Bonds will be qualified to the extent that the enforceability of certain legal rights related to the Indenture is subject to limitations imposed by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally and by equitable remedies and proceedings generally.

APPROVAL OF LEGAL PROCEEDINGS

Fulbright & Jaworski L.L.P., Los Angeles, California, as Bond Counsel, will render an opinion which states that the Indenture and the Loan Agreements are valid and binding contracts of the Authority and are enforceable in accordance with their terms. The legal opinion of Bond Counsel will be subject to the effect of bankruptcy, insolvency, moratorium and other similar laws affecting creditors’ rights and to the exercise of judicial discretion in accordance with general principles of equity.

The Authority has no knowledge of any fact or other information which would indicate that the Indenture or the Loan Agreements are not so enforceable against the Authority or the Agency, as applicable, except to the extent such enforcement is limited by principles of equity and by State and federal laws relating to bankruptcy, reorganization, moratorium or creditors’ rights generally.

Certain legal matters will be passed on for the Authority by Leibold, McClendon & Mann, P.C., Laguna Hills, California, Authority Counsel and by Fulbright & Jaworski L.L.P., Los Angeles, California, as Disclosure Counsel. Certain legal matters will be passed on for the Underwriter by McFarlin & Anderson LLP, Lake Forest, California, as Underwriter’s Counsel.

Fees payable to Bond Counsel, Disclosure Counsel and Underwriter’s Counsel are contingent upon the sale and delivery of the Bonds.

TAX MATTERS

The Internal Revenue Code of 1986 (the “Code”) imposes certain requirements that must be met subsequent to the issuance and delivery of the Bonds for interest thereon to be and remain excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. Noncompliance with such requirements could cause the interest on the Bonds to be included in the gross income of the owners thereof for federal income tax purposes retroactive to the date of issuance of the Bonds. The Authority has covenanted in the Indenture to maintain the exclusion of the interest on the Bonds from the gross income of the owners thereof for federal income tax purposes.

In the opinion of Fulbright & Jaworski L.L.P., Los Angeles, California, Bond Counsel, under existing law, interest on the Bonds is exempt from personal income taxes of the State of California and, assuming compliance with the aforementioned covenant, interest on the Bonds is excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. Bond Counsel is also of the opinion that, assuming compliance with the aforementioned covenant, the Bonds are not “specified private activity bonds” within the meaning of section 57(a)(5) of the Code and, therefore, the interest on the Bonds will not be treated as an item of tax preference for purposes of computing the alternative minimum tax imposed by section 55 of the Code. The receipt or accrual of interest on Bonds owned by a corporation may affect the computation of its alternative minimum taxable

99

income, upon which the alternative minimum tax is imposed, to the extent that such interest is taken into account in determining the adjusted current earnings of that corporation (75% of the excess, if any, of such adjusted current earnings over the alternative minimum taxable income being an adjustment to the alternative minimum taxable income (determined without regard to such adjustment or to the alternative tax net operating loss deduction)). To the extent that a purchaser of a Bond acquires that Bond at a price that exceeds the aggregate amount of payments (other than payments of qualified stated interest within the meaning of section 1.1273-1 of the Treasury Regulations) to be made on the Bonds (determined, in the case of a callable Bond, under the assumption described below), such excess will constitute “bond premium” under the Code. Section 171 of the Code, and the Treasury Regulations promulgated thereunder, provide generally that bond premium on a tax-exempt obligation must be amortized on a constant yield, economic accrual, basis; the amount of premium so amortized will reduce the owner’s basis in such obligation for federal income tax purposes, but such amortized premium will not be deductible for federal income tax purposes. In the case of a purchase of a Bond that is callable, the determination whether there is amortizable bond premium, and the computation of the accrual of that premium, must be made under the assumption that the Bond will be called on the redemption date that would minimize the purchaser’s yield on the Bond (or that the Bond will not be called prior to maturity if that would minimize the purchaser’s yield). The rate and timing of the amortization of the bond premium and the corresponding basis reduction may result in an owner realizing a taxable gain when a Bond owned by such owner is sold or disposed of for an amount equal to or in some circumstances even less than the original cost of the Bond to the owner. The excess, if any, of the stated redemption price at maturity of Bonds of a maturity over the initial offering price to the public of the Bonds of that maturity set forth on the cover of this Official Statement is “original issue discount” under the Code. Such original issue discount accruing on a Bond is treated as interest excluded from the gross income of the owner thereof for federal income tax purposes and exempt from California personal income tax to the same extent as would be stated interest on the Bond. Original issue discount on any Bond purchased at such initial offering price and pursuant to such initial offering will accrue on a semiannual basis over the term of the Bond on the basis of a constant yield method and, within each semiannual period, will accrue on a ratable daily basis. The amount of original issue discount on such a Bond accruing during each period is added to the adjusted basis of such Bond to determine taxable gain upon disposition (including sale, redemption or payment on maturity) of such Bond. The Code includes certain provisions relating to the accrual of original issue discount in the case of purchasers of Bonds who purchase such Bonds other than at the initial offering price and pursuant to the initial offering. Any person considering purchasing a Bond at a price that includes bond premium should consult his or her own tax advisors with respect to the amortization and treatment of such bond premium, including, but not limited to, the calculation of gain or loss upon the sale, redemption or other disposition of the Bond. Any person considering purchasing a Bond of a maturity having original issue discount should consult his or her own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of purchasers who do not purchase in the original offering and at the original offering price, the allowance of a deduction for any loss on a sale or other disposition, and the treatment of accrued original issue discount on such Bonds under federal individual and corporate alternative minimum taxes. Bond Counsel has not undertaken to advise in the future whether any events after the date of issuance of the Bonds may affect the tax status of interest on the Bonds or the tax consequences of the ownership of the Bonds. No assurance can be given that future legislation, or amendments to the Code, if enacted into law, will not contain provisions that could directly or indirectly reduce the benefit of the exemption of interest on the Bonds from personal income taxation by the State of California or of the exclusion of interest on the Bonds from the gross income of the owners thereof for federal income tax purposes. Furthermore, Bond Counsel will express no opinion as to any federal, State or local tax law consequences with respect to the Bonds, or the interest thereon, if any action is taken with respect to the Bonds or the proceeds thereof permitted or predicated upon the advice or approval of counsel if such advice or approval is given by other counsel.

100

Although Bond Counsel is of the opinion that interest on the Bonds is exempt from state personal income taxation and excluded from the gross income of the owners thereof for federal income tax purposes, an owner’s federal, state or local tax liability may be otherwise affected by the ownership or disposition of the Bonds. The nature and extent of these other tax consequences will depend upon the owner’s other items of income or deduction. Without limiting the generality of the foregoing, prospective purchasers of Bonds should be aware that: (i) section 265 of the Code denies a deduction for interest on indebtedness incurred or continued to purchase or carry the Bonds or, in the case of financial institution, that portion of an owner’s interest expense allocated to the Bonds; (ii) with respect to insurance companies subject to the tax imposed by section 831 of the Code, section 832(b)(5)(B)(i) reduces the deduction for loss reserves by 15% of the sum of certain items, including interest on the Bonds; (iii) interest on Bonds earned by certain foreign corporations doing business in the United States could be subject to a branch profits tax imposed by section 884 of the Code; (iv) passive investment income, including interest on Bonds, earned by Subchapter S corporations that have Subchapter C earnings and profits at the close of a taxable year may be subject to federal income taxation under section 1375 of the Code if greater than 25% of the gross receipts of such Subchapter S corporation is passive investment income; (v) section 86 of the Code requires recipients of certain Social Security and certain Railroad Retirement benefits to take into account, in determining the taxability of such benefits, receipts or accruals of interest on Bonds; and (vi) under section 32(i) of the Code, receipt of investment income, including interest on the Bonds, may disqualify the recipient thereof from obtaining the earned income credit. Bond Counsel has expressed no opinion regarding any such other tax consequences.

Bond Counsel’s opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes, regulations, published rulings and court decisions and the representations and covenants of the Authority described above. No ruling has been sought from the Internal Revenue Service (the “Service”) with respect to the matters addressed in the opinion of Bond Counsel, and Bond Counsel’s opinion is not binding on the Service. The Service has an ongoing program of auditing the tax-exempt status of the interest on municipal obligations. If an audit of the Bonds is commenced, under current procedures the Service is likely to treat the Authority as the “taxpayer,” and the Owners would have no right to participate in the audit process. In responding to or defending an audit of the tax-exempt status of the interest on the Bonds, the Authority may have different or conflicting interest from the Owners. Further, the disclosure of the initiation of an audit may adversely affect the market price of the Bonds, regardless of the final disposition of the audit.

INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS IN DETERMINING THE FEDERAL, STATE, LOCAL, FOREIGN AND ANY OTHER TAX CONSEQUENCES TO THEM FROM THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE BONDS.

ABSENCE OF LITIGATION

The Authority and the Agency will furnish a certificate, dated as of the date of delivery of the Bonds, that there is not now known to be pending or threatened any litigation restraining or enjoining the execution or delivery of the Indenture, the Loan Agreements or the sale or delivery of the Bonds or in any manner questioning the proceedings and authority under which the Indenture and the Loan Agreements are to be executed or delivered or the Bonds are to be delivered or affecting the validity thereof.

101

CONCLUDING INFORMATION

RATINGS ON THE BONDS

Standard & Poor’s Credit Ratings Services, a Division of The McGraw-Hill Companies, Inc. (“S&P”), is expected to assign the Bonds a rating of “AAA” upon the understanding that the Bond Insurer will issue the Insurance Policy simultaneously with the issuance and delivery of the Bonds. While the Agency expects the foregoing rating to remain in place with respect to the Bonds on the closing and delivery date of the Bonds, no assurance can be given that such ratings will not change prior to the closing date as S&P could modify its rating of the Bond Insurer. S&P has assigned an underlying rating to the Bonds of “A.” These ratings reflect only the views of S&P. Explanations of the significance of such ratings must be obtained from S&P. There is no assurance that such ratings will continue for any given period of time or will not be revised downward or withdrawn entirely by such rating agency, if, in the judgment of 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 Bonds. The above ratings are not recommendations to buy, sell or hold the Bonds, and such ratings may be subject to revision or withdrawal at any time by the rating agency.

UNDERWRITING

The Bonds are being sold to O’Connor & Company Securities, Inc., Newport Beach, California (the “Underwriter”). The Bonds are being sold to the Underwriter pursuant to, and subject to the terms and conditions of, the Purchase Contract by and among the Underwriter, the Authority and the Agency (the “Purchase Contract”). The Underwriter is offering the Bonds at the prices set forth on the inside cover page hereof. The initial offering prices may be changed from time to time and concessions from the offering prices may be allowed to dealers, banks and others. The Underwriter has purchased the Bonds at a price of $_________ (________%), which amount represents the principal amount of the Bonds, less an original issue discount of $______ and less an Underwriter’s discount of $_______. The Underwriter will pay certain of its expenses relating to the offering.

EXPERTS

The Fiscal Consultant Report prepared by HdL Coren & Cone, Diamond Bar, California, has been included in this Official Statement in reliance on and upon the authority of said firm as experts in the matters covered therein.

FINANCIAL STATEMENTS OF THE AGENCY

Included herein as Appendix D are the audited financial statements of the Agency as of and for the year ended June 30, 2009, together with the report thereon, dated December 17, 2009, of Diehl, Evans & Company, LLP, Certified Public Accountants & Consultants, Irvine, California (the “Auditor”). Such audited financial statements have been included herein in reliance upon the report of the Auditor. The Auditor has not undertaken to update the audited financial statements of the Agency or its report or to take any 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 the Auditor with respect to any event subsequent to its report, dated December 17, 2009. The Agency’s audited financial statements are public documents and are included within this Official Statement without the prior approval of the auditor. The Agency represents that there have been no material adverse changes in its financial position since June 30, 2009.

102

THE FINANCING CONSULTANT

The material contained in this Official Statement was prepared by Rod Gunn Associates, Inc., Huntington Beach, California, an independent financial consulting firm, who advised the Authority and the Agency as to the financial structure and certain other financial matters relating to the Bonds. The information set forth herein has been obtained by the Financing Consultant from sources which are believed to be reliable, but such information is not guaranteed by the Financing Consultant as to accuracy or completeness, nor has it been independently verified. Fees paid to the Financing Consultant are contingent upon the sale and delivery of the Bonds.

FORWARD-LOOKING STATEMENTS

Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as “plan,” “expect,” “estimate,” “project,” “budget” or similar words. Such forward-looking statements include, but are not limited to, certain statements contained in the information under the caption “TAX INCREMENT REVENUES” herein. 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. THE AUTHORITY DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THE FORWARD-LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT.

ADDITIONAL INFORMATION

The summaries and references contained herein with respect to the Indenture, the Loan Agreements, the Bonds, statutes and other documents, do not purport to be comprehensive or definitive and are qualified by reference to each such document or statute and references to the Bonds are qualified in their entirety by reference to the form hereof included in the Indenture. Copies of the Indenture, the Loan Agreements and other documents are available for inspection during the period of initial offering on the Bonds at the offices of the Underwriter, O’Connor & Company Securities, Inc., 620 Newport Center Drive, Suite 1100, Newport Beach, California, 92660 (949-413-6194). Copies of these documents may be obtained after delivery of the Bonds from the City at 130 S. Main Street, Lake Elsinore, California 92530, telephone (951) 674-3124. The Authority and the Agency will provide annual financial statements and other pertinent credit information, including the Annual Financial Report, if one is prepared, upon request. Copies of all periodic reports may also be made available by any other means maintained by the Authority and the Agency, or their agents, to provide information to persons wishing to receive it.

REFERENCES

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 Authority and the purchasers or owners of any of the Bonds.

103

EXECUTION The execution of this Official Statement by the Executive Director and its distribution to the purchaser has been duly authorized by the Lake Elsinore Public Financing Authority.

LAKE ELSINORE PUBLIC FINANCING AUTHORITY By: /s/ ______________

Robert A. Brady, Executive Director

(THIS PAGE LEFT BLANK INTENTIONALLY)

A-1

APPENDIX A

SUMMARY OF THE INDENTURE

Definitions. Unless the context otherwise requires, the terms defined shall for all purposes of the Indenture and of any Supplemental Indenture and of the Bonds and of any certificate, opinion, request or other documents mentioned in the Indenture have the meanings specified in the Indenture. In addition, all terms defined in the Loan Agreement and not otherwise defined in the Indenture shall have the respective meanings given such terms in the Loan Agreement.

“Act” means Articles 1 through 4 (commencing with Section 6500) of Chapter 5, Division 7, Title 1 of the Government Code of the State, as in existence on the Closing Date or as thereafter amended from time to time.

“Agency” means the Redevelopment Agency of the City of Lake Elsinore, a public body corporate and politic organized under the laws of the State, and any successor thereto.

“Annual Debt Service” means, for each Bond Year, the sum of (a) the interest payable on the Outstanding Bonds in such Bond Year, and (b) the principal amount of the Outstanding Bonds scheduled to be paid in such Bond Year, including from mandatory sinking fund payments.

“Authority” means the Lake Elsinore Public Financing Authority, a joint powers authority duly organized and existing under the Joint Exercise of Powers Agreement, dated as of July 25, 1989, by and between the City and the Agency, together with any amendments thereof and supplements thereto and under the laws of the State.

“Authority Representative” means the Chairman, Vice Chairman, Executive Director or Treasurer of the Authority, or any other authorized representative of the Authority as evidenced by a certificate of the Chairman or Executive Director.

“Board” means the Board of Directors of the Authority.

“Bond Counsel” means any attorney or firm of attorneys appointed by or acceptable to the Authority of nationally-recognized experience in the issuance of obligations the interest on which is excludable from gross income for federal income tax purposes under the Code.

“Bond Law” means the Marks-Roos Local Bond Pooling Act of 1985, constituting Article 4 of the Act (commencing with Section 6584), as in existence on the Closing Date or as thereafter amended from time to time.

“Bond Year” means each twelve-month period beginning on September 2 of each year and ending on September 1 of the following year, except that the first Bond Year shall begin on the Closing Date and end on September 1, 2010.

“Bonds” means the Lake Elsinore Public Financing Authority Tax Allocation Revenue Bonds (1999 Series C Refunding), 2010 Series A authorized by and at any time Outstanding pursuant to the Bond Law and the Indenture.

A-2

“Business Day” means a day of the year, other than a Saturday or Sunday, on which banks in New York, New York, Los Angeles, California, and San Francisco, California, are not required or authorized to remain closed and on which The New York Stock Exchange is not closed.

“Certificate” and “Written Request” of the Authority or Agency means, a written certificate or written request signed in the name of the Authority or Agency, as applicable, by an authorized representative. Any such certificate or request may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument.

“City” means the City of Lake Elsinore, a political subdivision organized and existing under the laws of the State.

“Closing Date” means ___________, 2010, being the date of delivery of the Bonds to the original purchasers thereof.

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

“Costs of Issuance” means all expenses incurred in connection with the authorization, issuance, sale and delivery of the Bonds, the making of the Loans pursuant to the Loan Agreements and the refunding and defeasance of the Refunded Bonds from the proceeds of the Loan, including but not limited to all compensation, fees and expenses (including but not limited to fees and expenses for legal counsel) of the Agency, the Authority, the Trustee and the Refunded Bonds Trustee, costs and fees relating to any bond insurance policy and any Qualified Reserve Fund Credit Instrument, compensation to any financial consultants or underwriters, legal fees and expenses, filing and recording costs, rating agency fees, costs of preparation and reproduction of documents and costs of printing.

“Defeasance Securities” mean (a) Cash (fully insured by the Federal Deposit Insurance Corporation), (b) Direct obligations (other than an obligation subject to variation in principal repayment) of the United States of America (“U.S. Treasury Obligations”), (b) obligations fully and unconditionally guaranteed as to timely payment of principal and interest by the United States of America, (c) obligations fully and unconditionally guaranteed as to timely payment of principal and interest by any agency or instrumentality of the United States of America when such obligations are backed by the full faith and credit of the United States of America, or (d) evidences of ownership of proportionate interests in future interest and principal payments on obligations described above held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying government obligations are not available to any person claiming through the custodian or to whom the custodian may be obligated.

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

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

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

A-3

“Excess Investment Earnings” means the amount of excess investment earnings determined to be subject to rebate to the United States of America with respect to the investment of the gross proceeds of the Bonds, determined pursuant to Section 148(f) of the Code.

“Federal Securities” means (a) any direct general obligations of the United States of America (including obligations issued or held in book-entry form on the books of the Department of the Treasury of the United States of America), the payment of principal of and interest on which are unconditionally and fully guaranteed by the United States of America; and (b) any obligations the principal of and interest on which are unconditionally guaranteed by the United States of America.

“Fiscal Year” means any twelve-month period extending from July 1 in one calendar year to June 30 of the succeeding calendar year, both dates inclusive, or any other twelve-month period selected and designated by the Authority as its official fiscal year period and certified to the Trustee in writing by an Authority Representative.

“Housing Fund Loan” means the loan made by the Authority to the Agency under and pursuant to the Housing Fund Loan Agreement.

“Housing Fund Loan Agreement” means the Housing Fund Loan Agreement, dated as of January 1, 2010, by and between the Agency and the Authority.

“Indenture” means the Indenture of Trust, as originally executed or as it may from time to time be supplemented, modified or amended by any Supplemental Indenture pursuant to the provisions hereof.

“Independent Accountant” means any certified public accountant or firm of certified public accountants appointed and paid by the Authority, and who, or each of whom (a) is in fact independent and not under domination of the Authority, the City or the Agency; (b) does not have any substantial interest, direct or indirect, in the Authority, the City or the Agency; and (c) is not connected with the Authority, the City or the Agency as an officer or employee of the Authority, the City or the Agency but who may be regularly retained to make annual or other audits of the books of or reports to the Authority, the City or the Agency.

“Information Services” means the Electronic Municipal Market Access system (referred to as “EMMA”), a facility of the Municipal Securities Rulemaking Board, at www.emma.msrb.org; provided, however, in accordance with then current guidelines of the Securities and Exchange Commission, Information Services shall mean such other organizations providing information with respect to called Bonds as the Authority may designate in writing to the Trustee.

“Interest Payment Date” means March 1 and September in each year, beginning March 1, 2010, and continuing thereafter so long as any Bonds remain Outstanding.

“Letter of Representations” means the letter of the Authority and the Trustee delivered to and accepted by DTC (or such other applicable Securities Depository) on or prior to the issuance of the Bonds in book-entry form setting forth the basis on which DTC (or such other applicable Securities Depository) serves as depository for the Bonds issued in book-entry form, as originally executed or as it may be supplemented or revised or replaced by a letter to a substitute Securities Depository.

“Loan” or “Loans” means, individually or collectively, the loans made by the Authority to the Agency under and pursuant to the Loan Agreements.

A-4

“Loan Agreements” means, collectively, the Project Area No. I Loan Agreement, the Project Area No. II Loan Agreement, the Project Area No. III Loan Agreement, and the Housing Fund Loan Agreement.

“Loan Fund” means the fund by that name established and held by the Trustee pursuant to Section 3.03.

“Maximum Annual Debt Service” means, as of the date of calculation, the maximum amount obtained by totaling, for the current or any future Bond Year, the sum of: (a) the principal amount of all such Outstanding Bonds maturing in such Bond Year; (b) the aggregate principal amount of all Outstanding Term Bonds scheduled to be redeemed by operation of mandatory sinking fund deposits in such Bond Year, together with any premium thereon; and (c) the interest which would be due during such Bond Year on the aggregate principal amount of such Bonds which would be Outstanding in such period if such Bonds are retired as scheduled, but deducting and excluding from such aggregate principal amount the aggregate principal amount of such Bonds no longer Outstanding.

“Moody’s” means Moody’s Investors Service, its successors and assigns.

“Outstanding,” when used as of any particular time with reference to Bonds, means all Bonds theretofore executed, issued and delivered by the Authority under the Indenture except (a) Bonds theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation, (b) Bonds paid or deemed to have been paid within the meaning of Section 10.03, and (c) Bonds in lieu of or in substitution for which other Bonds shall have been executed, issued and delivered pursuant to the Indenture or any Supplemental Indenture.

“Owner,” when used with respect to any Bond, means the person in whose name the ownership of such Bond shall be registered on the Registration Books.

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

1. (a) Cash (fully insured by the Federal Deposit Insurance Corporation), (b) Direct obligations (other than an obligation subject to variation in principal repayment) of the United States of America (“U.S. Treasury Obligations”), (b) obligations fully and unconditionally guaranteed as to timely payment of principal and interest by the United States of America, (c) obligations fully and unconditionally guaranteed as to timely payment of principal and interest by any agency or instrumentality of the United States of America when such obligations are backed by the full faith and credit of the United States of America, or (d) evidences of ownership of proportionate interests in future interest and principal payments on obligations described above held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying government obligations are not available to any person claiming through the custodian or to whom the custodian may be obligated.

2. Federal Housing Administration debentures.

3. The listed obligations of government-sponsored agencies which are not backed by the full faith and credit of the United States of America:

A-5

a) Federal Home Loan Mortgage Corporation (FHLMC) senior debt obligations and Participation certificates (excluded are stripped mortgage securities which are purchased at prices exceeding their principal amounts);

b) Farm Credit System (formerly Federal Land Banks, Federal Intermediate Credit Banks and Banks for Cooperatives) consolidated system-wide bonds and notes;

c) Federal Home Loan Banks (FHL Banks) consolidated debt obligations;

d) Federal National Mortgage Association (FNMA) senior debt obligations and mortgage-backed securities (excluded are stripped mortgage securities which are purchased at prices exceeding their principal amounts).

4. Unsecured certificates of deposit, time deposits, and bankers’ acceptances (having maturities of not more than 365 days) of any bank the short-term obligations of which are rated “A-1 +” or better by S&P and “Prime-1” by Moody’s.

5. Deposits the aggregate amount of which are fully insured by the Federal Deposit Insurance Corporation, in banks which have capital and surplus of at least $15 million.

6. Commercial paper (having original maturities of not more than 270 days) rated “A-1 +” by S&P and “Prime-1” by Moody’s.

7. Money market funds rated “Aam” or “AAm-G” by S&P, or better and if rated by Moody’s rated “Aa2” or better.

8. “State Obligations”, which means:

a) Direct general obligations of any state of the United States of America or any subdivision or agency thereof to which is pledged the full faith and credit of a state the unsecured general obligation debt of which is rated at least “A3” by Moody’s and at least “A-” by S&P, or any obligation fully and unconditionally guaranteed by any state, subdivision or agency whose unsecured general obligation debt is so rated.

b) Direct general short-term obligations of any state agency or subdivision or agency thereof described in (a) above and rated “A-1 +” by S&P and “MIG-1” by Moody’s.

c) Special Revenue Bonds (as defined in the United States Bankruptcy Code) of any state or state agency described in (b) above and rated “AA-” or better by S&P and “Aa3” or better by Moody’s.

9. Pre-refunded municipal obligations rated “AAA” by S&P and “Aaa” by Moody’s meeting the following requirements:

a) the municipal obligations are (1) not subject to redemption prior to maturity or (2) the Trustee for the municipal obligations has been given irrevocable instructions concerning their call and redemption and the issuer of the municipal obligations has covenanted not to redeem such municipal obligations other than as set forth in such instructions;

A-6

b) the municipal obligations are secured by cash or U.S. Treasury Obligations which may be applied only to payment of the principal of, interest and premium on such municipal obligations;

c) the principal of and interest on the U.S. Treasury Obligations (plus any cash in the escrow) has been verified by the report of independent certified public accountants to be sufficient to pay in full all principal of, interest, and premium, if any, due and to become due on the municipal obligations (“Verification Report”);

d) the cash or U.S. Treasury Obligations serving as security for the municipal obligations are held by an escrow agent or trustee in trust for owners of the municipal obligations;

e) no substitution of a U.S. Treasury Obligation shall be permitted except with another U.S. Treasury Obligation and upon delivery of a new Verification Report; and

f) the cash or U.S. Treasury Obligations are not available to satisfy any other claims, including those by or against the trustee or escrow agent.

10. Repurchase agreements: with (1) any domestic bank, or domestic branch of a foreign bank, the long-term debt of which is rated at least “A-” by S&P and “A3” Moody’s; or (2) any broker-dealer with “retail customers” or a related affiliate thereof which broker-dealer has, or the parent company (which guarantees the provider) of which has, long-term debt rated at least “A-” by S&P and “A3” by Moody’s, which broker-dealer falls under the jurisdiction of the Securities Investors Protection Corporation; or (3) any other entity rated at least “A-” by S&P and “A3” Moody’s and acceptable to the Insurer (each an “Eligible Provider”), provided that:

a) (i) permitted collateral shall include U.S. Treasury Obligations, or senior debt obligations of GNMA, FNMA or FHLMC (no collateralized mortgage obligations shall be permitted for these providers), and (ii) collateral levels must be at least 102% of the total principal when the collateral type is U.S. Treasury Obligations, 103% of the total principal when the collateral type is GNMA’s and 104% of the total principal when the collateral type is FNMA and FHLMC (“Eligible Collateral”);

b) the Trustee or a third party acting solely as agent therefor or for the Authority (the “Custodian”) has possession of the collateral or the collateral has been transferred to the Custodian in accordance with applicable state and federal laws (other than by means of entries on the transferor’s books) and such collateral shall be marked to market;

c) the collateral shall be marked to market on a daily basis and the provider or Custodian shall send monthly reports to the Trustee, the Authority and the Insurer setting forth the type of collateral, the collateral percentage required for that collateral type, the market value of the collateral on the valuation date and the name of the Custodian holding the collateral;

d) the repurchase agreement (or guaranty, if applicable) may not be assigned or amended without the prior written consent of the Insurer;

e) the repurchase agreement shall state and an opinion of counsel shall be rendered at the time such collateral is delivered that the Custodian has a perfected first priority security interest in the collateral, any substituted collateral and all proceeds thereof;

A-7

f) the repurchase agreement shall provide that if during its term the provider’s rating by either Moody’s or S&P is withdrawn or suspended or falls below “A-” by S&P or “A3” by Moody’s, as appropriate, the provider must, notify the Authority, the Trustee and the Insurer within five (5) days of receipt of such notice. Within ten (10) days of receipt of such notice, the provider shall either: (i) provide a written guarantee acceptable to the Insurer, (ii) post Eligible Collateral, or (iii) assign the agreement to an Eligible Provider. If the provider does not perform a remedy within ten (10) business days, the provider shall, at the direction of the Trustee (who shall give such direction if so directed by the Insurer) repurchase all collateral and terminate the repurchase agreement, with no penalty or premium to the Authority or the Trustee.

11. Investment agreements: with a domestic or foreign bank or corporation the long-term debt of which, or, in the case of a guaranteed corporation the long-term debt, or, in the case of a monoline financial guaranty insurance company, claims paying ability, of the guarantor is rated at least “AA-” by S&P and “Aa3” by Moody’s, and acceptable to the Insurer (each an “Eligible Provider”); provided that:

a) interest payments are to be made to the Trustee at times and in amounts as necessary to pay debt service (or, if the investment agreement is for the construction fund, construction draws) on the Bonds;

b) the invested funds are available for withdrawal without penalty or premium, at any time upon not more than seven (7) days’ prior notice; the Authority and the Trustee hereby agree to give or cause to be given notice in accordance with the terms of the investment agreement so as to receive funds thereunder with no penalty or premium paid;

c) the provider shall send monthly reports to the Trustee, the Authority and the Insurer setting forth the balance the Authority or Trustee has invested with the provider and the amounts and dates of interest accrued and paid by the provider;

d) the investment agreement shall state that is an unconditional and general obligation of the provider, and is not subordinated to any other obligation of, the provider thereof or, if the provider is a bank, the agreement or the opinion of counsel shall state that the obligation of the provider to make payments thereunder ranks pari passu with the obligations of the provider to its other depositors and its other unsecured and unsubordinated creditors;

e) the investment agreement (or guaranty, if applicable) may not be assigned or amended without the prior written consent of the Insurer;

f) the Authority, the Trustee and the Insurer shall receive an opinion of domestic counsel to the provider that such investment agreement is legal, valid, binding and enforceable against the provider in accordance with its terms;

g) the Authority, the Trustee and the Insurer shall receive an opinion of foreign counsel to the provider (if applicable) that (i) the investment agreement has been duly authorized, executed and delivered by the provider and constitutes the legal, valid and binding obligation of the provider, enforceable against the provider in accordance with its terms, (b) the choice of law of the state set forth in the investment agreement is valid under that country’s laws and a court in such country would uphold such choice of law,

A-8

and (c) any judgment rendered by a court in the United States would be recognized and enforceable in such country;

h) the investment agreement shall provide that if during its term:

i) the provider’s rating by either S&P or Moody’s falls below “AA-” or “Aa3”, the provider shall, at its option, within ten (10) days of receipt of publication of such downgrade, either (i) provide a written guarantee acceptable to the Insurer, (ii) post Eligible Collateral with the Authority, the Trustee or a third party acting solely as agent therefor (the “Custodian”) free and clear of any third party liens or claims, or (iii) assign the agreement to an Eligible Provider, or (iv) repay the principal of and accrued but unpaid interest on the investment;

ii) the provider’s rating by either S&P or Moody’s is withdrawn or suspended or falls below “A-” or “A3”, the provider must, at the direction of the Authority or the Trustee (who shall give such direction if so directed by the Insurer), within ten (10) days of receipt of such direction, repay the principal of and accrued but unpaid interest on the investment, in either case with no penalty or premium to the Authority or Trustee.

i) in the event the provider is required to collateralize, permitted collateral shall include U.S. Treasury Obligations, or senior debt obligations of GNMA, FNMA or FHLMC (no collateralized mortgage obligations shall be permitted for these providers) and collateral levels must be 102% of the total principal when the collateral type is U.S. Treasury Obligations, 103% of the total principal when the collateral type is GNMA’s and 104% of the total principal when the collateral type is FNMA and FHLMC (“Eligible Collateral”). In addition, the collateral shall be marked to market on a daily basis and the provider or Custodian shall send monthly reports to the Trustee, the Authority and the Insurer setting forth the type of collateral, the collateral percentage required for that collateral type, the market value of the collateral on the valuation date and the name of the Custodian holding the collateral;

j) the investment agreement shall state and an opinion of counsel shall be rendered, in the event collateral is required to be pledged by the provider under the terms of the investment agreement, at the time such collateral is delivered, that the Custodian has a perfected first priority security interest in the collateral, any substituted collateral and all proceeds thereof;

k) the investment agreement must provide that if during its term: (i) the provider shall default in its payment obligations, the provider’s obligations under the investment agreement shall, at the direction of the Authority or the Trustee (who shall give such direction if so directed by the Insurer), be accelerated and amounts invested and accrued but unpaid interest thereon shall be repaid to the Authority or Trustee, as appropriate, and (ii) the provider shall become insolvent, not pay its debts as they become due, be declared or petition to be declared bankrupt, etc. (“event of insolvency”), the provider’s obligations shall automatically be accelerated and amounts invested and accrued but unpaid interest thereon shall be repaid to the Authority or Trustee, as appropriate.

12. The Local Agency Investment Fund of the State of California, created pursuant to Section 16429.1 of the California Government Code.

A-9

13. Certificates of deposit, savings accounts, deposit accounts or money market deposits (including those of the Trustee and its affiliates) which are fully insured by the Federal Deposit Insurance Corporation. In addition to the authority to invest funds in certificates of deposit, an investment in non-negotiable certificates of deposit made in accordance with the following conditions is an authorized investment: (A) the financial institution or trust company selected by the Authority arranges for the deposit of funds in certificates of deposit in on or more federally insured depository institutions, wherever located, for the account of the investing entity; (B) the full amount of the principal and accrued interest of each of the certificates of deposit is insured by the United States or an instrumentality of the United States; and (C) the financial institution or trust company selected by the Authority acts as custodian for the investing entity with respect to the certificates of deposit issued for the account of the investing entity.

“Project Area No. I” means the redevelopment project area described in the Redevelopment Plan for the Project Area No. I, as amended and supplemented from time to time.

“Project Area No. I Loan” means the loan made by the Authority to the Agency under and pursuant to the Project Area No. I Loan Agreement.

“Project Area No. I Loan Agreement” means the Project Area No. I Loan Agreement, dated as of January 1, 2010, between the Agency and the Authority, as originally executed or as it may from time to time be supplemented, modified or amended.

“Project Area No. II” means the redevelopment project area described in the Redevelopment Plan for the Project Area No. II, as amended and supplemented from time to time.

“Project Area No. II Loan” means the loan made by the Authority to the Agency under and pursuant to the Project Area No. II Loan Agreement.

“Project Area No. II Loan Agreement” means the Project Area No. II Loan Agreement, dated as of January 1, 2010, by and between the Agency and the Authority, as originally executed or as it may from time to time be supplemented, modified or amended.

“Project Area No. III” means the redevelopment project area described in the Redevelopment Plan for the Project Area No. III, as amended and supplemented from time to time.

“Project Area No. III Loan” means the loan made by the Authority to the Agency under and pursuant to the Project Area No. III Loan Agreement.

“Project Area No. III Loan Agreement” means the Project Area No. III Loan Agreement, dated as of January 1, 2010, by and between the Agency and the Authority, as originally executed or as it may from time to time be supplemented, modified or amended.

“Project Areas” means, collectively, Project Area No. I, Project Area No. II and Project Area No. III.

“Proportionate Share” means the applicable percentage deemed to be the proportion of the proceeds of the Bonds allocable to each Loan, as set forth in each Loan Agreement.

“Qualified Reserve Fund Credit Instrument” means an irrevocable standby or direct-pay letter of credit or surety bond issued by a commercial bank or insurance company and deposited with the Trustee

A-10

pursuant to a Loan Agreement provided that all of the following requirements are met: (i) at the time of delivery to the Trustee the long-term credit rating of such bank or insurance company is in the highest rating category by Moody’s and S&P, and, if rated by A.M. Best Company, the claims paying ability of such insurance company is rated in the highest rating category by A.M. Best Company; (ii) such letter of credit or surety bond has a term of at least twelve (12) months; (iii) such letter of credit or surety bond has a stated amount at least equal to the portion of the respective Reserve Requirement with respect to which funds are proposed to be released pursuant to the applicable Loan Agreement; and (iv) the Trustee is authorized pursuant to the terms of such letter of credit or surety bond to draw thereunder an amount equal to any deficiencies which may exist from time to time in the amounts available to repay the principal of and interest on the respective Loan.

“Record Date” means, with respect to any Interest Payment Date, the fifteenth (15th) calendar day of the month preceding such Interest Payment Date.

“Refunded Bonds” means the Lake Elsinore Public Financing Authority Tax Allocation Revenue Bonds, 1999 Series C.

“Refunded Bonds Trustee” means Union Bank, N.A., in its capacity as trustee for the Refunded Bonds.

“Registration Books” means the records maintained by the Trustee pursuant to the Indenture for the registration and transfer of ownership of the Bonds.

“Reserve Requirement” means, as of any calculation date, an amount equal to the least of (i) ten percent (10%) of the proceeds (within the meaning of section 148 of the Code) of that portion of such Bonds then Outstanding with respect to which Annual Debt Service is calculated; (ii) 125% of average Annual Debt Service; or (iii) Maximum Annual Debt Service.

“Revenues” means: (a) all amounts payable by the Agency pursuant to the Loan Agreements; (b) all moneys deposited and held from time to time by the Trustee in the funds and accounts established hereunder for the Bonds, other than the Rebate Account; and (c) income and gains with respect to the investment of amounts on deposit in the funds and accounts established hereunder for the Bonds, other than the Rebate Account.

“S&P” means Standard & Poor’s Ratings Services, a division of The McGraw Hill Companies, Inc., its successors and assigns.

“Securities Depositories” means The Depository Trust Company, 55 Water Street, New York, New York 10041, Fax: (212) 855-1000 or 7320; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other securities depositories as the Authority may designate in a Certificate of the Authority delivered to the Trustee.

“Serial Bonds” means all Bonds other than the Term Bonds.

“State” means the State of California.

“Supplemental Indenture” means any indenture, agreement or other instrument hereafter duly executed by the Authority and the Trustee in accordance with the provisions of the Indenture.

“Tax Regulations” means temporary and permanent regulations promulgated under or with respect to Section 103 and Sections 141 through 150, inclusive, of the Code.

A-11

“Term Bonds” means the Bonds maturing on September 1, 20____ and September 1, 20___.

“Trust Office” means the corporate trust office of the Trustee at the address set forth in the Indenture, provided, however for transfer, registration, exchange, payment and surrender of Bonds means care of the corporate trust office of Union Bank, N.A. in Los Angeles, California or such other office designated by the Trustee from time to time and such office as the Trustee may designate in writing to the Authority from time to time as the place for transfer, registration, surrender, exchange or payment of the Bonds.

“Trustee” means Union Bank, N.A. and its successors and assigns, and any other corporation or association which may at any time be substituted in its place as provided in Article VI.

Pledge of Revenues; Assignment of Rights. The Bonds shall be secured by a first lien on and pledge (which shall be effected in the manner and to the extent hereinafter provided) of all of the Revenues and a pledge of all of the moneys in the Interest Account and the Principal Account of the Revenue Fund and in the Reserve Fund, including all amounts derived from the investment of such moneys. The Bonds shall be equally secured by a pledge, charge and first lien upon the Revenues and such moneys without priority for number, date of Bonds, date of execution or date of delivery; and the payment of the interest on and principal of the Bonds and any premiums upon the redemption of any thereof shall be and are secured by an exclusive pledge, charge and first lien upon the Revenues and such moneys. So long as any of the Bonds are Outstanding, the Revenues and such moneys shall not be used for any other purpose; except that out of the Revenues there may be apportioned such sums, for such purposes, as are expressly permitted by the Indenture.

The Authority hereby transfers in trust and assigns to the Trustee, for the benefit of the Owners from time to time of the Bonds, all of the Revenues and all of the right, title and interest of the Authority (but not the obligations) in the Loan Agreements (other than the certain rights of the Authority excepted under the Indenture). The Trustee shall be entitled to and shall receive all of the Revenues, and any Revenues collected or received by the Authority shall be deemed to be held, and to have been collected or received, by the Authority as the agent of the Trustee and shall forthwith be paid by the Authority to the Trustee. The assignment to the Trustee is solely in its capacity as Trustee under the Indenture and in accepting such assignment and taking any actions with respect to the Loan Agreement, the Trustee shall be entitled to all the indemnities, protections, immunities and limitations from liability afforded it as Trustee under the Indenture. The Trustee also shall be entitled to and, subject to the provisions hereof, shall take all steps, actions and proceedings reasonably necessary in its judgment to enforce, either jointly with the Authority or separately, all of the rights of the Authority and all of the obligations of the Agency under the Loan Agreement.

Receipt, Deposit and Application of Revenues.

(a) Deposit of Revenues; Revenue Fund. All Revenues described in clause (a) of the definition thereof shall be promptly deposited by the Trustee upon receipt thereof in a special fund designated as the “Revenue Fund” which the Trustee shall establish, maintain and hold in trust hereunder.

(b) Application of Revenues: Special Accounts. On or before each Interest Payment Date, the Trustee shall transfer from the Revenue Fund and deposit into the following respective accounts (each of which the Trustee shall establish and maintain within the Revenue Fund), the following amounts in the following order of priority, the requirements of each such account (including the making up of any deficiencies in any such account resulting from lack of Revenues sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to any account subsequent in priority:

A-12

(i) Interest Account. On or before each Interest Payment Date, the Trustee shall deposit in the Interest Account an amount required to cause the aggregate amount on deposit in the Interest Account to equal the amount of interest becoming due and payable on such Interest Payment Date on all Outstanding Bonds. No deposit need be made into the Interest Account if the amount contained therein is at least equal to the interest becoming due and payable upon all Outstanding Bonds on such Interest Payment Date. All moneys in the Interest Account shall be used and withdrawn by the Trustee solely for the purpose of paying the interest on the Bonds as it shall become due and payable (including accrued interest on any Bonds redeemed prior to maturity).

(ii) Principal Account. On or before each date on which the principal of the Bonds shall be payable, the Trustee shall deposit in the Principal Account an amount required to cause the aggregate amount on deposit in the Principal Account to equal the aggregate amount of principal coming due and payable on such date on the Bonds, or the redemption price of the Bonds (consisting of the principal amount thereof and any applicable redemption premiums) required to be redeemed on such date pursuant to any of the provisions of the Indenture. All moneys in the Principal Account shall be used and withdrawn by the Trustee solely for the purpose of (A) paying the principal of the Serial Bonds at the maturity thereof, (B) paying the principal of the Term Bonds upon the mandatory sinking fund redemption or maturity thereof, or (C) paying the principal of and premium (if any) on any Bonds upon the redemption thereof.

(iii) Surplus. All amounts on deposit in the Revenue Fund on September 2 of each year, to the extent not required to pay any interest on or principal of any Outstanding Bonds then having come due and payable, shall be credited to the replenishment of the Reserve Fund in an amount to maintain the Reserve Requirement therein, including interest on amounts advanced under any Qualified Reserve Fund Credit Instrument, in the order of replenishment described under the Indenture, if necessary; and then for any lawful purpose of the Authority including payment of debt service on other obligations of the Authority issued to finance redevelopment activities of the Agency.

(c) Rebate Account. The Trustee shall deposit in the Rebate Account from time to time, from payments made by the Agency for such purpose pursuant to the Loan Agreements, an amount determined by the Authority to be subject to rebate to the United States of America. Amounts in the Rebate Account shall be applied and disbursed by the Trustee solely for the purposes and at the times set forth in Requests of the Authority filed with the Trustee. The Trustee shall not be responsible for calculating rebate amounts or for the adequacy or correctness of any rebate report or rebate calculations. The Trustee shall be deemed conclusively to have complied with the provisions of the Indenture and any other agreement relating to the Bonds regarding calculation and payment of rebate if it follows the directions of the Authority and it shall have no independent duty to review such calculations or enforce the compliance with such rebate requirements by the Authority or the Agency.

Investments. All moneys in any of the funds or accounts established with the Trustee pursuant to the Indenture or the Loan Agreements shall be invested by the Trustee solely in Permitted Investments pursuant to the written direction of the Authority given to the Trustee in advance of the making of such investments. Each such written direction shall contain the representation of the Authority that the investments identified therein constitute Permitted Investments hereunder upon which the Trustee may conclusively rely. In the absence of any such direction from the Authority, the Trustee shall invest any such moneys in clause (d) of the definition of Permitted Investments. Obligations purchased as an investment of moneys in any fund shall be deemed to be part of such fund or account.

A-13

All interest or gain derived from the investment of amounts in any of the funds or accounts established hereunder shall be deposited in the fund or account from which such investment was made. For purposes of acquiring any investments hereunder, the Trustee may commingle funds held by it hereunder upon the Request of the Authority. The Trustee or its affiliate may (but shall not be obligated to) act as principal or agent in the acquisition of any investment and shall be entitled to its customary fees therefor. The Trustee shall incur no liability for losses arising from any investments made pursuant to the Indenture.

The Authority acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the Authority the right to receive brokerage confirmations of security transactions as they occur, the Authority specifically waives receipt of such confirmations to the extent permitted by law. The Trustee will furnish the Authority periodic cash transaction statements which include detail for all investment transactions made by the Trustee hereunder.

The Trustee or any of its affiliates may act as sponsor, advisor or manager or provide administrative services in connection with any Permitted Investments.

Valuation and Disposition of Investments. The Authority covenants that all investments of amounts deposited in any fund or account created by or pursuant to the Indenture shall be acquired, disposed of, and valued at least annually at market value.

Covenants of the Authority

Punctual Payment. The Authority shall punctually pay or cause to be paid the principal, interest and premium (if any) to become due in respect of all the Bonds, in strict conformity with the terms of the Bonds and of the Indenture, according to the true intent and meaning thereof, but only out of Revenues and other assets pledged for such payment as provided in the Indenture.

Extension of Payment of Bonds. The Authority shall not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any claims for interest by the purchase of such Bonds or by any other arrangement, and in case the maturity of any of the Bonds or the time of payment of any such claims for interest shall be extended, such Bonds or claims for interest shall not be entitled, in case of any default hereunder, to the benefits of the Indenture, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest thereon which shall not have been so extended. Nothing in the Indenture shall be deemed to limit the right of the Authority to issue Bonds for the purpose of refunding any Outstanding Bonds, and such issuance shall not be deemed to constitute an extension of maturity of the Bonds.

Against Encumbrances. The Authority shall not create, or permit the creation of, any pledge, lien, charge or other encumbrance upon the Revenues and other assets pledged or assigned under the Indenture while any of the Bonds are Outstanding, except the pledge and assignment created by the Indenture. Subject to this limitation, the Authority expressly reserves the right to enter into one or more other indentures for any of its corporate purposes, including other programs under the Bond Law, and reserves the right to issue other obligations for such purposes.

Power to Issue Bonds and Make Pledge and Assignment. The Authority is duly authorized pursuant to law to issue the Bonds and to enter into the Indenture and to pledge and assign the Revenues, the Loan Agreements and other assets purported to be pledged and assigned, respectively, under the Indenture in the manner and to the extent provided in the Indenture. The Bonds and the provisions of the Indenture are and will be the legal, valid and binding special obligations of the Authority in accordance with their terms, and the Authority and the Trustee, subject to the provisions of the Indenture, shall at all

A-14

times, to the extent permitted by law, defend, preserve and protect said pledge and assignment of Revenues and other assets and all the rights of the Owners under the Indenture against all claims and demands of all persons whomsoever.

Accounting Records and Financial Statements. The Trustee shall at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with industry standards, in which complete and accurate entries shall be made of all transactions made by the Trustee relating to the proceeds of Bonds, the Revenues and all funds and accounts established by the Trustee pursuant to the Indenture or the Loan Agreements. Such books of record and account shall be available for inspection by the Authority and the Agency, during regular business hours with reasonable prior notice.

Not later than 45 days following each Interest Payment Date, the Trustee shall prepare and file with the Authority a report setting forth: (i) amounts withdrawn from and deposited into each fund and account maintained by the Trustee under the Indenture; (ii) the balance on deposit in each fund and account as of the date for which such report is prepared; and (iii) a brief description of all obligations held as investments in each fund and account. Copies of such reports may be mailed to any owner of at least 50% aggregate principal amount of Bonds Outstanding, upon the owner’s written request at a cost not to exceed the Trustee’s actual costs of duplication and mailing. Said reports may be in the form of the Trustee’s regular semiannual statements.

Tax Covenants Relating to Bonds. The Authority covenants that it shall not use, and shall not permit the use of, and shall not omit to use Gross Proceeds or any other amounts (or any property the acquisition, construction or improvement of which is to be financed directly or indirectly with Gross Proceeds) in a manner that if made or omitted, respectively, could cause the interest on any Bond to fail to be excluded pursuant to section 103(a) of the Code from the gross income of the owner thereof for federal income tax purposes.

Loan Agreements. The Trustee, as assignee of the Authority rights pursuant to the Indenture, shall (subject to the provisions of the Indenture) promptly collect all amounts due from the Agency pursuant to the Loan Agreements and, subject to the provisions hereof, shall enforce, and take all steps, actions and proceedings reasonably necessary for the enforcement of all of the rights of the Authority thereunder and for the enforcement of all of the obligations of the Agency thereunder.

The Authority and the Agency may at any time amend or modify the Loan Agreements pursuant to the applicable provisions thereof, but only: (a) if the Authority, the Agency or the Trustee first obtains the written consent of the Owners of a majority in aggregate principal amount of the Bonds then Outstanding; provided, however, that no such amendment or modification shall (i) extend the maturity of or reduce the amount of interest or principal payments on the Loan, or otherwise alter or impair the obligation of the Agency to pay the principal, interest or prepayment premiums on the Loans at the time and place and at the rate and in the currency provided in the Indenture, without the express written consent of the Owner of each affected Bond, (ii) reduce the percentage of Bonds required for the written consent to any such modification or amendment thereof or hereof, or (iii) without its written consent thereto, modify any of the rights or obligations of the Trustee; or (b) without the consent of any of the Owners, if such amendment or modification is for any one or more of the following purposes

(i) to add to the covenants and agreements of the Agency contained in such Loan Agreement other covenants and agreements thereafter to be observed, or to limit or surrender any rights or power therein reserved to or conferred upon the Agency so long as such limitation or surrender of such rights or powers shall not materially adversely affect the Owners of the Bonds;

A-15

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

(iii) to make such additions, deletions or modifications as may be necessary or desirable to assure exemption from federal income taxation of interest on the Bonds;

(iv) to provide for the issuance of Parity Debt as defined in and under and in accordance with the provisions of such Loan Agreement; or

(v) to provide for a Qualified Reserve Fund Credit Instrument for amounts held in a Reserve Fund under the Indenture.

Nothing in the Indenture shall prevent the Agency and the Authority from entering into any amendment or modification of the Loan Agreements which solely affects a particular Bond or Bonds all of the Owners of which shall have consented to such amendment or modification. The Trustee shall be entitled to rely upon the opinion of Bond Counsel stating that the requirements of the Indenture have been met with respect to any amendment or modification of a Loan Agreement.

The Authority may sell a Loan Agreement upon written direction to the Trustee, so long as the proceeds of such sale are placed in an appropriate fund to pay debt service on the Bonds, and such proceeds are sufficient to discharge all of the Authority’s obligations on the portion of the Bonds represented by such Loan Agreement in the manner set forth in the Indenture.

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

Management and Operation of Properties. The Authority shall require the Agency to manage and operate all properties owned by the Agency and comprising any part of the Project Area in a sound and businesslike manner, and will keep such properties insured at all times in conformity with sound business practice.

Payments of Taxes and Other Charges. The Authority shall cause the Agency to pay and discharge or cause to be paid and discharged, all taxes, service charges, assessments and other governmental charges which may hereafter be lawfully imposed upon the Agency or the properties then owned by the Agency in the Project Area when the same shall become due. Nothing in the Indenture contained shall require the Agency to make any such payments so long as the Agency in good faith shall contest the validity of any such taxes, assessments or charges. The Authority shall cause the Agency to duly observe and conform with all valid requirements of any governmental authority relative to the Project Area or any part thereof.

Disposition of Property in Project Area. The Authority shall require that the Agency not authorize the disposition of any land or real property in the Project Area to anyone which will result in such property becoming exempt from taxation because of public ownership or use or otherwise so that such disposition shall, when taken together with other such dispositions, aggregate more than ten percent (10%) of the land area in each of the Project Area.

A-16

Immunity. The Authority is not entitled to any immunity, sovereign or otherwise, from any legal proceedings to enforce or collect upon the Indenture or the Bonds. To the extent that the Authority has or hereafter may acquire any right to immunity, the Authority hereby waives such rights for itself in respect of its obligations arising under the Indenture and the Bonds.

Modification and Amendment of the Indenture

The Indenture and the rights and obligations of the Authority and of the Owners of the Bonds may be modified or amended at any time by a Supplemental Indenture which shall become binding upon execution by the Authority and the Trustee and upon prior written consent of the Agency, without consent of any Owners, to the extent permitted by law but only for any one or more of the following purposes:

(a) to add to the covenants and agreements of the Authority contained in the Indenture, other covenants and agreements hereafter to be observed, to pledge or assign additional security for the Bonds (or any portion thereof), or to surrender any right or power in the Indenture reserved to or conferred upon the Authority;

(b) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision, contained in the Indenture, or in any other respect whatsoever, as the Authority may deem necessary or desirable, provided that such modification or amendment does not materially adversely affect the interests of the Owners in the opinion of Bond Counsel;

(c) to modify, amend or supplement the Indenture in such manner as to permit the qualification of the Indenture under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, and to add such other terms, conditions and provisions as may be permitted by said act or similar federal statute:

(d) to make such additions, deletions or modifications as may be necessary or desirable to assure exemption from federal income taxation of interest on the Bonds: or

(e) to facilitate the issuance of additional obligations of the Agency pursuant to a Loan Agreement.

Except as set forth in the preceding paragraph, the Indenture and the rights and obligations of the Authority and of the Owners of the Bonds may only be modified or amended at any time by a Supplemental Indenture which shall become binding when the written consents of the Owners of a majority in aggregate principal amount of the Bonds then Outstanding are filed with the Trustee. No such modification or amendment shall (a) extend the maturity of or reduce the interest rate on any Bond or otherwise alter or impair the obligation of the Authority to pay the principal, interest or premiums (if any) at the time and place and at the rate and in the currency provided therein of any Bond without the express written consent of the Owner of such Bond, (b) reduce the percentage of Bonds required for the written consent to any such amendment or modification, or (c) without its written consent thereto, modify any of the rights or obligations of the Trustee.

The Trustee shall be provided an opinion of Bond Counsel that any such Supplemental Indenture entered into by the Authority and the Trustee complies with the provisions of this Article VII and the Trustee may conclusively rely upon such opinion.

The provisions of this Article VII shall not prevent any Owner from accepting any amendment as to the particular Bond held by him, provided that due notation thereof is made on such Bond.

A-17

Events of Default. The following events shall be Events of Default hereunder:

(a) Default in the due and punctual payment of the principal of any Bond when and as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption, by acceleration or otherwise.

(b) Default in the due and punctual payment of any installment of interest on any Bond when and as such interest installment shall become due and payable.

(c) Failure by the Authority to observe and perform any of the covenants, agreements or conditions on its part in the Indenture or in the Bonds contained, other than as referred to in the preceding clauses (a) and (b), for a period of thirty (30) days after written notice, specifying such failure and requesting that it be remedied has been given to the Authority by the Trustee, or to the Authority and the Trustee by the Owners of the Bonds of not less than twenty-five percent (25%) in the aggregate principal amount of the Bonds at that time outstanding; provided, however, that if in the reasonable opinion of the Authority the failure stated in such notice can be corrected, but not within such thirty (30) day period, such failure shall not constitute an Event of Default if corrective action is instituted by the Authority within such thirty (30) day period and diligently pursued until such failure is corrected.

(d) The filing by the Authority of a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law of the United States of America, or if a court of competent jurisdiction shall approve a petition, filed with or without the consent of the Authority, seeking reorganization under the federal bankruptcy laws or any other applicable law of the United States of America, or if, under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction shall assume custody or control of the Authority or of the whole or any substantial part of its property.

Remedies Upon Event of Default. If any Event of Default shall occur, then, and in each and every such case during the continuance of such Event of Default, the Trustee may, and, at the written direction of the Owners of a majority in aggregate principal amount of the Bonds at the time Outstanding, shall, upon notice in writing to the Authority and the Agency, declare the principal of all of the Bonds then Outstanding, and the interest accrued thereon, to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in the Indenture or in the Bonds contained to the contrary notwithstanding. Notice of the occurrence of any Event of Default shall be given by the Trustee to the Owners if and to the extent required pursuant to the Indenture and indemnification is provided to the Trustee pursuant to the Indenture.

Any such declaration is subject to the condition that if, at any time after such declaration and before any judgment or decree for the payment of the moneys due shall have been obtained or entered, the Authority or the Agency shall deposit with the Trustee a sum sufficient to pay all the principal of and installments of interest on the Bonds payment of which is overdue, with interest on such overdue principal at the rate borne by the Bonds to the extent permitted by law, and the charges and expenses of the Trustee and its counsel, and any and all other Events of Default known to the Trustee (other than in the payment of principal of and interest on the Bonds due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, then, and in every such case, the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding, by written notice to the Authority, the Agency and the Trustee, may, on behalf of the Owners of all of the Bonds, rescind and annul such declaration and its consequences and waive such Event of Default; but no such rescission and annulment shall extend to or shall affect any subsequent Event of Default, or shall impair or exhaust any right or power consequent thereon.

A-18

In addition, upon the occurrence and during the continuance of an Event of Default, the Trustee may pursue any available remedy at law or in equity to enforce the payment of the principal of and interest and premium (if any) on the Bonds, and to enforce any rights of the Trustee under or with respect to the Indenture.

If an Event of Default shall have occurred and be continuing, and if requested so to do by the Owners of a majority in aggregate principal amount of Outstanding Bonds, and indemnified as provided in the Indenture, the Trustee shall be obligated to exercise such one or more of the rights and powers conferred by the Indenture, as the Trustee, being advised by counsel, shall deem most expedient in the interests of the Owners.

No remedy by the terms of the Indenture conferred upon or reserved to the Trustee (or to the Owners) is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to any other remedy given to the Trustee or to the Owners hereunder or now or hereafter existing at law or in equity.

No delay or omission to exercise any right or power accruing upon any Event of Default shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or acquiescence therein; such right or power may be exercised from time to time as often as may be deemed expedient.

Application of Revenues and Other Funds After Default. All amounts received by the Trustee pursuant to any right given or action taken by the Trustee under the provisions of the Indenture shall be applied by the Trustee in the following order upon presentation of the several Bonds, and the stamping thereon of the amount of the payment if only partially paid, or upon the surrender thereof if fully paid:

First, to the payment of the fees, costs and expenses of the Trustee in declaring such Event of Default and in carrying out the provisions of this Article VIII, including reasonable compensation to its agents, attorneys and counsel and any outstanding fees and expenses of the Trustee; and

Second, to the payment of the whole amount of interest on and principal of the Bonds then due and unpaid, with interest on overdue installments of principal and interest to the extent permitted by law at the net effective rate of interest then borne by the Outstanding Bonds; provided, however, that in the event such amounts shall be insufficient to pay in full the full amount of such interest and principal, then such amounts shall be applied in the following order of priority:

(a) first, to the payment of all installments of interest on the Bonds then due and unpaid,

(b) second, to the payment of principal of all installments of the Bonds then due and unpaid,

(c) third, to the payment of the redemption price (including principal and interest accrued to the redemption date, but excluding any premium) of the Bonds to be redeemed pursuant to the Indenture, and

(d) fourth, to the payment of interest on overdue installments of principal and interest on the Bonds.

A-19

Power of Trustee to Control Proceedings. In the event that the Trustee, upon the happening of an Event of Default, shall have taken any action, by judicial proceedings or otherwise, pursuant to its duties hereunder, whether upon its own discretion or upon the request of the Owners of at least a majority in aggregate principal amount of the Bonds then Outstanding, it shall have full power, in the exercise of its discretion for the best interests of the Owners of the Bonds, with respect to the continuance, discontinuance, withdrawal, compromise, settlement or other disposal of such action; provided, however, that the Trustee shall not, unless there no longer continues an Event of Default, discontinue, withdraw, compromise or settle, or otherwise dispose of any litigation pending at law or in equity, if at the time there has been filed with it a written request signed by the Owners of a majority in aggregate principal amount of the Outstanding Bonds, opposing such discontinuance, withdrawal, compromise, settlement or other disposal of such litigation. Any suit, action or proceeding which any Owner of Bonds shall have the right to bring to enforce any right or remedy hereunder may be brought by the Trustee for the equal benefit and protection of all Owners of Bonds similarly situated and the Trustee is hereby appointed (and the successive respective Owners of the Bonds issued hereunder, by taking and holding the same, shall be conclusively deemed so to have appointed it) the true and lawful attorney-in-fact of the respective Owners of the Bonds for the purpose of bringing any such suit, action or proceeding and to do and perform any and all acts and things for and on behalf of the respective Owners of the Bonds as a class or classes, as may be necessary or advisable in the opinion of the Trustee as such attorney-in-fact.

Appointment of Receivers. Upon the occurrence of an Event of Default hereunder, and upon the filing of a suit or other commencement of judicial proceedings to enforce the rights of the Trustee and of the Owners under the Indenture, the Trustee shall be entitled, as a matter of right, to the appointment of a receiver or receivers of the Revenues and other amounts pledged hereunder, pending such proceedings, with such powers as the court making such appointment shall confer.

Non-Waiver. Nothing in this Article VIII or in any other provision of the Indenture, or in the Bonds, shall affect or impair the obligation of the Authority, which is absolute and unconditional, to pay the interest on and principal of the Bonds to the respective Owners of the Bonds at the respective dates of maturity, as provided in the Indenture, out of the Revenues and other moneys pledged under the Indenture for such payment.

A waiver of any default or breach of duty or contract by the Trustee or any Owners shall not affect any subsequent default or breach of duty or contract, or impair any rights or remedies on any such subsequent default or breach. No delay or omission of the Trustee or any Owner of any of the Bonds to exercise any right or power accruing upon any default or breach shall impair any such right or power or shall be construed to be a waiver of any such default or breach or an acquiescence therein; and every power and remedy conferred upon the Trustee or Owners by the Bond Law or by this Article VIII may be enforced and exercised from time to time and as often as shall be deemed expedient by the Trustee or the Owners, as the case may be.

Rights and Remedies of Owners. No Owner of any Bond issued hereunder shall have the right to institute any suit, action or proceeding at law or in equity, for any remedy under or upon the Indenture, unless (a) such Owner shall have previously given to the Trustee written notice of the occurrence of an Event of Default; (b) the Owners of a majority in aggregate principal amount of all Bonds then Outstanding shall have made written request upon the Trustee to exercise the powers hereinbefore granted or to institute such action, suit or proceeding in its own name; (c) said Owners shall have tendered to the Trustee indemnity reasonably acceptable to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee shall have refused or omitted to comply with such request for a period of sixty (60) days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee; and (e) no direction inconsistent with such

A-20

written request has been given to the Trustee during such sixty (60) day period by the Owners of a majority in aggregate principal amount of the Bonds then Outstanding.

Such notification, request, tender of indemnity and refusal or omission are hereby declared, in every case, to be conditions precedent to the exercise by any Owner of Bonds of any remedy hereunder; it being understood and intended that no one or more Owners of Bonds shall have any right in any manner whatever by his or their action to enforce any right under the Indenture, except in the manner provided in the Indenture, and that all proceedings at law or in equity to enforce any provision of the Indenture shall be instituted, had and maintained in the manner provided in the Indenture and for the equal benefit of all Owners of the Outstanding Bonds.

The right of any Owner of any Bond to receive payment of the principal of and interest and premium (if any) on such Bond as provided in the Indenture or to institute suit for the enforcement of any such payment, shall not be impaired or affected without the written consent of such Owner, notwithstanding the foregoing provisions or any other provision of the Indenture.

Termination of Proceedings. In case the Trustee shall have proceeded to enforce any right under the Indenture by the appointment of a receiver or otherwise, and such proceedings shall have been discontinued or abandoned for any reason, or shall have been determined adversely, then and in every such case, the Authority, the Trustee and the Owners shall be restored to their former positions and rights hereunder, respectively, with regard to the property subject to the Indenture, and all rights, remedies and powers of the Trustee shall continue as if no such proceedings had been taken.

Discharge of Indenture. If the Authority shall pay and discharge any or all of the Outstanding Bonds in any one or more of the following ways:

(a) by well and truly paying or causing to be paid the principal of, and the interest and premium (if any) on, such Bonds as and when the same become due and payable;

(b) by irrevocably depositing with the Trustee, in trust, at or before maturity, money which, together with the available amounts then on deposit in the funds and accounts established with the Trustee pursuant to the Indenture and the Loan Agreements, is fully sufficient to pay such Bonds, including all principal, interest and premiums (if any); or

(c) by irrevocably depositing with the Trustee or any other fiduciary, in trust, Defeasance Securities in such amount as an Independent Accountant shall determine will, together with the interest to accrue thereon and available moneys then on deposit in the funds and accounts established with the Trustee pursuant to the Indenture and the Loan Agreements, be fully sufficient to pay and discharge the indebtedness on such Bonds (including all principal, interest and redemption premiums) at or before their respective maturity dates; and if such Bonds are to be redeemed prior to the maturity thereof notice of such redemption shall have been mailed pursuant to the Indenture or provision satisfactory to the Trustee shall have been made for the mailing of such notice, then, at the Request of the Authority, and notwithstanding that any of such Bonds shall not have been surrendered for payment, the pledge of the Revenues and other funds provided for in the Indenture with respect to such Bonds, and all other pecuniary obligations of the Authority under the Indenture with respect to all such Bonds, shall cease and terminate, except only the obligation of the Authority to pay or cause to be paid to the Owners of such Bonds not so surrendered and paid all sums due thereon from amounts set aside for such purpose as aforesaid, and all expenses and costs of the Trustee, and any amounts owing under the Qualified Reserve Fund Credit Instrument to the provider thereof. Any funds held by the Trustee following any payments or discharge of the Outstanding Bonds, which are not required for said purposes, shall be paid over to the Authority.

B-1

APPENDIX B

SUMMARY OF LOAN AGREEMENTS

PROJECT AREA NO. [I][II][III] LOAN AGREEMENT

Definitions. Unless the context clearly otherwise requires or unless otherwise defined in the Loan Agreement, the capitalized terms in the Loan Agreement shall have the respective meanings which such terms are given in the Indenture. In addition, the following terms defined, for all purposes of the Loan Agreement, have the respective meanings specified in the Loan Agreement.

“Additional Revenues” means, as of the date of calculation, the amount of Tax Revenues which, as shown in a Report, are estimated to be receivable by the Agency within the Fiscal Year following the Fiscal Year in which such calculation is made as a result of increases in the assessed valuation of taxable property in the Project Area due to either (i) construction which has been completed but which is not then reflected on the tax rolls, or (ii) transfer of ownership or any other interest in real property which has been recorded but which is not then reflected on the tax rolls. For purposes of this definition, the term “increases in the assessed valuation” means the amount by which the assessed valuation of taxable property in the applicable Project Area in the future is estimated to increase above the assessed valuation of taxable property in the applicable Project Area (as reported by an appropriate official of the County) as of the date on which such calculation is made.

“Annual Loan Payments” means, for any Bond Year, the total amount of principal and interest payable on the Loan in such Bond Year.

“Business Inventory Tax Subvention” means all amounts payable by the State to the Agency under and pursuant to the provisions of Chapter 1.5 of Part 1 of Division 4 of Title 2 (commencing with Section 16110) of the Government Code of the State.

“County” means the County of Riverside, California.

“Fiscal Year” means any twelve-month period extending from July 1 in one calendar year to June 30 of the succeeding calendar year, both dates inclusive, or any other twelve-month period selected and designated by the Agency as its official fiscal year period pursuant to a Written Certificate of the Agency filed with the Trustee.

“Housing Loan” means the loan made by the Authority to the Agency under and pursuant to the Housing Loan Agreement.

“Housing Loan Agreement” means the Housing Fund Loan Agreement, dated as of January 1, 2010, by and between the Agency and the Authority, as originally executed or as it may from time to time be amended, modified or supplemented.

“Housing Loan Payment Account” means the account by that name continued under the Housing Loan Agreement.

“Indenture” means the Indenture of Trust, dated as of January 1, 2010, by and between the Authority and the Trustee, authorizing the issuance of the Bonds, as originally executed or as it may from time to time be supplemented, modified or amended.

B-2

“Independent Redevelopment Consultant” means any consultant or firm of such consultants appointed by or acceptable to the Agency, and who, or each of whom: (a) is judged by the Agency to have experience in matters relating to the collection of Tax Revenues or otherwise with respect to the financing of redevelopment projects; (b) is, in fact, independent and not under the domination of the Agency; (c) does not have any substantial interest, direct or indirect, with the Agency, other than as original purchaser of the Bonds [or any Parity Debt]; and (d) is not connected with the Agency as an officer or employee of the Agency, but who may be regularly retained to make reports to the Agency.

“Loan” means the loan made by the Authority to the Agency in the aggregate principal amount of $________ pursuant to the Loan Agreement.

“Loan Agreement” means the Project Area No. [I][II][III] Loan Agreement by and between the Agency and the Authority, as originally executed or as it may from time to time be amended, modified or supplemented.

“Loan Interest Payment Date” means March 1 and September 1 of each year, beginning September 1, 2010, and continuing thereafter so long as any Bonds remain Outstanding.

“Loan Principal Payment Date” means September 1 of each year.

“Low and Moderate Income Housing Fund” means the fund of the Agency established pursuant to Section 33334.3 of the Redevelopment Law.

“Maximum Annual Loan Payments” means, as of the date of calculation, the largest amount obtained by totaling, for the current or any future Bond Year, the sum of (a) the amount of interest payable on the Loan [and all outstanding Parity Debt] in such Bond Year, assuming that principal thereof is paid as scheduled and that any mandatory sinking fund payments are made as scheduled, and (b) the amount of principal payable on the Loan [and on all outstanding Parity Debt] in such Bond Year, including any principal required to be prepaid or redeemed by operation of mandatory sinking fund payments.

[“Parity Debt” means any loans, bonds, notes, advances or indebtedness payable from Tax Revenues on a parity with the Loan issued or incurred pursuant to and in accordance with the Loan Agreement.]

[“Parity Debt Instrument” means any resolution, indenture of trust, trust agreement or other instrument authorizing the issuance of any Parity Debt.]

“Plan Limitations” means the limitations contained or incorporated in the Redevelopment Plan on (a) the aggregate principal amount of indebtedness payable from Tax Revenues which may be outstanding at any time, (b) the aggregate amount of taxes which may be divided and allocated to the Agency pursuant to the Redevelopment Plan, (c) the period of time for establishing or repaying indebtedness payable from Tax Revenues, (d) the term of the effectiveness of the Redevelopment Plan and (e) the time limit to receive Tax Revenues from the Project Area.

“Project Area” means Project Area No. [I][II][III], the area of the Redevelopment Project as described in the Redevelopment Plan.

“Project Area No. I Loan” means the loan made by the Authority to the Agency under and pursuant to the Project Area No. I Loan Agreement.

B-3

“Project Area No. I Loan Agreement” means the Project Area No. I Loan Agreement, dated as of January 1, 2010, by and between the Agency and the Authority, as originally executed or as it may from time to time be amended, modified or supplemented.

“Project Area No. I Special Fund” means the Special Fund continued pursuant to the Project Area No. I Loan Agreement.

“Project Area No. II Loan” means the loan made by the Authority to the Agency under and pursuant to the Project Area No. II Loan Agreement.

“Project Area No. II Loan Agreement” means the Project Area No. II Loan Agreement, dated as of January 1, 2010, by and between the Agency and the Authority, as originally executed or as it may from time to time be amended, modified or supplemented.

“Project Area No. II Special Fund” means the Special Fund continued pursuant to the Project Area No. II Loan Agreement.

“Project Area No. III Loan” means the loan made by the Authority to the Agency under and pursuant to the Project Area No. III Loan Agreement.

“Project Area No. III Loan Agreement” means the Project Area No. III Loan Agreement, dated as of January 1, 2010, by and between the Agency and the Authority, as originally executed or as it may from time to time be amended, modified or supplemented.

“Project Area No. III Special Fund” means the Special Fund continued pursuant to the Project Area No. III Loan Agreement.

“Proportionate Share” means _______%, which shall be deemed to be the proportion of the proceeds of the Bonds allocable to the Loan.

“Redevelopment Law” means the Community Redevelopment Law of the State, constituting Part 1 of Division 24 of the Health and Safety Code of the State, and the acts amendatory thereof and supplemental thereto.

“Redevelopment Plan” means the Redevelopment Plan for the Project Area, together with any further amendments thereof at any time duly authorized pursuant to the Redevelopment Law.

“Redevelopment Project” means the undertaking of the Agency pursuant to the Redevelopment Plan and the Redevelopment Law for the redevelopment of the Project Area.

“Refunded Bonds” means the 1999 Series C Bonds.

“Report” means a document in writing signed by an Independent Redevelopment Consultant and including: (a) a statement that the person or firm making or giving such Report has read the pertinent provisions of the Loan Agreement to which such Report relates; (b) a brief statement as to the nature and scope of the examination or investigation upon which the Report is based; and (c) a statement that, in the opinion of such person or firm, sufficient examination or investigation was made as is necessary to enable said consultant to express an informed opinion with respect to the subject matter referred to in the Report.

“Subordinate Debt” means any loans, advances or indebtedness issued or incurred by the Agency in accordance with the requirements of the Loan Agreement, which are either: (a) payable from, but not secured by a pledge of or lien upon, the Tax Revenues; or (b) secured by a pledge of or lien upon

B-4

the Tax Revenues which is subordinate to the pledge of and lien upon the Tax Revenues under the Loan Agreement for the security of the Loan [and any Parity Debt].

“Tax Revenues” means all taxes annually allocated and paid to the Agency with respect to the Project Area following the Closing Date pursuant to Article 6 of Chapter 6 (commencing with Section 33670) of the Redevelopment Law and Section 16 of Article XVI of the Constitution of the State and as provided in the Redevelopment Plan, including all payments, subventions and reimbursements (if any) to the Agency specifically attributable to ad valorem taxes lost by reason of tax exemptions and tax rate limitations, but excluding (a) amounts payable to entities other than the Agency under and pursuant to the Tax Sharing Agreements, (b) any statutory pass-through payments, (c) SB 2557 County Administrative fees and collection charges, and (d) all amounts of such taxes required to be deposited into the Low and Moderate Income Housing Fund of the Agency in any Fiscal Year pursuant to Section 33334.3 of the Redevelopment Law.

“Tax Sharing Agreements” means those certain agreements relating to the payment of certain amounts which would otherwise constitute Tax Revenues.

“Trustee” means Union Bank, N.A., a national banking association organized and existing under the laws of the United States of America, and its successors and assigns acting as trustee under the Indenture.

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

“1999 Series C Bonds” means the Lake Elsinore Public Financing Authority Tax Allocation Revenue Bonds, 1999 Series C.

Repayment of Loan. The Agency shall repay the principal of the Loan in installments on September 1 in each of the years and in the amounts, and shall pay interest on the unpaid principal balance of the Loan on each Loan Interest Payment Date and in the amounts, as set forth in Exhibit A attached to the Loan Agreement, which amounts shall be equal to the Proportionate Share of the corresponding payments of principal of and interest on the Bonds. Any installment of principal or interest which is not paid when due shall continue to accrue interest at the net effective rate of interest then borne by the Loan from and including the date on which such principal or interest is payable to but not including the date of actual payment.

In the event that the Tax Revenues and other moneys pledged for the payment of the Loan are insufficient to pay the principal and interest on the Loan coming due on any Loan Interest Payment Date, the Agency agrees to make an interfund loan from (i) the Special Fund of all amounts in the Project Area No. ____ Special Fund available therefor, (ii) the Special Fund of all amounts in the Project Area No. ____ Special Fund available therefor, and (iii) the Special Fund of all amounts in the Housing Loan Payment Account available therefor, to the extent required to make up any deficiency in the amounts available for payment of principal and interest on the Loan coming due on such Loan Interest Payment Date. Such interfund loan shall be repaid to the Project Area No. ___ Special Fund, to the Project Area No. ____ Special Fund, and to the Housing Loan Payment Account out of any moneys of the Agency available therefor, semiannually, on each March 2 and September 2, with interest at the rate on the Bonds.

In the event the unpaid principal installments of the Loan shall be prepaid in whole or in part pursuant to the Loan Agreement, or in the event the Bonds shall be redeemed pursuant to the Indenture, the schedule of principal installments set forth in Exhibit A hereto shall be reduced on a pro

B-5

rata basis in integral multiples of $5,000 corresponding to the principal amount of the Bonds redeemed pursuant to the Indenture. The Authority shall provide the Trustee with a new payment schedule.

Principal of and interest on the Loan shall be payable by the Agency to the Trustee, as assignee of the Authority under the Indenture, in immediately available funds which constitute lawful money of the United States of America. Payment of such principal and interest shall be secured, and amounts for the payment thereof shall be deposited with the Trustee at the times, as set forth in Article III. Notwithstanding the foregoing provisions, in lieu of payment of any installment of principal of the Loan coming due and payable on September 1 in any year in which the Bonds are subject to mandatory sinking fund redemption under the Indenture, the Agency shall have the right to purchase any of the Bonds in an amount not exceeding the amount thereof which is subject to mandatory sinking fund redemption on such September 1, and tender such Bonds to the Trustee for cancellation, provided that such tender shall be made before the preceding June.

Optional Prepayment of the Loan. The Agency shall have the right to prepay the unpaid principal installments of the Loan, in whole or in part in any integral multiple of $5,000, on any date on which the Bonds are subject to optional redemption pursuant to the Indenture, by depositing with the Trustee in the Revenue Fund an amount sufficient to redeem a like aggregate principal amount of Bonds pursuant to the Indenture, together with the amount of accrued interest and premium (if any) required to be paid upon such redemption. The Authority agrees that upon payment by the Agency to the Trustee of such amount, the Authority shall take or cause to be taken any and all steps required under the Indenture to redeem such Outstanding Bonds on the redemption date designated pursuant to a Written Request of the Agency filed with the Authority and the Trustee; provided, however, that such date shall be a date of redemption of Bonds for which notice has been timely given pursuant to the Indenture.

Pledge of Tax Revenues. [Subject in all respects to the obligations of the Agency under the Senior Loan Agreement], the Loan [and all Parity Debt] shall be equally secured for the benefit of the Authority and the Owners of the Bonds by a pledge of, security interest in and lien on all of the Tax Revenues and all of the moneys on deposit in the Special Fund, without preference or priority for series, issue, number, dated date, sale date, date of execution or date of delivery, [subject only to the senior pledge of and lien on the Tax Revenues securing payment of the Senior Loan Agreement]. [Subject in all respects to the obligations of the Agency under the Senior Loan Agreement], the Tax Revenues and the Special Fund are hereby allocated to the payment of the principal and interest on the Loan. Except for the Tax Revenues and the Special Fund, no funds or properties of the Agency shall be pledged to, or otherwise liable for, the payment of principal of or interest or premium (if any) on the Loan.

Special Fund; Deposit of Tax Revenues. There is hereby continued a special fund to be known as the “Project Area No. [I][II][III] Special Fund,” which shall be held by the Agency in a separate bank account as a separate fund apart from all other funds and accounts of the Agency. The Agency shall deposit all Tax Revenues received in any Bond Year in the Special Fund promptly upon the receipt thereof. [Except as provided in any other Parity Debt Instruments], and only after the Agency has received a letter from the Trustee stating that amounts on deposit in the Special Fund equal the aggregate amounts required to be transferred to the Trustee pursuant to the Loan Agreement, the excess amounts shall be released from the pledge and lien under the Loan Agreement and be used for any lawful purposes of the Agency, including the payment of any Subordinate Debt.

Prior to the payment in full of the principal of and interest and prepayment premium (if any) on the Loan [and all Parity Debt] and the payment in full of all other amounts payable under the Loan Agreement [and under any Parity Debt Instruments], the Agency shall not have any beneficial right or interest in the moneys on deposit in the Special Fund, except only as provided in the Loan Agreement [and in any Parity Debt Instruments], and such moneys shall be used and applied as set forth in the Loan Agreement [and in any Parity Debt Instruments].

B-6

Transfer of Tax Revenues From Special Fund. [In addition to the transfers required to be made pursuant to any Parity Debt Instruments], the Agency shall withdraw from the Special Fund and transfer to the Trustee, to the Project Area No. ___ Special Fund, to the Project Area No. ___ Special Fund, or to the Housing Loan Payment Account the following amounts at the following times and in the following order of priority:

(a) Interest and Principal Deposits.

(i) No later than the fifth (5th) Business Day preceding each Loan Interest Payment Date, the Agency shall withdraw from the Special Fund and transfer to the Trustee for deposit into the Revenue Fund an amount which, together with the amounts then held on deposit in the Interest Account, is equal to the aggregate amount of interest on the Loan coming due on such Loan Interest Payment Date.

(ii) No later than the fifth (5th) Business Day preceding each Loan Principal Payment Date, an amount which when added to the amounts then on deposit in the Principal Account will equal the principal payment coming due on such Loan Principal Payment Date.

In lieu of depositing cash with the Trustee as payment of any installment of principal of the Loan coming due on September 1 of any year pursuant to the Loan Agreement, the Agency shall have the option to tender to the Trustee for cancellation Bonds maturing on September 1 in such year. Such Bonds may be purchased by the Agency with any source of available moneys (including but not limited to Tax Revenues not required to be deposited with the Trustee), at public or private sale as and when and at such prices as the Agency may in its discretion determine. The par amount of any Bonds so purchased by the Agency and tendered to the Trustee in any twelve-month period ending on July 15 in any calendar year shall be credited towards and shall reduce the payment required to be made pursuant to this subsection (a) on the fifth (5th) Business Day preceding September 1 in such year.

(b) Interfund Loan. To the extent permitted by law, the Agency shall make an interfund loan to the Project Area No. ___ Special Fund, to the Project Area No. ___ Special Fund, or to the Housing Loan Payment Account in amounts necessary to make up any actual or projected deficiency in the amounts available for payment of principal and interest on the Project Area No. ___ Loan, the Project Area No. ___ Loan, or the Housing Loan as such payments become due and payable.

(c) Credit Against Deposits. The Agency shall receive a credit against the deposits required above as follows:

(i) There shall be a credit for earnings on the Reserve Fund which have been transferred to and are then held by the Trustee in the Revenue Fund under the Indenture, such credit to be made semiannually on the Business Day prior to the date for making the transfers described in subsections (a) and (b); and

(ii) After the credit in (i) above, there shall also be a credit for any remaining moneys on deposit in the Revenue Fund under the Indenture.

Investment of Moneys; Valuation of Investments. All moneys in the Special Fund shall be invested by the Agency in any investments authorized for the investment of Agency funds under the laws of the State. Obligations purchased as an investment of moneys in any fund or account established under the Loan Agreement shall be credited to and deemed to be part of such fund or account. The Agency may commingle any amounts in any of the funds and accounts held under the Loan Agreement with any other amounts held by the Agency for purposes of making any investment, provided

B-7

that the Agency shall maintain separate accounting procedures for the investment of all funds and accounts held under the Loan Agreement.

All interest, profits and other income received from the investment of moneys in any fund or account established under the Loan Agreement shall be deposited in such fund or account. Notwithstanding anything to the contrary contained in this paragraph, an amount of interest received with respect to any investment equal to the amount of accrued interest, if any, paid as part of the purchase price of such investment shall be credited to the fund from which such accrued interest was paid.

Except as otherwise provided in the next sentence, the Agency covenants that all investments of amounts deposited in any fund or account created by or pursuant to the Loan Agreement, or otherwise containing gross proceeds of the Bonds (within the meaning of section 148 of the Code) shall be acquired, disposed of, and valued (as of the date that valuation is required by the Loan Agreement or the Code) at fair market value. Investments in funds or accounts (or portions thereof) that are subject to a yield restriction under applicable provisions of the Code shall be valued at their present value (within the meaning of section 148 of the Code).

Covenants of the Agency

Punctual Payment; Extension of Payments. The Agency will punctually pay or cause to be paid the principal of and interest and prepayment premium (if any) on the Loan in strict conformity with the terms of the Loan Agreement, and it will faithfully observe and perform all of the conditions, covenants and requirements of the Loan Agreement. The Agency shall not directly or indirectly extend or assent to the extension of the maturity of any installment of principal of or interest or premium (if any) on the Loan, and in case the principal of or interest or premium (if any) on the Loan or the time of payment of any such claims therefor shall be extended, such principal, interest, premium or claims for interest shall not be entitled, in case of any Event of Default under the Loan Agreement, to the benefits of the Loan Agreement except for payment of all amounts which shall not have been so extended.

Limitation on Additional Indebtedness. The Agency hereby covenants that it shall not issue any bonds, notes or other obligations, enter into any agreement or otherwise incur any indebtedness, which is in any case payable from all or any part of the Tax Revenues, excepting only the Loan, [any Parity Debt] and any Subordinate Debt, and any obligations entered into pursuant to the Loan Agreement.

Payment of Claims. The Agency will pay and discharge, or cause to be paid and discharged, any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien or charge upon the Tax Revenues or any part thereof, or upon any funds in the hands of the Trustee, or which might impair the security of the Loan. Nothing in the Loan Agreement contained shall require the Agency to make any such payment so long as the Agency in good faith shall contest the validity of said claims.

Books and Accounts; Financial Statements. The Agency will keep, or cause to be kept, proper books of record and accounts, separate from all other records and accounts of the Agency and the City, in which complete and correct entries shall be made of all transactions relating to the Redevelopment Project, the Tax Revenues and the Special Fund. Such books of record and accounts shall at all times during business hours be subject, upon prior written request, to the reasonable inspection of the Authority, the Trustee and the Owners of not less than ten percent (10%) in aggregate principal amount of the Bonds then Outstanding, or their representatives authorized in writing.

The Agency will cause to be prepared within one hundred and eighty (180) days after the close of each Fiscal Year so long as any of the Bonds are Outstanding, complete audited financial statements with respect to such Fiscal Year showing the Tax Revenues, all disbursements from the Special Fund and the financial condition of the Redevelopment Project, including the balances in all funds

B-8

and accounts relating to the Redevelopment Project, as of the end of such Fiscal Year, which statement shall be accompanied by a Certificate of the Agency stating that the Agency is in compliance with its obligations under the Loan Agreement. The Agency will furnish a copy of such statements, upon reasonable request, to any Bond Owner.

Protection of Security and Rights. The Agency will preserve and protect the security of the Loan and the rights of the Trustee and the Bond Owners with respect to the Loan. From and after the Closing Date, the Loan shall be incontestable by the Agency. The Loan and the provisions of the Loan Agreement are and will be the legal, valid and binding special obligations of the Agency in accordance with their terms, and the Agency shall at all times, to the extent permitted by law, defend, preserve and protect all the rights of the Trustee and the Bond Owners under the Loan Agreement against all claims and demands of all persons whomsoever.

Payments of Taxes and Other Charges. The Agency will pay and discharge, or cause to be paid and discharged, all taxes, service charges, assessments and other governmental charges which may hereafter be lawfully imposed upon the Agency or the properties then owned by the Agency in the Project Area, when the same shall become due. Nothing contained in the Loan Agreement require the Agency to make any such payment so long as the Agency in good faith shall contest the validity of said taxes, assessments or charges. The Agency will duly observe and comply with all valid requirements of any governmental authority relative to the Redevelopment Project or any part thereof.

Taxation of Leased Property. All ad valorem property taxes derived by the Agency pursuant to Section 33673 of the Redevelopment Law with respect to the lease of property for redevelopment shall be treated as Tax Revenues for all purposes of the Loan Agreement.

Disposition of Property. The Agency will not participate in the disposition of any land or real property in the Project Area to anyone which will result in such property becoming exempt from taxation because of public ownership or use or otherwise (except property dedicated for public right-of-way and except property planned for public ownership or use by the Redevelopment Plan in effect on the date of the Loan Agreement) so that such disposition shall, when taken together with other such dispositions, aggregate more than ten percent (10%) of the land area in the Project Area.

Maintenance of Tax Revenues. The Agency shall comply with all requirements of the Redevelopment Law to insure the allocation and payment to it of the Tax Revenues, including without limitation the timely filing of any necessary statements of indebtedness with appropriate officials of the County and (in the case of supplemental revenues and other amounts payable by the State) appropriate officials of the State. The Agency will not enter into any agreement with the City or any other governmental unit which would have the effect of reducing the amount of Tax Revenues available to the Agency for payment of the Loan. The Agency represents, covenants and agrees that it has not and will not incur any loans, obligations or indebtedness repayable from Tax Revenues such that the total aggregate debt service on said loans, obligations or indebtedness incurred from and after the date of adoption of the applicable Redevelopment Plan, when added to the total aggregate Loan Payments on [any Parity Debt and] the Loan, will exceed the maximum amount of Tax Revenues to be divided and allocated to the Agency pursuant to such Redevelopment Plan. Subject to the preceding sentences, nothing in the Loan Agreement is intended or shall be construed in any way to prohibit or impose any limitations on the entering into by the Agency of any such agreement, amendment or supplement which by its term is subordinate to the payment of the Loan.

Payment of Expenses; Indemnification. The Agency shall pay to the Trustee from time to time all compensation for all services rendered under the Loan Agreement and a Proportionate Share of such compensation for all services rendered under the Indenture in connection with the Bonds, including but not limited to all reasonable expenses, charges, legal and consulting fees and other disbursements and those of its attorneys, agents and employees, incurred in and about the performance of its powers and

B-9

duties under the Loan Agreement and thereunder. Upon the occurrence of an Event of Default, the Trustee shall have a first lien on the funds held by it under the Indenture and under the Loan Agreement to secure the payment to the Trustee of all fees, costs and expenses, including reasonable compensation to its experts, attorneys and counsel incurred in declaring such Event of Default and in exercising the rights and remedies set forth in the Loan Agreement.

The Agency further covenants and agrees to indemnify and save the Trustee and its officers, directors, agents and employees, harmless against any losses, costs, claims, expenses and liabilities whatsoever which it may incur arising out of or in connection with the exercise and performance of its powers and duties under the Loan Agreement, and under the Indenture including the costs and expenses of defending against any claim of liability, but excluding any and all losses, expenses and liabilities which are due to the negligence or intentional misconduct of the Trustee, its officers, directors, agents or employees. The obligations of the Agency under this paragraph shall survive the resignation or removal of the Trustee under the Indenture or the Loan Agreement and payment of the Loan and the discharge of the Loan Agreement.

Tax Matters. Neither the Agency nor the Authority shall use, permit the use of, or omit to use Gross Proceeds or any other amounts (or any property the acquisition, construction or improvement of which is to be financed directly or indirectly with Gross Proceeds) in a manner that if made or omitted, respectively, could cause the interest on any Bond to fail to be excluded pursuant to section 103(a) of the Code from the gross income of the owner thereof for federal income tax purposes.

Continuing Disclosure. The Agency hereby covenants and agrees that it will comply with and carry out all of the provisions of its Undertaking To Provide Continuing Disclosure with respect to the Bonds, as originally executed and as it may be amended from time to time in accordance with the terms thereof. Notwithstanding any other provision of the Loan Agreement, failure of the Agency to comply with such Undertaking to Provide Continuing Disclosure shall not be considered an Event of Default; however, any Owner may take such actions, as provided in such Undertaking to Provide Continuing Disclosure, as may be necessary and appropriate to cause the Agency to comply with its obligations under such Undertaking To Provide Continuing Disclosure.

Redevelopment of Project Area. The Agency shall ensure that all activities undertaken by the Agency with respect to the redevelopment of the Project Area are undertaken and accomplished in conformity with all applicable requirements of the Redevelopment Plan and the Redevelopment Law. The Agency shall manage and operate all properties owned by the Agency and comprising any part of the Redevelopment Project in a sound and business-like manner and in conformity with all valid requirements of any governmental authority, and will keep such properties insured at all times in conformity with sound business practice.

Further Assurances. The Agency will adopt, make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Loan Agreement and for the better assuring and confirming unto the Trustee, the Authority and the Owners of the Bonds of the rights and benefits provided in the Loan Agreement.

Events of Default and Acceleration of Maturities. The following events shall constitute Events of Default under the Loan Agreement:

(a) Failure by the Agency to pay the principal of or interest or prepayment premium (if any) on the Loan [or any Parity Debt] when and as the same shall become due and payable.

(b) Failure by the Agency to observe and perform any of the covenants, agreements or conditions on its part contained in the Loan Agreement, other than as referred to in the preceding

B-10

clause (a), for a period of thirty (30) days after written notice specifying such failure and requesting that it be remedied has been given to the Agency by the Trustee; provided, however, that if in the reasonable opinion of the Agency the failure stated in such notice can be corrected, but not within such thirty (30) day period, such failure shall not constitute an Event of Default if corrective action is instituted by the Agency within such thirty (30) day period and thereafter is diligently pursued until such failure is corrected.

(c) The filing by the Agency of a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law of the United States of America, or if a court of competent jurisdiction shall approve a petition, filed with or without the consent of the Agency, seeking reorganization under the federal bankruptcy laws or any other applicable law of the United States of America, or if, under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction shall assume custody or control of the Agency or of the whole or any substantial part of its property.

If an Event of Default has occurred and is continuing, the Trustee may (a) declare the principal of the Loan, together with accrued interest on all unpaid installments thereof, to be due and payable immediately, and upon any such declaration the same will become immediately due and payable, anything in the Loan Agreement to the contrary notwithstanding, and (b) subject to receipt of satisfactory indemnity exercise any other remedies available to the Trustee in law or equity arising under the Loan Agreement. Immediately upon becoming aware of the occurrence of an Event of Default under the Loan Agreement, the Trustee shall give notice of such Event of Default to the Agency by telephone, telecopier or other telecommunication device, promptly confirmed in writing. This provision, however, is subject to the condition that if, at any time after the principal of the Loan has been so declared due and payable, and before any judgment or decree for the payment of the moneys due has been obtained or entered, the Agency will deposit with the Trustee a sum sufficient to pay all installments of principal of the Loan matured prior to such declaration and all accrued interest thereon, with interest on such overdue installments of principal and interest at the net effective rate then borne by the Outstanding Bonds, and the reasonable fees and expenses of the Trustee, and any and all other defaults known to the Trustee (other than in the payment of principal of and interest on the Loan due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, then, and in every such case, the Trustee may, by written notice to the Authority and the Agency, rescind and annul such declaration and its consequences. However, no such rescission and annulment shall extend to or shall affect any subsequent default, or shall impair or exhaust the right or power consequent thereon.

Application of Revenues and Other Funds After Default. All amounts received by the Trustee pursuant to any right given or action taken by the Trustee under these provisions, or otherwise held by the Trustee upon the occurrence of an Event of Default, shall be applied by the Trustee in the following order:

First, to the payment of the fees, costs and expenses of the Trustee in declaring such Event of Default and in carrying out these provisions, including reasonable compensation to its agents, attorneys and counsel and any outstanding fees and expenses of the Trustee; and

Second, to the payment of the whole amount of interest on and principal of the Loan [and any Parity Debt] then due and unpaid, with interest on overdue installments of principal and interest to the extent permitted by law at the net effective rate of interest then borne by the Loan [and such Parity Debt]; provided, however, that in the event such amounts shall be insufficient to pay in full the full amount of such interest and principal, then such amounts shall be applied in the following order of priority:

B-11

(a) first, to the payment of all installments of interest on the Loan [and any Parity Debt] then due and unpaid, on a pro rata basis in the event that the available amounts are insufficient to pay all such interest in full;

(b) second, to the payment of all installments of principal of the Loan [and any Parity Debt] then due and payable, on a pro rata basis in the event that the available amounts are insufficient to pay all such principal in full;

(c) third, to the payment of the prepayment price (including principal and interest accrued to the prepayment date, but excluding any premium) of the Loan [and any Parity Debt] to be redeemed pursuant to the Loan Agreement, on a pro rata basis in the event that the available amounts are insufficient to pay all such prepayment price in full; and

(d) fourth, to the payment of interest on overdue installments of principal and interest, on a pro rata basis in the event that the available amounts are insufficient to pay all such interest in full.

No Waiver. Nothing in any other provision of the Loan Agreement shall affect or impair the obligation of the Agency, which is absolute and unconditional, to pay from the Tax Revenues and other amounts pledged under the Loan Agreement, the principal of and interest and premium (if any) on the Loan [and any Parity Debt] to the Trustee when due, as provided in the Loan Agreement, or affect or impair the right of action, which is also absolute and unconditional, of the Trustee to institute suit to enforce such payment by virtue of the contract embodied in the Loan Agreement.

A waiver of any default by the Trustee at the direction of the Owners of the Bonds shall not affect any subsequent default or impair any rights or remedies on the subsequent default. No delay or omission of the Trustee to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein, and every power and remedy conferred upon the Trustee by the Redevelopment Law or by the Loan Agreement may be enforced and exercised from time to time and as often as shall be deemed expedient by the Trustee.

If a suit, action or proceeding to enforce any right or exercise any remedy shall be abandoned or determined adversely to the Trustee, the Agency and the Trustee shall be restored to their former positions, rights and remedies as if such suit, action or proceeding had not been brought or taken.

Remedies Not Exclusive. No remedy conferred in the Loan Agreement upon or reserved to the Trustee is intended to be exclusive of any other remedy. Every such remedy shall be cumulative and shall be in addition to every other remedy given under the Loan Agreement or now or hereafter existing, at law or in equity or by statute or otherwise, and may be exercised without exhausting and without regard to any other remedy conferred by the Redevelopment Law or any other law.

Discharge of Loan Agreement. If the Agency shall pay and discharge the indebtedness on the Loan or any portion thereof in any one or more of the following ways:

(a) by well and truly paying or causing to be paid the principal of and interest and prepayment premiums (if any) on the Loan or such portion thereof, as and when the same become due and payable;

(b) by irrevocably depositing with the Trustee, in trust, at or before maturity, cash in an amount which, together with the available amounts then on deposit in any of the funds and accounts established pursuant to the Indenture or the Loan Agreement, is fully sufficient in the opinion of Bond

B-12

Counsel or an Independent Accountant to pay all principal of and interest and prepayment premiums (if any) on the Loan or such portion thereof; or

(c) by irrevocably depositing with the Trustee or any other fiduciary, in trust, Defeasance Securities in such amount as an Independent Accountant shall determine will, together with the interest to accrue thereon and available moneys then on deposit in the funds and accounts established pursuant to the Indenture or a Supplemental Indenture or the Loan Agreement, be fully sufficient in the opinion of Bond Counsel or any Independent Accountant to pay and discharge the indebtedness on the Loan or such portion thereof (including all principal, interest and prepayment premiums) at or before maturity;

then, at the election of the Agency but only if all other amounts then due and payable under the Loan Agreement shall have been paid or provision for their payment made, the pledge of and lien upon the Tax Revenues and other funds provided for in the Loan Agreement and all other obligations of the Trustee, the Authority and the Agency under the Loan Agreement with respect to the Loan or such portion thereof shall cease and terminate, except only the obligation of the Agency to pay or cause to be paid to the Trustee, from the amounts so deposited with the Trustee or such other fiduciary, all sums due with respect to the Loan or such portion thereof, and to pay all expenses and costs of the Trustee when and as such expenses and costs become due and payable. Notice of such election shall be filed with the Authority and the Trustee. In the case of a discharge of the entire indebtedness on the Loan, any funds thereafter held by the Trustee under the Loan Agreement, which are not required for said purpose, shall be paid over to the Agency.

Notwithstanding the foregoing provisions, the Loan Agreement and the obligations of the Agency under the Loan Agreement shall not be discharged unless and to the extent that the Bonds shall have been discharged in whole or in part pursuant to the provisions of the Indenture.

Amendment. The Loan Agreement may be amended by the parties hereto, but only under the circumstances set forth in, and in accordance with, the provisions of the Indenture. The Authority covenants that the Indenture shall not be amended, nor shall the Authority agree or consent to any amendment of the Indenture, without the prior written consent of the Agency (except that such consent shall not be required in the event that an Event of Default shall have occurred and be continuing under the Loan Agreement).

B-13

HOUSING FUND LOAN AGREEMENT

Definitions. Unless the context clearly otherwise requires or unless otherwise defined in the Loan Agreement, the capitalized terms in the Loan Agreement shall have the respective meanings which such terms are given in the Indenture. In addition, the following terms defined shall, for all purposes of the Loan Agreement, have the respective meanings.

“Additional Revenues” means, as of the date of calculation, the amount of Housing Set-Aside Revenues which, as shown in a Report, are estimated to be receivable by the Agency within the Fiscal Year following the Fiscal Year in which such calculation is made as a result of increases in the assessed valuation of taxable property in the Project Area due to either (i) construction which has been completed but which is not then reflected on the tax rolls, or (ii) transfer of ownership or any other interest in real property which has been recorded but which is not then reflected on the tax rolls. For purposes of this definition, the term “increases in the assessed valuation” means the amount by which the assessed valuation of taxable property in the applicable Project Area in the future is estimated to increase above the assessed valuation of taxable property in the applicable Project Area (as reported by an appropriate official of the County) as of the date on which such calculation is made.

“Annual Loan Payments” means, for any Bond Year, the total amount of principal and interest payable on the Loan in such Bond Year.

“Bonds” means the Authority’s Tax Allocation Revenue Bonds (1999 Series C Refunding), 2010 Series A issued pursuant to the Indenture.

“County” means the County of Riverside, California.

“Fiscal Year” means any twelve-month period extending from July 1 in one calendar year to June 30 of the succeeding calendar year, both dates inclusive, or any other twelve-month period selected and designated by the Agency as its official fiscal year period pursuant to a Written Certificate of the Agency filed with the Trustee.

“Housing Set-Aside Revenues” means all amounts required to be deposited by the Agency in the Low and Moderate Income Housing Fund of the Agency in any Fiscal Year pursuant to Section 33334.3 of the Redevelopment Law, which amounts are derived from the taxes annually allocated to the Agency with respect to the Three Project Areas following the Closing Date pursuant to Article 6 of Chapter 6 (commencing with Section 33670) of the Redevelopment Law and Section 16 of Article XVI of the Constitution of the State and as provided in the Redevelopment Plans.

“Indenture” means the Indenture of Trust, dated as of January 1, 2010, by and between the Authority and the Trustee, authorizing the issuance of the Bonds, as originally executed or as it may from time to time be supplemented, modified or amended.

“Independent Accountant” means any accountant or firm of such accountants duly licensed or registered or entitled to practice and practicing as such under the laws of the State, appointed by the Agency, and who, or each of whom: (a) is in fact independent and not under the domination of the Agency; (b) does not have any substantial interest, direct or indirect, with the Agency; and (c) is not connected with the Agency as an officer or employee of the Agency, but who may be regularly retained to make reports to the Agency.

“Independent Redevelopment Consultant” means any consultant or firm of such consultants appointed by or acceptable to the Agency, and who, or each of whom: (a) is judged by the Agency to have experience in matters relating to the collection of Housing Set-Aside Revenues or otherwise with respect to the financing of redevelopment projects; (b) is, in fact, independent and not

B-14

under the domination of the Agency; (c) does not have any substantial interest, direct or indirect, with the Agency, other than as original purchaser of the Bonds or any Parity Debt; and (d) is not connected with the Agency as an officer or employee of the Agency, but who may be regularly retained to make reports to the Agency.

“Loan” means the loan made by the Authority to the Agency in the aggregate principal amount of $__________ pursuant to the Loan Agreement.

“Loan Agreement” means the Housing Fund Loan Agreement, dated as of January 1, 2010, by and between the Agency and the Authority, as originally executed or as it may from time to time be amended, modified or supplemented.

“Loan Interest Payment Date” means March 1 and September 1 of each year, beginning September 1, 2010, and continuing thereafter so long as any Bonds remain Outstanding.

“Loan Principal Payment Date” means September 1 of each year.

“Low and Moderate Income Housing Fund” or “Housing Fund” means the fund of the Agency by that name established pursuant to Section 33334.3 of the Redevelopment Law.

“Maximum Annual Loan Payments” means, as of the date of calculation, the largest amount obtained by totaling, for the current or any future Bond Year, the sum of (a) the amount of interest payable on the Loan and all outstanding Parity Debt in such Bond Year, assuming that principal thereof is paid as scheduled and that any mandatory sinking fund payments are made as scheduled, and (b) the amount of principal payable on the Loan and on all outstanding Parity Debt in such Bond Year, including any principal required to be prepaid or redeemed by operation of mandatory sinking fund payments.

“Parity Debt” means the 1995 Housing Loan, and any loans, bonds, notes, advances or indebtedness payable from Housing Set-Aside Revenues on a parity with the Loan issued or incurred pursuant to and in accordance with the Loan Agreement.

“Parity Debt Instrument” means any resolution, indenture of trust, trust agreement or other instrument authorizing the issuance of any Parity Debt.

“Plan Limitations” means the limitations contained or incorporated in the Redevelopment Plans on (a) the aggregate principal amount of indebtedness payable from Housing Set-Aside Revenues which may be outstanding at any time, (b) the aggregate amount of taxes which may be divided and allocated to the Agency pursuant to the Redevelopment Plans, (c) the period of time for establishing or repaying indebtedness payable from Housing Set-Aside Revenues, (d) the term of the effectiveness of the Redevelopment Plans and (e) the time limit to receive Housing Set-Aside Revenues from the Project Areas.

“Project Areas” or “Three Project Areas” means the Agency’s three redevelopment projects known and designated as the Project Area No. I, Project Area No. II, and Project Area No. III.

“Project Area No. I Loan Agreement” means the Project Area No. I Loan Agreement, dated as of January 1, 2010, by and between the Agency and the Authority, as originally executed or as it may from time to time be amended, modified or supplemented.

“Project Area No. I Special Fund” means the Special Fund continued pursuant to the Project Area No. I Loan Agreement.

B-15

“Project Area No. II Loan Agreement” means the Project Area No. II Loan Agreement, dated as of January 1, 2010, by and between the Agency and the Authority, as originally executed or as it may from time to time be amended, modified or supplemented.

“Project Area No. II Special Fund” means the Special Fund continued pursuant to the Project Area No. II Loan Agreement.

“Project Area No. III Loan Agreement” means the Project Area No. III Loan Agreement, dated as of January 1, 2010, by and between the Agency and the Authority, as originally executed or as it may from time to time be amended, modified or supplemented.

“Project Area No. III Special Fund” means the Special Fund continued pursuant to the Project Area No. III Loan Agreement.

“Proportionate Share” means _______%, which shall be deemed to be the proportion of the proceeds of the Bonds allocable to the Loan.

“Redevelopment Law” means the Community Redevelopment Law of the State, constituting Part 1 of Division 24 of the Health and Safety Code of the State, and the acts amendatory thereof and supplemental thereto.

“Redevelopment Plans” means, collectively, the Redevelopment Plan for each of the Three Project Areas, together with any further amendments thereof at any time duly authorized pursuant to the Redevelopment Law.

“Refunded Bonds” means the Lake Elsinore Public Financing Authority Tax Allocation Revenue Bonds, 1999 Series C.

“Report” means a document in writing signed by an Independent Redevelopment Consultant and including: (a) a statement that the person or firm making or giving such Report has read the pertinent provisions of the Loan Agreement to which such Report relates; (b) a brief statement as to the nature and scope of the examination or investigation upon which the Report is based; and (c) a statement that, in the opinion of such person or firm, sufficient examination or investigation was made as is necessary to enable said consultant to express an informed opinion with respect to the subject matter referred to in the Report.

“Subordinate Debt” means any loans, advances or indebtedness issued or incurred by the Agency in accordance with the requirements of the Loan Agreement, which are either: (a) payable from, but not secured by a pledge of or lien upon, the Housing Set-Aside Revenues; or (b) secured by a pledge of or lien upon the Housing Set-Aside Revenues which is subordinate to the pledge of and lien upon the Housing Set-Aside Revenues under the Loan Agreement for the security of the Loan and any Parity Debt.

“Trustee” means Union Bank, N.A., a national banking association organized and existing under the laws of the United States of America, and its successors and assigns acting as trustee under the Indenture.

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

“1995 Housing Loan” means the loan made under the Housing Fund Subordinate Loan Agreement, dated as of December 1, 1995, by and between the Agency and the Lake Elsinore Public Financing Authority.

B-16

Repayment of Loan. The Agency shall repay the principal of the Loan in installments on September 1 in each of the years and in the amounts, and shall pay interest on the unpaid principal balance of the Loan on each Loan Interest Payment Date and in the amounts, as set forth in Exhibit A attached to the Loan Agreement, which amounts shall be equal to the Proportionate Share of the corresponding payments of principal of and interest on the Bonds. Any installment of principal or interest which is not paid when due shall continue to accrue interest at the net effective rate of interest then borne by the Loan from and including the date on which such principal or interest is payable to but not including the date of actual payment.

In the event that the Housing Set-Aside Revenues and other moneys pledged for the payment of the Loan are insufficient to pay the principal and interest on the Loan coming due on any Loan Interest Payment Date, the Agency agrees to make an interfund loan from (i) the Housing Loan Payment Account of all amounts in the Project Area No. I Special Fund available therefor, (ii) the Housing Loan Payment Account of all amounts in the Project Area No. II Special Fund available therefor, and (iii) the Housing Loan Payment Account of all amounts in the Project Area No. III Special Fund available therefor, to the extent required to make up any deficiency in the amounts available for payment of principal and interest on the Loan coming due on such Loan Interest Payment Date. Such Interfund loan shall be repaid to the Project Area No. I Special Fund, to the Project Area No. II Special Fund, and to the Project Area No. III Special Fund out of any moneys of the Agency available therefor, semiannually, on each March 2 and September 2, with interest at the rate on the Bonds.

In the event the unpaid principal installments of the Loan shall be prepaid in whole or in part pursuant to the Loan Agreement, or in the event the Bonds shall be redeemed pursuant to the Indenture, the schedule of principal installments set forth in Exhibit A hereto shall be reduced on a pro rata basis in integral multiples of $5,000 corresponding to the principal amount of the Bonds redeemed pursuant to the Indenture. The Authority shall provide the Trustee with a new payment schedule.

Principal of and interest on the Loan shall be payable by the Agency to the Trustee, as assignee of the Authority under the Indenture, in immediately available funds which constitute lawful money of the United States of America. Payment of such principal and interest shall be secured, and amounts for the payment thereof shall be deposited with the Trustee at the times, as set forth in the Loan Agreement. Notwithstanding the foregoing provisions, in lieu of payment of any installment of principal of the Loan coming due and payable on September 1 in any year in which the Bonds are subject to mandatory sinking fund redemption under the Indenture, the Agency shall have the right to purchase any of the Bonds in an amount not exceeding the amount thereof which is subject to mandatory sinking fund redemption on such September 1, and tender such Bonds to the Trustee for cancellation, provided that such tender shall be made before the preceding July 1.

Optional Prepayment of the Loan. The Agency shall have the right to prepay the unpaid principal installments of the Loan, in whole or in part in any integral multiple of $5,000, on any date on which the Bonds are subject to optional redemption pursuant to the Indenture, by depositing with the Trustee in the Revenue Fund an amount sufficient to redeem a like aggregate principal amount of Bonds pursuant to the Indenture, together with the amount of accrued interest and premium (if any) required to be paid upon such redemption. The Authority agrees that upon payment by the Agency to the Trustee of such amount, the Authority shall take or cause to be taken any and all steps required under the Indenture to redeem such Outstanding Bonds on the redemption date designated pursuant to a Written Request of the Agency filed with the Authority and the Trustee; provided, however, that such date shall be a date of redemption of Bonds for which notice has been timely given pursuant to the Indenture.

Pledge of Housing Set-Aside Revenues. The Loan and all Parity Debt shall be equally secured for the benefit of the Authority and the Owners of the Bonds by a pledge of, security interest in and lien on all of the Housing Set-Aside Revenues and all of the moneys on deposit in the Housing Loan Payment Account, without preference or priority for series, issue, number, dated date, sale date, date of

B-17

execution or date of delivery. The Housing Set-Aside Revenues and the Housing Loan Payment Account are hereby allocated to the payment of the principal and interest on the Loan. Except for the Housing Set-Aside Revenues and the Housing Loan Payment Account, no funds or properties of the Agency shall be pledged to, or otherwise liable for, the payment of principal of or interest or premium (if any) on the Loan.

Housing Loan Payment Account; Deposit of Housing Set-Aside Revenues. There is hereby continued a special account to be known as the “Housing Loan Payment Account,” which shall be held by the Agency in the Low and Moderate Income Housing Fund. The Agency shall deposit all Housing Set-Aside Revenues received in any Bond Year in the Housing Loan Payment Account promptly upon the receipt thereof. Except as provided in any other Parity Debt Instruments, and only after the Agency has received a letter from the Trustee stating that amounts on deposit in the Housing Loan Payment Account equal the aggregate amounts required to be transferred to the Trustee pursuant to the Loan Agreement, the excess amounts shall be released from the pledge and lien under the Loan Agreement and be used for any lawful purposes of the Agency, including the payment of any Subordinate Debt.

Prior to the payment in full of the principal of and interest and prepayment premium (if any) on the Loan and all Parity Debt and the payment in full of all other amounts payable under the Loan Agreement and under any Parity Debt Instruments, the Agency shall not have any beneficial right or interest in the moneys on deposit in the Housing Loan Payment Account, except only as provided in the Loan Agreement and in any Parity Debt Instruments, and such moneys shall be used and applied as set forth in the Loan Agreement and in any Parity Debt Instruments.

Transfer of Housing Set-Aside Revenues From Housing Loan Payment Account. In addition to the transfers required to be made pursuant to any Parity Debt Instruments, the Agency shall withdraw from the Housing Loan Payment Account and transfer to the Trustee, to the Project Area No. I Special Fund, to the Project Area No. II Special Fund, or to the Project Area No. III Special Fund the following amounts at the following times and in the following order of priority:

(a) Interest and Principal Deposits.

(i) No later than the fifth (5th) Business Day preceding each Loan Interest Payment Date, the Agency shall withdraw from the Housing Loan Payment Account and transfer to the Trustee for deposit into the Revenue Fund an amount which, together with the amounts then held on deposit in the Interest Account, is equal to the aggregate amount of interest on the Loan coming due on such Loan Interest Payment Date.

(ii) No later than the fifth (5th) Business Day preceding each Loan Principal Payment Date, an amount which when added to the amounts then on deposit in the Principal Account will equal the principal payment coming due on such Loan Principal Payment Date.

In lieu of depositing cash with the Trustee as payment of any installment of principal of the Loan coming due on September 1 of any year pursuant to the Loan Agreement, the Agency shall have the option to tender to the Trustee for cancellation Bonds maturing on September 1 in such year. Such Bonds may be purchased by the Agency with any source of available moneys (including but not limited to Housing Set-Aside Revenues not required to be deposited with the Trustee), at public or private sale as and when and at such prices as the Agency may in its discretion determine. The par amount of any Bonds so purchased by the Agency and tendered to the Trustee in any twelve-month period ending on July 1 in any calendar year shall be credited towards and shall reduce the payment required to be made pursuant to this subsection (a) on the fifth (5th) Business Day preceding September 1 in such year.

B-18

(b) Interfund Loan. To the extent permitted by law, the Agency shall make an interfund loan to the Project Area No. I Special Fund, to the Project Area No. II Special Fund, or to the Project Area No. III Special Fund in amounts necessary to make up any actual or projected deficiency in the amounts available for payment of principal and interest on the Project Area No. I Loan, the Project Area No. II Loan, or the Project Area No. III Loan as such payments become due and payable.

(c) Credit Against Deposits. The Agency shall receive a credit against the deposits required above as follows:

(i) There shall be a credit for earnings on the Reserve Fund which have been transferred to and are then held by the Trustee in the Revenue Fund under the Indenture, such credit to be made semiannually on the Business Day prior to the date for making the transfers described in subsection (a); and

(ii) After the credit in (i) above, there shall also be a credit for any remaining moneys on deposit in the Revenue Fund under the Indenture.

Investment of Moneys; Valuation of Investments. All moneys in the Housing Loan Payment Account shall be invested by the Agency in any investments authorized for the investment of Agency funds under the laws of the State. Obligations purchased as an investment of moneys in any fund or account established under the Loan Agreement shall be credited to and deemed to be part of such fund or account. The Agency may commingle any amounts in any of the funds and accounts held under the Loan Agreement with any other amounts held by the Agency for purposes of making any investment, provided that the Agency shall maintain separate accounting procedures for the investment of all funds and accounts held under the Loan Agreement.

All interest, profits and other income received from the investment of moneys in any fund or account established under the Loan Agreement shall be deposited in such fund or account. Notwithstanding anything to the contrary contained in this paragraph, an amount of interest received with respect to any investment equal to the amount of accrued interest, if any, paid as part of the purchase price of such investment shall be credited to the fund from which such accrued interest was paid.

Except as otherwise provided in the next sentence, the Agency covenants that all investments of amounts deposited in any fund or account created by or pursuant to the Loan Agreement, or otherwise containing gross proceeds of the Bonds (within the meaning of section 148 of the Code) shall be acquired, disposed of, and valued (as of the date that valuation is required by the Loan Agreement or the Code) at fair market value. Investments in funds or accounts (or portions thereof) that are subject to a yield restriction under applicable provisions of the Code shall be valued at their present value (within the meaning of section 148 of the Code).

Covenants of the Agency

Punctual Payment; Extension of Payments. The Agency will punctually pay or cause to be paid the principal of and interest and prepayment premium (if any) on the Loan in strict conformity with the terms of the Loan Agreement, and it will faithfully observe and perform all of the conditions, covenants and requirements of the Loan Agreement. The Agency shall not directly or indirectly extend or assent to the extension of the maturity of any installment of principal of or interest or premium (if any) on the Loan, and in case the principal of or interest or premium (if any) on the Loan or the time of payment of any such claims therefor shall be extended, such principal, interest, premium or claims for interest shall not be entitled, in case of any Event of Default under the Loan Agreement, to the benefits of the Loan Agreement except for payment of all amounts which shall not have been so extended.

B-19

Limitation on Additional Indebtedness. The Agency hereby covenants that it shall not issue any bonds, notes or other obligations, enter into any agreement or otherwise incur any indebtedness, which is in any case payable from all or any part of the Housing Set-Aside Revenues, excepting only the Loan, any Parity Debt and any Subordinate Debt, and any obligations entered into pursuant to the Loan Agreement.

Payment of Claims. The Agency will pay and discharge, or cause to be paid and discharged, any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien or charge upon the Housing Set-Aside Revenues or any part thereof, or upon any funds in the hands of the Trustee, or which might impair the security of the Loan. Nothing contained in the Loan Agreement shall require the Agency to make any such payment so long as the Agency in good faith shall contest the validity of said claims.

Books and Accounts; Financial Statements. The Agency will keep, or cause to be kept, proper books of record and accounts, separate from all other records and accounts of the Agency and the City, in which complete and correct entries shall be made of all transactions relating to the Project Areas, the Housing Set-Aside Revenues, and the Housing Loan Payment Account. Such books of record and accounts shall at all times during business hours be subject, upon prior written request, to the reasonable inspection of the Authority, the Trustee and the Owners of not less than ten percent (10%) in aggregate principal amount of the Bonds then Outstanding, or their representatives authorized in writing.

The Agency will cause to be prepared within one hundred and eighty (180) days after the close of each Fiscal Year so long as any of the Bonds are Outstanding, complete audited financial statements with respect to such Fiscal Year showing the Housing Set-Aside Revenues and all disbursements from the Housing Loan Payment Account, including the balances in all funds and accounts relating to the Three Project Areas as of the end of such Fiscal Year, which statement shall be accompanied by a Certificate of the Agency stating that the Agency is in compliance with its obligations under the Loan Agreement. The Agency will furnish a copy of such statements, upon reasonable request, to any Bond Owner.

Protection of Security and Rights. The Agency will preserve and protect the security of the Loan and the rights of the Trustee and the Bond Owners with respect to the Loan. From and after the Closing Date, the Loan shall be incontestable by the Agency. The Loan and the provisions of the Loan Agreement are and will be the legal, valid and binding special obligations of the Agency in accordance with their terms, and the Agency shall at all times, to the extent permitted by law, defend, preserve and protect all the rights of the Trustee and the Bond Owners under the Loan Agreement against all claims and demands of all persons whomsoever.

Payments of Taxes and Other Charges. The Agency will pay and discharge, or cause to be paid and discharged, all taxes, service charges, assessments and other governmental charges which may hereafter be lawfully imposed upon the Agency or the properties then owned by the Agency in any of the Three Project Areas, when the same shall become due. Nothing contained in the Loan Agreement shall require the Agency to make any such payment so long as the Agency in good faith shall contest the validity of said taxes, assessments or charges. The Agency will duly observe and comply with all valid requirements of any governmental authority relative to the Project Areas or any parts thereof.

Taxation of Leased Property. All ad valorem property taxes derived by the Agency pursuant to Section 33673 of the Redevelopment Law with respect to the lease of property for redevelopment shall be treated as Housing Set-Aside Revenues for all purposes of the Loan Agreement.

Disposition of Property. The Agency will not participate in the disposition of any land or real property in any of the Three Project Areas to anyone which will result in such property becoming exempt from taxation because of public ownership or use or otherwise (except property dedicated for

B-20

public right-of-way and except property planned for public ownership or use by the Redevelopment Plans in effect on the date of the Loan Agreement) so that such disposition shall, when taken together with other such dispositions, aggregate more than ten percent (10%) of the land area in each of the Three Project Areas.

Maintenance of Housing Set-Aside Revenues. The Agency shall comply with all requirements of the Redevelopment Law to insure the allocation and payment to it of the Housing Set-Aside Revenues, including without limitation the timely filing of any necessary statements of indebtedness with appropriate officials of the City and (in the case of supplemental revenues and other amounts payable by the State) appropriate officials of the State. The Agency shall not make any of the annual findings permitted by Section 33334.2(a) of the Redevelopment Law if, and to the extent, any such findings will adversely impact the Agency’s ability to make the Loan Payments required by the Loan Agreement. The Agency shall not enter into any agreement with the City or any other governmental unit which would have the effect of reducing the amount of Housing Set-Aside Revenues available to the Agency for payment of the Loan. Without limiting the generality of the foregoing, the Agency covenants that it shall deposit or cause to be deposited in the Low and Moderate Income Housing Fund all amounts when, as and if required to be deposited therein pursuant to the Redevelopment Law. Nothing in the Loan Agreement is intended nor shall be construed in any way to prohibit or impose any limitations on the entering into by the Agency of any such agreement, amendment or supplement which by its term is subordinate to the payment of the Loan.

Payment of Expenses; Indemnification. The Agency shall pay to the Trustee from time to time all compensation for all services rendered under the Loan Agreement and a Proportionate Share of such compensation for all services rendered under the Indenture in connection with the Bonds, including but not limited to all reasonable expenses, charges, legal and consulting fees and other disbursements and those of its attorneys, agents and employees, incurred in and about the performance of its powers and duties under the Loan Agreement and thereunder. Upon the occurrence of an Event of Default, the Trustee shall have a first lien on the funds held by it under the Indenture and under the Loan Agreement to secure the payment to the Trustee of all fees, costs and expenses, including reasonable compensation to its experts, attorneys and counsel incurred in declaring such Event of Default and in exercising the rights and remedies set forth in the Loan Agreement.

The Agency further covenants and agrees to indemnify and save the Trustee and its officers, directors, agents and employees, harmless against any losses, costs, claims, expenses and liabilities whatsoever which it may incur arising out of or in connection with the exercise and performance of its powers and duties under the Loan Agreement, and under the Indenture including the costs and expenses of defending against any claim of liability, but excluding any and all losses, expenses and liabilities which are due to the negligence or intentional misconduct of the Trustee, its officers, directors, agents or employees. The obligations of the Agency under this paragraph shall survive the resignation or removal of the Trustee under the Indenture or the Loan Agreement and payment of the Loan and the discharge of the Loan Agreement.

Tax Matters. Neither the Agency nor the Authority shall use, permit the use of, or omit to use Gross Proceeds or any other amounts (or any property the acquisition, construction or improvement of which is to be financed directly or indirectly with Gross Proceeds) in a manner that if made or omitted, respectively, could cause the interest on any Bond to fail to be excluded pursuant to section 103(a) of the Code from the gross income of the owner thereof for federal income tax purposes.

Continuing Disclosure. The Agency hereby covenants and agrees that it will comply with and carry out all of the provisions of its Undertaking To Provide Continuing Disclosure with respect to the Bonds, as originally executed and as it may be amended from time to time in accordance with the terms thereof. Notwithstanding any other provision of the Loan Agreement, failure of the Agency to comply with such Undertaking to Provide Continuing Disclosure shall not be considered an Event of

B-21

Default; however, any Owner may take such actions, as provided in such Undertaking to Provide Continuing Disclosure, as may be necessary and appropriate to cause the Agency to comply with its obligations under such Undertaking To Provide Continuing Disclosure.

Redevelopment of Project Areas. The Agency shall ensure that all activities undertaken by the Agency with respect to the redevelopment of any of the Project Areas are undertaken and accomplished in conformity with all applicable requirements of the Redevelopment Plans and the Redevelopment Law. The Agency shall manage and operate all properties owned by the Agency and comprising any part of the Project Areas in a sound and business-like manner and in conformity with all valid requirements of any governmental authority, and will keep such properties insured at all times in conformity with sound business practice.

Further Assurances. The Agency will adopt, make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Loan Agreement and for the better assuring and confirming unto the Trustee, the Authority and the Owners of the Bonds of the rights and benefits provided in the Loan Agreement.

Events of Default and Acceleration of Maturities. The following events shall constitute Events of Default under the Loan Agreement:

(a) Failure by the Agency to pay the principal of or interest or prepayment premium (if any) on the Loan or any Parity Debt when and as the same shall become due and payable.

(b) Failure by the Agency to observe and perform any of the covenants, agreements or conditions on its part contained in the Loan Agreement, other than as referred to in the preceding clause (a), for a period of thirty (30) days after written notice specifying such failure and requesting that it be remedied has been given to the Agency by the Trustee; provided, however, that if in the reasonable opinion of the Agency the failure stated in such notice can be corrected, but not within such thirty (30) day period, such failure shall not constitute an Event of Default if corrective action is instituted by the Agency within such thirty (30) day period and thereafter is diligently pursued until such failure is corrected.

(c) The filing by the Agency of a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law of the United States of America, or if a court of competent jurisdiction shall approve a petition, filed with or without the consent of the Agency, seeking reorganization under the federal bankruptcy laws or any other applicable law of the United States of America, or if, under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction shall assume custody or control of the Agency or of the whole or any substantial part of its property.

If an Event of Default has occurred and is continuing, the Trustee may (a) declare the principal of the Loan, together with accrued interest on all unpaid installments thereof, to be due and payable immediately, and upon any such declaration the same will become immediately due and payable, anything in the Loan Agreement to the contrary notwithstanding, and (b) subject to receipt of satisfactory indemnity exercise any other remedies available to the Trustee in law or equity arising under the Loan Agreement. Immediately upon becoming aware of the occurrence of an Event of Default under the Loan Agreement, the Trustee shall give notice of such Event of Default to the Agency by telephone, telecopier or other telecommunication device, promptly confirmed in writing. This provision, however, is subject to the condition that if, at any time after the principal of the Loan has been so declared due and payable, and before any judgment or decree for the payment of the moneys due has been obtained or entered, the Agency will deposit with the Trustee a sum sufficient to pay all installments of principal of the Loan matured prior to such declaration and all accrued interest thereon, with interest on such overdue

B-22

installments of principal and interest at the net effective rate then borne by the Outstanding Bonds, and the reasonable fees and expenses of the Trustee, and any and all other defaults known to the Trustee (other than in the payment of principal of and interest on the Loan due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, then, and in every such case, the Trustee may, by written notice to the Authority and the Agency, rescind and annul such declaration and its consequences. However, no such rescission and annulment shall extend to or shall affect any subsequent default, or shall impair or exhaust the right or power consequent thereon.

Application of Revenues and Other Funds After Default. All amounts received by the Trustee pursuant to any right given or action taken by the Trustee under these provisions, or otherwise held by the Trustee upon the occurrence of an Event of Default, shall be applied by the Trustee in the following order:

First, to the payment of the fees, costs and expenses of the Trustee in declaring such Event of Default and in carrying out these provisions, including reasonable compensation to its agents, attorneys and counsel and any outstanding fees and expenses of the Trustee; and

Second, to the payment of the whole amount of interest on and principal of the Loan and any Parity Debt then due and unpaid, with interest on overdue installments of principal and interest to the extent permitted by law at the net effective rate of interest then borne by the Loan and such Parity Debt; provided, however, that in the event such amounts shall be insufficient to pay in full the full amount of such interest and principal, then such amounts shall be applied in the following order of priority:

(a) first, to the payment of all installments of interest on the Loan and any Parity Debt then due and unpaid, on a pro rata basis in the event that the available amounts are insufficient to pay all such interest in full;

(b) second, to the payment of all installments of principal of the Loan and any Parity Debt then due and payable, on a pro rata basis in the event that the available amounts are insufficient to pay all such principal in full;

(c) third, to the payment of the prepayment price (including principal and interest accrued to the prepayment date, but excluding any premium) of the Loan and any Parity Debt to be redeemed pursuant to the Loan Agreement, on a pro rata basis in the event that the available amounts are insufficient to pay all such prepayment price in full; and

(d) fourth, to the payment of interest on overdue installments of principal and interest, on a pro rata basis in the event that the available amounts are insufficient to pay all such interest in full.

No Waiver. Nothing in any provision of the Loan Agreement, shall affect or impair the obligation of the Agency, which is absolute and unconditional, to pay from the Housing Set-Aside Revenues and other amounts pledged under the Loan Agreement, the principal of and interest and premium (if any) on the Loan and any Parity Debt to the Trustee when due, as provided in the Loan Agreement, or affect or impair the right of action, which is also absolute and unconditional, of the Trustee to institute suit to enforce such payment by virtue of the contract embodied in the Loan Agreement.

A waiver of any default by the Trustee at the direction of the Owners of the Bonds shall not affect any subsequent default or impair any rights or remedies on the subsequent default. No delay or omission of the Trustee to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein, and

B-23

every power and remedy conferred upon the Trustee by the Redevelopment Law or by the Loan Agreement may be enforced and exercised from time to time and as often as shall be deemed expedient by the Trustee.

If a suit, action or proceeding to enforce any right or exercise any remedy shall be abandoned or determined adversely to the Trustee, the Agency and the Trustee shall be restored to their former positions, rights and remedies as if such suit, action or proceeding had not been brought or taken.

Remedies Not Exclusive. No remedy conferred in the Loan Agreement upon or reserved to the Trustee is intended to be exclusive of any other remedy. Every such remedy shall be cumulative and shall be in addition to every other remedy given under the Loan Agreement or now or hereafter existing, at law or in equity or by statute or otherwise, and may be exercised without exhausting and without regard to any other remedy conferred by the Redevelopment Law or any other law.

Discharge of Loan Agreement. If the Agency shall pay and discharge the indebtedness on the Loan or any portion thereof in any one or more of the following ways:

(a) by well and truly paying or causing to be paid the principal of and interest and prepayment premiums (if any) on the Loan or such portion thereof, as and when the same become due and payable;

(b) by irrevocably depositing with the Trustee, in trust, at or before maturity, cash in an amount which, together with the available amounts then on deposit in any of the funds and accounts established pursuant to the Indenture or the Loan Agreement, is fully sufficient in the opinion of Bond Counsel or an Independent Accountant to pay all principal of and interest and prepayment premiums (if any) on the Loan or such portion thereof; or

(c) by irrevocably depositing with the Trustee or any other fiduciary, in trust, Defeasance Securities in such amount as an Independent Accountant shall determine will, together with the interest to accrue thereon and available moneys then on deposit in the funds and accounts established pursuant to the Indenture or a Supplemental Indenture or the Loan Agreement, be fully sufficient in the opinion of Bond Counsel or any Independent Accountant to pay and discharge the indebtedness on the Loan or such portion thereof (including all principal, interest and prepayment premiums) at or before maturity;

then, at the election of the Agency but only if all other amounts then due and payable under the Loan Agreement shall have been paid or provision for their payment made, the pledge of and lien upon the Housing Set-Aside Revenues and other funds provided for in the Loan Agreement and all other obligations of the Trustee, the Authority and the Agency under the Loan Agreement with respect to the Loan or such portion thereof shall cease and terminate, except only the obligation of the Agency to pay or cause to be paid to the Trustee, from the amounts so deposited with the Trustee or such other fiduciary, all sums due with respect to the Loan or such portion thereof, and to pay all expenses and costs of the Trustee when and as such expenses and costs become due and payable. Notice of such election shall be filed with the Authority and the Trustee. In the case of a discharge of the entire indebtedness on the Loan, any funds thereafter held by the Trustee under the Loan Agreement, which are not required for said purpose, shall be paid over to the Agency.

Notwithstanding the foregoing provisions, the Loan Agreement and the obligations of the Agency under the Loan Agreement shall not be discharged unless and to the extent that the Bonds shall have been discharged in whole or in part pursuant to the provisions of the Indenture.

Amendment. The Loan Agreement may be amended by the parties hereto, but only under the circumstances set forth in, and in accordance with, the provisions of the Indenture. The

B-24

Authority covenants that the Indenture shall not be amended, nor shall the Authority agree or consent to any amendment of the Indenture, without the prior written consent of the Agency (except that such consent shall not be required in the event that an Event of Default shall have occurred and be continuing under the Loan Agreement).

C-1

APPENDIX C FISCAL CONSULTANT REPORT


Appendix C

REDEVELOPMENT AGENCY OF THE CITY OF LAKE ELSINORE

RANCHO LAGUNA REDEVELOPMENT PROJECT NO. I RANCHO LAGUNA REDEVELOPMENT PROJECT NO. II

AND RANCHO LAGUNA REDEVELOPMENT PROJECT NO. III

PROJECTED TAXABLE VALUES AND

ANTICIPATED TAX INCREMENT REVENUES

January 15, 2009

I. Introduction

The Lake Elsinore Public Financing Authority (the Authority) is proposing to issue its Lake

Elsinore Public Financing Authority Tax Allocation Revenue Bonds (1999 Series C Refunding),

2010 Series A (the Bonds). The proceeds of the Bonds, together with certain other funds, will be

used to redeem the Authority’s Tax Allocation Revenue Bonds, 1999 Series C. The Rancho

Laguna Redevelopment Project No. I, the Rancho Laguna Redevelopment Project No. II and the

Rancho Laguna Redevelopment Project No. III are redevelopment projects of the Redevelopment

Agency of the City of Lake Elsinore (the Agency). They are collectively referred to in this Fiscal

Consultant’s Report (the Report) as the Redevelopment Projects. The individual project areas

are referred to in this Report as the Component Project Areas or will be individually referred to

by name. When named individually the Component Project Areas will be referred to as follows;

Rancho Laguna Redevelopment Project No. I (the Redevelopment Project No. 1), the Rancho

Laguna Redevelopment Project No. II (the Redevelopment Project No. 2) and the Rancho

Laguna Redevelopment Project No. III (the Redevelopment Project No. 3).

The California Community Redevelopment Law (the Law) provides for the creation of

redevelopment agencies by cities and counties for the purpose of the elimination of blight. The

Law, together with Article 16, Section 16 of the California Constitution, authorizes the Agency

to receive that portion of property tax revenue produced by such taxable value that is in excess of

the taxable value within the project area at the time of the project area's adoption. The tax

revenues so derived are generally referred to as Tax Increment Revenues. The Law provides that

the Tax Increment Revenues may be pledged by the Agency to the repayment of agency

indebtedness.

In this report, Gross Tax Increment Revenues, including Unitary Tax Revenue (see Section IV H,

Allocation of State Assessed Unitary Taxes) are referred to as Gross Revenues. Within the

Redevelopment Project No. 1, Gross Revenues may be limited by the Component Project Area’s

annual tax increment limit. If this annual tax increment limit is exceeded, Adjusted Gross

Revenues shall be the Gross Revenues less those amounts in excess of the annual limit (see

Section II B, Redevelopment Plan Limits). For purposes of this report, Tax Revenues are defined

as Gross Revenues or Adjusted Gross Revenues, less the SB 2557 County Administrative fees

and collection charges (see Section IV G., County Property Tax Collection Reimbursement) and

Redevelopment Agency of the City of Lake Elsinore

Fiscal Consultant’s Report

January 15, 2009, Page 2

tax sharing payments (see Section VII, Tax Sharing and Other Obligations). The Bonds will be

secured by a pledge of Tax Revenues from Redevelopment Project No. 1, Redevelopment Project

No. 2 and Redevelopment Project No. 3.

The proceeds of the Bonds will be utilized to refund, in whole, the Authority’s outstanding Tax

Allocation Revenue Bonds, 1999 Series C (the “Authority 1993C Bonds”). Since a portion of

the proceeds of the Authority 1993C Bonds were used to satisfy the Agency’s Low and

Moderate Income Housing requirements, we have assumed that the portion of the debt service on

the Bonds allocable to the refunding of the housing portion of the Authority 1993C Bonds may

be chargeable to the Housing Set-Aside Requirement.

The purpose of this fiscal consultant report (the Report) is to examine the Riverside County

Auditor-Controller’s tax allocation practices, assessment appeals, assessed values for the current

fiscal year and other pertinent circumstances and to project for nine fiscal years the amount of

Tax Revenues and Housing Set-Aside Revenues anticipated to be received by the Agency from

each of the component project areas. As a result of our research, we project that the Tax

Revenues and Housing Set-Aside Revenues that will be pledged to the payment of debt service

on the Bonds will be as shown in Table A below:

Table A Projected Tax Revenues and Housing Set-Aside Revenues

(000’s omitted)

Redevelopment Project No. 1 Redevelopment Project No. 2 Redevelopment Project No 3

Fiscal

Year

Tax

Revenues

Housing

Set-Aside

Tax

Revenues

Non-

Housing

Set-Aside

Tax

Revenues

Tax

Revenues

Housing

Set-Aside

Tax

Revenues

Non-

Housing

Set-Aside

Tax

Revenues

Tax

Revenues

Housing

Set-Aside

Tax

Revenues

Non-

Housing

Set-Aside

Tax

Revenues

2009-10 $4,668 $1,368 $3,300 $5,755 $2,044 $3,711 $1,416 $597 $819

2010-11 4,541 1,326 3,214 5,662 2,014 3,648 1,361 574 787

2011-12 4,620 1,353 3,268 5,782 2,056 3,726 1,394 588 806

2012-13 4,702 1,379 3,322 5,904 2,100 3,804 1,428 602 826

2013-14 4,785 1,407 3,378 6,028 2,144 3,884 1,463 617 846

2014-15 4,870 1,435 3,435 6,155 2,189 3,966 1,498 632 866

2015-16 4,956 1,463 3,493 6,285 2,235 4,050 1,534 647 887

2016-17 5,045 1,492 3,552 6,417 2,282 4,135 1,570 662 908

2017-18 5,135 1,522 3,613 6,551 2,330 4,221 1,608 678 930

2018-19 5,199 1,552 3,647 6,689 2,379 4,310 1,646 694 952




Redevelopment Projects

Fiscal

Year

Tax

Revenues

Housing

Set-Aside

Tax

Revenues

Non-

Housing

Set-Aside

Tax

Revenues

2009-10 $11,840 $4,010 $7,830

2010-11 11,564 3,914 7,650

2011-12 11,797 3,997 7,800

2012-13 12,034 4,082 7,952

2013-14 12,276 4,168 8,108

2014-15 12,523 4,256 8,267

2015-16 12,775 4,345 8,430

2016-17 13,032 4,437 8,595

2017-18 13,294 4,530 8,764

2018-19 13,534 4,625 8,909

The taxable values of property and the resulting Tax Revenues summarized above are reflected

on Table 1 of each set of projections. These projections are based on assumptions determined by

our review of the taxable value history of the Redevelopment Projects and the property tax

assessment and property tax apportionment procedures of Riverside County (the County). Future

year assessed values, Gross Tax Revenues, Adjusted Gross Tax Revenues and Tax Revenues are

projections based upon the assumptions described in this Report, and are not guaranteed as to

accuracy and this Report is not to be construed as a representation of such by HdL Coren &

Cone.

II. Description of The Project Areas

A. Redevelopment Plan General Descriptions

Redevelopment Project No. 1

The Redevelopment Project No. 1 was the Agency’s first Redevelopment Plan (the

Redevelopment Plan), adopted by the City Council (the City Council) of the City of Lake

Elsinore (the City) on September 23, 1980, pursuant to Ordinance No. 607. The original Project

Area consisted of several non-contiguous areas. The City Council amended the Redevelopment

Plan for the Redevelopment Project No. 1 to add additional area on July 20, 1981, pursuant to

Ordinance No. 624. Redevelopment Project No. 1 generally consists of three areas in terms of

land use. The first area is adjacent to, and southerly of, Interstate 15. Major land uses include the

Lake Elsinore Outlet Center, the Central Business Park, and two retail centers that include Target

and Home Depot. The second area includes the central business district and governmental

offices. The third area is a commercial district near the municipal baseball stadium.


The Redevelopment Plan for the Redevelopment Project No. 2 was adopted by the City Council

on July 18, 1983, pursuant to Ordinance No. 671. It consists of approximately 4,859 acres in

three non-contiguous areas. The first area runs parallel on both sides of Interstate 15, extending

in each direction from Railroad Canyon Road, a major arterial highway. This area includes the

City Shopping Center anchored by a 126,000 square foot Wal-Mart and a 53,000 square foot




Von’s Grocery Store. The area also includes two major subdivisions, Summerhill and Tuscany

Hills. Summerhill includes 428 completed single family homes. Tuscany Hills is a planned

community ultimately consisting of 2,000 homes. 1,020 homes have been constructed and

occupied. The second area includes the municipal baseball stadium and the Summerly Planned

Community, which is located in both Redevelopment Project Area No. 2 and Redevelopment

Project Area No. 3. Approximately 833 single family homes are planned in the first phase of the

Summerly Planned Community. The Summerly Planned Community is in the early development

stages. The third area is located at the west end of Lake Elsinore and is developed with

commercial and single family homes.


The Redevelopment Plan for the Redevelopment Project No. 3 was adopted by the City Council

on September 8, 1987, pursuant to Ordinance No. 815. Redevelopment Project No. 3 consists of

four (4) noncontiguous parcels of land.

PARCEL 1 is in the Summerly Specific Plan area adjacent to the southeasterly shore line of

Lake Elsinore (the “Lake”) and some of the commercial operations adjacent to and associated

with the municipal airport facility. Parcel 1 contains approximately 1,886 acres.

PARCEL 2 is adjacent to the municipal airport facility and is used for agricultural purposes and

contains a five (5) acre commercial site. Parcel 2 contains approximately 84.5 acres.

PARCEL 3 is generally referred to as “the Avenues.” This area is characterized by older single-

family residential units, many of which have been converted to multiple family units, on partially

developed roadways. Parcel 3 contains approximately 466 acres.

PARCEL 4, known as “the Heights,” is also a residential area. The roads are generally unpaved.

The area is dominated by steep slopes. Parcel 4 contains approximately 1,104 acres. It consists of

approximately 892 acres and encompasses much of the waterfront and industrial land within the

City. The eastern portion of the Redevelopment Project No. 3 is a mixture of residential and

commercial development. The center and western portions of the Redevelopment Project No. 3

are primarily commercial with visitor-related uses. The far western portion of the

Redevelopment Project No. 3 is, for the most part, made up of industrial uses and vacant land.

The City’s boat basin and related commercial fishing facilities are also located in the western

portion of the Redevelopment Project No. 3.

B. Redevelopment Plan Limits

The Redevelopment Plans for the Component Project Areas were originally adopted with certain

limitations written into their redevelopment plans. These limitations were in accordance with the

Law as it existed when each of the individual project area’s Redevelopment Plan was adopted.

In 1993 Assembly Bill 1290 was enacted (Chapter 942, Statutes of 1993). Chapter 942 required

redevelopment plans adopted prior to 1994 to incorporate a number of limits not previously

required. For redevelopment plans that had been adopted prior to 1994, Chapter 942 required

revised limits. Pursuant to Chapter 942 the time for establishing indebtedness was not to exceed

20 years from the adoption of the redevelopment plan or January 1, 2004, whichever was later.

Further, Chapter 942 limited the effective life of a project area adopted prior to 1994 to 40 years

from the time of adoption or January 1, 2009, whichever was later. Chapter 942 also limited the




receipt of tax increment for repayment of indebtedness to ten years after the termination of

redevelopment plan effectiveness except for specific low and moderate-income housing

obligations and any bond, indebtedness or other obligation authorized prior to January 1, 1994.

Pursuant to Chapter 942, the City Council adopted ordinances that amended the Redevelopment

Plans and incorporated time limits according to the provisions of Chapter 942.

On February 26, 2008 the City Council adopted an ordinance for Redevelopment Project No. 1

that amended the Redevelopment Plan so as to eliminate the time limit on incurrence of new debt

in accordance with Senate Bill 211 (Chapter 741, Statutes of 2001). The elimination of these

time limits resulted in the onset of statutory tax sharing payments in the Redevelopment Project

No. 1 beginning in Fiscal Year 2008-09 as required by Section 33607.7 of the Law. The

statutory tax sharing payments that were incurred by the Agency for Redevelopment Project No.

1 have been incorporated into the tax increment projections.

On February 26, 2008, the City Council adopted ordinances amending each of the Component

Project Area Redevelopment Plans and, in accordance with the Law as amended by Senate Bill

1045 (see Section VI, Legislation), extended by one year the termination date of the

Redevelopment Plans and by extension the last date to repay indebtedness. Legislation adopted

by Senate Bill 1096 in connection with the State of California’s (the State) budget provided that

the termination dates of redevelopment plans with less than 20 years remaining may be extended

by one year for each of the two Education Revenue Augmentation Fund (the ERAF) payments

that redevelopment agencies are obligated to make under other provisions of the budget

legislation. The Agency has determined that it currently cannot make the findings required by

SB 1096.

Each of the Agency’s Redevelopment Plans was originally adopted in the 1980’s and the format

and presentation was generally outdated. Subsequent amendments were separately documented

and it was difficult to sort through these documents to determine the governing provisions of the

Redevelopment Plans. On April 28, 2009, the Agency adopted an Amended and Restated

Redevelopment Plan for each of the three Redevelopment Projects. Each of the Amended and

Restated Redevelopment Plans now (i) reflect changes in the Redevelopment Law that impose

additional requirements and restrictions not reflected in the original Redevelopment Plans, (ii)

incorporate all prior amendments to the original Redevelopment Plans, (iii) incorporate updated

land use provisions, (iv) and clarify and restate the time limits and financial limits (see Table B

below).

The currently applicable Redevelopment Plan limits for the each of the Component Project Areas

are summarized below in Table B.




Table B

Component Project Areas Redevelopment Plan Limits

Project Area: Redevelopment

Project No. 1

(Original Area)

Redevelopment

Project No. 1

(Added Area)

Redevelopment

Project No. 2

Redevelopment

Project No. 3

Adoption Date September 30, 1980 July 13, 1981 July 18, 1983 September 8, 1987

Plan Expiration September 23, 2021 July 20, 2022 July 18, 2024 September 8, 2028

Last Date to Incur Debt Eliminated Eliminated July 18, 2003 September 8, 2007

Last Date to Repay Debt September 23, 2031 July 20, 2032 July 18, 2034 September 8, 2038

Tax Increment Limit Combined with

Added Area

$3 Million net

annually1

$15 Million net

annually

$20 Million net

annually

Limit on Bonded Debt Combined with

Added Area

$30 Million $120 Million $150 Million

The Lake Elsinore Unified School District (the “District”) and the Riverside County Office of

Education (“RCOE”) has informed the Agency that certain prior actions taken by the Agency

with respect to Redevelopment Project II triggered the statutory pass-through payment

obligations under Section 33607.7 of the Redevelopment Law. The Agency believes that the

statutory pass-through payment obligations have not been triggered and disputes the District’s

and RCOE’s claim. No assurance can be made as to the ultimate outcome of this dispute. If the

parties are not able to resolve the dispute and such matter is litigated, and if a court of competent

jurisdiction were to rule in favor of the District and RCOE, the Projected Tax Revenues would be

reduced by $548,000 in Fiscal Year 2009-10. Commencing with the 2004-05 Fiscal Year and

using the 2003-04 Fiscal Year valuations as an adjusted base year value, the Agency could be

required to pay to the affected taxing entities an amount that is 25% of all tax increment revenue

derived from the incremental increase in assessed value above the adjusted base year value after

deducting the 20% housing set-aside obligation (the “First Tier Tax Sharing”). This First Tier

Tax Sharing continues through expiration of the redevelopment plan effectiveness. Payments

would be only to those entities without pass-through agreements. In addition, beginning in Fiscal

Year 2014-15, using the values for Fiscal Year 2013 14 as an adjusted base year value, the

1 The maximum amount of tax increment to be allocated to the Agency pursuant to the Redevelopment Plan shall not

exceed $3,000,000 during any one fiscal tax year; provided, however, that any shortfall within the allowable annual

allocation of tax increment shall be carried forward to the following year or years and shall be available to the

Agency until the period for receipt of tax increment/repayment of debt has terminated. The Agency cannot receive

tax increment in any fiscal year that exceeds the sum of the annual limit plus any unallocated revenues that have

rolled over from previous years. Nor can the total amount of tax increment revenues received by the Agency

pursuant to the Redevelopment Plan exceed the aggregate of the annual limit over the period to receive tax

increment/repayment of debt as provided in the Redevelopment Plan. The limits on the allocation of tax increment

applies to tax increment received and deposited by the Agency and is net of pass-through agreements, statutory tax

sharing payments to taxing entities, County administrative charges and ERAF payments.




Agency would be required to pay to affected taxing entities, after deducting the 20% housing set-

aside obligation, an amount that is 21% of the revenue derived from the increase in assessed

value above the new adjusted base year value (the “Second Tier Tax Sharing”). This Second Tier

Tax Sharing would also continue through expiration of the redevelopment plan and be paid only

to the taxing entities that have not entered into pass-through agreements.

C. Project Area Land Use

Table C represents the breakdown of land use in the Redevelopment Projects by the number of

parcels and by their taxable value for Fiscal Year 2009-10. This information is based on County

land use designations as provided by Riverside County through tax roll data. It should be noted

that the County land use designations do not necessarily parallel City land use and zoning

designations. Unsecured and SBE non-unitary values are connected with parcels that are already

accounted for in other categories.

Table C

Land Use Summary


Category No. Parcels Net Taxable Value % of Total

Residential 1,443 $250,009,440 35.65%

Commercial 134 176,601,786 25.18%

Industrial 157 139,160,347 19.84%



Vacant Land 677 76,696,986 10.94%

Government/Exempt 418 0 0.00%


Subtotal 2,849 $654,117,454 93.28%

SBE Non-Unitary 0 0.00%

Possessory Interest 3,491,112 0.50%

Unsecured 43,664,203 6.22%

Subtotal $ 47,155,315 6.72%

Total: 2,849 $701,272,769 100.00%






Residential 3,148 $ 660,089,863 60.25%

Commercial 299 215,223,918 19.64%

Industrial 60 45,207,264 4.13%



Vacant Land 1,315 126,213,931 11.52%



Subtotal 5,037 $1,054,479,155 96.25%



Unsecured 35,141,310 3.21%

Subtotal $ 41,130,994 3.75%

Total: 5,037 $1,095,610,149 100.00%



Residential 1,730 $242,984,065 67.12%

Commercial 12 9,216,875 2.55%

Industrial 2 1,143,944 0.32%


Institutional 2 0 0.00%

Vacant Land 6,303 95,986,964 26.52%


Miscellaneous 4 654,642 0.18%

Subtotal 8,507 $357,392,858 98.73%


Unsecured 2,655,927 0.73%

Subtotal $ 4,602,463 1.27%

Total: 8,507 $361,995,321 100.00%



Residential 6,321 $1,153,083,368 53.41%

Commercial 445 401,042,579 18.58%

Industrial 219 185,511,555 8.59%

Recreational 7 15,424,505 0.71%


Vacant Land 8,295 298,897,881 13.85%

Government/Exempt 1,073 0 0.00%


Subtotal 16,393 $2,065,989,467 95.70%



Unsecured 81,461,440 3.77%

Subtotal $ 92,888,772 4.30%

Total: 16,393 $2,158,878,239 100.00%




III. Project Area Assessed Values

A. Assessed Values

Taxable values for all parcels are prepared by the County Assessor and reported to the Agency by

the County Auditor-Controller each fiscal year and represent the aggregation of all locally

assessed properties that are part of the Redevelopment Projects. The assessments are assigned to

Tax Rate Areas (TRAs) that are coterminous to the boundaries of each Component Project Area.

The historic reported taxable values for the Component Project Areas were reviewed in order to

ascertain the rate of taxable property valuation growth over the ten most recent fiscal years

beginning with 2000-01. Detailed historical assessed values for each of the Component Project

Areas and for the Redevelopment Projects are shown on the attached tables.


Between 2000-01 and 2009-10, the taxable value within the Redevelopment Project No. 1

increased by $368,663,683 (110.84%). With the exception of 2002-03 and 2009-10, the assessed

value increased in each year during this period. From 2008-09 to 2009-10 assessed value in

Redevelopment Project No. 1 dropped by $47,061,108 (-6.28%). This drop was the result of

assessed value declines in both the secured and unsecured tax rolls. Over the ten-year period

examined, secured values have increased by $365.3 million (124.99%) and unsecured values

have increased by $3.3 million (8.3%). Growth has been steady and with large annual increases

from 2003-04 through 2007-08. New residential construction, commercial and industrial

development and transfer of ownership accounted for the majority of the growth within

Redevelopment Project No. 1.

The Redevelopment Project No. 1 has incremental value of $668,903,941 for 2009-10. This

represents an increase of 2,066.5% over the base year value. Over the ten year period examined,

annual growth in assessed value averaged 9.77% despite the decline for 2009-10.


There has been substantial growth in Redevelopment Project No. 2 since its inception. The

2009-10 taxable values for Redevelopment Project No. 2 represents tax incremental value of

$1,009,138,325.


increased by $246,169,388 (132.9%). The growth in assessed value was very steady during this

period between 2000-01 and 2007-08. In 2008-09 and 2009-10, the Redevelopment Project No.

2 experienced decreases due to drops in residential value. Secured values grew in the past ten

years, adding $635,826,343 (149.73%) over this ten-year period. Until 2009-10, increases in

secured value have overcome fluctuations in unsecured value. Despite decreases in unsecured

values from 2004-05 to 2005-06 and 2005-06 to 2006-07, unsecured values have increased by

$17,416,166 (98.26%) since 2000-01. The number of residential units increased by 1,403 (80%)

during this period, necessitating the need for commercial development. Industrial development

also added to the growth within the Redevelopment Project No. 2 area.






increased by $224,572,773 (163.42%). Secured values within the Redevelopment Project No. 3

have increased by $222,926,109 (163.42%) over this period despite a reduction in 2009-10.

Unsecured values have declined in four of the ten years examined but show an increase of

$1,646,664 (163.16%) from 2000-01 through 2009-10. Over the ten-year period examined,

annual growth in assessed value averaged 19.17%. Growth within the Redevelopment Project

No. 3 is primarily due to new residential construction, commercial development and transfer of

ownership.

Residential Real Estate Values

In response to the downturn in real estate values statewide, the Riverside County Assessor

reviewed the values of residential parcels within the County. In 1978, California voters passed

Proposition 8. This constitutional amendment allows a temporary reduction in assessed value

when a property suffers a “decline in value.” A decline in value occurs when the current market

value of a property is less than the current assessed value as of the lien date. Under the terms of

Proposition 8, it is the Assessor’s obligation to assess all properties at the lesser of current market

value or at the property’s base value as adjusted for inflation and for any changes that have

occurred to the property since it was last purchased.

Properties that have their values reduced to the current market value are annually reviewed by the

Assessor to determine the new market value of the property. The value that is enrolled each year

is the lesser of the current market value or the property’s adjusted base value. Adjusting the

property’s value to the current market value may entail a further decrease in value or an increase

in value that is not limited by constitutional restriction on annual value increases. Once the

property has again reached its adjusted base value, it may be increased in value only by the rate

of inflation to a maximum annual rate of two percent as required by the Constitution. Within

the assessment rolls for 2009-10, there were a number of properties that had already been

reduced in value under Proposition 8. For 2009-10 there were a total of 7,980 parcels in the City

of Lake Elsinore that at some point had their values reduced pursuant to Proposition 8. If a

property’s value had been reduced in some earlier year, its value may have been adjusted either

upward or downward for the current year depending on what the Assessor had determined the

market value of that property to be as of January 1, 2009, the lien date for Fiscal Year 2009-10.

Below is a summary of the parcels reduced under Proposition 8 for 2009-10.

Table D

Prop 8 Value Reductions – Fiscal Year 2009-10

No. of Parcels

2008-09 Value

2009-10 Value

Change

Percentage

Change

City (Non-RDA) 4,552 $1,460,990,633 $1,008,066,737 $ (452,923,896) (31.00)%

Redevelopment Project No. 1 608 169,486,667 108,204,852 (61,281,815) (36.16)%

Redevelopment Project No. 2 1,949 569,049,069 364,264,313 (204,784,756) (35.99)%

Redevelopment Project No. 3 871 182,335,907 112,598,488 (69,737,419) (38.25)%

RDA Totals 3,428 $920,871,643 $585,067,653 $(335,803,990) (36.47)%




Since the assessed values that have been reduced under Prop 8 are almost all residential

properties, we have examined the change in value among residential properties in the Component

Project Areas.

From 2000-01 through 2002-03 there was very little change in the number of residential parcels

within the Redevelopment Projects. During this period, the number of residential parcels

increased from 3,976 to 4,449. The assessed value of these residential parcels grew substantially

from 2002-03 to 2003-04 through 2006-07 to 2007-08. Within the Redevelopment Projects there

was a modest decline in residential property values for 2008-09 of $71,311,809 (4.46%). It

appears that for 2008-09 there was sufficient growth among those residential parcels unaffected

by Prop 8 to result in this modest residential value decline. This is partly the result of ongoing

inflationary increases in assessed value for those parcels that have been owned by the property

owners for many years and that are enrolled at values significantly below the current, reduced

market values. In addition, parcels that have been owned for long periods of time will, even

when sold in a down market, be enrolled at significantly higher values relative to their previously

enrolled assessed values. This is characteristic of the older residential neighborhoods within the

Component Project Areas. In 2008-09 the combined values within the Redevelopment Projects

were up by 0.53% over values for 2007-08 owing to growth in commercial and industrial values.

In 2009-10, residential values within the Project Areas suffered a decline of $375,968,066

(24.59%). The changes in value among residential parcels in the component Project Areas from

2000-01 through 2009-10 are shown in Table E below.

Table E

Historical Value of Residential Parcels

Year Redevelopment

Project No. 1

Redevelopment

Project No. 2

Redevelopment

Project No. 3

Redevelopment

Projects Total

Annual %

Change

2000-01 $ 122,924,367 $234,742,172 $ 88,361,915 $446,028,454

2001-02 135,929,897 301,551,913 95,084,928 532,566,738 19.40%

2002-03 144,564,771 360,591,590 102,880,366 608,036,727 14.17%

2003-04 178,899,220 423,272,182 127,000,946 729,172,348 19.92%

2004-05 203,731,952 479,988,519 141,945,146 825,665,617 13.23%

2005-06 239,226,435 613,575,011 180,094,096 1,032,895,542 25.10%

2006-07 277,292,463 752,050,008 222,774,038 1,252,116,509 21.22%

2007-08 326,356,944 955,325,926 318,680,373 1,600,363,243 27.81%

2008-09 311,072,797 903,364,828 314,613,809 1,529,051,434 (4.46%)

2009-10 250,009,440 660,089,863 242,984,065 1,153,083,368 (24.59%)

It is possible that there will be additional residential properties reduced in value under

Proposition 8 in coming years. As the housing market rebounds, values on these properties may

be revised in keeping with market values until such time as the properties regain their inflation

adjusted base value. In this circumstance values may decline or may increase more than two

percent annually.




B. Top Ten Taxable Property Owners

A review of the top ten taxable property owners in the Redevelopment Projects for Fiscal Year

2009-10 was conducted. Within the Redevelopment Projects, the aggregate taxable value for the

ten largest taxpayers totaled $201,933,758. The top ten taxpayers totaled 9.35% of the

Redevelopment Projects’ assessed value. Table F below details the valuations of the top ten

taxpayers. The largest taxpayers represent 10.23% of the Redevelopment Projects’ incremental

value, and the top ten taxpayers reflect 2.19% of the incremental value.

Table F

Redevelopment Projects Top Ten Property Owners

Assessed % Total % Incremental

Value Value Value


Total & Incremental Values

$2,158,878,239

$1,974,024,748

1 Castle and Cooke Lake Elsinore Outlet $43,214,483 2.00% 2.19%

2 Broadstone Rivers Edge 28,109,172 1.30% 1.42%

3 Harbor Grand Apartment Investment 24,923,963 1.15% 1.26%

4 Bank of America NA 18,216,298 0.84% 0.92%

5 Walmart Stores 16,042,308 0.74% 0.81%

6 Target Corporation 15,127,212 0.70% 0.77%

7 Elsinore Veto 14,468,111 0.67% 0.73%

8 Lake Elsinore (CA) – Malaga/Mission

Residential Syndicated Properties,

LLC

13,993,790 0.65% 0.71%

9 Albertson’s 13,942,840 0.65% 0.71%

10 Lake Elsinore Medical Campus 13,895,581 0.64% 0.70%

Totals $201,933,758 9.35% 10.23%

Within the Redevelopment Project No. 1, the aggregate total taxable value of the ten largest

taxpayers totaled $149,170,616 or 21.27% of taxable property values of that Project Area and

22.30% of the incremental value. Within Redevelopment Project No. 2, the aggregate taxable

value of the ten largest taxpayers totaled $147,998,254 or 13.51% of taxable property values and

14.67% of the incremental value. In Redevelopment Project No. 3, the taxable value controlled

by the top ten taxpayers totals $45,857,705 or 10.04% of the Project Area taxable value and

15.49% of the incremental value. Lists of the top ten property owners for each Component

Project Areas, and the number of parcels attributed to each owner, are presented on Table 5 of

each tax increment projection.

IV. Riverside County Tax Allocation and Disbursement Methodology

A. Property Taxes

The taxable values of property are established each year on the January 1 property tax lien date.

Real Property reflects the reported assessed values for secured and unsecured land and




improvements. Article XIII A of the California Constitution (Proposition 13) provides that a

base year value is established when locally assessed real property undergoes a change in

ownership or when new construction occurs. Following the year a base year value is first

enrolled, the value is factored annually for inflation. Pursuant to Article XIII A, section 2(b), and

Revenue and Taxation Code Section 51, the percentage increase cannot exceed two percent of

the prior year's value.

To interpret section 51, the State Board of Equalization (Board) promulgated Property Tax Rule

460, General Application. Subdivision (a) of Rule 460 provides the general interpretation of

Proposition 13 as follows:

(a) Sections 1 and 2 of Article XIII A of the Constitution provide for a limitation on property

taxes and a procedure for establishing the current taxable value of locally assessed real property

by reference to a base year full cash value which is then modified annually to reflect increase in

the inflation rate not to exceed two percent per year or declines in value from whatever cause.

Specifically, with respect to the applicable inflation rate, Rule 460, subdivision (b)(5) states that:

(b)(5) INFLATION RATE. For each lien date after the lien date in which the base year value is

determined, the full value of real property shall be modified to reflect the percentage change in

cost of living, as defined in Section 51 of the Revenue and Taxation Code; provided that such

value shall not reflect an increase in excess of two percent of the taxable value of the preceding

lien date.

Each year the Board announces the applicable adjustment factor. Since in most years inflation

has exceeded two percent, the announced factor has usually reflected the two percent cap. On

five occasions, inflation has been less than two percent. In those years, the announced factor

resulted in an inflation adjustment of less than two percent. In the more than 30 years since the

passage of proposition 13, the annual adjustment has never resulted in a reduction to base year

values, however, the announced factor could result in reductions to base year values. The final

announced factor will depend on price level changes that occurred through October, 2009. The

California Consumer Price Index (CCPI) dropped sharply (three percent) between October, 2008

and December, 2008; however, it has been rising ever since. The adjustment factor for the

January 1, 2010 assessment date will be -0.237%.

Because Section 51 does not distinguish between positive and negative changes in the CCPI, and

because Article XIII A, section 2(b) of the California Constitution specifically provides

adjustments based upon reductions in the CCPI, it is the opinion of the Board that Section 51

requires inflation factor adjustments that may be positive or negative. If positive, the increase is

limited to two percent, however, there is no such limitation to downward adjustments, including

instances in which the net change to the CCPI is zero or less than zero percent. We have

predicated our projections on an adjustment of -0.237% for fiscal year 2010-11 and assumed

resumption of 2% annual growth thereafter.




Utility property assessed by the Board may be revalued annually and such assessments are not

subject to the inflation limitations of Article XIII A. The taxable value of Personal Property is

also established on the lien dates and is not subject to the annual two percent limit of locally

assessed Real Property.

Secured property includes property on which any property tax levied by a county becomes a lien

on that property. Unsecured property typically includes value for tenant improvements, fixtures,

inventory and personal property. A tax levied on unsecured property does not become a lien

against the taxed unsecured property, but may become a lien on certain other secured property

owned by the taxpayer. The taxes levied on unsecured property are levied at the previous year's

secured property tax rate.

B. Supplemental Assessments

Chapter 498 of the Statutes of 1983 provides for the reassessment of property upon a change of

ownership or completion of new construction. Such reassessment is referred to as the

Supplemental Assessment and is determined by applying the current year's tax rate to the amount

of increase in a property's value and prorating the resulting property taxes to reflect the portion of

the tax year remaining as determined by the date of the change in ownership or completion of

new construction.

Since 1984-85 revenues derived from Supplemental Assessments have been allocated to

redevelopment agencies and taxing entities in the same manner as regularly collected property

taxes. The receipt of Supplemental Tax Revenues by taxing entities typically follows the change

of ownership by a year or more. We have not included revenues resulting from Supplemental

Assessments in the projections.

C. Tax Rates

Tax rates will vary from area to area within the State, as well as within a community and a

project area. The tax rate for any particular parcel is based upon the jurisdictions levying the tax

rate for the area where the parcel is located. The tax rate consists of the general levy rate of

$1.00 per $100 of taxable values and the over-ride tax rate. The over-ride rate is that portion of

the tax rate that exceeds the general levy tax rate and is levied to pay voter approved

indebtedness or contractual obligations that existed prior to the enactment of Proposition XIII. A

Constitutional amendment approved in June 1983 allows the levy of over-ride tax rates to repay

indebtedness for the acquisition and improvement of real property, upon approval by a two-thirds

vote. A subsequent amendment of the Constitution prohibits the allocation to redevelopment

agencies of tax revenues derived from over-ride tax rates levied for repayment of indebtedness

approved by the voters after December 31, 1988.

The Redevelopment Project No. 1 contains a total of six TRAs. The Redevelopment Project No.

2 contains fifteen TRAs and Redevelopment Project No. 3 contains nine TRAs. A Tax Rate

Area is a geographic area within which the taxes on all property are levied by a certain set of

taxing entities. These taxing entities each receive a prorated share of the general levy and those

taxing entities with voter approved over-ride tax rates receive the revenue resulting from that tax




rate. The tax increment projections are based on the 1 percent general levy tax rate only. There

are two tax rates that are applied to all TRAs within the Redevelopment Projects. The override

tax rate levied by the Metropolitan Water District is authorized by a contract for purchase of

water from the California Water Project and will not reach its termination date until 2035.

Therefore, we have held the tax rate constant at $1.0043 for the life of our projections.

Table G below illustrates the components that make up the tax rate that is applicable within the

Redevelopment Projects. The debt service over-ride tax rates below reflect the secured tax rates

levied for 2008-09. The secured tax rates for 2009-10 are not yet available.

Table G


Tax Rate 1 Tax Rate 2

General Levy Tax Rate 1.0000 1.0000

Metropolitan Water District 0.0043 0.0000

RDA Applicable Tax Rate 1.0043 1.0000

% of Secured Incremental Value 100.00% 0.00%

% of Unsecured Incremental Value 100.00% 0.00%

Tax Rate 1 – TRA’s 05-016, 05-017, 05-018, 05-019 and 05-020

Tax Rate 2 – TRA 05-617








Tax Rate 1 – TRA’s 05-003, 05-010, 05-011, 05-012, 05-013, 05-014,

05-015, 05-026, 05-027, 05-028, 05-029, 05-030 and 05-063

Tax Rate 2 – TRA’s 05-628 and 05-630











Tax Rate 1 – TRA’s 05-005, 05-031, 05-039, 05-042, 05-043, 05-044

and 05-045

Tax Rate 2 – TRA’s 05-642 and 05-643

Because any debt service override tax rate that may be approved by voters in the future will not

provide any revenue for the Agency, the projection is based on the assumption that the applicable

tax rate within the Redevelopment Projects will remain at the tax rate shown above.

D. Allocation of Taxes

Secured taxes are due in two equal installments. Installments of taxes levied upon secured

property become delinquent on December 10 and April 10. Taxes on unsecured property are due

March 1 and become delinquent August 31. Riverside County disburses secured and utility tax

increment revenue to redevelopment agencies in five installments during the fiscal year.

Supplemental tax roll revenue and homeowner’s exemption revenue is distributed periodically

during the fiscal year with the final reconciliation being remitted in September following the

close of the fiscal year.

The County’s practice is to distribute 100 percent of the taxes levied on the extended tax roll

subject to any tax sharing agreement with the County. The tax revenues of the taxing entities are

not subject to revenue loss due to delinquencies or gains due to redemptions. This is an

administrative practice of the County that could be subject to change. For purposes of this

Report we have assumed that this practice will continue and have estimated future taxes based on

the Agency receiving 100 percent of the amount levied.

E. Annual Tax Receipts to Tax Levy

As indicated in the section above, the County Auditor-Controller allocates tax revenue to the

Agency at 100 percent of the calculated revenue and does not allocate based on collections. The

Agency receives 100 percent of the amount levied for any particular year.

F. Assessment Appeals

Within Redevelopment Project No. 1, there have been 102 assessment appeals filed since 2003-

04. Of the 102 appeals filed, seven have been allowed with a reduction in value and 28 have

been denied. There are 67 appeals currently pending on 59 properties within the Redevelopment

Project No. 1 area. Based on the historical averages, we expect that twelve of the currently

pending appeals will be allowed and that these successful appeals will result in an assessed value




reduction of $13,266,199. This reduction has been incorporated in the projection as a reduction

to the 2010-11 assessed value. Reductions in revenue for refunds resulting from these successful

appeals have not been estimated.

Within Redevelopment Project No. 2 there have been 288 assessment appeals filed since 2003-

04. All appeals filed for fiscal years prior to 2004-05 have been resolved. Of the 288 appeals

filed, fifteen have been allowed with a reduction in value and 121 have been denied. There are

152 appeals currently pending on 149 properties within Redevelopment Project No. 2 area.

Based on the historical averages, we expect that 16 of the currently pending appeal will be

allowed and that these successful appeals will result in an assessed value reduction of $727,905.

This reduction has been incorporated in the projection as a reduction to the 2010-11 assessed

value. Reductions in revenue for refunds resulting from these successful appeals have not been

estimated.

Within Redevelopment Project No. 3, there have been 179 assessment appeals filed since 2003-

04. All appeals filed for fiscal years prior to 2006-07 have been resolved. Of the 179 appeals

filed, one has been allowed with a reduction in value and 83 have been denied. There are 95

appeals currently pending on properties within the Redevelopment Project No. 3 area. Based on

the historical averages, we expect that one of the currently pending appeals will be allowed and

that this successful appeal will result in an assessed value reduction of $7,921. This reduction

has been incorporated in the projection as a reduction to the 2010-11 assessed value. Reductions

in revenue for refunds resulting from these successful appeals have not been estimated.

Our estimates are based upon the historical averages of successful appeals and amounts of value

reductions. Actual appeals, reductions and refunds may vary from historical averages. Our

estimated reductions in values are reflected on Tables 1 and 2 of the projections.

G. County Property Tax Collection Reimbursement

Chapter 466, adopted by Senate Bill 2557, allows counties to recover charges for property tax

administration in an amount equal to their 1989-90 property tax administration costs, as adjusted

annually. The amounts that are reimbursed are the costs connected with the collection and

distribution of property taxes for the Tax Collector, the Auditor-Controller and the Assessor.

The portions of the reimbursement amount that are allocated to each taxing entity within the

County are based on the percentage of the total assessed value in the County that each taxing

entity’s assessed value represents.

The Tax Collection Reimbursement amounts for 2008-09 and the percentage that this amount

represents of each of the Component Project Area’s actual 2008-09 Gross Revenue is shown in

Table H below.




Table H

Property Tax Collection Reimbursement

2008-09 Allocation Future Year %

Redevelopment Project No. 1 $ 84,615 1.158%

Redevelopment Project No. 2 143,870 1.158%

Redevelopment Project No. 3 43,863 1.158%

For purposes of this projection, it is assumed that the Property Tax Collection Reimbursement

amount will annually be the same percentage of the Component Project Area’s Gross Revenue as

in Fiscal Year 2008-09.

H. Allocation of State Assessed Unitary Taxes

Legislation enacted in 1986 (Chapter 1457) and 1987 (Chapter 921) provided for a modification

of the distribution of tax revenues derived from utility property assessed by the State Board of

Equalization, other than railroads. Prior to the 1988-89 fiscal year, property assessed by the SBE

was assessed statewide and was allocated according to the location of individual components of a

utility in a tax rate area.

Commencing in 1988-89, tax revenues derived from unitary property and assessed by the SBE

are accumulated in a single Tax Rate Area for the County. It is then distributed to each taxing

entity in the County in the following manner: (1) each taxing entity will receive the same amount

as in the previous year plus an increase for inflation of up to two percent; (2) if utility tax

revenues are insufficient to provide the same amount as in the previous year, each taxing entity's

share would be reduced prorata countywide; and (3) any increase in revenue above two percent

would be allocated in the same proportion as the taxing entity's local secured taxable values are

to the local secured taxable values of the County.

To administer the allocation of unitary tax revenues to redevelopment agencies, the County no

longer includes the taxable value of utilities as part of the reported taxable values of the project

area and thus, reduced the base year of project areas by the amount of utility value that existed

originally in the base year. The County Auditor-Controller remitted $123,753 in unitary revenue

to the Agency for Redevelopment Project No. 1 during the 2008-09 fiscal year. Unitary revenue

remitted to the Agency for Redevelopment Project No. 2 in 2008-09 was $86,865 and the unitary

revenue allocated to Redevelopment Project No. 3 was $13,991. These revenue amounts tend to

remain fairly constant but are subject to adjustments by the SBE for inflation growth, declines in

value due to assessment appeals by utility companies and others taxed under this system and

increases in value resulting from development of new facilities. Because we cannot reasonably

project changes in this revenue stream, we have assumed that the unitary tax revenue will remain

constant in future years.

V. Low and Moderate Income Housing Set-Aside Requirements

Sections 33334.2 and 33334.3 of the Law require redevelopment agencies to set aside not less

than 20 percent of all tax increment revenues from project areas adopted after December 31,

1976 into a low and moderate income housing fund (the Housing Set-Aside Requirement).




Sections 33334.3, 33334.6 and 33334.7 of the Law extend this requirement to redevelopment

projects adopted prior to January 1, 1977. An agency can reduce the Housing Set-Aside

Requirement if the agency annually makes certain findings, consistent with the General Plan

Housing Element. These findings are that: (1) no need exists in the community to improve or

increase the supply of low and moderate income housing; or, (2) some stated percentage less than

20 percent of the tax increment is sufficient to meet the housing need. In order to make findings

(1) or (2), the Agency's finding must be consistent with the Housing Element of the community's

General Plan, including its share of the regional housing needs of very low income households

and persons and families of low or moderate income. No such findings have been made by the

Agency and, thus, 20 percent of gross revenue has been projected as being set aside from

the Redevelopment Projects.

The proceeds of the Bonds will be utilized to refund, in whole, the Authority’s outstanding Tax

Allocation Revenue Bonds, 1999 Series C (the “Authority 1993C Bonds”). Since a portion of

the proceeds of the Authority 1993C Bonds were used to satisfy the Agency’s Low and

Moderate Income Housing requirements, we have assumed that the portion of the debt service on

the Bonds allocable to the refunding of the housing portion of the Authority 1993C Bonds may

be chargeable to the Housing Set-Aside Requirement.

VI. Legislation

SB 211 was signed into law as Chapter 741, Statutes of 2001. This legislation has two main

impacts on the limits contained in an agency’s redevelopment plan. First, the City may eliminate

the time limit to establish indebtedness in project areas adopted prior to January 1, 1994 by

ordinance. If the Plan is so amended, existing tax sharing agreements will continue and certain

statutory tax sharing for entities without tax sharing agreements will commence in the year the

eliminated limit would have taken effect. Second, an agency may extend the time limit for plan

effectiveness and repayment of debt for up to ten years if it can make certain specified findings.

These changes could potentially impact time limits in the Component Project Area

Redevelopment Plans by eliminating or extending these limits. Project areas that have been

adopted after January 1, 1994 may only extend the limitation on incurring new debt by making

specific findings. On February 26, 2008, the Agency adopted such amendment to the

Redevelopment Project No. 1 Redevelopment Plan and eliminated the time limits on incurrence

of new debt. As a result, the tax increment projections done for purposes of this Report have

incorporated the required tax sharing payments for Redevelopment Project No. 1 pursuant to

Section 33607.7 of the Law. The required statutory tax sharing payments began for

Redevelopment Project No. 1 in 2008-09 and will continue through the expiration of the

Redevelopment Project No. 1 Redevelopment Plan.

In order to address State Budget deficits, the Legislature enacted SB 614, SB 844 and SB 1135

that required payments from redevelopment agencies for the 1992-93, 1993-94 and 1994-95

Fiscal Years into a countywide ERAF. The Agency could have used any funds legally available

and not legally obligated for other uses, including reserve funds, bond proceeds, earned income,

and proceeds of land sales, but not moneys in the Low and Moderate Income Housing Fund (the




Housing Fund) to satisfy this obligation. An agency could have reduced its payment due to

existing indebtedness, contractual obligations and 90 percent of 1991-92 administrative costs

(collectively, Existing Obligations). If an agency could not make the required payment due to

Existing Obligations, it could, after making certain findings, borrow up to 50 percent of its 1992-

93 ERAF obligation from the Housing Fund and repay the borrowed amount by June 2003, or the

agency was required to obtain a loan from the city/county in order to pay the difference between

what the agency paid and the total amount due. For agencies that did not borrow to meet any

shortfall of the required payment, the county auditor-controller was required to deduct any

amount due from the city/county's allocation of property taxes. The obligation applied to the

agency and not to specific project areas.

From 1994-95 through 2001-02, state budgets were adopted with no additional shifting of tax

increment from redevelopment agencies. The State Budget for 2002-03 required a shift of $75

million of tax increment statewide from redevelopment agencies to ERAF to meet the State

budget shortfall. AB 1768 (Chapter 1127, Statutes of 2002) was enacted by the Legislature and

signed by the Governor. Based upon the methodology provided in the 2002-03 budget, the shift

requirement for the Agency was $239,733 for Fiscal Year 2002-03 only. This amount did not

impact the Agency’s ability to fulfill its loan payment obligations. This shift of revenue is an

obligation of the Agency and not of any particular project area. The Agency was permitted to

satisfy this obligation with any legally available funds. The Agency made the required payment

to the County by the deadline of May 10, 2003.

As part of the State’s 2003-04 budget legislation, SB 1045 (Chapter 260, Statutes of 2003)

requires redevelopment agencies statewide to contribute $135 million to local County ERAF

which reduces the amount of State funding for schools. This transfer of funds is limited to Fiscal

Year 2003-04. The amount of revenue that was transferred by the Agency to Riverside County

for 2003-04 is $414,479. The Agency made this payment to the County by the May 10, 2004

deadline.

Under the Law as amended by SB 1045, the Agency was authorized to use a simplified

methodology to amend the Component Project Area Redevelopment Plans to extend by one year

the effectiveness of the plan and the time during which the Agency may repay debt with tax

increment revenues. In addition, the amount of this payment and the ERAF payments made in

prior years are not counted towards the limit on the amount of cumulative tax increment revenues

to be received by the Agency. The City Council adopted ordinances so amending each

Redevelopment Plan on February 26, 2008. By its approval of these ordinances, the City Council

extended by one year the effective lives of the Redevelopment Plans for the Component Project

Areas and similarly extended the period within which the Agency may repay indebtedness from

tax increment revenues. The limits used in the projection reflect this extension and they have

been incorporated into the projection of tax revenue.

The State’s budget for 2004-05 was approved by the legislature and signed by the Governor.

Senate Bill 1096 is a trailer bill that deals with local government. Pursuant to SB 1096,

redevelopment agencies in the State lost $250 million to ERAF in each of the Fiscal Years 2004-




05 and 2005-06. The amounts to be paid by each Agency were calculated by using the same

formula as was used for 2003-04. Annual payments continued to be due on May 10 of each

fiscal year. As in previous years, payments could have been made from any available funds other

than the Housing Fund. If an agency was unable to make a payment, it could have borrowed up

to 50 percent of the current year housing set-aside amount, however, the borrowed amount had to

be repaid to the Housing Fund within 10 years of the last ERAF payment (May 10, 2006). The

Agency made ERAF payments of $831,035 for 2004-05 and $735,007 for 2005-06.

For redevelopment plans with less than ten years of effectiveness remaining from June 30, 2005,

the plans were allowed to be extended by one year for each year that an ERAF payment is made.

For redevelopment plans with 10 to 20 years of effectiveness remaining after June 30, 2005, the

plans could be extended by one year for each year that an ERAF payment is made if the City

Council finds that the Agency is in compliance with specified state housing requirements. These

requirements were: 1) that the Agency is setting aside 20 percent of gross tax increment revenue;

2) housing implementation plans are in place; 3) replacement housing and inclusionary housing

requirements are being met; and, 4) no excess surplus exists. If a redevelopment plan had more

than 20 years of effectiveness remaining after June 30, 2005, it could not be extended. The

Agency has not adopted these extensions for the Component Project Areas.

In order to make such extensions of redevelopment plan effectiveness, the City Council had to

amend the redevelopment plan by ordinance after noticed public hearing and after making the

finding that revenue paid to ERAF would “otherwise have been used to pay the costs of

programs, projects, and activities necessary to carry out the goals and objectives of the

redevelopment plan.” ERAF payment amounts authorized under this legislation did not count

against the Constituent Project Area tax increment limits. ERAF payments were subordinate to

new and existing repayment obligations for bonded indebtedness.

The Legislature enacted AB 1389 to require a $350 million shift for 2008-09 from

redevelopment agencies to ERAF. There was to be no repayment of this amount, nor any

extensions of redevelopment plan limits. Housing Set-Aside Requirement was not to apply to the

amount paid for the ERAF. The amount required to be paid by the Agency under this legislation

was $1,435,054. The payment may have come from any available Agency revenues. The Agency

could have borrowed up to 50 percent from its current year Housing Set-Aside Requirement for

purposes of making the ERAF payment. The ERAF payment was to have been subordinate to

debt existing at the date of enactment of AB 1389. An agency that could not make the payment

due to existing indebtedness would have been allowed to borrow from their legislative body.

Failure to make the ERAF payment would have resulted in penalties that effectively stop new

activities of the agency. This legislation mandated this ERAF shift only for Fiscal Year 2008-09.

The California Redevelopment Association (the CRA), the Executive Director of the CRA, the

Madera Redevelopment Agency and the Moreno Valley Redevelopment Agency filed a lawsuit

in the Sacramento County Superior Court challenging the constitutionality of the AB 1389

provisions requiring the $350 million shift of tax increment revenues from redevelopment

agencies to ERAF. The lawsuit sought to invalidate the provisions of AB 1389 requiring the tax




increment transfer to ERAF and to prohibit the State from forcing county auditors to divert these

redevelopment funds to ERAF. A ruling on this suit by the Sacramento County Superior Court

was filed on April 30, 2009. The Court found in favor of the plaintiffs, ruling that the

requirement that these funds be taken from redevelopment agency revenues and paid into county

ERAF accounts was unconstitutional in that this use of redevelopment tax increment revenues

conflicts with and violates the Law requiring that tax increment revenues be used to finance

redevelopment activities. This ruling eliminated the requirement to make the ERAF payment

described in the previous paragraph. It was expected that the State would appeal the ruling but it

recently withdrew this appeal.

AB 1389 also contained provisions requiring redevelopment agencies to report all amounts of

statutory tax sharing payments owed for Fiscal Years 2003-04 through 2007-08, the amounts

paid, and if any amounts were not paid, to pay the amounts due or incur penalties effectively

stopping new activities of the Agency. In compliance with the requirements of AB 1389, the

Agency made all required statutory tax sharing payments for this period and filed the necessary

reports. AB 1389 further requires reporting of all statutory tax sharing payments for Fiscal Year

2008-09. According to the Agency the required statutory tax sharing payments for 2008-09 have

been made and the required reporting spreadsheet has been submitted to the County Auditor-

Controller for concurrence.

In July, 2009 the Legislature adopted AB 26 4x. This bill is implementing legislation to a

package of 30 bills that were adopted in order to close the State’s budget deficit. Under this

legislation the redevelopment agencies statewide will be required to pay $1.7 billion in Fiscal

Year 2009-10 and another $350 million in 2010-11 into their county’s “Supplemental” ERAF

(the SERAF). Funds deposited in the SERAF will be distributed in such a way as to try to avoid

the issues that were named by the Sacramento Superior Court in its ruling on AB 1389’s ERAF

payment requirement. It is estimated that under this legislation the Agency will be required to

pay $6,970,262 in May, 2010 and $1,435,054 in May, 2011. The amount to be paid by each

redevelopment agency has not been finally determined by the State Department of Finance. If

the Agency does not make the payment by the May 10 deadline its ability to conduct

redevelopment activities will be halted and it must increase the housing set-aside to 25 percent.

Under this legislation, the Agency can use any available funds to make the SERAF payment. For

2009-10, the Agency may use all or part of the Housing Tax Increment Revenues in order to

make the payment. Any Housing Tax Increment Revenues amount used to make the SERAF

payment must be repaid to the Housing Fund by June 30, 2015. If the Agency fails to repay the

Housing Fund in a timely manner, the required allocation of tax increment to the Housing Fund

is increased to 25% for the remainder of the time that debt may be repaid from the Project Area.

On November 12, 2009 the Governor signed SB 68 (Steinberg) into law which modifies AB 26

4x by allowing agencies to use the accumulated balances in their housing fund (and not just

current year Housing Tax Increment Revenues) to make their SERAF payments, should that

become necessary. Funds used from the Housing Fund existing balance to make the 2009-10

payment to County SERAF would be considered a loan to be repaid within five years. Using




funds from accumulated Housing Fund would not be allowed for making payments due for 2010-

11. The legislation requires that the funds be deposited into a County SERAF and distributed to

K-12 school districts located in any project area of the Agency in proportion to the average daily

attendance of the district. The funds distributed to schools from the SERAF must be used to

serve pupils living in the project area or in housing supported by redevelopment funds. The total

amount of SERAF funds received by a school district is deemed to be local property taxes and

will reduce dollar-for-dollar the State's Prop 98 obligations to fund education.

The City may lend to the Agency the amount that must be paid to SERAF and if that occurs, the

Agency is authorized to repay the City from tax increment revenues. The City is also authorized

to make the payment on behalf of the Agency. The provisions of existing law which permit a

joint powers authority to sell bonds and loan the proceeds to redevelopment agencies in order to

make ERAF payments are also available for the 2009-10 and 2010-11 payments. In addition,

agencies are entitled to a one-year extension on their AB 1290 time limits if they make timely

SERAF payments. This extension will not trigger pass-through payments under Health and

Safety Code Section 33607.7.

As with the earlier ERAF obligations, the obligation to make the SERAF payment is subordinate

to debt service on bonds and other indebtedness. An agency may pay less than the amount

required if it finds that it is necessary to make payments on existing obligations required to be

committed, set-aside or reserved by the agency during the applicable fiscal year. An agency that

intends to pay less than the required amount in order to pay existing obligations must adopt a

resolution prior to December 31, 2009, listing the existing indebtedness and the payments

required to be made during the applicable fiscal year.

An agency failing to timely make its SERAF payment, even if the delay is required in order to

pay existing obligations, is subject to what has been referred to as the "death penalty." An

agency subject to the death penalty may not adopt a new redevelopment plan, amend an existing

plan to add territory, issue bonds, further encumber funds or expend any moneys derived from

any source except to pay pre-existing indebtedness, contractual obligations and 75% of the

amount expended on agency administration for the preceding fiscal year. This penalty would last

until the required payments have been made.

On October 20, 2009 the CRA filed a lawsuit in Sacramento Superior Court challenging the

constitutionality of ABX4-26. In addition to the CRA, two redevelopment agencies were named

as plaintiffs in the lawsuit. These are the Union City Redevelopment Agency in Alameda County

and the Fountain Valley Redevelopment Agency in Orange County. They serve as

representatives of all redevelopment agencies in the state. The Court will be asked to certify all

redevelopment agencies as a class of plaintiffs in the lawsuit. With this suit, the CRA will seek

to invalidate the State’s effort to require the redevelopment agencies to shift $2.05 billion in tax

increment revenues to the SERAF. According to the Agency, if the CRA’s lawsuit is

unsuccessful and the SERAF payments must be made, the Agency will borrow the necessary

amounts from the Housing Fund. If these payments are, indeed, made, the Redevelopment Plan

expiration date will be extended by one year as will the time limit on repaying indebtedness.




Since there is a question as to whether the SERAF payments will be required, for purposes of this

report we have not assumed any extension of these time limits.

VII. Tax Sharing and Other Obligations

A. Tax Sharing Obligations

REDEVELOPMENT PROJECT NO. 1

Riverside County

Riverside County, including the County Library and County Fire Department, was allocated

approximately 29.60% of the 1% General Levy generated in Redevelopment Project No. 1 (the

“County Share”) in Fiscal Year 2009-10. Pursuant to the tax sharing agreement with the County,

until such time as the annual amount of Tax Increment Revenues exceeds $500,000, the Agency

will receive 100% of the County Share. When annual Tax Increment Revenues are between

$500,000 and $1 million, the County will receive 20% and the Agency will receive the remaining

80% of the County Share. When annual Tax Increment Revenues are between $1 million and $2

million, the County will receive 25% and the Agency will receive the remaining 75% of the

County Share. When annual Tax Increment Revenues exceed $2 million, the County will receive

50% and the Agency will receive the remaining 50% of the County Share.

Riverside County Flood Control District

Riverside County Flood Control District (Flood Control District) was allocated approximately

3.40% of the 1% General Levy generated in Redevelopment Project No. 1 (the “District Share”)

in Fiscal Year 2009-10. Pursuant to the tax sharing agreement, the Flood Control District will

receive 100% of the District Share following the completion of the Lake Elsinore Outlet

Channel. Prior to such time, the Agency will receive 100% of the District Share to be set aside in

the “Lake Elsinore Outlet Channel Fund” to be used by the Agency to construct specific flood

control facilities.

Elsinore Valley Municipal Water District

Elsinore Valley Municipal Water District (EVMWD) was allocated approximately 8.13% of the

1% General Levy generated in Redevelopment Project No. 1 (the “District Share”) in Fiscal Year

2009-10. Pursuant to the tax sharing agreement with EVMWD, the EVMWD will receive 100%

of the District Share, to be used to construct improvements of benefit to the project area. In

addition, EVMWD will also receive any Tax Increment Revenues generated by any tax override

levied to service any EVMWD debt established after formation of the Redevelopment Project

No. 1.


Riverside County

Riverside County was allocated approximately 29.46% of the 1% General Levy generated in

Redevelopment Project No. 2 (the “County Share”) in Fiscal Year 2009-10. Pursuant to the tax

sharing agreement with the County, the County will receive 50% and the Agency will receive the

remaining 50% of the County Share relating to subareas A, B and C of the Project Area, and the

County will receive 100% of the County Share relating to subarea D of the Project Area. The




cumulative amount of the County Share that may be distributed to the Agency is $8,000,000. The

Agency may only spend its portion of the County Share on “Mutually Agreeable Projects”.


Riverside County Flood Control District was allocated approximately 3.61% of the 1% General

Levy generated in Redevelopment Project No. 2 (the “District Share”) in Fiscal Year 2009-10.

Pursuant to the tax sharing agreement, the Flood Control District will receive 80% of the District

Share and the Agency will receive 20% of the District Share.


Elsinore Valley Municipal Water District was allocated approximately 7.88% of the 1% General


Pursuant to the tax sharing agreement, the EVMWD will receive 100% of the District Share, to

be used to pay debt service on indebtedness incurred to finance or refinance construction of

improvements of benefit to the project area. When all such indebtedness has been repaid, the

District Share will thereafter be distributed to the Agency. In addition, EVMWD will also receive

any Tax Increment Revenues generated by any tax override levied to service any EVMWD debt

established after formation of Redevelopment Project No. 2.

Elsinore Water District

Elsinore Water District (Water District) was allocated approximately 0.70% of the 1% General


Pursuant to the tax sharing agreement, the Water District will receive 100% of the District Share.

In addition, the Water District will also receive any Tax Increment Revenues generated by any

tax override levied to service any Water District debt established after formation of

Redevelopment Project No. 2.

Elsinore Valley Cemetery District

Elsinore Valley Cemetery District (Cemetery District) was allocated approximately 1.06% of the

1% General Levy generated in Redevelopment Project No. 2 (the “District Share”) in Fiscal Year

2009-10. Pursuant to the tax sharing agreement, the Cemetery District will receive 100% of the

District Share.



On June 27, 1989, the Agency entered into a Cooperation Agreement with the Flood Control

District and the City under which the following agreement was made:

“Taxes attributable to that area within the territorial limits of the Flood Control District which

would have otherwise been levied upon taxable property in Project Area No. III shall be paid by

the Agency into a fund of the Flood Control District designated “Project Area III Flood Control

Fund” to be used to finance or refinance flood control facilities which benefit Redevelopment

Project No. 3.”




Elsinore School District

On June 14, 1988, the Agency entered into a Cooperation Agreement with the Elsinore School

District (the School District) and the City under which the following agreement was made:

“The School District shall be entitled to receive in each year fifty percent (50%) of its tax

revenues which the School District would have been entitled to receive in the absence of the

adoption of a Redevelopment Plan for Redevelopment Project No. 3.”

Elsinore Union High School District

On June 14, 1988, the Agency entered into a Cooperation Agreement with the Elsinore Union

High School District (the Union High District) and the City under which the following agreement

was made:

“The Union High District shall be entitled to receive in each year fifty percent (50%) of its tax

revenues which the Union High District would have been entitled to receive in the absence of the

adoption of a Redevelopment Plan for Redevelopment Project No. 3. The School District and

Union High District merged into the Lake Elsinore Unified School District effective July 1,

1990. All pass-through revenues still apply.”

Mt. San Jacinto Community College District

On June 14, 1988, the Agency entered into a Cooperation Agreement with the Mt. San Jacinto

Community College District (the Community College District) and the City under which the

following agreement was made:

“The Community College District shall be entitled to receive in each year fifty percent (50%) of

its tax revenues which the Community College District would have been entitled to receive in the

absence of the adoption of a Redevelopment Plan for Redevelopment Project No. 3.”

Riverside County Superintendent of Schools

On June 14, 1988, the Agency entered into a Cooperation Agreement with the Riverside County

Superintendent of Schools (the RCOE) and the City under which the following agreement was

made:

“The RCOE shall be entitled to receive in each year one hundred percent (100%) of its tax

revenues which the School Superintendent would have been entitled to receive in the absence of

the adoption of a Redevelopment Plan for Redevelopment Project No. 3.”


On June 14, 1988, the Agency entered into a Cooperation Agreement with the EVMWD and the

City under which the following agreement was made:

“Taxes attributable to that area within the territorial limits of EVMWD which would have

otherwise been levied upon taxable property in Redevelopment Project No. 3 shall be paid by the

Agency into a fund of the EVMWD designated “Rancho Laguna Redevelopment Project Water




Facilities Fund” to be used to finance or refinance water facilities which benefit Redevelopment

Project No. 3.”

Elsinore Water District

On June 14, 1988, the Agency entered into an Agreement with the City and the Water District

under which the following agreement was made:

“All tax and assessment revenues that would have been received by the Water District had there

been no provision for tax increment financing of Redevelopment Project No. 3 will continue to

be received by the Water District.”

County Agreement

The Agency and the City attempted to enter into a cooperation agreement with the County with

respect to Redevelopment Project No. 3. On January 23, 1990, the Agency and the City adopted a

form of agreement and delivered it to the County. The County did not take action on the

agreement until 1993 and sought to enforce such agreement. The City and Agency contended that

the County’s action was not timely and that no agreement existed. In an agreement, dated June

23, 1990, the City, Agency and County negotiated a settlement which the County signed on July

27, 1993. The agreement was subsequently modified by an amendment, dated February 8, 1994.

The agreement provides that the County is entitled to receive for each year in which the tax

revenues are (a) at least $500,000 but less than $1,500,000 for such year, twenty-five percent

(25%) of the tax revenues which the County would have been entitled to receive in the absence

of the adoption of the Redevelopment Plan for Redevelopment Project No. 3, (b) at least

$1,500,000 but less than $2,500,000 for such year, thirty-seven and one-half percent (37½%) of

the tax revenues which the County would have been entitled to receive in the absence of the

adoption of the Redevelopment Plan for Redevelopment Project No. 3, (c) at least $2,500,000

but less than $4,000,000 for such year, fifty percent (50%) of the tax revenues which the County

would have been entitled to receive in the absence of the adoption of the Redevelopment Plan for

Redevelopment Project No. 3, (d) at least $4,000,000 but less than $6,000,000 for such year,

sixty-two and one-half percent (62½%) of the tax revenues which the County would have been

entitled to receive in the absence of the adoption of the Redevelopment Plan for Redevelopment

Project No. 3, (e) at least $6,000,000 but less than $8,000,000 for such year, seventy-five percent

(75%) of the tax revenues which the County would have been entitled to receive in the absence

of the adoption of the Redevelopment Plan for Redevelopment Project No. 3, and (f) over

$8,000,000 for such year, one hundred percent (100%) of the tax revenues which the County

would have been entitled to receive in the absence of the adoption of the Redevelopment Plan for

Redevelopment Project No. 3, provided that in the fiscal year in which the total exceeds

$8,000,000 for such year, the Agency and the County agree to review the conditions then current

to determine the possible payback to the County of its increment paid to the Agency.

Furthermore, the County agrees to defer receipt of tax revenues it should receive under the above

formula through January, 1997, and that in January 1999, all moneys so deferred by the County

will be paid back by the Agency from the then current tax revenues, without interest, in equal

payments over five (5) years.




B. Statutory Tax Sharing

Pursuant to Section 33607.7 of the Law, for redevelopment projects adopted prior to January 1,

1994, any amendment that increases the amount of tax increment revenues to be received by a

redevelopment project or extends certain time limits triggers payments to taxing entities with

whom the agency does not have a pass-through agreement. The statutory payments, which are to

begin the fiscal year following the year that the redevelopment project’s original plan limitations

would have taken effect, are calculated using the increase in assessed value above the amount of

assessed value in the redevelopment project in the year that the former limit would have been

reached.


On, February 26, 2008, the City Council adopted Ordinance No. 1249 eliminating the last date

for Redevelopment Project No. 1 to issue new debt. The AB 1290 time limit on incurring debt

for the Redevelopment Project was January 1, 2004. Commencing with the 2008-09 Fiscal Year

and using the 2003-04 Fiscal Year valuations as an adjusted base year value, the Agency is

required to pay to the affected taxing entities an amount that is 25% of all tax increment revenue

derived from the incremental increase in assessed value above the adjusted base year value after

deducting the 20% housing set-aside obligation (the “First Tier Tax Sharing”). This First Tier

Tax Sharing continues until termination of the Redevelopment Project No. 1 Redevelopment

Plan. Payments are only to those entities without pass-through agreements. In addition, beginning

in Fiscal Year 2018-19, using the values for Fiscal Year 2017-18 as an adjusted base year value,

the Agency must pay to affected taxing entities, after deducting the 20% housing set-aside

obligation, an amount that is 21% of the revenue derived from the increase in assessed value

above the new adjusted base year value (the “Second Tier Tax Sharing”). This Second Tier Tax

Sharing will also continue through termination of the redevelopment plan and be paid only to the

taxing entities that have not entered into pass-through agreements. The City may not elect to

receive a share of the Second Tier Tax Sharing. A third tier of tax sharing payments will not be

applicable because the Redevelopment Plan terminates prior to the date that this third tier of

payments is incurred.

As a result of the reporting requirements related to AB 1389, the Agency is currently disputing

the County Auditor-Controller methodology for the calculation of the statutory tax sharing

payments.

Subdivision (b)(2) of Section 33607.5 state that the tax sharing amounts be “calculated against

the amount of assessed value by which the current year assessed value exceeds an adjusted

base year assessed value.” Under the Auditor-Controller’s methodology the “current year

assessed value” is interpreted to include supplemental revenues, prior year collections, unitary

revenue and other Agency revenues and revenue adjustments that are derived from sources other

than “current year assessed values.” This inclusion of revenues from other than “current year

assessed values” has, in connection with the unduly reduced adjusted base year value, resulted in

the Auditor-Controller calculating the amount of the tax sharing requirement to be far in excess

of the amounts calculated by the Agency.




Until the disputed issues are resolved with the County Auditor-Controller, we have reflected the

County’s methodology in our projections.

C. Court Decisions

The State Court of Appeals upheld a Superior Court decision which held the Santa Ana School

District had the right to receive payments from the Orange County Redevelopment Commission

pursuant to a resolution adopted by the School District in 1999 under former Section 33676(a) of

the Law (Santa Ana Unified School District v. Orange County Redevelopment Commission;

App. 4 Dist. 2001 108 Cal. Rptr.2d 770, 90 Cal. App 4th 404, review denied). Former Section

33676(a)(2) provided that, unless a negotiated tax sharing agreement had been entered into, upon

passage of a resolution prior to adoption of a redevelopment plan, affected taxing agencies and

every school and community college district could elect to be allocated increases in the assessed

value of taxable property in the project area based on inflation growth (the 2% Property Tax

Increase). Former Section 33676(a)(2) was repealed as part of major revisions made to the Law

pursuant to the Reform Act of 1993 (AB 1290). The changes to the Law contained in AB1290

were effective as of January 1, 1994.

The Court of Appeals affirmed the lower court ruling that due to an amendment to former

Section 33676(a) that was adopted in 1984 and became effective on January 1, 1985, school and

community college districts were to automatically receive the 2% Property Tax Increase even

without adopting the appropriate resolution prior to the adoption of a redevelopment plan.

Because the Redevelopment Plans for the Component Project Areas were adopted before Section

33676(a) was amended into the Law on January 1, 1985 this decision has no impact on the

Component Project Area Redevelopment Plans.

D. Owner Participation Agreements


NG/Chelsea Lake Elsinore Limited Partnership – The Agency entered into an agreement with

NG/Chelsea Lake Elsinore Limited Partnership pertaining to the development of a factory retail

outlet. The factory outlet center is located in Redevelopment Project Area No. 1. Pursuant to the

agreement, the Agency is required to pay the annual special assessment levied by Assessment

District 86-1. The bonds issued by Assessment District 86-1 mature in the year 2015 and the

annual special assessment is approximately $107,000. Tax Increment is not specifically pledged

towards payment of the annual special assessment. As of June 30, 2009, the Agency owes

$633,101.


Oak Grove Equities – Pursuant to an Owner Participation Agreement with Oak Grove Equities,

the Agency has agreed to reimburse the developer $1,800,000 for certain public improvements

that were installed at the Lake Elsinore City Center. The $1,800,000 accrues interest at 7% per

annum. Installment payments are to be made each year on January 30th for approximately 20

years. Installment payments are calculated to be (1) in the amount of 100% of the sales tax in

excess of $200,000, but not to exceed $200,000 and (2) 50% of the amount of any additional




sales tax received in excess of $400,000. Sales tax is not pledged for repayment. The obligation

is a general obligation of the Agency and tax increment revenue is not specifically pledged.

Wal-Mart Stores, Inc. – On March 12, 1993, the Agency entered into a Disposition and

Development Agreement with Wal-Mart Stores, Inc. The Agency has agreed to purchase Wal-

Mart property through the payment of a $2,200,000 loan from Wal-Mart Stores, Inc. The

$2,200,000 accrues interest at 7% per annum. Installment payments are to be made each year on

January 30th for approximately 20 years, continuing 19 years after the first installment date.

Installment payments are calculated to be (1) in the amount of 100% of the sales tax in excess of

$200,000, but not to exceed $200,000 and (2) 50% of the amount of any additional sales tax

received in excess of $400,000. Sales tax is not pledged for repayment. The obligation is a

general obligation of the Agency and tax increment revenue is not specifically pledged. As of

June 30, 2009, the Agency owes $2,807,940 to Oak Grove Equities and Wal-Mart Stores, Inc.

Laing-CP Lake Elsinore LLC and Civic Partners-LLC – The Agency has entered into a

Disposition and Development Agreement (DDA) with Laing-CP Lake Elsinore LLC and Civic

Partners-LLC covering an area of approximately 3,000 acres in Redevelopment Project No. 2 and

Redevelopment Project No. 3. As a result of the bankruptcy of the managing member of Laing-

CP Lake Elsinore LLC, Bank of America has foreclosed on and now owns the property subject to

the DDA. The Agency has pledged 100% of the net tax increment revenue generated from this

project, which excludes (i) moneys to be set aside in the low and moderate income housing fund,

(ii) moneys paid to taxing agencies pursuant to Tax Sharing Agreements, and (iii) bonded

indebtedness predating the DDA which will have a superior lien on tax increment revenues

including the Bonds. The DDA prohibits any other further bonded indebtedness secured by tax

increment generated by the project site, other than for specific project purposes. The Agency has

accrued tax increment due under the DDA for payment when due pursuant to the terms of the

DDA.


Laing-CP Lake Elsinore LLC and Civic Partners-LLC – The Agency has entered into a

Disposition and Development Agreement with Laing-CP Lake Elsinore LLC and Civic Partners-

LLC (see “Section VII D, Owner Participation Agreements - Redevelopment Project No. 2 –

Laing-CP Lake Elsinore LLC and Civic Partners-LLC” above).

VIII. New Development

A review of recent transfers of ownership has been conducted and a number of transfers were

found to have occurred after the January 1, 2009 lien date for the current fiscal year. These

transfers of ownership occurred from January 1, 2009 through September 4, 2009. As a result,

the sales values on these transfers of ownership are expected to be reflected in the tax rolls for

2010-11.

Within the Redevelopment Project No. 1, 99 transfers of ownership were found. Of the 99

transfers, 58 are sales of foreclosed properties. These transfers of ownership are expected to




result in a decrease of value in the amount of $4,719,806 to the 2010-11 tax roll for the

Redevelopment Project No. 1. Based on data provided by DataQuick, there are 41 parcels in

foreclosure with outstanding mortgages that may result in a reduction of $1,320,286. The

impacts of these transfers are included in the Projections of Incremental Taxable Value and Tax

Increment Revenue Tables 1 and 2 and shown in detail on Table 4 – Redevelopment Project No.

1 (New Development).

There were 308 transfers of ownership found within the Redevelopment Project No. 2. Of the

308 transfers, 229 are sales of foreclosed properties. These transfers of ownership are expected

to result in a decrease of value in the amount of $5,255,036 to the 2010-11 tax roll. In addition,

based on data provided by DataQuick, there are 209 parcels in foreclosure with outstanding

mortgages that may result in a reduction of $5,583,319. The impacts of these transfers are

included in the Projections of Incremental Taxable Value and Tax Increment Revenue Tables 1

and 2 and shown in detail on Table 4 – Redevelopment Project No. 2 (New Development).

Within the Redevelopment Project No. 3, 203 transfers of ownership were found. Of the 203

transfers, 124 are sales of foreclosed properties. These transfers of ownership occurring from

January 1, 2009 through September 4, 2009 are expected to result in a decrease of value in the

amount of $4,955,538 to the 2010-11 tax roll for the Redevelopment Project No. 3. Based on

data provided by DataQuick, there are 187 parcels in foreclosure with outstanding mortgages that

may result in a reduction of $5,704,316. The impacts of these transfers are included in the

Projections of Incremental Taxable Value and Tax Increment Revenue Tables 1 and 2 and shown

in detail on Table 4 – Redevelopment Project No. 3 (New Development).

IX. Trended Taxable Value Growth

In accordance with Article XIII A of the State Constitution, growth in real property land and

improvement values may reflect the year-to-year inflationary rate not to exceed two percent for

any given year or reduction as shown in the consumer price index. A two percent growth rate has

been assumed because it is the maximum inflationary growth rate permitted by law and this rate

of growth has been realized in all but five years since 1981. The years in which less than two

percent growth was realized were 1983-84 (1.0%), 1995-96 (1.19%), 1996-97 (1.11%), 1999-00

(1.85%) and 2004-05 (1.867%). As discussed in Section IV A above, the inflationary growth

rate for 2010-11 will be -0.237%. For purposes of this projection, we have incorporated this

negative growth rate for 2010-11 and assumed resumption of inflationary growth at 2% per year

thereafter. Should the growth of taxable value in the Component Project Areas be less than two

percent in other fiscal years, the resultant Tax Revenues would be reduced. Future values will

also be impacted by changes of ownership and new construction not reflected in our projections.

In addition, the values of property previously reduced in value due to assessment appeals based

on reduced market values could increase more than two percent when real estate values increase

more than two percent (see Section III A above). Seismic activity and environmental conditions

such as hazardous substances that are not anticipated in this Report might also impact taxable

assessed values and Tax Revenue. Future values will also be affected by changes of ownership

and new construction not reflected in our projections. In addition, the values of property




previously reduced in value due to assessment appeals based on reduced market values could

increase more than two percent when real estate values increase more than two percent (see

Section IV A above). Seismic activity and environmental conditions such as hazardous

substances that are not anticipated in this report might also impact property taxes and Tax

Increment Revenue. HdL Coren & Cone makes no representation that taxable assessed values

will actually grow at the rate projected.

As a result of the recent nationwide increase in defaults on residential mortgages there has been

concern expressed in the financial market over the possible impact that these defaults may have

on redevelopment agency revenues in general. Reliable information on foreclosure activity is

difficult to find and what information that is available is not readily applicable to discrete areas

within cities and redevelopment project areas. Much of the information available is segregated

by county or ZIP code. The information within the following table is based on information

available from the RealtyTrac website.

Table I

Foreclosure Data for the City of Lake Elsinore within ZIP Codes 92530 through 92532

As of:

Notices of

Default

Notices of

Trustee’s Sale

Real Estate

Owned

by Lender

Total City

Parcels

Total City

Residential

Parcels

October, 2009 722 780 724 26,265 13,057

According to RealtyTrac, properties receiving a Notice of Default from a trustee are in the first

phase of the foreclosure process. A Notice of Default is sent after the occurrence of a default

under the terms of the deed of trust or mortgage. A Notice of Trustee’s Sale is filed announcing

a public auction of property that is in default under the terms of the deed of trust or mortgage.

This is the second phase of the foreclosure process. Real Estate Owned by Lender reflects the

final stage in the foreclosure process. These are properties that have been conveyed into the

ownership of the lender. Generally the foreclosure process may be halted by the property owner

or borrower paying the amount that is in default under the deed of trust and bringing the loan

current.

The number of parcels on which Notices of Default or Notices of Trustee’s Sale have been filed

or are Lender owned total 17% of all residential parcels within the City. The City is located

within ZIP Codes 92530, 92531 and 92532 which also include unincorporated areas of Riverside

County. We are unable to determine how many of the parcels represented in Table I may be

located within the Project Area or that are located within the city limits.

Anticipated revenues could be adjusted as a result of unidentified assessment appeal refunds,

other Assessor corrections discussed previously, or unanticipated increases or decreases in

property tax values. Estimated valuations from developments included in this analysis are based

upon our understanding of the general practices of the Riverside County Assessor and Auditor-

Controller’s Office. General assessment practices are subject to policy changes, legislative

changes, and the judgment of individual appraisers. While we believe our estimates to be




reasonable, taxable values resulting from actual appraisals may vary from the amounts assumed

in the projections.

FCR 2009 cm 4

Redevelopment Agency of the City of Lake ElsinoreCombined Redevelopment ProjectsPROJECTION OF TAX REVENUES 15-Jan-09

(000s Omitted)

TABLE 2 - Redevelopment Projects

Redevelopment Redevelopment Redevelopment Redevelopment Redevelopment RedevelopmentProject No. 1 Project No. 2 Project No. 3 Total Project No. 1 Project No. 2 Project No. 3 Total

1 2009-10 3,300 3,711 819 7,830 1,368 2,044 597 4,0102 2010-11 3,214 3,648 787 7,650 1,326 2,014 574 3,9143 2011-12 3,268 3,726 806 7,800 1,353 2,056 588 3,9974 2012-13 3,322 3,804 826 7,952 1,379 2,100 602 4,0825 2013-14 3,378 3,884 846 8,108 1,407 2,144 617 4,1686 2014-15 3,435 3,966 866 8,267 1,435 2,189 632 4,2567 2015-16 3,493 4,050 887 8,430 1,463 2,235 647 4,3458 2016-17 3,552 4,135 908 8,595 1,492 2,282 662 4,4379 2017-18 3,613 4,221 930 8,764 1,522 2,330 678 4,530

10 2018-19 3,647 4,310 952 8,909 1,552 2,379 694 4,62511 2019-20 3,695 4,400 974 9,069 1,583 2,429 711 4,72212 2020-21 3,716 4,492 997 9,206 1,607 2,480 727 4,81413 2021-22 2,261 4,586 1,020 7,867 1,066 2,531 744 4,34214 2022-23 2,173 4,682 1,044 7,899 828 2,584 762 4,17415 2023-24 2,172 4,780 1,069 8,021 828 2,638 780 4,24516 2024-25 2,172 4,879 1,093 8,145 828 2,693 798 4,31817 2025-26 2,172 4,981 977 8,130 828 2,749 816 4,39318 2026-27 2,172 5,085 999 8,257 828 2,807 835 4,46919 2027-28 2,172 5,191 1,022 8,385 828 2,865 854 4,54720 2028-29 2,172 5,298 1,046 8,517 828 2,924 874 4,62621 2029-30 2,172 5,409 1,070 8,651 828 2,985 894 4,70622 2030-31 2,172 5,521 1,094 8,787 828 3,047 914 4,78923 2031-32 2,172 5,635 1,119 8,927 828 3,110 935 4,87324 2032-33 0 5,752 1,144 6,896 0 3,175 956 4,13125 2033-34 0 5,871 1,170 7,041 0 3,240 978 4,21826 2034-35 0 0 1,197 1,197 0 0 1,000 1,00027 2035-36 0 0 1,224 1,224 0 0 1,022 1,02228 2036-37 0 0 1,251 1,251 0 0 1,045 1,04529 2037-38 0 0 1,279 1,279 0 0 1,069 1,06930 2038-39 0 0 0 0 0 0 0 0

Totals 65,619 116,018 29,415 211,053 26,829 64,032 23,005 113,866

F:\Bond Service\Tax Allocation Bonds\Lake Elsinore 2009\Combined Totals

Non Housing Set-Aside Revenues Housing Set-Aside Revenues

Redevelopment Agency of the City of Lake ElsinoreCombined Redevelopment ProjectsHISTORICAL VALUES (1) 15-Jan-09


BASE YEARSecured (2) Various 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10Land 72,706,176 342,339,000 362,927,455 377,543,602 403,423,687 454,537,958 561,979,513 682,444,517 844,918,754 936,072,406 783,575,638Improvements 107,273,241 529,803,573 638,613,064 708,054,693 790,714,601 878,475,245 1,076,675,724 1,258,486,465 1,578,573,029 1,504,992,260 1,324,286,840Personal Prop 1,188,637 4,325,104 4,384,067 4,002,441 3,403,657 3,298,108 3,452,775 3,452,519 3,532,864 3,609,162 4,673,912Exemptions (956,600) (23,122,480) (11,540,014) (27,753,850) (11,883,142) (26,845,159) (27,724,358) (28,282,515) (33,314,249) (34,060,232) (35,119,591)

TOTAL SECURED 180,211,454 853,345,197 994,384,572 1,061,846,886 1,185,658,803 1,309,466,152 1,614,383,654 1,916,100,986 2,393,710,398 2,410,613,596 2,077,416,799

UnsecuredLand 0 42,371 43,673 36,787 8,301 8,179 8,096 7,333 7,887 256,241 7,125Improvements 2,485,857 33,911,300 35,843,947 28,483,399 29,807,111 42,372,089 40,011,799 39,041,926 47,029,803 42,501,171 35,652,731Personal Prop 2,156,180 25,100,406 31,455,121 31,241,363 36,614,171 44,667,382 40,634,376 38,976,485 53,649,452 53,357,705 45,891,964Exemptions 0 0 0 (15,000) 0 (50,000) 0 0 (40,000) (46,050) (90,380)

TOTAL UNSECURE 4,642,037 59,054,077 67,342,741 59,746,549 66,429,583 86,997,650 80,654,271 78,025,744 100,647,142 96,069,067 81,461,440

GRAND TOTAL 184,853,491 912,399,274 1,061,727,313 1,121,593,435 1,252,088,386 1,396,463,802 1,695,037,925 1,994,126,730 2,494,357,540 2,506,682,663 2,158,878,239

Incremental Value: 727,545,783 876,873,822 936,739,944 1,067,234,895 1,211,610,311 1,510,184,434 1,809,273,239 2,309,504,049 2,321,829,172 1,974,024,748Annual Change: 20.52% 6.83% 13.93% 13.53% 24.64% 19.80% 27.65% 0.53% -14.98%

(1) Source: County of Riverside County Lien Date Rolls(2) Secured values include state assessed non-unitary utility property.(3) Base Year Value reflects an adjusted for the transfer of railroad properties values to the Unitary Roll.


Redevelopment Agency of the City of Lake Elsinore DRAFTCombined Redevelopment ProjectsTOP TEN TAXABLE PROPERTY OWNERS (1) 15-Jan-09


Secured Unsecured Total% of % of % of

Value Parcels Sec. AV Value Parcels Unsec. AV Value Total Value Use Code

1. $42,799,496 3 2.06% $414,987 2 0.51% 43,214,483 2.00% CommercialLake Elsinore Outlet Center -major anchor tenants includes Nike Factory Store, Pottery Barn, Old Navy, Gap Outlet, Guess Factory Store, and vf Outlet.Redevelopment Project No. 1

2. Broadstone Rivers Edge $28,109,172 1 1.35% $0 0 0.00% 28,109,172 1.30% ResidentialBroadstone Rivers Edge Apartments - 184 units apartment complexRedevelopment Project No. 2

3. $24,923,963 2 1.20% $0 0 0.00% 24,923,963 1.15% ResidentialHarbor Grand Apartment Homes - 192 units apartmentRedevelopment Project No. 1

4. $18,128,055 230 0.87% $88,243 1 0.11% 18,216,298 0.84% Vacant Land, ResidentialRedevelopment Project Nos. 2 and 3

5. Walmart Stores $14,449,886 2 0.70% $1,592,422 1 1.95% 16,042,308 0.74% CommercialWalmart StoreRedevelopment Project No. 2

6. Target Corporation $15,127,212 1 0.73% $0 0 0.00% 15,127,212 0.70% CommercialOak Grove Crossing - Target, Bank of America, Oak Grove Dental Group, Fantastic Sams, Papa Johns, Subway, and StarbucksRedevelopment Project No. 1

7. Elsinore Veto $14,468,111 5 0.70% $0 0 0.00% 14,468,111 0.67% CommercialNeighborhood Retail Center - includes Denny's, Starbucks, Von's Kragen, GNC, Payless Shoes, Wachovia, and El Pollo LocoRedevelopment Project No. 2

8. $13,993,790 258 0.67% $0 0 0.00% 13,993,790 0.65% Vacant LandRedevelopment Project Nos. 2 and 3

9. $13,942,840 2 0.67% $0 0 0.00% 13,942,840 0.65% CommercialLake Elsinore Town Center - Albertson's30901 Riverside Dr - Albertson'sRedevelopment Project No. 2

10. Lake Elsinore Medical Campus $13,895,581 130 0.67% $0 0 0.00% 13,895,581 0.64% CommercialThe Plaza - includes Remax, and vacant commercial officesRedevelopment Project No. 2

$199,838,106 634 9.62% $2,095,652 4 2.57% $201,933,758 9.35%

Project Area Assessed Valuation Totals: $2,077,416,799 $81,461,440 $2,158,878,239

Project Area Incremental Value Totals: $1,897,205,345 10.53% $76,819,403 2.73% $1,974,024,748 10.23%

(1) 2009-10 top property owners current as of September 4, 2009.


Lake Elsinore (CA) - Malaga/Mission Residentail Syndicated Properties, LLC

Castle and Cooke Lake Elsinore Outlet(Pending Appeal)

Harbor Grand Apartments Investment(Pending Appeal)

Bank of America NA(Pending Appeals)

Albertson's(Pending Appeal)

Redevelopment Agency of the City of Lake ElsinoreRancho Laguna Redevelopment Project Area No. IPROJECTION OF INCREMENTAL VALUE AND TAX INCREMENT REVENUE(000's Omitted) 15-Jan-10

TABLE 1 - Redevelopment Project No. 1

Taxable Values (1) 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 Real Property (2) 675,027 654,153 667,236 680,580 694,192 708,076 722,237 736,682 751,416 766,444 Personal Property (3) 26,245 26,245 26,245 26,245 26,245 26,245 26,245 26,245 26,245 26,245Total Projected Value 701,273 680,398 693,481 706,826 720,437 734,321 748,483 762,928 777,661 792,690

Taxable Value over Base 32,369 668,904 648,029 661,112 674,457 688,069 701,952 716,114 730,559 745,292 760,321

Gross Tax Increment Revenue (4) 6,718 6,508 6,640 6,774 6,910 7,050 7,192 7,337 7,485 7,636Unitary Tax Revenue 124 124 124 124 124 124 124 124 124 124Gross Revenues 6,842 6,632 6,763 6,897 7,034 7,173 7,316 7,461 7,609 7,760Revenue in Excess of Project I Limits (5) 0 0 0 0 0 0 0 0 0 0Adjusted Gross Revenue 6,842 6,632 6,763 6,897 7,034 7,173 7,316 7,461 7,609 7,760

LESS: SB 2557 Admin. Fee (6) (79) (77) (78) (80) (81) (83) (85) (86) (88) (90)

PASS THROUGHS County of Riverside Pass Through (7) (1,008) (978) (997) (1,017) (1,037) (1,057) (1,078) (1,100) (1,122) (1,144) Riverside County Flood Control District (8) (232) (225) (229) (234) (238) (243) (248) (253) (258) (263) Elsinore Valley Municipal Water (9) (554) (537) (548) (559) (570) (581) (592) (604) (616) (628)SB 211 Statutory Tax Sharing: All Other Taxing Entities Tier 1 (10) (300) (275) (291) (307) (323) (339) (356) (373) (391) (408) All Other Taxing Entities Tier 2 (10) 0 0 0 0 0 0 0 0 0 (27)

Tax Revenues 4,668 4,541 4,620 4,702 4,785 4,870 4,956 5,045 5,135 5,199 Housing Set Aside Requirement (11) 1,368 1,326 1,353 1,379 1,407 1,435 1,463 1,492 1,522 1,552 Non-Housing Set-Aside Tax Revenues 3,300 3,214 3,268 3,322 3,378 3,435 3,493 3,552 3,613 3,647

F:\Bond Services\Tax Allocation Bonds\Lake Elsinore 2008\2009-10 Projection 4\Project I

Redevelopment Agency of the City of Lake ElsinoreRancho Laguna Redevelopment Project Area No. IFootnotes for TABLE 1 - Redevelopment Project No. 1

(1) Taxable values as reported by Riverside County.(2) Real property consists of land and improvements. Decreased for transfer sales (see Table 4 - Redevelopment Project No. 1) and adjusted for inflation at 0.99763% in 2010-11 and

increased 2% annually thereafter for inflation. In 2010-11, values were reduced by $13,266,199 for estimated value losses from twelve pending appeals.(3) Personal property is held constant at 2009-10 level.(4) Projected Gross Tax Increment is based upon incremental taxable values factored against an assumed Project tax rate and adjusted

for indebtedness approved by voters after 1988. The assumed future tax rate remains constant at $1.0043 per $100 of taxable value.(5) The Redevelopment Plan limits the Agency's net tax increment to $3 million annually.(6) County Administration fee is estimated at 1.158% of Gross Revenue.(7) County of Riverside, including the Library and the Structural Fire Protection, receives 20% of its share (29.60%) of the

general levy tax increment revenue, when general levy tax increment revenue is between $500,000 and $1 million; 25% when general levy tax increment revenue is more than $1 million but less than $2 million; and, 50% when general levy tax increment revenue exceeds $2 million.

(8) Riverside County Flood Control and Water Conservation District receives its share (3.40%) of the general levy tax increment revenue.(9) Elsinore Valley Municipal Water District receives its share (8.13%) of the general levy tax increment revenue.(10) By the adoption of an amendment to the Redevelopment Plan under the terms of SB 211, the Agency has eliminated the Plan's time limit

for incurrence of new debt. By the elimination of this limit, the Agency is required to make statutory tax sharing payments as outlined in the Health and Safety Code beginning in the fiscal year following the date of the eliminated time limit (Jan. 1, 2004). Using the assessed values for 2003-04 as a base year and beginning in 2008-09, Taxing Entities that do not have existing tax sharing agreements receive their shares of 25% of tax increment revenue net of housing set aside. In addition, beginning in the 11th year after the initiation of statutory tax sharing payments, Taxing Entities receive 21% of tax revenue on incremental value above 10th yearvalue net of housing set aside. A third tier of tax sharing is not initiated before the plan's effectiveness expires. Statutory payments continue only through the fiscal year containing the termination date of plan effectiveness (2022-23).

(11) Housing Set Aside calculated at 20% of Adjusted Gross Revenue.


Redevelopment Agency of the City of Lake ElsinoreRancho Laguna Redevelopment Project Area No. IPROJECTION OF INCREMENTAL VALUE AND TAX INCREMENT REVENUE 15-Jan-10(000s Omitted)


Taxable Value Adjusted Housing Non-Housing Total Over Base Gross SB 2557 Pass-Throughs Tax Set-Aside Set-Aside

Taxable Value 32,369 Revenue Charge Agreements Tier 1 Tier 2 Revenues Tax Revenues Tax Revenues1 2009-10 701,273 668,904 6,842 (79) (1,794) (300) 0 4,668 1,368 3,3002 2010-11 680,398 648,029 6,632 (77) (1,739) (275) 0 4,541 1,326 3,2143 2011-12 693,481 661,112 6,763 (78) (1,774) (291) 0 4,620 1,353 3,2684 2012-13 706,826 674,457 6,897 (80) (1,809) (307) 0 4,702 1,379 3,3225 2013-14 720,437 688,069 7,034 (81) (1,845) (323) 0 4,785 1,407 3,3786 2014-15 734,321 701,952 7,173 (83) (1,881) (339) 0 4,870 1,435 3,4357 2015-16 748,483 716,114 7,316 (85) (1,919) (356) 0 4,956 1,463 3,4938 2016-17 762,928 730,559 7,461 (86) (1,957) (373) 0 5,045 1,492 3,5529 2017-18 777,661 745,292 7,609 (88) (1,995) (391) 0 5,135 1,522 3,613

10 2018-19 792,690 760,321 7,760 (90) (2,035) (408) (27) 5,199 1,552 3,64711 2019-20 808,018 775,650 7,914 (92) (2,075) (427) (43) 5,277 1,583 3,69512 2020-21 823,654 791,285 8,037 (93) (2,117) (445) (58) 5,324 1,607 3,71613 2021-22 839,602 807,233 5,330 (62) (1,404) (464) (74) 3,327 1,066 2,26114 2022-23 855,869 823,500 4,138 (48) (1,090) 0 0 3,000 828 2,17315 2023-24 872,462 840,093 4,138 (48) (1,090) 0 0 3,000 828 2,17216 2024-25 889,386 857,017 4,138 (48) (1,090) 0 0 3,000 828 2,17217 2025-26 906,649 874,280 4,138 (48) (1,090) 0 0 3,000 828 2,17218 2026-27 924,257 891,888 4,138 (48) (1,090) 0 0 3,000 828 2,17219 2027-28 942,217 909,848 4,138 (48) (1,090) 0 0 3,000 828 2,17220 2028-29 960,537 928,168 4,138 (48) (1,090) 0 0 3,000 828 2,17221 2029-30 979,222 946,853 4,138 (48) (1,090) 0 0 3,000 828 2,17222 2030-31 998,282 965,913 4,138 (48) (1,090) 0 0 3,000 828 2,17223 2031-32 1,017,723 985,354 4,138 (48) (1,090) 0 0 3,000 828 2,17224 2032-33 0 0 0 0 0 0 0 0 0 025 2033-34 0 0 0 0 0 0 0 0 0 026 2034-35 0 0 0 0 0 0 0 0 0 027 2035-36 0 0 0 0 0 0 0 0 0 028 2036-37 0 0 0 0 0 0 0 0 0 029 2037-38 0 0 0 0 0 0 0 0 0 030 2038-39 0 0 0 0 0 0 0 0 0 0

134,143 (1,554) (35,241) (4,698) (202) 92,448 26,829 65,619


Statutory Tax Sharing

Tax Revenues Components

Redevelopment Agency of the City of Lake ElsinoreRancho Laguna Redevelopment Project Area No. IHISTORICAL VALUES (1) 15-Jan-10


Base YearSecured (2) 1980-81 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

Land 12,134,580 117,039,509 125,576,769 131,914,922 139,331,528 150,861,801 174,498,749 188,493,818 222,928,952 238,693,727 219,766,316Improvements 17,524,216 190,986,863 238,330,239 253,844,011 284,803,455 311,742,043 351,439,082 374,628,416 464,606,321 474,467,177 455,471,276Personal Property 512,812 713,919 852,550 724,013 303,120 609,630 638,120 626,576 646,418 793,822 2,165,187Exemptions (507,736) (16,450,875) (2,062,360) (16,574,165) (2,322,801) (17,512,378) (17,907,589) (17,900,509) (18,788,800) (19,387,149) (19,794,213)

Total Secured 29,663,872 292,289,416 362,697,198 369,908,781 422,115,302 445,701,096 508,668,362 545,848,301 669,392,891 694,567,577 657,608,566

UnsecuredLand 0 10,406 12,479 8,002 7,351 7,243 7,170 7,112 6,966 220,503 6,397Improvements 1,526,928 25,377,366 26,284,017 18,035,541 17,352,327 25,906,381 25,265,909 25,182,893 30,297,271 25,687,714 19,577,504Personal Property 1,178,028 14,931,898 17,291,251 16,975,240 21,141,818 23,851,268 21,981,489 20,772,925 30,906,589 27,858,083 24,080,302Exemptions 0 0 0 0 0 0 0 0 0 0 0

Total Unsecured 2,704,956 40,319,670 43,587,747 35,018,783 38,501,496 49,764,892 47,254,568 45,962,930 61,210,826 53,766,300 43,664,203

GRAND TOTAL 32,368,828 332,609,086 406,284,945 404,927,564 460,616,798 495,465,988 555,922,930 591,811,231 730,603,717 748,333,877 701,272,769

Incremental Value: 300,240,258 373,916,117 372,558,736 428,247,970 463,097,160 523,554,102 559,442,403 698,234,889 715,965,049 668,903,941Annual Change: 24.54% -0.36% 14.95% 8.14% 13.05% 6.85% 24.81% 2.54% -6.57%

(1) Source: County of Riverside Lien Date Rolls.(2) Secured values include state assessed non-unitary utility property.


Redevelopment Agency of the City of Lake ElsinoreRancho Laguna Redevelopment Project Area No. INew Development 15-Jan-10


000's omitted

SqFt/ Total Less Total ValueREAL Units Value Value Existing Added Start Complete 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

Transfer Sales (Jan. 1-Sep. 4, 2009) 41 $0 6,746,500 9,179,165 (2,433) (2,433) 0 0 0 0 0Foreclosure Sales (Jan. 1 - Sep. 4, 2009) 58 $0 7,761,000 10,048,141 (2,287) (2,287) 0 0 0 0 0Foreclosure (Jan. 1 - Sep. 4, 2009) 41 $0 9,733,678 11,053,964 (1,320) (1,320) 0 0 0 0 0

Total Real Property: 24,241,178 30,281,270 (6,040) (6,040) 0 0 0 0 0Adj. Annually for Inflation @ 2% 0 0 0 0 0

PERSONAL Start Complete

0 0 0 0 0 0 0 0 0 0 00 0 0 0 0 0 0 0 0 0 00 0 0 0 0 0 0 0 0 0 0

Total Personal Property: 0 0 0 0 0 0 0 0 0

Total Real and Personal Property: (6,040) 0 0 0 0 0


Redevelopment Agency of the City of Lake ElsinoreRancho Laguna Redevelopment Project Area No. ITOP TEN TAXABLE PROPERTY OWNERS (1) 15-Jan-10


Secured Unsecured Total% of % of

Owner Value Parcels Sec. AV Value Parcels Sec. AV Value Value Use

1 Castle and Cooke Lake Elsinore Outlet(Pending Appeal)

42,799,496$ 3 6.51% 414,987$ 2 0.95% 43,214,483$ 6.16% CommercialLake Elsinore Outlet Center -major anchor tenants includes Nike Factory Store, Pottery Barn, Old Navy, Gap Outlet, Guess Factory Store, and vf Outlet.

2 Harbor Grand Apartments Investment(Pending Appeal)

24,923,963 2 3.79% - - 0.00% 24,923,963 3.55% ResidentialHarbor Grand Apartment Homes - 192 units apartment

3 Target Corporation 15,127,212 1 2.30% - - 0.00% 15,127,212 2.16% CommercialOak Grove Crossing - Target, Bank of America, Oak Grove Dental Group, Fantastic Sams, Papa Johns, Subway, and Starbucks

4 Lake Elsinore Office Park 13,084,176 2 1.99% - - 0.00% 13,084,176 1.87% CommercialRiverside County Social Services OfficesVacant Land - Commercia l

5 RSM Properties 12,673,884 3 1.93% - - 0.00% 12,673,884 1.81% CommercialNeighborhood Retail Center - includes Walgreens, El Pollo Loco and small retail stores

6 HD Development Of Maryland Inc. 10,036,928 1 1.53% - - 0.00% 10,036,928 1.43% CommercialLake Elsinore Square - Home Depot, 99 cent Store, Petco, IHop, Big 5, and small retail stores

7 Toyota Motor Sales USA Inc. 8,670,000 1 1.32% - - 0.00% 8,670,000 1.24% Vacant Land

8 Louis F. Depasquale Trust(Pending Appeal)

8,047,613 6 1.22% - - 0.00% 8,047,613 1.15%CommercialCamelot Center - Trevi Lanes Entertainment Center, Diamond 8 Cinema, and small retail stores

9 Miramar West Auto Center(Pending Appeal)

6,892,005 3 1.05% - - 0.00% 6,892,005 0.98% CommercialNeighborhood Retail Center - includes Stater Bros, Del Taco, KC Wholesale Flooring and small retail stores

10 MKJ Adnoff Investment(Pending Appeal)

6,500,352 1 0.99% - - 0.00% 6,500,352 0.93% CommercialPasadena Commerce Center - Business Park

Total 148,755,629$ 23 22.62% 414,987$ 2 0.95% 149,170,616$ 21.27%

Project Area Totals: 657,608,566$ 43,664,203$ 701,272,769$

Project Area Incremental Value Totals 627,944,694$ 23.69% 40,959,247$ 1.01% 668,903,941$ 22.30%



Redevelopment Agency of the City of Lake ElsinoreRancho Laguna Redevelopment Project Area No. IIPROJECTION OF INCREMENTAL VALUE AND TAX INCREMENT REVENUE 15-Jan-10(000's Omitted)


Taxable Values (1) 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 Real Property (2) 1,073,593 1,058,484 1,079,654 1,101,247 1,123,272 1,145,737 1,168,652 1,192,025 1,215,865 1,240,183 Personal Property (3) 22,017 22,017 22,017 22,017 22,017 22,017 22,017 22,017 22,017 22,017Total Projected Value 1,095,610 1,080,501 1,101,671 1,123,264 1,145,289 1,167,754 1,190,669 1,214,042 1,237,883 1,262,200

Taxable Value over Base 86,472 1,009,138 994,029 1,015,199 1,036,792 1,058,817 1,081,282 1,104,197 1,127,570 1,151,411 1,175,728

Gross Tax Increment Revenue (4) 10,135 9,983 10,195 10,412 10,634 10,859 11,089 11,324 11,563 11,808Unitary Tax Revenue 87 87 87 87 87 87 87 87 87 87Gross Revenues 10,221 10,070 10,282 10,499 10,720 10,946 11,176 11,411 11,650 11,895

LESS: SB 2557 Admin. Fee (5) (118) (116) (119) (121) (124) (127) (129) (132) (135) (138)

PASS THROUGHS County of Riverside Pass Through (6) (2,999) (2,962) (3,024) (3,088) (3,153) (3,220) (3,287) (3,356) (3,427) (3,499) Riverside County Flood Control District (7) (367) (361) (369) (377) (385) (393) (401) (410) (418) (427) Elsinore Valley Cemetery District (8) (108) (106) (109) (111) (113) (116) (118) (121) (123) (126) Elsinore Valley Municipal Water (9) (802) (791) (807) (824) (842) (859) (877) (896) (915) (934) Elsinore Water District (10) (72) (70) (72) (73) (75) (77) (78) (80) (82) (83)

Tax Revenues 5,755 5,662 5,782 5,904 6,028 6,155 6,285 6,417 6,551 6,689 Housing Set Aside Requirement (11) 2,044 2,014 2,056 2,100 2,144 2,189 2,235 2,282 2,330 2,379 Non-Housing Set-Aside Tax Revenues 3,711 3,648 3,726 3,804 3,884 3,966 4,050 4,135 4,221 4,310

(1) Taxable values as reported by Riverside County.(2) Real property consists of land and improvements. Decreased for transfer sales (see Table 4 - Redevelopment Project No. 2) and adjusted for inflation at 0.99763% in 2010-11

and increased 2% annually thereafter for inflation. In 2010-11, values were reduced by $727,905 for estimated value losses from sixteen pending appeals.(3) Personal property is held constant at 2009-10 level.(4) Projected Gross Tax Increment is based upon incremental taxable values factored against an assumed Project tax rate and adjusted

for indebtedness approved by voters after 1988. The assumed future tax rate remains constant at $1.0043 per $100 of taxable value.(5) County Administration fee is estimated at 1.158% of Gross Revenue.(6) County of Riverside, including the Free Library and the Structural Fire Protection, receives 50% of its share (29.35%) of the general

levy tax increment revenue generated in subareas A, B and C of the Project Area and 100% of its share (29.77%) of the general levy tax increment revenue generated in Subarea D of the Project Area. The cumulative amount of the County Share that may be distributed to the Agency is $8 million.

(7) Riverside Flood Control and Water Conservation District receives its share (3.61%) of the general levy tax increment.(8) Elsinore Valley Cemetary District receives its share (1.06%) of the general levy tax increment.(9) Elsinore Valley Municipal Water District receives its share (7.88%) of the general levy tax increment.(10) Elsinore Water District receives its share (0.70%) of the general levy tax increment.(11) Housing Set Aside calculated at 20% of Gross Revenue.

F:\Bond Services\Tax Allocation Bonds\Lake Elsinore 2008\2009-10 Projection 4\Project II

Redevelopment Agency of the City of Lake ElsinoreRancho Laguna Redevelopment Project Area No. IIPROJECTION OF INCREMENTAL VALUE AND TAX INCREMENT REVENUE 15-Jan-10(000s Omitted)


Taxable Value Housing Non-Housing Total Over Base Gross SB 2557 Pass-Throughs Tax Set-Aside Set-Aside

Taxable Value 86,472 Revenue Charge Agreements Revenues Tax Revenues Tax Revenues1 2009-10 1,095,610 1,009,138 10,221 (118) (4,348) 5,755 2,044 3,7112 2010-11 1,080,501 994,029 10,070 (116) (4,291) 5,662 2,014 3,6483 2011-12 1,101,671 1,015,199 10,282 (119) (4,381) 5,782 2,056 3,7264 2012-13 1,123,264 1,036,792 10,499 (121) (4,474) 5,904 2,100 3,8045 2013-14 1,145,289 1,058,817 10,720 (124) (4,568) 6,028 2,144 3,8846 2014-15 1,167,754 1,081,282 10,946 (127) (4,664) 6,155 2,189 3,9667 2015-16 1,190,669 1,104,197 11,176 (129) (4,762) 6,285 2,235 4,0508 2016-17 1,214,042 1,127,570 11,411 (132) (4,862) 6,417 2,282 4,1359 2017-18 1,237,883 1,151,411 11,650 (135) (4,964) 6,551 2,330 4,221

10 2018-19 1,262,200 1,175,728 11,895 (138) (5,068) 6,689 2,379 4,31011 2019-20 1,287,004 1,200,532 12,144 (140) (5,174) 6,829 2,429 4,40012 2020-21 1,312,303 1,225,831 12,398 (143) (5,282) 6,972 2,480 4,49213 2021-22 1,338,109 1,251,637 12,657 (146) (5,393) 7,118 2,531 4,58614 2022-23 1,364,431 1,277,959 12,921 (149) (5,505) 7,266 2,584 4,68215 2023-24 1,391,279 1,304,807 13,191 (153) (5,620) 7,418 2,638 4,78016 2024-25 1,418,664 1,332,193 13,466 (156) (5,737) 7,573 2,693 4,87917 2025-26 1,446,597 1,360,125 13,746 (159) (5,857) 7,730 2,749 4,98118 2026-27 1,475,089 1,388,617 14,033 (162) (5,979) 7,891 2,807 5,08519 2027-28 1,504,150 1,417,678 14,324 (166) (6,103) 8,055 2,865 5,19120 2028-29 1,533,793 1,447,321 14,622 (169) (6,230) 8,223 2,924 5,29821 2029-30 1,564,028 1,477,557 14,926 (173) (6,359) 8,394 2,985 5,40922 2030-31 1,594,869 1,508,397 15,235 (176) (6,491) 8,568 3,047 5,52123 2031-32 1,626,326 1,539,854 15,551 (180) (6,626) 8,746 3,110 5,63524 2032-33 1,658,412 1,571,940 15,874 (184) (6,763) 8,927 3,175 5,75225 2033-34 1,691,140 1,604,668 16,202 (187) (6,903) 9,112 3,240 5,87126 2034-35 0 0 0 0 0 0 0 027 2035-36 0 0 0 0 0 0 0 028 2036-37 0 0 0 0 0 0 0 029 2037-38 0 0 0 0 0 0 0 030 2038-39 0 0 0 0 0 0 0 0

320,161 (3,704) (136,407) 180,050 64,032 116,018



Redevelopment Agency of the City of Lake ElsinoreRancho Laguna Redevelopment Project Area No. IIHISTORICAL VALUES (1) 15-Jan-10



Land 35,553,274 165,933,221 175,498,605 182,566,930 198,405,562 226,738,560 288,835,712 351,273,467 439,150,900 489,440,608 392,095,346Improvements 48,670,304 261,007,972 317,688,203 366,772,555 409,759,997 458,770,320 587,040,312 707,451,682 870,627,427 798,152,763 680,157,236Personal Property 602,612 3,604,038 3,531,517 3,278,428 3,100,537 2,650,146 2,785,135 2,798,583 2,862,152 2,798,906 2,493,957Exemptions (207,868) (5,902,735) (8,512,043) (10,266,794) (8,670,955) (8,610,962) (8,879,025) (9,405,238) (13,523,375) (13,647,579) (14,277,700)

Total Secured 84,618,322 424,642,496 488,206,282 542,351,119 602,595,141 679,548,064 869,782,134 1,052,118,494 1,299,117,104 1,276,744,698 1,060,468,839

UnsecuredLand 0 988 978 960 950 936 926 221 921 930 728Improvements 943,593 8,044,519 9,229,433 10,187,739 12,260,211 16,192,609 14,456,800 13,611,310 16,220,442 16,350,258 15,617,297Personal Property 909,909 9,679,637 13,626,445 13,831,571 14,808,109 19,948,681 17,565,141 17,206,107 19,951,950 23,125,803 19,613,665Exemptions 0 0 0 (15,000) 0 (50,000) 0 0 (40,000) (46,050) (90,380)

Total Unsecured 1,853,502 17,725,144 22,856,856 24,005,270 27,069,270 36,092,226 32,022,867 30,817,638 36,133,313 39,430,941 35,141,310

GRAND TOTAL 86,471,824 442,367,640 511,063,138 566,356,389 629,664,411 715,640,290 901,805,001 1,082,936,132 1,335,250,417 1,316,175,639 1,095,610,149

Incremental Value: 355,895,816 424,591,314 479,884,565 543,192,587 629,168,466 815,333,177 996,464,308 1,248,778,593 1,229,703,815 1,009,138,325Annual Change: 19.30% 13.02% 13.19% 15.83% 29.59% 22.22% 25.32% -1.53% -17.94%



Redevelopment Agency of the City of Lake ElsinoreRancho Laguna Redevelopment Project Area No. IINew Development 15-Jan-10


000's omitted


Transfer Sales (Jan. 1-Sep. 4, 2009) 79 $0 13,324,545 14,693,192 (1,369) (1,369) 0 0 0 0 0Foreclosure Sales (Jan. 1 - Sep. 4, 2009) 229 $0 34,504,704 39,391,093 (4,886) (4,886) 0 0 0 0 0Foreclosure (Jan. 1 - Sep. 4, 2009) 209 $0 20,074,523 25,657,842 (5,583) (5,583) 0 0 0 0 0

Total Real Property: 67,903,772 79,742,127 (11,838) (11,838.355) 0 0 0 0 0Adj. Annually for Inflation @ 2% 0 0 0 0


0 0 0 0 0 0 0 0 0 0 00 0 0 0 0 0 0 0 0 0 00 0 0 0 0 0 0 0 0 0 0




Redevelopment Agency of the City of Lake ElsinoreRancho Laguna Redevelopment Project Area No. IITOP TEN TAXABLE PROPERTY OWNERS (1) 15-Jan-10



Owner Value Parcels Sec. AV Value Parcels Sec. AV Value Total Value Use

1 Broadstone Rivers Edge 28,109,172$ 1 2.65% -$ - 0.00% 28,109,172$ 2.57% ResidentialBroadstone Rivers Edge Apartments - 184 units apartment complex

2 Wal Mart Stores Inc. 14,449,886 2 1.36% 1,592,422 1 4.53% 16,042,308 1.46% CommercialWalmart Store

3 Elsinore Veto 14,468,111 5 1.36% - - 0.00% 14,468,111 1.32% CommercialNeighborhood Retail Center - includes Denny's, Starbucks, Von's Kragen, GNC, Payless Shoes, Wachovia, and El Pollo Loco

4 Albertsons Inc.(Pending Appeal)

13,942,840 2 1.31% - - 0.00% 13,942,840 1.27% CommercialLake Elsinore Town Center - Albertson's30901 Riverside Dr - Albertson's

5 Lake Elsinore Medical Campus 13,895,581 130 1.31% - - 0.00% 13,895,581 1.27% CommercialThe Plaza - includes Remax, and vacant commercial offices

6 Blue Canary Inc.(Pending Appeal)

13,180,751 17 1.24% - - 0.00% 13,180,751 1.20% CommercialLake Elsinore Town Center - includes Albertson's, Rent-A-Center, Auto Zone, Big Lots, Radio Shack, Rite Aid, and H&R Block

7 Grand Oaks Apartments 13,122,714 1 1.24% - - 0.00% 13,122,714 1.20% ResidentialGrand Oaks Apartments

8 Dav A North Lake(Pending Appeal)

12,062,377 2 1.14% - - 0.00% 12,062,377 1.10% ResidentialNorth Lake Apartments - 128 units apartment

9 LEVC Group 11,730,000 6 1.11% - - 0.00% 11,730,000 1.07% CommercialNeighborhood Retail Center - includes Riverside County Lake Elsinore Family Health Center, Big Lots, Bank of America, Century 21, small retail stores and restaurants

10 Stebor Properties(Pending Appeal)

11,444,400 6 1.08% - - 0.00% 11,444,400 1.04% CommercialLake Elsinore Ford

Total 146,405,832$ 172 13.81% 1,592,422$ 1 4.53% 147,998,254$ 13.51%

Project Area Totals: 1,060,468,839$ 35,141,310$ 1,095,610,149$

Project Area Incremental Value Totals 975,850,517$ 15.00% 33,287,808$ 4.78% 1,009,138,325$ 14.67%



0

Redevelopment Agency of the City of Lake ElsinoreRancho Laguna Redevelopment Project Area No. IIIPROJECTION OF INCREMENTAL VALUE AND TAX INCREMENT REVENUE(000's Omitted) 15-Jan-10


Taxable Values (1) 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 Real Property (2) 359,783 348,262 355,227 362,332 369,579 376,970 384,510 392,200 400,044 408,045 Personal Property (3) 2,213 2,213 2,213 2,213 2,213 2,213 2,213 2,213 2,213 2,213Total Projected Value 361,995 350,475 357,440 364,545 371,791 379,183 386,722 394,412 402,256 410,257

Taxable Value over Base 66,013 295,982 284,462 291,427 298,532 305,778 313,170 320,709 328,400 336,244 344,245

Gross Tax Increment Revenue (4) 2,973 2,857 2,927 2,998 3,071 3,145 3,221 3,298 3,377 3,457Unitary Tax Revenue 14 14 14 14 14 14 14 14 14 14Gross Revenues 2,987 2,871 2,941 3,012 3,085 3,159 3,235 3,312 3,391 3,471

LESS: SB 2557 Admin. Fee (5) (35) (33) (34) (35) (36) (37) (37) (38) (39) (40)

PASS THROUGHS County of Riverside (6) (415) (399) (409) (419) (429) (439) (450) (461) (472) (483) Riverside County Flood Control & Water Conservation District (7) (100) (96) (99) (101) (104) (106) (109) (111) (114) (116) Lake Elsinore School District (8) (478) (460) (471) (482) (494) (506) (518) (530) (543) (556) Mt. San Jacinto Community College District (9) (47) (45) (46) (47) (49) (50) (51) (52) (53) (55) Riverside County Office of Education (10) (97) (93) (96) (98) (100) (103) (105) (108) (110) (113) Elsinore Valley Municipal Water District (11) (240) (230) (236) (242) (247) (253) (260) (266) (272) (278) Elsinore Water District (12) (158) (152) (156) (160) (164) (167) (171) (176) (180) (184)

Tax Revenues 1,416 1,361 1,394 1,428 1,463 1,498 1,534 1,570 1,608 1,646 Housing Set Aside Requirement (13) 597 574 588 602 617 632 647 662 678 694 Non-Housing Set-Aside Tax Revenues 819 787 806 826 846 866 887 908 930 952

F:\Bond Services\Tax Allocation Bonds\Lake Elsinore 2008\2009-10 Projection 4\Project III

Redevelopment Agency of the City of Lake ElsinoreRancho Laguna Redevelopment Project Area No. IIIFootnotes for Table 1 - Project III

(1) Taxable values as reported by Riverside County.(2) Real property consists of land and improvements. Decreased for transfer sales (see Table 4 - Redevelopment Project No. 3) and adjusted for inflation at 0.99763% in 2010-11

and increased 2% annually thereafter for inflation. In 2010-11, values were reduced by $7,921 for estimated value loss from one pending appeal.(3) Personal property is held constant at 2009-10 level.(4) Projected Gross Tax Increment is based upon incremental taxable values factored against an assumed Project tax rate and adjusted

for indebtedness approved by voters after 1988. The assumed future tax rate remains constant at $1.0043 per $100 of taxable value.(5) County Administration fee is estimated at 1.158% of Gross Revenue.(6) County of Riverside, including the Free Library and Structural Fire Protection, receives 25% of its share (27.93%) of the general levy tax increment

revenue, when tax increment is at least $500,000 but less than $1.5 million; 37.5% when tax increment is at least $1.5 million but less than$2.5 million; 50% when tax increment is at least $2.5 million but less than $4 million; 62.5% when tax increment is at least $4 million but less than $6 million; 75% when tax increment is at least $6 million but less than $8 million; and 100% when general levy tax increment exceeds $8 million.

(7) Riverside County Flood Control and Water Conservation District share (3.37%) of general levy tax increment is deposited into a fundfor project of mutual benefit to the Flood Control District and the Agency.

(8) Lake Elsinore Unified School District receives 50% of its share (32.16%) of general levy tax increment.(9) Mt. San Jacinto Community College District receives 50% of its share (3.16%) of general levy tax increment.(10) Riverside County Office of Education share (3.27%) of general levy tax increment is deposited into a Capital Fund

for project of mutual benefit to the Community College District and the Agency.(11) Elsinore Valley Municipal Water District share (8.06%) of general levy tax increment is deposited into a fund

for project of mutual benefit to the EVMWD and the Agency.(12) Elsinore Water District receives its share (5.32%) of general levy tax increment.(13) Housing Set Aside calculated at 20% of Gross Revenue.


Redevelopment Agency of the City of Lake ElsinoreRancho Laguna Redevelopment Project Area No. IIIPROJECTION OF INCREMENTAL VALUE AND TAX INCREMENT REVENUE 15-Jan-10(000s Omitted)


Taxable Value Housing Non-Housing Total Over Base Gross SB 2557 Pass-Throughs Tax Set-Aside Set-Aside

Taxable Value 66,013 Revenue Charge Agreements Revenues Tax Revenues Tax Revenues1 2009-10 361,995 295,982 2,987 (35) (1,536) 1,416 597 8192 2010-11 350,475 284,462 2,871 (33) (1,476) 1,361 574 7873 2011-12 357,440 291,427 2,941 (34) (1,512) 1,394 588 8064 2012-13 364,545 298,532 3,012 (35) (1,549) 1,428 602 8265 2013-14 371,791 305,778 3,085 (36) (1,586) 1,463 617 8466 2014-15 379,183 313,170 3,159 (37) (1,625) 1,498 632 8667 2015-16 386,722 320,709 3,235 (37) (1,664) 1,534 647 8878 2016-17 394,412 328,400 3,312 (38) (1,703) 1,570 662 9089 2017-18 402,256 336,244 3,391 (39) (1,744) 1,608 678 930

10 2018-19 410,257 344,245 3,471 (40) (1,785) 1,646 694 95211 2019-20 418,418 352,405 3,553 (41) (1,827) 1,685 711 97412 2020-21 426,742 360,730 3,637 (42) (1,870) 1,724 727 99713 2021-22 435,233 369,220 3,722 (43) (1,914) 1,765 744 1,02014 2022-23 443,893 377,880 3,809 (44) (1,959) 1,806 762 1,04415 2023-24 452,727 386,714 3,898 (45) (2,004) 1,848 780 1,06916 2024-25 461,737 395,724 3,988 (46) (2,051) 1,891 798 1,09317 2025-26 470,928 404,915 4,081 (47) (2,240) 1,793 816 97718 2026-27 480,302 414,289 4,175 (48) (2,292) 1,834 835 99919 2027-28 489,864 423,851 4,271 (49) (2,345) 1,876 854 1,02220 2028-29 499,617 433,604 4,369 (51) (2,399) 1,920 874 1,04621 2029-30 509,565 443,552 4,469 (52) (2,453) 1,963 894 1,07022 2030-31 519,712 453,699 4,570 (53) (2,509) 2,008 914 1,09423 2031-32 530,062 464,049 4,674 (54) (2,566) 2,054 935 1,11924 2032-33 540,619 474,606 4,780 (55) (2,625) 2,100 956 1,14425 2033-34 551,387 485,374 4,889 (57) (2,684) 2,148 978 1,17026 2034-35 562,371 496,358 4,999 (58) (2,745) 2,196 1,000 1,19727 2035-36 573,574 507,561 5,111 (59) (2,806) 2,246 1,022 1,22428 2036-37 585,001 518,988 5,226 (61) (2,869) 2,296 1,045 1,25129 2037-38 596,657 530,644 5,343 (62) (2,934) 2,348 1,069 1,27930 2038-39 0 0 0 0 0 0 0 0

115,027 (1,332) (61,274) 52,421 23,005 29,415



Redevelopment Agency of the City of Lake ElsinoreRancho Laguna Redevelopment Project Area No. IIIHISTORICAL VALUES (1) 15-Jan-10



Land 25,018,322 59,366,270 61,852,081 63,061,750 65,686,597 76,937,597 98,645,052 142,677,232 182,838,902 207,938,071 171,713,976Improvements 41,078,721 77,808,738 82,594,622 87,438,127 96,151,149 107,962,882 138,196,330 176,406,367 243,339,281 232,372,320 188,658,328Personal Property 73,213 7,147 0 0 0 38,332 29,520 27,360 24,294 16,434 14,768Exemptions (240,996) (768,870) (965,611) (912,891) (889,386) (721,819) (937,744) (976,768) (1,002,074) (1,025,504) (1,047,678)

Total Secured 65,929,260 136,413,285 143,481,092 149,586,986 160,948,360 184,216,992 235,933,158 318,134,191 425,200,403 439,301,321 359,339,394

UnsecuredLand 0 30,977 30,216 27,825 0 0 0 0 0 34,808 0Improvements 15,336 489,415 330,497 260,119 194,573 273,099 289,090 247,723 512,090 463,199 457,930Personal Property 68,243 488,871 537,425 434,552 664,244 867,433 1,087,746 997,453 2,790,913 2,373,819 2,197,997Exemptions 0 0 0 0 0 0 0 0 0 0 0

Total Unsecured 83,579 1,009,263 898,138 722,496 858,817 1,140,532 1,376,836 1,245,176 3,303,003 2,871,826 2,655,927

GRAND TOTAL 66,012,839 137,422,548 144,379,230 150,309,482 161,807,177 185,357,524 237,309,994 319,379,367 428,503,406 442,173,147 361,995,321

Incremental Value: 71,409,709 78,366,391 84,296,643 95,794,338 119,344,685 171,297,155 253,366,528 362,490,567 376,160,308 295,982,482Annual Change: 9.74% 7.57% 13.64% 24.58% 43.53% 47.91% 43.07% 3.77% -21.31%



Redevelopment Agency of the City of Lake ElsinoreRancho Laguna Redevelopment Project Area No. IIINew Development 15-Jan-10


000's omitted


Transfer Sales (Jan. 1-Sep. 4, 2009) 79 $0 7,597,635 8,248,900 (651) (651) 0 0 0 0 0Foreclosure Sales (Jan. 1 - Sep. 4, 2009) 124 $0 12,767,420 17,071,693 (4,304) (4,304) 0 0 0 0 0Foreclosure (Jan. 1 - Sep. 4, 2009) 187 $0 13,299,824 19,004,140 (5,704) (5,704) 0 0 0 0 0

Total Real Property: 33,664,879 44,324,733 (10,660) (10,660) 0 0 0 0 0Adj. Annually for Inflation @ 2% 0 0 0 0


0 0 0 0 0 0 0 0 0 0 00 0 0 0 0 0 0 0 0 0 00 0 0 0 0 0 0 0 0 0 0




Redevelopment Agency of the City of Lake ElsinoreRancho Laguna Redevelopment Project Area No. IIITOP TEN TAXABLE PROPERTY OWNERS (1) 15-Jan-10



Owner Value Parcels Sec. AV Value Parcels Sec. AV Value Total Value Use

1 9,528,014$ 142 2.65% -$ - 0.00% 9,528,014$ 2.63% Vacant Land - Residential

2 Bank of America NA(Pending Appeals)

9,171,921 102 2.55% - - 0.00% 9,171,921 2.53% Vacant Land - Residential

3 Robert C. Gregory Trust 8,056,354 4 2.24% - - 0.00% 8,056,354 2.23% CommercialLake Chevrolet - car dealership

4 Laing CP Lake Elsinore 4,004,333 3 1.11% - - 0.00% 4,004,333 1.11% RecreationalThe Links at Summerly - golf course

5 JIC DP Diamond Development 3,789,523 3 1.05% - - 0.00% 3,789,523 1.05% Vacant Land - RecreationalLake Elsinore Diamond Stadium and Parking lot

6 Country Club Holdings(Pending Appeals)


7 Indymac Bank(Pending Appeals)

2,366,400 17 0.66% - - 0.00% 2,366,400 0.65% Residential - Vacant Land

8 SITL Investment Inc.(Pending Appeals)


9 Quantum Entertainment Group Inc. 1,626,104 1 0.45% - - 0.00% 1,626,104 0.45% Possessory Int.Lake Elsinore Diamond Stadium

10 Chen Hung H and Chen J 1,547,000 1 0.43% - - 0.00% 1,547,000 0.43% Vacant Land

Total 45,857,705$ 769 10.11% -$ - 0.00% 45,857,705$ 10.04%

Project Area Totals: 359,339,394$ 2,655,927$ 361,995,321$

Project Area Incremental Value Totals 293,410,134$ 15.63% 2,572,348$ 0.00% 295,982,482$ 15.49%



0

Lake Elsinore (CA) - Malaga/Mission Residentail Syndicated Properties, LLC


D-1

APPENDIX D AGENCY AUDITED FINANCIAL STATEMENTS

FOR FISCAL YEAR ENDING JUNE 30, 2009


LAKE ELSINORE REDEVELOPMENT AGENCY

COMPONENT UNITFINANCIAL STATEMENTS

WITH REPORT ON AUDITBY INDEPENDENT

CERTIFIED PUBLIC ACCOUNTANTS

JUNE 30, 2009


TABLE OF CONTENTS

June 30, 2009

Independent Auditors' Report

Basic Financial Statements:

Statement ofNet AssetsStatement ofActivitiesBalance Sheet - Governmental FundsReconciliation of the Governmental Funds Balance Sheet

to the Statement ofNet AssetsStatement of Revenues, Expenditures and Changes in

Fund Balances - Governmental FundsReconciliation of the Governmental Funds Statement of Revenues,

Expenditures and Changes in Fund Balances to the Statement ofActivities

Statement of Fiduciary Assets and Liabilities - Agency FundNotes to Basic Financial Statements

Required Supplementary Information:

Budgetary Comparison Schedule:Rancho Laguna Special Revenue Fund

Note to Required Supplementary Information

Supplementary Information:

Combining Balance Sheet - Other Capital Projects FundsCombining Schedule of Revenues, Expenditures and

Changes in Fund Balances - Other Capital Projects Funds

Independent Auditors' Report on Internal Control Over FinancialReporting and on Compliance and Other Matters Based on anAudit of Financial Statements Performed in Accordance withGovernment Auditing Standards

PageNumber

1-2

3

45

6-7

9

10 - 11

1213

15 - 46

47

4849

51

52

53

55 - 56

~ DIEHL, EVANS &: COMPANY, LLP~ CERTIFIED PUBLIC ACCOUNTANTS /;[ CONSULTANTS

A PARTNERSHIP INCLUDING ACCOUNTANCY CORPORATIONS

5 CORPORATE PARK, SUITE 100IRVINE, CALIFORNIA 92606-5165(949) 399-0600. FAX (949) 399-0610y:!ww.diehlevans.com

December 17, 2009

lNDEPENDENT AUDITORS' REPORT

The Board of DirectorsLake Elsinore Redevelopment AgencyLake Elsinore, California

MICHAELR. UJDIN, CPACRA!G W. SPRAKER, CPANITlN P.I'ATEL. CPAROBERT J, CALLANAN, CPA

"PHiUP H. HOLTKAMP. CPA*THOMAS M. PERLOW$Kl, CPA"'HARVEY J. SCHROEDER, CPAKENNETH R. AMES, Cl'A

*WILLlAM C. PENTZ, CPA

"A PROFESSIONAL CORPORATION

We have audited the accompanying financial statements of the governmental activities, each majorfund, and the aggregate remaining fund information of the Lake Elsinore Redevelopment Agency (acomponent unit of the City of Lake Elsinore), as of and for the ycar ended June 30, 2009, whichcollectively comprise the Agency's hasic financial statements, as listed in the table of contents, Thesebasic financial statements are the responsibility of the Agency's management Our responsibility is toexpress opinions on these basic financial statements based on our audit

We conducted our audit in accordance with auditing standards generally accepted in the United Statesof America and the standards applicable to financial audits contained in Government AuditingStandards issued hy the Comptroller General of the United States, Those standards require that we planand perform the audit to obtain reasonable assurance about whether the basic financial statements arefree of material misstatement An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall basicfinancial statement presentation, We believe that our audit provides a reasonable hasis for ouropinions,

In our opinion, the basic financial statements referred to above present fairly, in all material respects,the respective financial position of the governmental activities, each major fund, and the aggregateremaining fund information of the Lake Elsinore Redevelopment Agency as of June 30, 2009, and therespective changes in financial position thereof for the year then ended in conformity with accountingprinciples generally accepted in the United States ofAmerica,

- I -

OTHER OFFICES AT: 2965 ROOSEVELT STREETCARLSBAD, CALIFORNIA 92008-2389(760) 729-2343 • FAX (760) 729-2234

613 W. VALLEY PARKWAY, SUITE 330ESCONDIDO, CALIFORNIA 92025-2598(760) 741-3141. FAX (760) 741-9890

In accordance with Government Auditing Standards, we have also issued our report datedDecember 17, 2009 on our consideration of the Lake Elsinore Redevelopment Agency's internalcontrol over financial reporting and our tests of its compliance with certain provisions of laws,regulations, contracts, and grant agreements and other matters. The purpose of that report is todescribe the scope of our testing of internal control over financial reporting and compliance and theresults of that testing, and not to provide an opinion on the internal control over financial reporting oron compliance. That report is an integral part of an audit performed in accordance with GovernmentAuditing Standards and should be considered in assessing the results of our audit.

The Agency has not presented the Management's Discussion and Analysis that accounting principlesgenerally accepted in the United States of America has determined is necessary to supplement,although not required to be part of the basic financial statements.

The information identified in the accompanying table of contents as required supplementaryinformation is not a required part of the basic financial statements but is supplementary informationrequired by accounting principles generally accepted in the United States of America. The budgetarycomparison schedule and related note have been subjected to the auditing procedures applied in theaudit of the basic financial statement and, in our opinion are fairly stated in all material respects inrelation to the basic financial statements taken as a whole.

Our audit was conducted for the purpose of forming 0pllllOnS on the financial statements thatcollectively comprise the Lake Elsinore Redevelopment Agency's basic financial statements. Thecombining other governmental fund financial statements have been subjected to the auditingprocedures applied in the audit of the basic financial statements, and, in our opinion are fairly stated inall material respects in relation to the basic financial statements taken as a whole.

- 2 -

BASIC FINANCIAL STATEMENTS


STATEMENT OF NET ASSETS

June 30, 2009

GovernmentalActivities

ASSETS:Cash and investments (Note 2) $ 38,407,148

Interest receivable 113,867Accounts receivable 4,995

Due from other governments 507,758Prepaid expense 60,914Land held for resale 8,796,671

Restricted assets:Cash and investments with fiscal agents (Note 2) 3,444,013

Capital assets, not depreciated (Note 3) 2,426,392Capital assets, depreciated, net (Note 3) 9,597,479

TOTAL ASSETS 63,359,237

LIABILITIES:Accounts payable 2,732,615

Due to other governments 6,573,121

Due to the City of Lake Elsinore 2,848,005Interest payable 949,923

Noncurrent liabilities (Note 5):Due within one year 1,840,258Due in more than one year 62,617,133

TOTAL LIABILITIES 77,561,055

NET ASSETS (DEFICIT):Invested in capital assets 12,023,871

Restricted for low and moderate income housing 34,434,846

Unrestricted (deficit) (60,660,535)

TOTAL NET DEFICIT $ (14,201,818)

See independent auditors! report and notes to basic financial statements.

-4-


STATEMENT OF ACTIVITIES

For the year ended June 30, 2009

Functions/programsGovernmental activities:

General governmentPass-through paymentsProject improvementsInterest on long-term debt

Total governmentalactivities

Expenses

$ 2,610,1409,647,3222,174,6403,620,080

$ 18,052,182

Net (Expense)Revenue andChanges in

Program Revenues Net AssetsCharges Operating Capital

for Grants and Grants and GovernmentalServices Contributions Contributions Activities

$ $ $ $ (2,610,140)(9,647,322)(2,174,640)(3,620,080)

$ $ $ (18,052,182)

General revenues:Tax incrementInvestment incomeOther income

Total general revenues

Change in net assets

NET DEFICIT - BEGINNING OF YEAR

NET DEFICIT - END OF YEAR

See independent auditors' report and notes to basic financial statements.

- 5 -

24,892,412744,820

9,480

25,646,712

7,594,530

(21,796,348)

$ (14,201,818)


BALANCE SHEET

GOVERNMENTAL FUNDS

June 30, 2009

Special

Revenue

Fund Debt Service Funds

Rancho Rancho Rancho Rancho

Laguna Laguna I Laguna II Laguna III

ASSETS

Cash and investments (Note 2) $ 20,421,721 $ 4,764,628 $ 11,270,573 $ 1,862,330

Cash and investments with fiscal agents (Note 2) 311,437 1,542,464 1,459,510 130,602

Interest receivable 54,950 17,738 36,308 4,871

Accounts receivableDue from other governments 99,655 46,836 204,267 147,520

Due from other funds (Note 8) 4,809,388 12,229,211

Prepaid expense 60,914

Advances to other funds (Note 8) 11,852,396Land held for resale (Note 4) 2,708,191

TOTAL ASSETS $ 35,448,350 $ 11,181,054 $ 25,199,869 $ 2,206,237

LIABILITIES AND FUND BALANCES

LIABILITIES:

Accounts payable $ 282,162 $ 1,183,904 $ 851,661 $ 313,391

Due to other governments 4,185,013 2,388,108

Due to the City of Lake Elsinore 731,342 521,727 699,622 214,302

Due to other funds (Note 8) 12,229,211

Advances from other funds (Note 8) 3,523,558 6,307,050 2,021,788

TOTAL LIABILITIES 1,013,504 9,414,202 10,246,441 14,778,692

FUND BALANCES (DEFICITS):

Reserved for (Note 7):Advances to other funds 11,852,396Prepaid expense 60,914

Land held for resale 2,708,191Low and moderate income housing 19,874,259Debt service 1,766,852 14,953,428

Unreserved, undesignated (12,633,369)

TOTAL FUND BALANCES (DEFICITS) 34,434,846 1,766,852 14,953,428 (12,572,455)

TOTAL LIABILITIESAND FUND BALANCES $ 35,448,350 $ 11,181,054 $ 25,199,869 $ 2,206,237


- 6 -

Capital Projeets

FundOther Total

Rancho Governmental GovernmentalLaguna I Funds Funds

$ $ 87,896 $ 38,407,148

3,444,013113,867

4,700 295 4,995

9,480 507,758

17,038,59960,914

11,852,396

6,088,480 8,796,671

$ 6,102,660 $ 88,191 $ 80,226,361

$ 71,631 $ 29,866 $ 2,732,615

6,573,121

236,641 444,371 2,848,005

4,809,388 17,038,599

11,852,396

5,117,660 474,237 41,044,736

11 ,852,396

60,914

6,088,480 8,796,67119,874,259

16,720,280

(5,103,480) (386,046) (18,122,895)

985,000 (386,046) 39,181,625

$ 6,102,660 $ 88,191 $ 80,226,361

- 7 -

THIS PAGE INTENTIONALLY LEFT BLANK

- 8 -


RECONCUJATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET

TO THE STATEMENT OF NET ASSETS

June 30, 2009

Fund balances for governmental funds

Amounts reported for governmental activities in the Statement of Net Assets are different because:

Capital assets used in governmental activities are not financial resources and

therefore are not reported in the funds.

Long-tenn liabilities and related items arc not due and payable in the current

period and are not reported as fund liabilities. Allliabihties, both current

and long-term, are reported in the Statement of Net Assets. Balances as

of June 30, 2009 are:

Noncurrent liabilities

Accrued liabilities in the Statement ofNet Assets differ from the amounts

reported in governmental funds due to accrued interest on the tax

allocation bonds payable.

Net deficit of governmental activities


- 9 -

$ 39,181,625

12,023,871

(64,457,391)

(949,923)

$(14,201,818)


STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES

GOVERNMENTAL FUNDS


Special

RevenueFund Debt Service Funds

Rancho Rancho Rancho RanchoLaguna Laguna I Lagunall Lagunalll

REVENUES:

Tax increment $ 4,978,484 $ 6,036,923 $ 10,547,885 $ 3,329,120

Investment income 388,007 96,999 211,693 35,150

Other income

TOTAL REVENUES 5,366,491 6,133,922 10,759,578 3,364,270

EXPENDITURES:

Current:Professional services 342,960 1,429,513 488,207

Pass-through payments 2,362,869 5,495,507 1,788,946

Proj ect costs 1,044,957

Debt service:Principal retirement 671,058 914,436 175,829

Interest and fisGal charges 1,416,045 1,809,613 332,747

TOTAL EXPENDITURES 1,044,957 4,792,932 9,649,069 2,785,729

EXCESS OF REVENUES OVER

(UNDER) EXPENDITURES 4,321,534 1,340,990 1,110,509 578,541

OTHER FINANCING SOURCES (USES):

Transfers in (Note 8)

Transfers out (Note 8) (1,512,486) (139,434) (54,266)

TOTAL OTHER FINANCING

SOURCES (USES) (1,512,486) (139,434) (54,266)

NET CHANGE IN FUND BALANCES 4,321,534 (171,496) 971,075 524,275

FUND BALANCES (DEFICIT) -

BEGINNING OF YEAR 30,113,312 1,938,348 13,982,353 (13,096,730)

FUND BALANCES (DEFICITS) -END OF YEAR $ 34,434,846 $ 1,766,852 $ 14,953,428 $ (12,572,455)

See independent auditors' report and notes to basic financial statements.

- 10-

Capital Projeets

FundOther Total

Rancho Governmental GovernmentalLaguna I Funds Funds

$ $ $ 24,892,412

2,696 10,275 744,820

9,480 9,480

12,176 10,275 25,646,712

2,260,6809,647,322

539,662 590,021 2,174,640

1,761,323

3,558,405

539,662 590,021 19,402,370

(527,486) (579,746) 6,244,342

1,512,486 193,700 1,706,186

(1,706,186)

1,512,486 193,700

985,000 (386,046) 6,244,342

32,937,283

$ 985,000 $ (386,046) $ 39,181,625

- 11 -


RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF

REVEJ\'UES, EXPENDITURES AND CHANGES IN FUND BALANCES

TO THE STATEMENT OF ACTIVITIES


Net change in fund balances total governmental funds

Amounts reported for governmental activities in the Statement of Activities are different because:

Governmental funds report capital outlay as an expenditure in the fun amount as

current financial resources are used. However l in the Statement of Activities the

cost of these assets is allocated over the estimated useful life as depreciation

expense.

Depreciation

The issuance of long term debt provides current financial resources to governmental

funds, while the repayment of the principal of long term-debt consumes the current

financial resources of governmental funds. Neither transaction, however, has any

effect on net assets. These amounts are the net effect of these differences

in the treatment of long-term debt.

Principal payments

Some expenses reported in the Statement of Activities do not require the use

of current financial resources and are not reported as governmental fund

expenditures.

Interest and fiscal charges

Change in net assets of governmental activities

See independent auditors1 report and notes to basic financial statements.

- 12-

$ 6,244,342

(349,460)

1,761,323

(61,675)

$ 7,594,530


STATEMENT OF FIDUCIARY ASSETS AND LIABILITIES

AGENCY FUND

June 30, 2009

ASSETS

Cash and investments (Note 2)

Ca')h and investments with fiscal agents (Note 2)Interest receivableDue from other governments

TOTAL ASSETS

LIABILITIES

Due to bondholders

See independent auditors' report and notes to basic financial statements

- 13 -

$ 31,131

4,686,1I4

201

90,982

$ 4,808,428

$ 4,808,428


- 14 -

NOTES TO BASIC FINANCIAL STATEMENTS

- 15 -


NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2009

I. REPORTING ENTITY AND SIGNIFICANT ACCOUNTING POLICIES:

A. Description of the Reporting Entity:

The Lake Elsinore Redevelopment Agency (the Agency) was established by City Councilordinance and adopted July 15, 1980, pursuant to the State of California Health and SafetyCode, Section 33000, entitled Community Redevelopment Law. As such, the Agency acts as alegal entity, separate and distinct from the City of Lake Elsinore (the City), even though theCity Council of the City has the authority to appoint the Agency's governing board.

The actions of the Agency are binding, and business, including the incurrence of long-tenndebt, is routinely transacted in the Agency's name by its appointed representatives. TheAgency is broadly empowered to engage in the general economic revitalization andredevelopment of the City through acquisition and development of propcrty in those areas ofthe City detennined to be in a declining condition.

The Lake Elsinore City Council has declared itself to be the Agency's governing boardpursuant to the Community Redevelopment Law. The Agency has no employees, and allAgcncy dutics and functions are perfonned by employees of the City. The City is reimbursedfor thc cost of thcse and other services.

The Agency is a component unit of the City and, accordingly, the financial statements of theAgency are included in the financial statements of the City. The Agency is an integral part ofthe reporting entity of the City. The funds of the Agency have been blended within thefinancial statements of the City because the City Council of the City is the governing board ofthe Agency and exercises control over the operations of the Agency. Only the funds of theAgency are included herein, therefore, these financial statements do no purport to represent thefinancial position or results of operations of the City.

The Agency is currently administering the foIIowing redevelopment projects:

Rancho Laguna I

The Rancho Laguna Redevelopment Project No. I was established in 1980 and includesnoncontiguous areas that aggregate 1,910 acres which are primarily concentrated in thenorthwestern portion of the community. The need for redevelopment was established as aresult of severe flooding in early 1980 and an inability to provide needed public facilities in thedevelopment of vacant portions of the City and rehabilitation of areas for residential andcommercial use.

See independent auditors' report.- 16 -


NOTES TO BASIC FINANCIAL STATEMENTS(CONTINUED)

June 30, 2009

1. REPORTING ENTITY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

A. Description of the Reporting Entity (Continued):

The Agency's Redevelopment Projects (Continued):

Rancho Laguna II

The Rancho Laguna Redevelopment Projeet No. II was established in 1983 and includesnoncontiguous areas that ag&'Tegate 4,859 acres. The Agency plans to develop the project areaprimarily for new and rehabilitated residential and commercial use.

Rancho Laguna III

The Rancho Laguna Redevelopment Projeet No. III was established in 1987 and includes 4noncontiguous pareels that aggregate 3,541 acres. The projeet areas are being developed toalleviate blighting conditions. These include the existence of deteriorated, dilapidated, orobsolescent struetures which the Agency may selectively acquire and either rehabilitate orremove substandard structures and develop for residential, commereial or industrial use.

B. Measurement Focus, Basis ofAccounting and Financial Statement Presentation:

Financial Statement Presentation

The basie financial statements of the Agency are composed of the following:

• Government-wide financial statements

• Fund financial statements

• Notes to the basic financial statements

Financial reporting for the government-wide financial statements is based upon all GASBpronouneements, as well as the FASB Statements and Interpretations, APB Opinions, andAccounting Research Bulletins that were issued on or before November 30, 1989 that do notconflict with or contradict GASB pronouncement. FASB pronouncements issued afterNovember 30, 1989 are not followed in the preparation of the accompanying financialstatements.




June 30, 2009


B. Measurement Focus, Basis ofAccounting and Financial Statement Presentation (Continued):

Government-wide Financial Statements

The government-wide financial statements (i.e., the statement of net assets and the statement ofactivities) report infonnation on all of the activities of the Agency. For the most part, the effectof interfund activity has been removed from these statements. Governmental activities, whichnormally are supported by taxes and intergovernmental revenues, are reported separately frombusiness-type activities, which rely to a significant extent on fees and charges for support. TheAgency has no business-type activities.

The Statement of Activities demonstrates the degree to which the direct expenses of a givenfunction are offset by program revenues. Direct expenses are those that are clearly identifiablewith a specific function. Program revenues include 1) charges to customers who purchase, use,or directly benefit from goods, services, or privilcges provided by a given function and 2) grantsand contributions that are restricted to meeting thc operational or capital requirements of aparticular function. Taxes and othcr items not properly included among program revenues arereported instead as general revenues.

Fund Financial Statements

The accounting system of the Agency is organized and operated on the basis of separate funds,each of which is considered to be a separate accounting entity. Each fund is accounted for byproviding a separate set of self-balancing accounts that constitute its assets, liabilities, fundequity, revenues, and expenditures. Governmental resources are allocated to and accounted forin individual funds based upon the purposes for which they are to be spent and the means bywhich spending activities are controlled.

Fund financial statements for the Agency's governmental funds are presented after thegovernment-wide financial statements. These statements display information about majorfunds individually and other governmental funds in the aggregate for governmental funds.




June 30, 2009



Fund Fiuaucial Statements (Continued)

The Agency rcports the following major governmental funds:

The Rancho Laguna Special Revenue Fund is used to account for low and moderate incomehousing activities within the project areas.

The Rancho Laguna I Debt Service Fund is used to account for the accumulation of resourcesfor, and the payment of, long-term debt principal, interest and related costs within this projectarea.

Thc Rancho Laguna II Debt Service Fund is uscd to account for the accumulation of resourcesfor, and the payment of, long-term debt principal, interest and related costs within this projectarea.

The Rancho Laguna III Debt Service Fund is used to account for the accumulation ofresources for, and the payment of, long-term debt principal, interest and related costs withinthis project area.

The Rancho Laguna I Capital Projects Fund is used to account for the accumulation ofresources for, and the payment of, related costs within this project area.

Additionally, the Agency reports the following fund types:

The Capital Projects Fuuds are used to account for financial resources to be used for theacquisition or construction of redevelopment projects and administrative expenses within theRancho Laguna I, Rancho Laguna II and Rancho Laguna III project areas.

The Agency Fund is used to account for money received by the Agency as an agent forindividuals, other governments and other entities.




June 30, 2009



Measurement Focus

Measurement focus is a term used to describe "which" transactions are recorded within thevarious financial statements. Basis of accounting refers to "when" transactions are recordedregardless of the measurement focus applied.

On the government-wide Statement ofNet Assets and the Statement ofActivities, activities arepresented using the economic resources measurement focus. Under the economic resourcesmeasurement focus, all (both current and long-term) economic resources and obligations of thegovernment are reported.

In the fund financial statements, all governmental funds are accounted for on a spending or"financial flow" measurement focus. This means that only current assets and current liabilitiesare generally included on their balance sheets. Their reported fund balances (net current assets)are considered a measure of "available spendable resources". Governmental fund operatingstatements present increases (revenues and other financing sources) and decreases(expenditures and other financing uses) in net current assets. Accordingly, they are said topresent a summary of sources and uses of available spendable resources dming a period.

Noncurrent portions of long-term receivables due to governmental funds are reported on theirbalance sheets in spite of their measurement focus. However special reporting treatments areused to indicate that they should not be considered "available spendable resources", since theydo not represent net current assets. Recognition of governmental fund type revenue representedby noncurrent receivables are deferred until they become current receivables. Noncurrentportions of other long-term receivables are offset by fund balance reserve accounts. Revenues,expenses, gains, losses, assets, and liabilities resulting from nonexchange transaction arerecognized in accordance with the requirements of GASB Statement No. 33.

Because of their spending measurement focus, expenditure recognition for governmental fundtypes excludes amounts represented by noncurrent liabilities. Since they do not affect netcurrent assets, such long-term amounts arc not recognized as governmental fund typeexpenditures or fund liabilities. Amounts expended to acquire capital assets are recorded asexpenditures in the year that resources were expended, rather than as fund assets. The proceedsof long-term debt are recorded as other financing sources rather than as a fund liability.Amounts paid to reduce long-term indebtedness are reported as fund expenditures.

See independent auditors' report.- 20-



June 30, 2009



Measurement Focus (Continued)

When both restricted and unrestricted resources are combined in a fund, expenses areconsidered to be paid first from restricted resources, and then from unrestricted resources.

Basis ofAccounting

In the government-wide Statement of Net Assets and Statement ofActivities, the governmentalactivities are presented using the accrual basis of accounting. Under the accrual basis ofaccounting, revenues are recognized when earned and expenses are recorded when the liabilityis incurred or economic asset used, regardless of the timing of related cash flows. Revenues,expenses, gains, losses, assets, and liabilities resulting from exchange and exchange-liketransactions are recognized when the exchange takes place.

In the fund financial statements, governmental funds are presented using the modified-accrualbasis of accounting. Their revenues are recognized when they become measurable andavailable as net current assets. Measurable means that the amounts can be estimated, orotherwise determined. Available means that the amounts were collected during the reportingperiod or soon enough thereafter to be available to finance the expenditures accrued for thereporting period.

Revenue recognition is subject to the measurable and availability criteria for the governmentalfunds in the fund financial statements. Exchange transactions are recognized as revenues in theperiod in which they are earned (i.e., the related goods or services are provided). Locallyimposed derived tax revenues are recognized as revenues in the period in which the underlyingexchange transaction upon which they are based takes place. Imposed nonexchangetransactions are recognized as revenues in the period for which they were imposed. If the periodof use is not specified, they are recognized as revenues when and enforceable legal claim to therevenues ariscs or when they are received, whichever occurs first. Government-mandated andvoluntary nonexchange transactions are recognized as revenues when all applicable eligibilityrequirements have been met. Revenues accrued by the Agency include property taxes leviedand collected within 60 days from the end of the fiscal year.




June 30, 2009


C. Investments:

Investments are reported at fair value. Investment income includes interest earnings, changesin fair value, and any gains or losses related to the liquidation or sale of the investment.

D. Restricted Net Assets:

The Agency is required by California Law to set aside a portion of the property tax incrementsit receives to increase and improve the City's supply of Low and Moderate Income Housing,and therefore such assets are restricted for that purpose.

E. Property Taxes:

Property taxes are assessed and collected each fiscal year according to the following propertytax calendar:

Lien Date:

Levy Date:

Due Date:

Delinquent Date:

January I

July 1 to June 30

First Installment - November 1Second Installment - February

First Installment - December 10Second Installment - April 10

Under California law, property taxes are assessed and collected by the counties up to 1% ofassessed value, plus other increases approved by the voters. The property taxes go into a pool,and are then allocated to the agencies based on complex formulas prescribed by the statestatutes.




June 30, 2009


F. Interfund Activity:

In the governmental fund financial statements, activity between funds that are representative ofIendinglborrowing arrangements outstanding at the end of the fiscal year are referred to aseitber "due to/from other funds" (i.e. the current portion of interfund loans) or "advancesto/from other funds" (i.e. the noncurrent portion of interfund loans). In the government-widefinancial statements, these activities have been eliminated.

Noncurrent portions of long-term interfund loan receivables are reported as advances and suchamounts are offset equally by a fund balance reserve account which indicates that they do notconstitute expendable available financial resources and therefore are not available forappropriation.

G Capital Assets:

Capital assets, which include land, structures, equipment, and infrastructure assets, are reportedin the government-wide financial statements. Capital assets are recorded at cost wherehistorical records are available and at an estimated historical cost where no historical recordsexist. Assets purchased in excess of $5,000 are capitalized if they have an expected useful lifeof 2 years or more. Donated capital assets are valued at their estimated fair market value at thedate of donation. The cost of normal maintenance and repairs that do not add to the value ofthe asset's lives are not capitalized.

Major capital outlay for capital assets and improvements are capitalized as projects areconstructed. For debt-financed capital assets, interest incurred during the construction phase isreflected in the capitalization value of the asset constructed, net of interest eamed on theinvested proceeds over the same period. There is no interest expense capitalized by the Agencyfor the year ended June 30, 2009.




June 30, 2009


G Capital Assets (Continued):

Capital assets used in operations are depreciated over their estimated useful lives using thestraight-line method in the govermncnt-wide financial statements. Depreciation is charged asan expense against operations and accumulated depreciation is reported on the Statement of NetAssets. The range of lives used for depreciation purposes for each capital asset class is asfollows:

BuildingsImprovements other than buildingsMachinery and equipmentFurniture and fixtures

H. Long-Term Obligations:

40 years25 years

5 - 8 years5 years

In the government-wide financial statements, long-tern debt and other long-term obligations arereported as liabilities in the applicable governmental activities. Bond premiums and discounts,as well as issuance costs, are deferred and amortized over the life of the bonds using theeffective interest method. Bonds payable are reported net of the applicable bond premium ordiscount. Bond issuance costs are reported as deferred charges and amortized over the term ofthe related debt.

In the govermnental fund financial statements, governmental fund types recognize bondpremiums and discounts, as well as bond issuance costs, during the current period. The faceamount of debt issued is reported as other financing sources. Premiums received on debtissuances are reported as other financing sources while discounts on debt issuances are reportedas other financing uses. Issuance costs, whether or not withheld from the actual debt proceedsreceived, are reported as debt service expenditures.

1. Fund Balance:

In the governmental fund financial statements, governmental fund types report reservations offund balance for amounts that are not available for appropriation or are legally restricted byoutside parties for use for a specific purpose. Designations of fund balance represent tentativemanagement plans that are subject to change.

See indcpendent auditors' report.- 24-



June 30, 2009


J. Tax Increment:

The Agency follows a policy of what constitntes contractual obligations for the purpose ofspending tax increment revenue. This policy holds that all expenditures of the Capital ProjectsFunds (i.e. salaries, goods and supplies, professional services, etc.) are contractual obligations.Monies are therefore transferred from the Debt Service Funds to cover the costs of theexpenditures from the Capital Projects Funds.

The Agency has no power to levy and collect taxes, and any legislative property taxde-emphasis might necessarily reduce the amount of tax revenues that would otherwise beavailable. Broadened property tax exemptions could have a similar effect. Conversely, anyincrease in the tax rate or assessed valuation, or any reduction or elimination of presentexemptions would necessarily increase the amount of tax revenues that would be available.

K. Explanation of Differences between the Governmental Funds Balance Sheet and the StatementofNet Assets:

The "total fund balances" of the Agency's governmental funds $39,181,625 differs from "netassets" of governmental activities $(14,201,818) reported in the Statement of Net Assets. Thisdifference primarily results from the long-term economic focus of the Statement of Net Assetsversus the current financial resources focus of the Governmental Fund Balance Sheets.

Capital Assets

Capital assets are recorded as expenditures in the full amount as current financial resources areused in the governmental funds. However, the Statement of Net Assets allocates these capitalassets as financial resources over their estimated useful life.

Capital assets, net of depreciation




June 30, 2009

I. REPORTING ENTITY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

K. Explanation of Differences between the Governmental Funds Balance Sheet and the StatementofNet Assets (Continued):

Long-Term Debt Transactions

Long-term liabilities and the interest payable on these liabilities applicable to the Agency'sgovernmental activities are not due and payable in the current period and accordingly are notreported as governmental fund liabilities. All liabilities (both current and long-term) arereported in the Statement of Net Assets. Balances at the end of this fiscal year were:

Noncurrent liabilitiesAccrued interest payable on long-term liabilities

Long-term debt transactions

$ (64,457,391)(949,923)

$ (65.407,314)

1. Explanation of Differences between Governmental Funds Operating Statements and theStatement ofActivities:

The "net change in fund balances" for governmental funds $6,244,342 differs from the "changein net assets" for governmental activities $7,594,530 reported in the Statement of Activities.The differences arise primarily from the long-term economic focus of the Statement ofActivities versus the current financial resources focus of the governmental funds. The effect ofthe differences is illustrated below.

Depreciation of Capital Assets

Capital assets are expensed in full in the year of acquisition as current financial resources areused in governmental funds. However, the costs of these capital assets are allocated over theirestimated useful life in the Statement ofActivities through depreciation.

Depreciation on capital assets


$ <349.460)



June 30, 2009

I. REPORTING ENTITY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

L. Explanation of Differences between Governmental Funds Operating Statements and theStatement ofActivities (Continued):

Long-Term Debt Transactions

Some revenues and expenses reported in the Statement of Revenues, Expenditures and Changesin Fund Balances are included as an addition or deletion of long-term liabilities in theStatement of Net Assets.

Long-tenn debt principal payments

Interest on Long-Term Debt

$

Interest payable on long-tenn debt does not require the use of current financial resources and isnot reported as governmental fund expenditures. However, these expenses are reported in theStatement ofActivities.

Interest and fiscal charges

M. Use of Estimates:

$

The preparation of financial statements in confonnity with accounting principles generallyaccepted in the United States of America requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements and the reported amountsof revenues and expenditures/expenses during the reporting period. Actual results could differfrom those estimates.




June 30, 2009

2. CASH AND INVESTMENTS:

Cash and Investments

Cash and investments at June 30, 2009 are classified in the accompanying financial statements asfollows:

Government- FiduciaryWide Fund

Statement of Statement ofNet Assets Net Assets Total

Cash and investments $ 38,407,148 $ 31,131 $ 38,438,279Restricted assets:

Cash and investments with fiscal agents 3,440,013 4,686,114 8,126.127

Total Cash and Investments $ 41,847,161 $ 4.717.2.45 $ .46.564,406

Cash and investments at June 30, 2009 consisted of the following:

Deposits with financial institutionsInvestments

Total Cash and Investments

$ 8,765,40037,799,006

$ 46,56:!A06

Investments Authorized by the California Government Code and the Agency's InvestmentPolicy

The table below identifies the investment types that are authorized for the Agency by the CaliforniaGovernment Code (or the Agency's investment policy, where more restrictive). The table alsoidentifies certain provisions of the California Government Code (or the Agency's investmentpolicy, where more restrictive) that address interest rate risk, credit risk, and concentration of creditrisk. This table does not address investments of debt proceeds held by bond trustee that aregoverned by the provisions of debt agreements of the Agency, rather than the general provisions ofthe California Government Code or the Agency's investment policy.




June 30, 2009

2. CASH AND INVESTMENTS (CONTINUED):

Investments Authorized by the California Government Code and the Agency's InvestmentPolicy (Continued)

Authorized Investment Type

United States Treasury ObligationsUnited States Government Sponsored

Enterprise SecuritiesBanker's AcceptancesTime Certificate of DepositsCommercial PaperNegotiable Certificates of DepositRepurchase AgreementsReverse Repurchase AgreementsMedium-Term Corporate NotesLocal Agency Investment Fund (LAIF)

Maximum MaximumMaximum Percentage InvestmentMaturity of Portfolio* in One Issuer

5 years None None

5 years None 40%180 days 40% 10%

5 years 25% None270 days 15% 10%

5 years 30% NoneI year None None

92 days 2% None5 years 30% None

N/A None $ 40,000,000

N/A - Not Applicable

* - Excluding amounts held by bond trustee that are not subject to California Government Coderestrictions.

Investments Authorized by Debt Agreements

Investments of debt procecds held by bond trustee are governed by proVIsIOns of the debtagreements, rather than the general provisions of the California Government Code or the Agency'sinvestment policy. Investments authorized for funds held by bond trustee include, United StatesTreasury Obligations, United States Government Sponsored Enterprise Securities, GuaranteedInvestment Contracts, Commercial Paper, Local Agency Bonds, Banker's Acceptance and MoneyMarket Mutual Funds. There were no limitations on the maximum amount can be invested in oneissuer, maximum percentage allowed or the maximum maturity of an investment, except for thematurity of Commercial Paper which is limited to 92 days and of Banker's Acceptances which arelimited to one year.




June 30, 2009


Disclosures Relating to Interest Rate Risk

Interest rate risk is the risk that changes in market interest rates will adversely affect the fair valueof an investment. Generally, the longer the maturity of an investment, the greater the sensitivity ofits fair value to changes in market interest rates. One of the ways that the Agency manages itsexposure to interest rate risk is by purchasing a combination of shorter term and longer tcrminvestments and by timing cash flows from maturities so that a portion of the portfolio is maturingor coming close to maturity evenly over time as necessary to provide the cash flow and liquidityneeded for operations.

Infonnation about the sensitivity of the fair values of the Agency's investments (includinginvestments held by bond trustee) to market interest rate fluctuations is provided by the followingtable that shows the distribution of the Agency's investments by maturity:

Investment TypeLocal Agency Investment FundMoney Market Mutual Funds

Disclosures Relating to Credit Risk

RemainingMaturity

(in Months)12 Months

or Less$ 29,669,689

8,129,317L 37.799,006

Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to theholder of the investment. This is measured by the assignment of a rating by a nationally recognizedstatistical rating organization. Presented below is the minimum rating required by (whereapplicable) the California Government Code, the Agency's investment policy, or debt agreements,and the actual rating by Standard and Poor, as of year end for each investment type:

Investment TypeLocal Agency Investment FundMoney Market Mutual Funds

N/A - Not Applicable

See independent auditors' report.

MinimumLegalRatingN/A

A

Total as ofJune 30, 2009

$ 29,669,689 $8,129,317

$ 377.22.QQ6 $

- 30 ~

AAA Unrated$ 29,669,689

8,129,317

8.129,317 l. ~29.662,.6.89



June 30, 2009


Custodial Credit Risk

Custodial credit risk for deposits is the risk that, in the event of thc failure of a depository financialinstitution, a government will not be able to recover its deposits or will not be able to recovercollateral securities that are in the possession of an outside party. The custodial credit risk forinvestments is the risk that, in the event of the failure of the counterparty (e.g., broker-dealer) to atransaction, a government will not be able to recover the value of its investment or collateralsecurities that are in the possession of another party. The California Government Code and theAgency's investment policy do not contain legal or policy rcquirements that would limit thecxposure to custodial credit risk for deposits or investments, other than the following provision fordeposits: The California Government Code requires that a financial institution secure depositsmade by state or local governmental units by pledging securities in an undivided collateral poolheld by a depository regulated under state law (unless so waived by the govermnental unit). Themarket value of the pledged securities in the collateral pool must equal at least 110% of the totalamount deposited by the public agencies. California law also allows financial institutions to securethe Agency's deposits by pledging first trust deed mortgage notes having a value of 150% of thesecured public deposits. At June 30, 2009, the Agency's deposits (bank balances) were insured bythe Federal Depository Insurance Corporation up to $250,000, with the remaining balancecollateralized as required by California law.

Investment in State Investment Pool

The Agency is a voluntary participant in the Local Agency Investment Fund (LAIF) that isregulated by California Government Code Section 16429 under the oversight of the Treasurer ofthe State of California. The fair value of the Agency's investment in this pool is reported in theaccompanying financial statements at amounts based upon the Agency's pro-rata share of the fairvalue provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost of thatportfolio). The balance available for withdrawal is based on the accounting records maintained byLAIF, which are recorded on an amortized cost basis.




June 30, 2009

3. CAPITAL ASSETS:

A summary of changes in the capital assets for the year ended June 30, 2009 is as follows:

Balance at Balance atJune 30. 2008 Additions Deletions June 30, 2009

Capital assets, not being depreciated:Land $ 2.426,392 $ $ 2.426,392

Total capital assets,not being depreciated 2.426,392 2.426,392

Capital assets, being depreciated:Buildings and structures 13,866,031 13,866,031Improvements other than buildings 312,315 312,315Machinery and equipment 972,376 972,376Fumiture and fixtures 996 996

Total capital assetsbeing depreciated 15,151,718 15,151,718

Less accumulated depreciation for:Buildings and structures (4,093,984) (336,967) (4,430,951 )Improvements other than buildings (137,423) (12,493) (149,916)Machinery and equipment (972,376) (972,376)Furniture and fixtures (996) (996)

Total accumulated depreciation (5,204,779) (349.460) (5,554,239)

Total capital assetsbeing depreciated, net 9,946,939 (349.460) 9,597.479

Total capital assets, net $ 12,32l331 L D4231ill) $.~,021,811

Depreciation expense was charged to governmental activities, general government program.




June 30, 2009

4. LAND HELD FOR RESALE:

The cost of land acquired by the Agency and held for resale is recorded as an asset at the time ofpurchase. The property is being carried in the capital projects fund at the lower of cost or estimatednet realizable value.

5. LONG-TERM LIABILITIES:

Date of Years of Rate of Amount

Issue Maturity Interest Authorized

Loans Payable:

Public Financing Authority Various Various Various $ 61,555,000

EVMWD (Amber Ridge) 2/95 1999-2014 2.70%-6.00% 867,574

Developer Agreements:

Wal-Mart Stores, Inc. 3/93 1995-2014 7.00% 2,200,000*

Oakgrove Equities 3/93 1995-2014 7.00% 1,800,000*

Outlet Center 12/89 1996-2015 N/A 2,140,000

* - Principal only

Outstanding Outstanding Due

June 30, June 30, Within

2008 Additions Retirements 2009 One Year

Loans Payable:

Public Financing Authority $ 54,010,000 $ $ 1,225,000 $ 52,785,000 $ 1,295,000

EVMWD (Amber Ridge) 356,589 49,047 307,542 49,727

Developer Agreements:

Wal-Mart Stores, Inc. 775,446 168,232 607,214 168,232

Oak Grove Equities 2,117,613 83,113 2,200,726

Outlet Center 742,198 109,097 633,101 109,097

Advances from the City

of Lake Elsinore 8,133.755 209,947 7,923,808 218.202

$ 66135.601 $ 83 113 $ 1.761,323 $ 64.457.391 $ J,§19~,g




June 30, 2009

5. LONG-TERM LIABILITIES (CONTINUED):

A. Loans Payable:

Public Fiuancing Authority

The City of Lake Elsinore's Public Financing Authority (the Authority) has issued TaxAllocation Revenue Bonds for financing projects of the Agency and to provide funds for thevarious dcbt obligations of the Agency. The Agency has entered into loan agreements with theAuthority which mirror the bonds issued by the Authority. Concurrent with the execution anddelivery of the loan agreements, the Authority issued the aggregate principal amount of its TaxAllocation Revenue Bonds to the Agency. The loans were made as an advance for the principalamount which was made from the proceeds of the bonds on the closing date of the bond. Theprincipal and interest are payable in installment payments payable not less than three businessdays prior to the due date on the bond.

At June 30, 2009, loan agreements between the Agency and Authority totaled $52,785,000based on 1995 Series A, 1999 Series A, 1999 Series B and 1999 Series C Tax AllocationRevenue Bonds issued by the Authority with proceeds disbursed as follows:

Public Financing Authority - 1995 Series A

In December 1995, $13,345,000 principal amount of Tax Allocation Revenue Bonds, Series A,was issued by the Authority. Concurrent with this issue, the principal amount was loaned to theAgency. The proceeds were used to redeem $8,385,000 1995 Series A loan and a portion of the$9,600,000 1993 Series A loan from the Authority. The loan is payable in annual installmentsof $235,000 to $925,000 from September 1, 1999 through February 1, 2025; interest at 4.30%to 5.80%. The loan balance at June 30, 2009 is $10,445,000. At June 30, 2009, the Agency hasa cash reserve balance for debt service of $982,988 which is sufficient to cover the maximumannual debt service.




June 30, 2009


A. Loans Payable (Continued):

Public Financing Authority - 1999 Series A

In February 1999, $33,450,000 principal amount of Tax Allocation Revenue Bonds, Scries A,was issued by the Authority. Concurrent with this issue, the principal amount was loaned to theAgency. The proceeds were used to advance refund $34,825,000 of outstanding 1992 TaxAllocation Revenue Bonds and to provide funds for the acquisition and construction of certainpublic improvements within the Rancho Laguna Redevelopment Project Areas 1 and II. Theloan is payable in annual installments of $410,000 to $2,175,000 from September 1, 2000through September 1, 2030; interest at 5.00% to 5.50%. The loan balance at June 30, 2009 is$28,895,000. At June 30, 2009, the Agency has a cash reserve balance for debt service of$2,302,888 which is sufficient to cover the Bond Indenture Reserve Requirement.

Public Financing Authority - 1999 Series B

In February 1999, $580,000 principal amount of Tax Allocation Revenue Bonds, Series B, wasissued by the Authority. Concurrent with this issue, the principal amount was loaned to theAgency. The proceeds were used to advance refund $34,825,000 of outstanding 1992 TaxAllocation Revenue Bonds and to provide funds for the acquisition and construction of certainpublic improvements within the Rancho Laguna Redevelopment Project Area II. The loan ispayable in annual installmcnts of $40,000 to $80,000 from September 1, 2000 throughSeptember 1, 2009; interest at 7.25%. The loan balance at June 30, 2009 is $80,000. The1999 Series B Bonds are covered by the 1999 Series A Bonds cash reserve balance for debtservIces.

Public Financing Authority - 1999 Series C

In October 1999, $14,180,000 principal amount of Tax Allocation Revenue Bonds, Series C,was issued by the Authority. Concurrent with this issue, the principal amount was loaned to theAgency. The proceeds were used to advance refund $12,578,000 of outstanding 1993 TaxAllocation Revenue Notes, Series A, the 1995 Tax Allocation Revenue Bonds, Series B and toprovide funds for the acquisition and construction of certain public improvements within theRancho Laguna Redevelopment Project Areas 1, 11 and III. The loan is payable in annualinstallments ofS145,000 to $1,440,000 from October 1, 2004 through October 1, 2033; interestat 6.70%. The loan balance at June 30, 2009 is $13,365,000. At June 30,2009, the Agency hasa cash reserve balance for debt service of $1,004,634 which is sufficient to cover the BondIndenture Reserve Requirement.




June 30, 2009


A. Loans Payable (Continued):

Future debt requirements for the loans payable to the Public Financing Authority are as foIlows:

Year EndingPrincipal Total

2010 $ 1,295,000 $ 3,037,465 $ 4,332,4652011 1,370,000 2,963,392 4,333,3922012 1,450,000 2,885,344 4,335,3442013 1,530,000 2,802,818 4,332,8182014 1,610,000 2,715,814 4,325,814

2015 - 2019 9,535,000 12,059,694 21,594,6942020 - 2024 12,615,000 8,878,702 21,493,7022025 - 2029 13,595,000 4,918,468 18,513,4682030 - 2034 9,785,000 1.300,352 11,085,352

Totals $ 52.785,QOO $ 41,iQ2.049 $ 94.347.049

Elsinore VaIley Municipal Water District (EVMWD) - Amber Ridge

In February 1995, the City and the Agency entered into an agreement with the EVMWDwhereby the Agency would reimburse the EVMWD's annual loan payment related to projectcosts of the EVMWD and a loan payable to the State Resources Control Board. The Agency'sannual instaIlments of $60,740 are due July 1, 1999 to July 1, 2014; interest from 2.70% to6.00%.

Future debt requirements for the loans are as follows:

Year EndingPrincipal Interest Total

2010 $ 49,727 $ 11,013 $ 60,7402011 51,543 9,197 60,7402012 53,436 7,304 60,7402013 55,412 5,328 60,7402014 97.424 4,378 101,802

Totals $- 3Ql~542 $ 37.220




June 30, 2009


B. Developer Agreements:

The Agency has entered into several developer agreements to attract new business to the City.The following represents the Agency's significant commitments with certain developers:

Wal-Mart Stores, Inc.

On Marcb 12, 1993, the Agency entered into a Disposition and Development Agreement withWal-Mart Stores, Inc. The Agency has agreed to purchase Wal-Mart property through thepayment of a $2,200,000 loan from Wal-Mart Stores, Inc. The $2,200,000 accrues interest at7.00% per annum. Installment payments are to be made each year on January 30tl1 forapproximately 20 years, continuing 19 years after the first installment date. Installmentpayments are calculated to be (1) in the amount of 100% of the sales tax in excess of $200,000,but not to exceed $200,000 and (2) 50% of the amount of any additional sales tax received inexcess of $400,000. Sales tax is not pledged for repayment. The obligation is a generalobligation of the Agency and tax increment is not specifically pledged. As of June 30, 2009,the Agency owes $607,214 to Wal-Mart Stores, Inc., which has been ineluded in the long-termobligations.

Oak Grove Equities

On March 12, 1993, the Agency entered into an Owner Participation Agreement with OakGrove Equities. The Agency has agreed to reimburse the developer $1,800,000 for certainpublic improvements that were installed at the Lake Elsinore City Center. The $1,800,000accrues interest at 7.00% per annum. Installment payments are to be made each year onJanuary 30th for approximately 20 years, continuing 19 years after the first installment date.Installment payments are calculated to be (l) in the amount of 100% of the sales tax in excessof $200,000, but not to exceed $200,000 and (2) 50% of the amount of any additional sales taxreceived in excess of $400,000. Sales tax is not pledged for repayment. The obligation is ageneral obligation of the Agency and tax increment is not specifically pledged. As ofJune 30, 2009, the Agency owes $2,200,726 to Oak Grove Equities, which has been included inthe long-term obligations. Any unpaid obligation on the 20th payment date is to be forgiven anddischarged.




June 30, 2009


B. Developer Agreements (Continued):

Outlet Center

The Agency entered into an Owner Participation Agreement with NG/Chelsea Lake ElsinoreLimited Partnership pertaining to the development of a factory retail outlet. The factory outletcenter is located in Redevelopment Project Area 1. Pursuant to the Agreement, the Agency isrequired to pay the annual special assessment levied by Assessment District 86-1. The bondsissued by Assessment District 86-1 mature in the year 2015 and the annual special assessmentis approximately $108,000. As of June 30, 2009, the Agency owes $633,101 which has beenincluded in the long-tenn obligations.

C. Advances from the City of Lake Elsinore:

The City advanced the Agency $8,158,238 from 1997 through 2002 and $903,250 for the fiscalyear ended June 30, 2003. These advances are to cover certain administrative costs and a legalsettlement related to the Agency. Payments of $529,746 are to be made on an annual basisthrough fiscal year 2032. Interest is accrued cumulatively on the advances at a rate of 3.932%.

Future debt requirements for the advances from the City of Lake Elsinore are as follows:

Year EndingPrincipal

2010 $ 218,2022011 226,7812012 235,6982013 244,9652014 254,596

2015 - 2019 1,431,2382020 - 2024 1,735,6142025 - 2029 2,104,7182030 - 2032 1,471,996

Totals $. 7.923,E08

$

$

Interest311,544 $302,965294,048284,781275,150

1,217,492913,116544,012117.239

Total529,746529,746529,746529,746529,746

2,648,7302,648,7302,648,7301,589,235




June 30, 2009

6. COMMUNITY FACILITIES DISTRICT BONDS:

These bonds are authorized pursuant to the Mello-Roos Community Facilities District Act of 1982,as amended, and are payable from special taxes levied on property within the Community FacilityDistricts according to a methodology approved by the voters within the District and by the Boardof the Agency. Neither the faith and eredit nor taxing power of the Agency is pledged to thepayment of the bonds. Reserves have been established from the bond proceeds to meetdelinquencies should they occur and amounted to $1,447,000 at June 30, 2009. If delinquenciesoccur beyond the amounts held in those reserves, the Agency has no duty to pay the delinquencyout of any available funds of the Agency. The Agency acts solely as an agent for those payingtaxes levied and the bondholders. Therefore, the outstanding balances of these bonds arc notreflected in these financial statements.

Community Facilities District 90-2 Tuscany HillsPublic Improvements 2002 Series A

Community Facilities District 90-2 Tuscany HillsPublic Improvements 2007 Series A

Total Community Facilities District Bonds

Original BondsIssue Outstanding at

Amount June 30, 2009

$ 14,470,000 $ 9,530,000

7,340,000 7,340,000$ 1,6,870.000

7. FUND BALANCE RESERVES:

The various reserves at June 30, 2009 are as follows:

Rancho Rancho Rancho Rancho RanchoLaguna Laguna I Laguna II Laguna III Laguna ISpecial Debt Dcbt Debt Capital

Revenue Service Service Servicc ProjectsFund Fund Fund Fund Fund

Reserved for:Advances to other funds $11,852,396 $ $ $ $Prepaid expense 60,914Land held for resale 2,708,191 6,088,480Low and moderate income

housing 19,874,259Debt service 1,766,852 14,953,428

$34.434.a4Q $ L76Q,852 $1,4,953.428 $ .6O,9J4 $~Q8.M8Q




June 30, 2009

7. FUND BALANCE RESERVES (CONTINUED):

Reserved for Advances to Other Funds

This reserve was established to represent amounts that were advanced to the Rancho LagunaRedevelopment Projects Areas I, II and III in such a manner that they will not be considered ascurrent available funds.

Reserved for Prepaid Expense

This reserve was established to indicate amounts that do not constitute available spendableresources.

Reserved for Land Held for Resale

This reserve was established to remove land held for resale from current fund balances in such amanner that they will not be considered as current available funds.

Reserved for Low and Moderate Income Housing

This reserve was established to represent the amount set aside in the Special Revenue Fund for lowto moderate income housing for expenditures which benefit low to moderate income families.

Reserved for Debt Service

This reserve was established to represent the amount accumulated in accordance with a bondindenture or similar covenant to pay principal and interest on long-term debt.

8. INTERFUND RECREIVABLES, PAYABLES AND TRANSFERS:

During tbe course of normal operations, the Agency entered into numerous transactions betweenfunds, including expenditures and transfers of resources to provide services, construct assets andservice debt.

Due to and from other funds at June 30, 2009 are as follows:

Receivable FundRancho Laguna I Debt

Service FundRancho Laguna II Debt

Service Fund


Payable FundRancho Laguna I

Capital Projects FundRancho Laguna III Debt

Service Fund

- 40-

Amount

$ 4,809,388

12,229,211~L 17.038.599



June 30, 2009

8. INTERFUND RECREIVABLES, PAYABLES AND TRANSFERS (CONTINUED):

Advances to and from other funds at June 30, 2009 are as follows:

Advances ToRancho Laguna I Dcbt

Service Fund

Rancho Laguna II DebtService Fund

Rancho Laguna III DebtService Fund

Advances FromRancho Laguna Special

Revenue Fund

Rancho Laguna SpecialRevenue Fund

Rancho Laguna SpecialRevenue Fund

Amount

$ 3,523,558

6,307,050

2,021,788

The advances from the Rancho Laguna Special Revenue Fund to the Rancho Laguna I, II and IIIDebt Service Funds were made from the 1995 bond proceeds deposited in the Rancho LagunaSpecial Revenue Fund.

Transfers in and out representing nonnal operations at June 30, 2009 are as follows:

Transfers InRancho Laguna I Capital

Projects Fund

Other Governmental Funds

9. PASS-THROUGH AGREEMENTS:

Transfers OutRancho Laguna I Debt

Service Fund

Rancho Laguna II DebtService Fund

Rancho Laguna III DebtService Fund

Amount

$ 1,512,486

139,434

54,266

$ 1,706.186

In order to lessen the fiscal impact of the tax increment financing of redevelopment projects onother units of local governments, the Agency has entered into pass-through agreements withvarious governmental agencies to "pass-through" portions of tax increment funds received by theAgency, attributable to the area within the territorial limits of other agencies.

See independcnt auditors' report.- 41 -



June 30, 2009

10. OTHER REQUIRED INDIVIUDAL FUND DISCLOSURES:

The following funds had a deficit fund balance at June 30,2009. These defieits are expected to beeliminated through future revenues and transfers.

AmountMajor Fund:

Rancho Laguna III Debt Service FundOther Governmental Funds:

Rancho Laguna II Capital Projeets FundRancho Laguna III Capital Projects Fund

11. MORTGAGE REVENUE BONDS:

$ 12,572,455

201,535184,511

The Agency has entered into a bond and loan program to assist low and moderate incomehomebuyers of multi-family residential developments with the City limits. Although the Agencyhas arranged the financing program, these debts are not payable from any revenues or assets of theAgency. Neither the faith and credit nor the taxing power of the Agency, or any politicalsubdivision of the Agency, is pledged to repay the indebtedness. Accordingly, since these debts donot constitute an obligation of the Agency, thcy are not reflected in the accompanying financialstatements. They are as follows:

Lakeside Village Project - Due January 1, 2031

Original BondsIssue Outstanding at

Amount June 30, 2009

$ 5,000,000 $ _4,361,149

12. LITIGATION:

The Agency is a defendant in several other pending lawsuits of a nature common to may similarjurisdictions. Agency management estimates that the potential claims against the Agency notcovered by insurance resulting from such litigation would not materially affect the basic financialstatements of the Agency.




June 30, 2009

13. LIABILITY, PROPERTY AND PROTECTION:

A. Description Self-Insurance Pool Pursuant to Joint Powers Agreement:

To account for risks of loss and liability claims, the Agency participates in the City's liability,property and protection policy. The City is a member of the California Joint Powers InsuranceAuthority (Insurance Authority). The Insurance Authority is composed of 122 California publicentities and is organized under a joint powers agreement pursuant to California GovernmentCode Section 6500 et. seq. The purpose of the Insurance Authority is to arrange and administerprograms for the pooling of self-insured losses, to purchase excess insurance or reinsurance,and to arrange for group purchased insurance for property and other coverages. The InsuranceAuthority's pool began covering claims of its members in 1978. Each member government hasan elected official as its representative on the Board of Directors. The Board operates through a9-member Executive Committee.

B. Self-Insurance Programs of the Insurance Authority:

Comprehensive General and Automobile Liability Insurance - Each member government pays aprimary deposit to cover estimated losses for a fiscal year (claims year). After the close of afiscal year, outstanding claims are valued. A retrospective deposit computation is then madefor each open claims year. Claims are pooled separately between police and non-police. Costsare allocated to members by the following methods within each of the four layers of coverage:(1) the first $30,000 of each occurrence is charged directly to the member's primary deposit;(2) costs from $30,000 to $750,000 and the loss development reserves associated with losses upto $750,000 are pooled based on the member's share of losses under $30,000; (3) losses from$750,000 to $2,000,000 and the associated loss development reserves are pooled bascd onpayroll; (4a) costs of covered claims from $2,000,000 to $50,000,000 are paid underreinsurance and excess insurance policies; (4b) subject to a $3,000,000 annual aggregatedeductible; (4c) and a quota-sharing agreement whereby the Insurance Authority is financiallyresponsible for 40% oflosses occurring within the $2,000,000 to $10,000,000 layer. The costsassociated with 4a-c are estimated using actuarial models and pre-funded as part of the primaryand retrospective deposits.

The overall policy limit for each member including all layers of coverage is $50,000,000 peroccurrence. Costs of covered claims for subsidence losses are paid by excess insurance withthe following sub-limits per member: $25,000,000 per occurrence with a $15,000,000 annualaggregate.




June 30, 2009

13. LIABILITY, PROPERTY AND PROTECTION (CONTINUED):

C. Purchased Insurance:

All Risk Property Insurance - The City participates in the all-risk property protection programof the Insurance Authority. This insurance protection is underwritten by several insurancecompanies. The City's property is currently insured according to a schedule of covered propertysubmitted by the City to the Insurance Authority. The City's property currently has all-riskpropelty insurance protection in the amount of $34,672,957. There is a $5,000 deductible peroeeUlTenee except for non-emergency vehicle insurance which has a $1,000 deductible.Premiums for the coverage are paid annually and are not subject to retroactive adjustments.

Crime Insurance

The City purchases crime insurance coverage in the amount of $1,000,000 with a $2,500deductible. The fidelity coverage is provided through the Insurance Authority. Premiums arepaid annually and are not subject to retroactive adjustments.

D. Adequacy of Protection:

During the past three fiscal (claims) years, none of the above programs of protection have hadsettlements or judgments that exceeded pooled or insured coverage. There have been nosignificant reductions in pooled or insured liability coverage from coverage in the prior year.

The aforementioned infonnation is not included in the accompanying financial statements.Complete financial statements for the Insurance Authority may be obtained at their administrativeoffice located at 8081 Moody Street, La Palma, California 90623.

14. CONTINGENCIES:

Taxes Levied

Under provisions of the California Constitutions, taxes levied by any taxing agency on all taxableproperty in the project area will be divided as follows when collected:

a. An amount each year equal to the current tax rates applicable to the assessed valuation(within the project area) prior to the adoption of the Redevelopment Plan will be paid intothe funds ofthe respective taxing agencies, and

b. Taxes received over and above that amount will be deposited in the Capital Projectsoperating funds of the Agency.




June 30, 2009

14. CONTINGENCIES:

Taxes Levied (Continued)

The Agency has no power to levy and collect taxes, and any legislated property tax reduction mightreduce the amount of tax revenues that would otherwise be available to pay the amount due tobondholders. Broadened property tax exemptions would have a similar effect. Conversely, anyincrease in the tax rate or assessed valuation, or any reduction or elimination of present exemptionswould increase the amount of tax revcnues that would be available to pay principal and interest onadvances from other governments.

Laing Elsinore LLC

The Agency has entered into a Disposition and Development Agreement (the DDA) with Laing-CPLake Elsinore LLC and Civic Partners-Elsinorc LLC, as developer and master developer,respectively, covering an area of approximately 3,000 acres. As a result of the bankruptcy of themanaging member of Laing-CP Lake Elsinore LLC, Bank of America has foreelosed on and nowowns the property subject to the DDA. The Agency has pledged 100% of the net tax increment,exeluding moneys to be set aside in the low and moderate income housing fund and existingpass-through agreements, pursuant to the DDA. The DDA prohibits any further bondedindebtedness secured by tax increment generated by the project site, other than for specified projectpurposes. The Agency has accrued tax increment due under the DDA for payment when duepursuant to the terms of the DDA.

Supplemental Education Revenue Augmentation Fund (SERAF)

Pursuant to AB 26 4x, a budget trailer bill, California redevelopment agencies were required tomake Supplemental Education Revenue Augmentation Fund (SERAF) contributions totaling$1.7 billion for tbe fiscal ycar 2009-2010 and $350 million for the fiscal year 2010-2011. UnderAB 26 4x, agencics may borrow a portion of the required contributions from their low andmoderate income housing fund. Alternatively, sponsoring governmental agencies (thc cities orcounties) may elect to pay the SERAF contributions on behalf of their redcvelopment agencies. OnOctober 20, 2009 the California Redevelopment Association filed a class action lawsuit on behalfof all California redevelopment agencics, again challenging the SERAF obligations asunconstitutional.

The Agency's proposed SERAF contributions under AB 26 4x are $6,970,262 for the fiscalyear 2009-2010 and $1,435,054 for fiscal year 2010-2011. It is the position of Agency officialsthat the SERAF contributions required by AB 26 4x are unconstitutional, and that the Agency isnot obligated to make these contributions. Howevcr, if the class action lawsuit is unsuccessful, andif the Agency were rcquired to make these SERAF contributions, Agency officials havc estimatedthat the Agcney would have sufficient funds to make the required contribution.




June 30, 2009

14. CONTINGENCIES (CONTINUED):

Lake Elsinore School District

The Lake Elsinore Unified School District (the District) and the Riverside County Office ofEducation (RCOE) has informed the Agency that certain prior actions taken by the Agency withrespect to Redevelopment Project II triggered the statutory pass-through payment obligations underSection 33607.7 of the Redevelopment Law. The Agency believes that the statutory pass-throughpayment obligations has not been triggered and disputes the District's and RCOE's claim. Noassurance can be made as to the ultimate outcome of this dispute.

Excess Surplus

At July 1, 2008, the Agency's Low and Moderate Income Housing had excess surplus of$2,104,634. Under Califomia Redevelopment Law, the Agency has until July 1,2011 to spend themoney on qualifying low and moderate income housing expenditures. If the Agency has notexpended its excess surplus by July 1,2011, the Agency shall be subject to sanctions until theAgency does expend or encumber its excess surplus.

15. SUBSEQUENT EVENT:

Issuance of Tax Allocation Revenue Bonds 2009 Series A

In November 2009, the Agency adopted Resolution 2009-15 approving the issuance of LakeElsinore Public Financing Authority Tax Allocation Revenue Bonds 2009 Series A in the aggregateprincipal amount not to exceed $16,000,000. The purpose of the 2009 Series A bonds is to refundthe 1999 Series C bonds.


REQUIRED SUPPLEMENTARY INFORl\1AnON

- 47 -


BUDGETARY COMPARISON SCHEDULERANCHO LAGUNA SPECIAL REVEJ\'UE FUND


Budgeted AmountsOriginal Final Actual

Variance withFinal Budget

Positive(Negative)

REVENUES:Tax incrementInvestment income

TOTAL REVENUES

EXPENDITURES:Current:

Project costs

EXCESS OF REVENUES OVER(UNDER) EXPENDITURES

FUND BALA.1\[CE - BEGINNING OF YEAR

FUND BALANCE - END OF YEAR

$ 4,619,000533,400

5,152,400

176,450

4,975,950

30,113,312

$ 35,089,262

$ 4,619,000533,400

5,152,400

176,450

4,975,950

30,113,312

$ 35,089,262

$ 4,978,484388,007

5,366,491

1,044,957

4,321,534

30,113,312

$ 34,434,846

$ 359,484(145,393)

214,091

(868,507)

(654,416)

$ (654,416)

See independent auditors! report and note to required supplementary information.

- 48 -

LAKE ESLINORE REDEVELOPMENT AGENCY

NOTE TO REQUIRED SUPPLEMENTARY INFORMATION

June 30, 2009

1. BUDGETS AND BUDGETARY ACCOUNTING:

The Agency follows these procedures in establishing the budgetary data reflected in the financialstatements:

I) In May, the City Manager submits to the City Council a proposed operating budget for thefiscal year commencing July I. The operating budget includes proposed expenditures andestimated revenues and other means of financing.

2) Public hearings are conducted at City Council meetings to obtain public input.

3) Prior to July I, the budget is adopted by Council action.

4) The City Manager is authorized to transfer funds appropriated with respect to thoseclassifications designated as other services and material and supplies within the samedepartment. The City Manager may transfer appropriated funds from any classification withinother expenditure categories to the capital outlay classification within the same departmentonly. For budgeting purposes, all Special Revenue and Capital Projects budgeted funds areconsidered a single department. Revenues arc budgeted on a line item basis.

5) The legal level of budgetary control is maintained at the departrnentallevel. Formal budgetaryintegration is employed as a management control device during the year for the SpecialRevenue Fund types to assist in controlling expenditures and enforcing revenue provisions.Capital Projects Fund types are budgeted on a project by project basis. All appropriations lapseat the end of the fiscal year, except for capital projects which are carried forward until suchtime as the project is completed or terminated.

6) Budgets for the Special Revenue and Capital Projects Funds are adopted on a basis consistentwith accounting principles generally accepted in the United States of America. Budgetedamounts are as originally adopted and as further amended by the City Council. Budgetary datais not presented for Debt Service Funds because the activity within this fund is controlled bythe debt agreements.

7) Budget information is presented for each major Special Revenue Fund. Capital Projects Fundsare not required to present budgetary comparison schedules and formal budgeting policies arenot required for the Debt Services Funds, therefore, the financial statements of these funds arenot included in the Schedule of Revenues, Expenditures and Changes in Fund Balances Budget and Actual.


- 49-


- 50 -

SUPPLEMENTARY INFORMAnON

- 51 -


COMBINING BALANCE SHEET

OTHER GOVE~NMENTALFUNDS

June 30, 2009

ASSETSCash and investmentsAccounts receivable

TOTAL ASSETS

LIABILITIES AND FUND BALANCES

LIABII"ITIES:Accounts payableDue to City of Lake Elsinore

TOTAL LIABfLITIES

FUND BALANCES (DEFICITS):

Unreserved, undesignated

TOTAL LIABfLITIESAND FUND BALANCES


- 52-

Capital Projects Funds Total

OtherRancho Rancho Governmental

Laguna II Laguna III Funds

$ 87,896 $ $ 87,896152 143 295

$ 88,048 $ 143 $ 88,191

$ 14,807 $ 15,059 $ 29,866274,776 169,595 444,371

289,583 184,654 474,237

(201,535) (184,511) (386,046)

$ 88,048 $ 143 $ 88,191


COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND

CHANGES IN FUND BALANCES - OTHER GOVERNMENTAL FUNDS


Capital Projects Funds

RanchoLaguna II

RanchoLaguna 1II

Total

OtherGovernmental

FundsREVENUES:

Investment income

EXPENDITURES:

Current:Project costs

EXCESS OF REVENUES OVER

(UNDER) EXPENDITURES

OTHER FINANCING SOURCES:Transfers in

NET CHANGE IN FUND BALANCES

FUND BALANCES - BEGINNING OF YEAR

$ 5,144

346,1l3

(340,969)

139,434

(201,535)

$ 5,131

243,908

(238,777)

54,266

(184,511)

$ 10,275

590,021

(579,746)

193,700

(386,046)

FUND BALANCES (DEF1C1TS) - END OF YEAR

See independent auditors' reporL

- 53 -

$ (201,535) $ (184,511) $ (386,046)

THIS PAGE INTENTIONALLY LEFT BLAc"lK

- 54-

~ DIEHL, EVANS & COMPANY, LLP~ CERTIFIED PUBUC ACCOUNTANTS Or CONSULTANTS

A PARTNERSHIP INCLUDING ACCOUNTANCy CORPORATIONS

5 CORPORATE PARK, SUITE 100IRVINE, CALIFORNIA 926D6-5I65(949) 399-0600 • FAX (949) 399-0610ww~.diehlev,,"ns.com

December 17, 2009

MICHAEL R UJDIN. CPACRAIG W, SI'RAKER. CPANlTIN p, PATEL CPAROBERT J. CALLANAN. CPA

*PHILIP H, HOLTKAMP. CPA"'THOMAS l\t PERLOWSKL CPA"'HA,RVEY 1. SCHROEDER, CPA

KENNETH R. AMES, CPA*WJLLlAM C. PENTZ, CPA

~A PROFESSIONAL CORPORATION

INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVERFINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS

BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMEDIN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

To the Board of DirectorsLake Elsinore Redevelopment AgencyLake Elsinore, California

We have audited the basic financial statements of the Lake Elsinore Redevelopment Agency (theAgency) as of and for the year ended June 30, 2009, and have issued our report thereon datedDecember 17,2009, We conducted our audit in accordance with auditing standards generally acceptedin the United States of America and the standards applicable to financial audits contained inGovernment Auditing Standards, issued by the Comptroller General of the United States,

Internal Control Over Financial Reporting

In planning and performing our audit, we considered the Agency's internal control over financialreporting as a basis for designing our auditing procedures for the purpose of expressing our opinion onthe financial statements, but not for the purpose of expressing an opinion on the effectiveness of theAgency's internal control over financial reporting, Accordingly, we do not cxpress an opinion on theeffectiveness of the Agency's internal control over financial reporting,

A deficiency in internal control exists when the design or operation of a control does not allowmanagement or employees, in the normal course of performing their assigned functions, to prevent, ordetect and correct misstatements on a timely basis, A material weakness is a deficiency, or acombination of deficiencies, in internal control such that there is a reasonable possibility that a materialmisstatement of the Agency's financial statements will not be prevented, or detected and corrected on atimcly basis,

- 55 -

OTHER OFFICES AT: 2965 ROOSEVELT STREETCARLSBAD, CALIFORNIA 92008·2389(760) 729-2343. FAX (760) 729+2234

613 W, VALLEY PARKWAY, SUITE 330ESCONDIDO, CALIFORNIA 92025-2598(760) 741-3141. FAX (760) 741-9890

Internal Control Over Finaneial Reporting (Continued)

Our consideration of the internal control over financial reporting was for the limited purpose describedin the first paragraph of this section and was not designed to identify all deficiencies in internal controlover financial reporting that might be deficiencies, significant deficiencies or material weaknesses. Wedid not identif'y any deficiencies in internal control over financial reporting that we consider to bematerial weaknesses, as defined above.

Compliance and Other Matters

As part of obtaining reasonable assurance about whether the financial statements of the Lake ElsinoreRedevelopment Agency are free of material misstatements, we performed tests of its compliance withcertain provisions of laws, regulations, contracts and grant agreements, noncompliance with whichcould have a direct and material effect on the determination of financial statement amounts. Suchprovisions included those provisions of laws and regulations identified in the Guidelines ForCompliance Audits of California Redevelopment Agencies, issued by the State Controller and asinterpreted in the Suggested Auditing Procedures for Accomplishing Compliance Audits of CaliforniaRedevelopment Agencies, issued by the Governmental Accounting and Auditing Committee of theCalifornia Society of Certified Public Accountants. However, providing an opinion on eompliancewith those provisions was not an objective of our audit and, accordingly, we do not express such anopinion. The results of our tests disclosed no instances of noncompliance or other matters that arerequired to be reported under Government Auditing Standards.

This report is intended solely for the information and use of the Agency Members and management ofthe Lake Elsinore Redevelopment Agency and the State Controller's Office, Division of Aecountingand Reporting and is not intended to be and should not be used by anyone other than these specificparties.

- 56-

E-1

APPENDIX E

FORM OF CONTINUING DISCLOSURE AGREEMENT

This Continuing Disclosure Agreement (the “Disclosure Agreement”), dated as of ________ 1, 2010, is executed and delivered by the Redevelopment Agency of the City of Lake Elsinore (the “Agency”) and Union Bank, N.A., as dissemination agent hereunder (the “Dissemination Agent”) in connection with the issuance of the $__________ Lake Elsinore Public Financing Authority Tax Allocation Revenue Bonds (1999 Series C Refunding), 2010 Series A (the “Bonds”). The Bonds are being issued pursuant to an Indenture of Trust, dated as of __________ 1, 2010 (the “Indenture”), by and between the Lake Elsinore Public Financing Authority and Union Bank, N.A., as trustee (the “Trustee”). The Agency and the Dissemination Agent covenant and agree as follows:

SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Agency for the benefit of the Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with the Rule (as defined herein).

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

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

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

“Disclosure Representative” shall mean the Executive Director of the Agency or his or her designee, or such other officer or employee as the Agency shall designate in writing to the Dissemination Agent (if other than the Agency) from time to time.

“Dissemination Agent” shall mean Union Bank, N.A., acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the Agency and which has filed with the Agency a written acceptance of such designation.

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

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

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

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

E-2

SECTION 3. Provision of Annual Reports.

(a) The Agency shall, or shall cause the Dissemination Agent to, not later than February 15 of each year, commencing February 15, 2011, provide to the MSRB and the Participating Underwriter an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Agreement. If the Agency’s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(f).

(b) Not later than fifteen (15) Business Days prior to the date specified in subsection (a) for providing the Annual Report to the MRSB, the Agency shall provide the Annual Report to the Dissemination Agent (if other than the Agency). The Agency shall provide, or cause the preparer of the Annual Report to provide, a written certificate with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished to it hereunder. The Dissemination Agent may conclusively rely upon such certification of the Agency and shall have no duty or obligation to review such Annual Report.

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

(d) The Dissemination Agent shall, to the extent information is known to it, file a report with the Agency certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided.

SECTION 4. Content of Annual Reports. The Annual Report shall contain or include by reference the following:

(a) The audited financial statements of the Agency, prepared in accordance with generally accepted accounting principles in effect from time to time. If any of such audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available.

(b) An update of tabular information relating to the Agency and Project Areas of the kind presented in the section of the Official Statement entitled:

“THE REDEVELOPMENT PROJECTS – REDEVELOPMENT PROJECT NO. [I]][II][III] – Assessed Value by Land Use”

“THE REDEVELOPMENT PROJECTS – REDEVELOPMENT PROJECT NO. [I]][II][III] – Top Ten Taxable Property Owners”

“TAX INCREMENT REVENUES – HISTORICAL TAXABLE VALUATION”

“TAX INCREMENT REVENUES – PROPOSITION 8 ADJUSTMENTS;”

and update of the narrative appeals information as presented in the section of the Official Statement entitled “TAX INCREMENT REVENUES – ASSESSMENT APPEALS.”

E-3

Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the Agency or related public entities, which are available to the public on the MSRB’s Internet Web site or filed with the Securities and Exchange Commission.

SECTION 5. Reporting of Significant Events.

(a) Pursuant to the provisions of this Section 5, the Agency shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material:

1. principal and interest payment delinquencies;

2. non-payment related defaults;

3. modifications to rights of Beneficial Owner;

4. optional, contingent or unscheduled bond calls;

5. defeasances;

6. rating changes;

7. adverse tax opinions or events adversely affecting the tax-exempt status of the Bonds, if applicable;

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

9. unscheduled draws on credit enhancements reflecting financial difficulties;

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

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

(b) The Dissemination Agent shall, within seven (7) Business Days or as soon as reasonably practicable after obtaining actual knowledge of the occurrence of any of the Listed Events, contact the Disclosure Representative, inform such person of the event, and request that the Agency promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to subsection (f) and promptly direct the Dissemination Agent whether or not to report such event to the Beneficial Owners. In the absence of such direction, the Dissemination Agent shall not report such event unless otherwise required to be reported by the Trustee to the Beneficial Owners under the Indenture. The Dissemination Agent may conclusively rely upon such direction (or lack thereof). For purposes of this Disclosure Agreement, “actual knowledge” of the occurrence of such Listed Events shall mean actual knowledge by the officer at the corporate office of the Dissemination Agent with regular responsibility for the administration of matters related to the Indenture. The Dissemination Agent shall have no responsibility to determine the materiality of any of the Listed Events.

(c) Whenever the Agency obtains knowledge of the occurrence of a Listed Event, whether because of a notice from the Dissemination Agent pursuant to subsection (b) or otherwise, the Agency shall as soon as possible determine if such event would be material under applicable federal securities laws.

(d) If the Agency has determined that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the Agency shall promptly notify the

E-4

Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (f).

(e) If in response to a request under subsection (b), the Agency determines that the Listed Event would not be material under applicable federal securities laws, the Agency shall so notify the Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrence pursuant to subsection (f).

(f) If the Dissemination Agent has been instructed by the Agency to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the MSRB. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(4) and (5) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Beneficial Owners of affected Bonds pursuant to the Indenture.

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

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

SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Agency may amend this Disclosure Agreement, and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied:

(a) If the amendment or waiver relates to the provisions of Sections 3(a), 4, or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the Bonds, or the type of business conducted;

(b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original execution and delivery of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

(c) The amendment or waiver either (i) is approved by the Beneficial Owners in the same manner as provided in the Indenture for amendments to the Indenture with the consent of Beneficial Owners, or (ii) does not, in the opinion of a nationally recognized bond counsel, materially impair the interests of the Beneficial Owners.

(d) Any amendment that modifies or increases the duties or obligations of the Dissemination Agent shall be agreed to in writing by the Dissemination Agent.

E-5

In the event of any amendment or waiver of a provision of this Disclosure Agreement, the Agency shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the Agency.

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

SECTION 10. Default. In the event of a failure of the Agency to comply with any provision of this Disclosure Agreement, the Dissemination Agent (at the written request of any Participating Underwriter or the Beneficial Owners of at least 25% aggregate principal amount of Outstanding Bonds, shall but only to the extent funds in an amount satisfactory to the Dissemination Agent have been provided to it or it has been otherwise indemnified to its satisfaction from any cost, liability, expense or additional charges and fees of the Dissemination Agent whatsoever, including, without limitation, fees and expenses of its attorneys), or any Beneficial Owner may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Agency to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Agreement in the event of any failure of the Agency to comply with this Disclosure Agreement shall be an action to compel performance.

SECTION 11. Duties, Immunities and Liabilities of Dissemination Agent. Article VI of the Indenture is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Indenture and the Dissemination Agent shall be entitled to the protections, limitations from liability and indemnities afforded the Trustee thereunder. The Dissemination Agent (if other than the Trustee or the Trustee in its capacity as Dissemination Agent) shall have only such duties as are specifically set forth in this Disclosure Agreement, and the Agency agrees to indemnify and save the Dissemination Agent and the Trustee, their officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the respective parties’ gross negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the Agency for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent shall have no duty or obligation to review any information provided to them hereunder and shall not be deemed to be acting in any fiduciary capacity for the Agency, the Beneficial Owners, or any other party. Neither the Trustee nor the Dissemination Agent shall have any liability to the Beneficial Owners or any other party for any monetary damages or financial liability of any kind whatsoever related to or arising from this Agreement. The obligations of the Agency under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds.

SECTION 12. Filings with the MSRB. All financial information, operating data, financial statements, notices, and other documents provided to the MSRB in accordance with this Disclosure

E-6

Agreement shall be provided in an electronic format prescribed by the MSRB and shall be accompanied by identifying information as prescribed by the MSRB.

SECTION 13. Notices. Any notices or communications to the Agency or the Dissemination Agent may be given as follows:

To the Agency: Redevelopment Agency of the City of Lake Elsinore 130 South Main Street Lake Elsinore, California 92530 Attention: Executive Director (951) 674-3124 (951) 674-2392 Fax

To the Dissemination Agent: Union Bank, N.A. 120 South San Pedro Street, 4th Floor Los Angeles, California 90012 Attention: Corporate Trust Department (213) 972-5677 (213) 972-5694 Fax

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

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

SECTION 14. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused this Continuing Disclosure Agreement to be duly executed and delivered by their respective officers as of the date first above written.

REDEVELOPMENT AGENCY OF THE CITY OF LAKE ELSINORE By Executive Director UNION BANK, N.A., as Dissemination Agent By Authorized Signatory

E-7

EXHIBIT A

NOTICE TO MSRB OF FAILURE TO FILE ANNUAL REPORT

Name of Obligated Party: Redevelopment Agency of the City of Lake Elsinore

Name of Bonds: Lake Elsinore Public Financing Authority Tax Allocation Revenue Bonds (1999 Series C Refunding), 2010 Series A

Date of Delivery: __________, 2010

NOTICE IS HEREBY GIVEN that the Agency has not provided an Annual Report with respect to the above-captioned Bonds as required by the Continuing Disclosure Agreement, dated as of ___________ 1, 2010, with respect to the Bonds. [The Agency anticipates that the Annual Report will be filed by _____________.]

Dated:_______________

UNION BANK, N.A. By _______________________________

cc: Agency and Underwriter


F-1

APPENDIX F SPECIMEN FINANCIAL GUARANTY

INSURANCE POLICY


Page 1 of 2 Form NY-FG (05/07)

Financial Guaranty Insurance Policy

Issuer: Policy No.:

Obligations: Premium:

Effective Date:

Assured Guaranty Corp., a Maryland corporation (“AGC”), in consideration of the payment of the Premium and on the terms and subject to the conditions of this Policy (which includes each endorsement hereto), hereby unconditionally and irrevocably agrees to pay to the trustee (the “Trustee”) or the paying agent (the “Paying Agent”) for the Obligations (as set forth in the documentation providing for the issuance of and securing the Obligations) for the benefit of the Holders, that portion of the Insured Payments which shall become Due for Payment but shall be unpaid by reason of Nonpayment.

AGC will make such Insured Payments to the Trustee or the Paying Agent on the later to occur of (i) the date applicable

principal or interest becomes Due for Payment, or (ii) the Business Day next following the day on which AGC shall have Received a completed Notice of Nonpayment. If a Notice of Nonpayment by AGC is incomplete or does not in any instance conform to the terms and conditions of this Policy, it shall be deemed not Received, and AGC shall promptly give notice to the Trustee or the Paying Agent. Upon receipt of such notice, the Trustee or the Paying Agent may submit an amended Notice of Nonpayment. The Trustee or the Paying Agent will disburse the Insured Payments to the Holders only upon receipt by the Trustee or the Paying Agent, in form reasonably satisfactory to it of (i) evidence of the Holder's right to receive such payments, and (ii) evidence, including without limitation any appropriate instruments of assignment, that all of the Holder's rights to payment of such principal or interest Due for Payment shall thereupon vest in AGC. Upon and to the extent of such disbursement, AGC shall become the Holder of the Obligations, any appurtenant coupon thereto and right to receipt of payment of principal thereof or interest thereon, and shall be fully subrogated to all of the Holder's right, title and interest thereunder, including without limitation the right to receive payments in respect of the Obligations. Payment by AGC to the Trustee or the Paying Agent for the benefit of the Holders shall discharge the obligation of AGC under this Policy to the extent of such payment.

This Policy is non-cancelable by AGC for any reason. The Premium on this Policy is not refundable for any reason. This

Policy does not insure against loss of any prepayment premium or other acceleration payment which at any time may become due in respect of any Obligation, other than at the sole option of AGC, nor against any risk other than Nonpayment.

Except to the extent expressly modified by any endorsement hereto, the following terms shall have the meanings specified

for all purposes of this Policy. “Avoided Payment” means any amount previously distributed to a Holder in respect of any Insured Payment by or on behalf of the Issuer, which amount has been recovered from such Holder pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court having competent jurisdiction that such payment constitutes an avoidable preference with respect to such Holder. “Business Day” means any day other than (i) a Saturday or Sunday, (ii) any day on which the offices of the Trustee, the Paying Agent or AGC are closed, or (iii) any day on which banking institutions are authorized or required by law, executive order or governmental decree to be closed in the City of New York or in the State of Maryland. “Due for Payment” means (i) when referring to the principal of an Obligation, the stated maturity date thereof, or the date on which such Obligation shall have been duly called for mandatory sinking fund redemption, and does not refer to any earlier date on which payment is due by reason of a call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity (unless AGC in its sole discretion elects to make any principal payment, in whole or in part, on such earlier date) and (ii) when referring to interest on an Obligation, the stated date for payment of such interest. “Holder” means, in respect of any Obligation, the person or entity who, at the time of Nonpayment, is entitled under the terms of such Obligation to payment of principal or interest thereunder, except that Holder shall not include the Issuer or any person or entity whose direct or indirect obligation constitutes the underlying security for the Obligations. “Insured Payments” means that portion of the principal of and interest on the Obligations that shall become Due for Payment but shall be unpaid by reason of Nonpayment. Insured Payments shall not include any additional amounts owing by the Issuer solely as a result of the failure by the Trustee or the Paying Agent to pay such amount when due and payable, including without limitation any such additional amounts as may be attributable to penalties or to interest accruing at a default rate, to amounts payable in respect of indemnification, or to any other additional amounts payable by the Trustee or the Paying Agent by reason of such failure. “Nonpayment” means, in respect of an Obligation, the failure of the Issuer to have provided sufficient funds to the Trustee or the Paying Agent for payment in full of all principal and interest Due for Payment on such Obligation. It is further understood that the term "Nonpayment" in respect of an Obligation includes any Avoided Payment. “Receipt” or “Received” means actual receipt or notice of or, if notice is given by overnight or other delivery service, or by certified or registered United States mail, by a delivery receipt signed by a person authorized to accept delivery on behalf of the person to whom the notice was given. Notices to AGC may be mailed by registered mail or personally delivered or telecopied to it at 31 West 52nd Street, New York, New York 10019, Telephone Number: (212) 974-0100, Facsimile Number: (212) 581-3268, Attention: Risk Management Department – Public Finance Surveillance, with a copy to the General Counsel at the same address and at [email protected] or at the following Facsimile Number: (212) 445-8705, or to such other address as shall be specified by AGC to the Trustee or the Paying Agent in writing. A Notice of Nonpayment will be deemed to be Received by AGC on a given Business Day if it is Received prior to 12:00 noon (New York City

Page 2 of 2 Form NY-FG (05/07)

time) on such Business Day; otherwise it will be deemed Received on the next Business Day. “Term” means the period from and including the Effective Date until the earlier of (i) the maturity date for the Obligations, or (ii) the date on which the Issuer has made all payments required to be made on the Obligations.

At any time during the Term of this Policy, AGC may appoint a fiscal agent (the “Fiscal Agent”) for purposes of this Policy by written notice to the Trustee or the Paying Agent, specifying the name and notice address of such Fiscal Agent. From and after the date of Receipt of such notice by the Trustee or the Paying Agent, copies of all notices and documents required to be delivered to AGC pursuant to this Policy shall be delivered simultaneously to the Fiscal Agent and to AGC. All payments required to be made by AGC under this Policy may be made directly by AGC or by the Fiscal Agent on behalf of AGC. The Fiscal Agent is the agent of AGC only, and the Fiscal Agent shall in no event be liable to the Trustee or the Paying Agent for any acts of the Fiscal Agent or any failure of AGC to deposit, or cause to be deposited, sufficient funds to make payments due under this Policy.

To the fullest extent permitted by applicable law, AGC hereby waives, in each case for the benefit of the Holders only, all rights and defenses of any kind (including, without limitation, the defense of fraud in the inducement or in fact or any other circumstance that would have the effect of discharging a surety, guarantor or any other person in law or in equity) that may be available to AGC to deny or avoid payment of its obligations under this Policy in accordance with the express provisions hereof. Nothing in this paragraph will be construed (i) to waive, limit or otherwise impair, and AGC expressly reserves, AGC’s rights and remedies, including, without limitation: its right to assert any claim or to pursue recoveries (based on contractual rights, securities law violations, fraud or other causes of action) against any person or entity, in each case, whether directly or acquired as a subrogee, assignee or otherwise, subsequent to making any payment to the Trustee or the Paying Agent, in accordance with the express provisions hereof, and/or (ii) to require payment by AGC of any amounts that have been previously paid or that are not otherwise due in accordance with the express provisions of this Policy.

This Policy (which includes each endorsement hereto) sets forth in full the undertaking of AGC with respect to the subject matter hereof, and may not be modified, altered or affected by any other agreement or instrument, including, without limitation, any modification thereto or amendment thereof. THIS POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW. This Policy will be governed by, and shall be construed in accordance with, the laws of the State of New York.

IN WITNESS WHEREOF, AGC has caused this Policy to be affixed with its corporate seal, to be signed by its duly authorized officer, and to become effective and binding upon AGC by virtue of such signature.

ASSURED GUARANTY CORP.

(SEAL)

By:__________________________________ [Insert Authorized Signatory Name] [Insert Authorized Signatory Title]

Signature attested to by:

_______________________________ Counsel

G-1

APPENDIX G

FORM OF OPINION OF BOND COUNSEL Date of Delivery

Lake Elsinore Public Financing Authority 130 South Main Street Lake Elsinore, California 92530

$__________

Lake Elsinore Public Financing Authority Tax Allocation Revenue Bonds (1999 Series C Refunding),

2010 Series A

Members of the Board of Directors:

We have acted as bond counsel to the Lake Elsinore Public Financing Authority (the “Authority”) in connection with the issuance by the Authority of $________ aggregate principal amount of Lake Elsinore Public Financing Authority Tax Allocation Revenue Bonds (1999 Series C Refunding), 2010 Series A (the “Bonds”), pursuant to the provisions of Article 4 (commencing with section 6584) of Chapter 5 of Division 7 of Title 1 of the California Government Code (the “Law”) and pursuant to an Indenture of Trust, dated as of February 1, 2010 (the “Indenture”), by and between the Authority and Union Bank, N.A., as trustee (the “Trustee”). We have examined the Law and such certified proceedings and other papers as we deem necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon representations of the Authority contained in the Indenture and in the certified proceedings and certifications of public officials and others furnished to us, without undertaking to verify the same by independent investigation.

Based upon the foregoing we are of the opinion, under existing law, as follows:

1. The Authority is a joint exercise of powers authority duly organized and validly existing under the laws of the State of California with the full power to enter into the Indenture, to perform the agreements on its part contained therein and to issue the Bonds.

2. The Indenture has been duly approved by the Authority and constitutes the valid and binding obligation of the Authority enforceable against the Authority in accordance with its terms.

3. The Indenture creates a valid lien on the funds pledged by the Indenture for the security of the Bonds, subject to no prior lien granted under the Law.

4. The Bonds have been duly authorized, executed and delivered by the Authority and are valid and binding special obligations of the Authority, payable solely from the sources provided therefor in the Indenture.

G-2

5. The Internal Revenue Code of 1986 (the “Code”) sets forth certain requirements that must be met subsequent to the issuance and delivery of the Bonds for interest thereon to be and remain excluded from the gross income of the owners thereof for federal income tax purposes. Noncompliance with such requirements could cause the interest on the Bonds to be included in gross income retroactive to the date of issue of the Bonds. The Authority has covenanted in the Indenture to maintain the exclusion of interest on the Bonds from the gross income of the owners thereof for federal income tax purposes.

In our opinion, under existing law, interest on the Bonds is exempt from personal income taxation of the State of California and, assuming compliance with the aforementioned covenant, interest on the Bonds is excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. We are further of the opinion that under existing statutes, regulations, rulings and court decisions, the Bonds are not “specified private activity bonds” within the meaning of section 57(a)(5) of the Code and, therefore, the interest on the Bonds will not be treated as an item of tax preference for purposes of computing the alternative minimum tax imposed by section 55 of the Code. The receipt or accrual of interest on Bonds owned by a corporation may affect the computation of the alternative minimum taxable income, upon which the alternative minimum tax is imposed, to the extent that such interest is taken into account in determining the adjusted current earnings of that corporation (75% of the excess, if any, of such adjusted current earnings over the alternative minimum taxable income being an adjustment to alternative minimum taxable income (determined without regard to such adjustment or to the alternative tax net operating loss deduction)).

Except as stated in the preceding two paragraphs, we express no opinion as to any federal or state tax consequences of the ownership or disposition of the Bonds. Furthermore, we express no opinion as to any federal, state or local tax law consequences with respect to the Bonds, or the interest thereon, if any action is taken with respect to the Bonds or the proceeds thereof predicated or permitted upon the advice or approval of other bond counsel.

The rights of the owners of the Bonds and the enforceability of the Bonds and the Indenture may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights heretofore or hereafter enacted and may also be subject to the exercise of judicial discretion in appropriate cases.

Our opinions are based on existing law, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may thereafter come to our attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service; rather, such opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above.

Respectfully submitted,

H-1

APPENDIX H DTC AND BOOK-ENTRY-ONLY SYSTEM

The following description of the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal of and interest on the Bonds to Direct Participants, Indirect Participants or Beneficial Owners (as such terms are defined below) of the Bonds, confirmation and transfer of beneficial ownership interests in the Bonds and other Bond-related transactions by and between DTC, Direct Participants, Indirect Participants and Beneficial Owners of the Bonds is based solely on information furnished by DTC to the Authority which the Authority believes to be reliable, but the Authority and the Underwriter do not and cannot make any independent representations concerning these matters and do not take responsibility for the accuracy or completeness thereof. Neither the DTC, Direct Participants, Indirect Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be.

The Depository Trust Company (“DTC”), New York, New York, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC.

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

Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bonds (“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

H-2

the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.

To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co. or such other name as requested by an authorized representative of DTC. The deposit of the Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct or Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

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

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

Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Authority 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 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

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

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

H-3

event that a successor depository is not obtained, Bond certificates are required to be printed and delivered.

The Authority may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, the Bond 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 Authority believes to be reliable, but the Authority takes no responsibility for the accuracy thereof.

Discontinuance of DTC Services

In the event that (a) DTC determines not to continue to act as securities depository for the Bonds, or (b) the Authority determines that DTC shall no longer act and delivers a written certificate to the Trustee to that effect, then the Authority will discontinue the Book-Entry System with DTC for the Bonds. If the Authority determines to replace DTC with another qualified securities depository, the Authority will prepare or direct the preparation of a new single separate, fully-registered Bond for each maturity of the Bonds registered in the name of such successor or substitute securities depository as are not inconsistent with the terms of the Indenture. If the Authority fails to identify another qualified securities depository to replace the incumbent securities depository for the Bonds, then the Bonds shall no longer be restricted to being registered in the Bonds registration books in the name of the incumbent securities depository or its nominee, but shall be registered in whatever name or names the incumbent securities depository or its nominee transferring or exchanging the Bonds shall designate.

In the event that the Book-Entry System is discontinued, the following provisions would also apply: (i) the Bonds will be made available in physical form, (ii) principal of, and redemption premiums if any, on the Bonds will be payable upon surrender thereof at the trust office of the Trustee identified in the Indenture, and (iii) the Bonds will be transferable and exchangeable as provided in the Indenture.

The Authority or the Trustee do not have any responsibility or obligation to DTC Participants, to the persons for whom they act as nominees, to Beneficial Owners, or to any other person who is not shown on the registration books as being an owner of the Bonds, with respect to (i) the accuracy of any records maintained by DTC or any DTC Participants; (ii) the payment by DTC or any DTC Participant of any amount in respect of the principal of, redemption price of or interest on the Bonds; (iii) the delivery of any notice which is permitted or required to be given to registered owners under the Indenture; (iv) the selection by DTC or any DTC Participant of any person to receive payment in the event of a partial redemption of the Bonds; (v) any consent given or other action taken by DTC as registered owner; or (vi) any other matter arising with respect to the Bonds or the Indenture. The Authority or the Trustee cannot and do not give any assurances that DTC, DTC Participants or others will distribute payments of principal of or interest on the Bonds paid to DTC or its nominee, as the registered owner, or any notices to the Beneficial Owners or that they will do so on a timely basis or will serve and act in a manner described in this Official Statement. The Authority or the Trustee are not responsible or liable for the failure of DTC or any DTC Participant to make any payment or give any notice to a Beneficial Owner in respect to the Bonds or any error or delay relating thereto.
