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HomeMy WebLinkAbout2002-08-27 - RESOLUTIONS - ESTABLISH CFD 2002 1 VALENCIA (2)RESOLUTION NO. CFD 02-1-1 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SANTA CLARITA, CALIFORNIA, DECLARING ITS INTENTION TO ESTABLISH COMMUNITY FACILITIES DISTRICT NO. 2002-1 (VALENCIA TOWN CENTER) AND TO AUTHORIZE THE LEVY OF A SPECIAL TAX WITHIN SAID COMMUNITY FACILITIES DISTRICT; AND APPROVING CERTAIN OTHER MATTERS RELATED THERETO WHEREAS, in 1992, in order to finance certain public improvements related to a proposed mall, the City Council (the "City Council') of the City of Santa Clarita, California (the "City") formed Community Facilities District No. 92-1 (Valencia Town Center) (the "Existing CFD"), encompassing land of the proposed mall, pursuant to the Mello -Roos Community Facilities Act of 1982, as amended (the "Act"); and WHEREAS, on October 22, 1992, pursuant to the Act and Resolution No. CFD 92-1-4, as amended on September 22, 1992, the Existing CFD issued special tax bonds (the "1992 Bonds") in the original principal amount of $20,000,000 secured by special taxes to be paid by the property owners within the Existing CFD; and WHEREAS, the Act provides that the owners of not less than 10% of the land, by area, proposed to be included in a CFD may petition the appropriate legislative body to initiate proceedings for the establishment of a CFD; and WHEREAS, the City Council has received a petition (the "Petition") from the sole owner of the land within the Existing CFD, [Newhall Land & Farming] (the "Owner"), requesting the refinancing of the 1992 Bonds, currently outstanding in the principal amount of $15,990,000, by the institution of proceedings for the formation of an overlap community facilities district (the "CFD") and the issuance of bonds to optionally redeem the 1992 Bonds; and WHEREAS, the City Council has determined that the Petition complies with the requirements of Government Code Section 53318(c) and now intends to initiate proceedings for the establishment of the CFD; and WHEREAS, it is the intention of the City Council to optionally redeem the 1992 Bonds and to extinguish the special tax. lien associated with the Existing CFD (the "Project") through the formation of the CFD, subject to the authorization of bonds and the levy of a special tax to pay principal of and interest on bonds, being approved at an election to be held within the boundaries of the CFD; and WHEREAS, the City Council has heretofore adopted certain goals and policies for the formation and administration of community facilities districts under the Act, which would apply to the CFD, whereunder the costs of the proceedings to form a community facilities district initiated by petition of landowners are to be funded and advanced by the petitioners, that no action will be taken upon any such petition unless and until a deposit of sufficient funds is made by the petitioners with the City, and that, after formation of a community facilities district and the issuance of bonds thereby, such petitioners may be Resolution No. CFD 02-1-1 Page 2 reimbursed from bond proceeds for formation costs advanced by petitioners; and WHEREAS, Section 53314.9 of the Act provides that, at any time either before or after the formation of a community facilities district, the legislative body may accept advances of funds from any source, including, but not limited to, private persons or entities, and may ,provide by resolution for the use of those funds for any authorized purpose, including the costs of formation of such a community facilities district; and WHEREAS, Section 53314.9 of the Act further provides that the legislative body may enter into an agreement, approved by resolution, with the person or entity advancing funds, in order to provide for the repayment of all or a portion of the funds so advanced, as determined by the legislative body, with or without interest, under all of the following conditions: (a) the proposal to repay the advances is included in both the resolution of intention to establish a community facilities district adopted pursuant to Section 53521 of the Act and in the resolution of formation to establish a community facilities district pursuant to Section 53325.1 of the Act, (b) any proposed special tax is approved by the qualified electors of the community facilities district pursuant to the Act, and (c) any agreement shall specify that if the qualified electors of the community facilities district do not approve the proposed special tax, the local agency shall return any funds which have not been committed for any authorized purpose by the time of the election, to the person or entity advancing the funds; and WHEREAS, there has now been presented to this meeting of the City Council a form of Deposit and Reimbursement Agreement, by and between the City and the Owner (the "Reimbursement Agreement"), meeting the cited requirements of the Act, providing for the advancement of funds by the Owner to be used to pay costs to be incurred in connection with the formation of the CFD and the issuance of any special tax bonds thereby, and providing for the reimbursement to the Owner of such funds advanced, without interest, from the proceeds of any such bonds issued by the CFD; and WHEREAS, the City now desires to enter into the Reimbursement Agreement with the Owner in accordance with Section 53314.9 of the Act; and WHEREAS, the City Council deems it necessary and advisable to engage the specialized services of certain consultants to provide such services to the City in connection with the proposed formation of the CFD; NOW, THEREFORE, the City Council of the City of Santa Clarita does hereby resolve, determine and order as follows: Section 1. The foregoing recitals are true and correct. Section 2. For the purpose of the redemption of the 1992 Bonds and the extinguishment of the special tax lien of the Existing CFD, the City Council hereby determines to institute proceedings for the formation of a community facilities district under the terms of the Act. The exterior boundaries of the CFD are hereby specified and described to be as shown on that certain map now on file in the office of the City Clerk entitled "Proposed Boundaries of City of Santa Clarita Community Facilities District No. Resolution No. CFD 02-1-1 Page 3 2002-1 (Valencia Town Center)," which map indicates by a boundary line the extent of the territory included in the proposed community facilities district and shall govern for all details as to the extent of the CFD. On the original and one copy of the map of such CFD on file in the City Clerk's office, the City Clerk shall endorse the certificate evidencing the date and adoption of this resolution. The City Clerk shall file the original of such map in her office and, within fifteen (15) days after the adoption of this Resolution, the City Clerk shall file a copy of such map so endorsed in the records of the County Recorder, County of Los Angeles, State of California. Section 3. The name of the proposed CFD shall be "City of Santa Clarita Community Facilities District No. 2002-1 (Valencia Town Center)." Section 4. The project proposed to be financed by the CFD includes the redemption of the 1992 Bonds and the extinguishment of the special tax lien of the Existing CFD, and the financing of the costs associated with the issuance of the bonds and all other costs necessary to finance the project which are permitted to be financed pursuant to the Act (the "Project"). The 1992 Bonds were issued to equip, modify, maintain, rehabilitate, acquire, relocate, construct or otherwise provide certain public facilities in connection with the development of the mall, and all necessary equipment and property therefor, which public facilities were necessary to meet increased demands placed upon the City and the County of Los Angeles as a result of development of the mall. Section 5. Except where funds are otherwise available, it is the intention of the City Council to levy annually in accordance with procedures contained in the Act a special tax (the "Special Tax") sufficient to pay for the costs of financing the Project, including the principal of and interest on the bonds proposed to be issued to provide funds to redeem the 1992 Bonds and other periodic costs, the establishment and replenishment of reserve funds, the remarketing, credit enhancement and liquidity and activity fees, the costs of administering the levy and collection of the Special Tax and all other costs of the levy of the Special Tax and issuance of the bonds, including any foreclosure proceedings, architectural, engineering, inspection, legal, fiscal, and financial consultant fees, discount fees, capitalized interest on bonds, if any, election costs and all costs of issuance of the bonds, including, but not limited to, fees for bond counsel, disclosure counsel, financing consultants and printing costs, and all other administrative costs of the tax levy and bond issue. The Special Tax will be secured by recordation of a continuing lien against all non-exempt real property in the CFD. In the first year in which such a Special Tax is levied, the levy shall include a sum sufficient to repay to the City all amounts, if any, transferred to the CFD pursuant to Section 53314 of the Act and interest thereon. The schedule of the rate and method of apportionment and manner of collection of the Special Tax is described in detail in Exhibit "A" attached hereto and by this reference incorporated herein (the "RMA"). The Special Tax is based upon the cost of financing the Project and the demand that the parcels placed on the facilities financed by the 1992 Bonds. The Special Tax is apportioned to each parcel on the foregoing basis pursuant to Section 53325.3 of the Act . In the event that a portion of the property within the CFD shall become for any reason exempt, wholly or partially, from the levy of the Special Tax, the City Council shall, on behalf of the CFD and subject to the RMA, increase the levy to the extent necessary upon the remaining property within the CFD which is not delinquent Resolution No. CFD 02-1-1 Page 4 or exempt in order to yield the required payments, subject to the maximum tax. The City Council hereby finds that the facilities financed by the 1992 Bonds were necessary to meet increased demands put upon the City and the County of Los Angeles as a result of the new development within the Existing CFD. Section 6. A public hearing (the "Hearing") on the establishment of the CFD and the proposed RMA shall be held on October 8, 2002, at 6:00 p.m., or as soon thereafter as practicable, at the chambers of the City Council of the City of Santa Clarita, 23920 Valencia Boulevard, Santa Clarita, California 91355. Section 7. At the time and place set forth above for the hearing, any interested person, including all persons owning lands or registered to vote within the proposed CFD, may appear and be heard. Section 8. Each City officer who is or will be responsible for the Project to be financed by the CFD, if it is established, is hereby directed to study the proposed CFD and, at or before the time of the above-mentioned Hearing, file a report with the City Council, and which is to be made a part of the record of the Hearing, containing a brief description of the Project, the facilities financed by the 1992 Bonds and an estimate of the cost of financing the Project. The Director of Administrative Services is directed to estimate the fair and reasonable cost of all incidental expenses, including the cost of financing the Project pursuant to the Act, including all costs associated with the creation of the CFD, issuance of bonds, determination of the amount of any special taxes, collection of any special taxes, or costs otherwise incurred in order to carry out the authorized purposes of the City with respect to the CFD, and any other expenses incidental thereto to be paid through the proposed financing. Section 9. The City Clerk is hereby directed to publish a notice ("Notice") of the Hearing pursuant to Section 6061 of the Government Code in a newspaper of general circulation published in the area of the proposed CFD. Such Notice shall contain the text or a summary of this Resolution, state the time and place of the Hearing, a statement that the testimony of all interested persons or taxpayers will be heard, a description of the protest rights of the registered voters and landowners in the proposed CFD as provided in Section 53324 of the Act and a description of the proposed voting procedure for the election required by the Act. Such publication shall be completed at least 7 days prior to the date of the Hearing. Section 10. The Reimbursement Agreement, substantially in the form presented to and considered by this meeting of the City Council, and by this reference made a part hereof, shall be and the same hereby is approved. The Mayor, or such other member of the City Council as the Mayor may designate in writing, the City Manager and the Director of Administrative Services (each, an "Authorized Officer") are, and each of them is, hereby authorized and directed, for and in the name of the City, to execute and deliver the Reimbursement Agreement in substantially the form submitted to this meeting, with such changes thereto, insertions and deletions therefrom as the Authorized Officer executing the same shall approve, such approval to be conclusively evidenced by the execution of the Reimbursement Agreement by such Authorized Officer. Resolution No. CFD 02-1-1 Page 5 Section 11. David Taussig & Associates (the "Special Tax Consultant") is hereby designated as special tax consultant to the City in connection with the proposed formation of the CFD, to perform such services as are generally necessary for such formation, on terms set forth in the written proposal of the Special Tax Consultant heretofore submitted to the City. The Authorized Officers are, and each of them is, hereby authorized and directed, for and in the name of the City, to execute and deliver the agreement for Special Tax Consultant services substantially in the form submitted to the City, with such changes, insertions and omissions as the Authorized Officer executing the same may approve, such approval to be conclusively evidenced by the execution of such agreement by such Authorized Officer. CB Richard Ellis, Los Angeles, California (the "Appraiser"), is hereby designated as the appraiser to the City in connection with the proposed formation of the CFD, to perform such services as are generally necessary for such formation, on terms set forth in the written proposal of the Appraiser heretofore submitted to the City. The Authorized Officers are, and each of them is, hereby authorized and directed, for and in the name of the City, to execute and deliver the agreement for appraisal services substantially in the form submitted to the City, with such changes, insertions and omissions as the Authorized Officer executing the same may approve, such approval to be conclusively evidenced by the execution of such agreement by such Authorized Officer. The law firm of Fulbright & Jaworski L.L.P., Los Angeles, California, is hereby designated to serve as bond counsel to the City ("Bond Counsel") in connection with the formation of the CFD, to perform such services as are generally customary for bond counsel in such matters, on terms set forth in the written proposal of Bond Counsel heretofore submitted to the City. The Authorized Officers are, and each of them is, hereby authorized and directed, for and in the name of the City, to execute and deliver the agreement for Bond Counsel services substantially in the form submitted to the City, with only such changes, insertions and omissions as the Authorized Officer executing the same may approve, such approval 'to be conclusively evidenced by the execution of such agreement by such Authorized Officer. The law firm of Foley & Lardner, San Francisco, California, is hereby designated to serve as disclosure counsel to the City ("Disclosure Counsel") in connection with the formation of the CFD, to perform such services as are generally customar„3L#br_;lisclosure counsel in such matters, on terms set forth in the written proposal of Disclosiire,Counsel heretofore submitted to the City. The Authorized Officers are, and each of thein fs, hereby authorized and directed, for and in the name of the City, to execute and_deliter._the agreement for Disclosure Counsel services substantially in the form submitted��o_the City, with only such changes, insertions and omissions as the Authorized Officer oke cnting the same may approve, such approval to be conclusively evidenced by the execution -of such agreement by such Authorized Officer. The investment banking firm of Stone & Youngberg LLC is hereby appointed to act as Underwriter of any special tax bonds issued by or through the CFD, on such terms as may subsequently be negotiated with said firm. 4 Resolution No. CFD 02-1-1 Page 6 Section 12. Pursuant to Section 53344.1 of the Act, the City Council hereby reserves to itself, in its sole discretion, the right and authority by subsequent resolution to allow any owner of property within the CFD, subject to the provisions of Section 53344.1 of the Act and those conditions as it may impose, and any applicable prepayment penalties as prescribed in the bond indenture or comparable instrument or document, to tender to the CFD treasurer in full payment or part payment of any installment of the special taxes or the interest or penalties thereon which may be due or delinquent, but for which a bill has been received, any bond or other obligation secured thereby, the bond or other obligation to be taken at par and credit to be given for the accrued interest shown thereby computed to the date of tender. Section 13. The voting procedure with respect to the establishment of the CFD and the imposition of the special tax shall be by hand delivered ballot election. Section 14. The officers, employees and agents of the City are hereby authorized and directed to take all actions and do all things which they, or any of them, may deem necessary or desirable in order to accomplish the purposes of this Resolution. Section 15. This Resolution shall take effect immediately upon its adoption. PASSED, APPROVED AND ADOPTED this 27th day of August, 2002. CITY OF SANTA CLARITA ATTEST: CITY CLERK. Resolution No. CFD 02-1-1 Page 7 STATE OF CALIFORNIA ) COUNTY OF LOS ANGELES ) ss. CITY OF SANTA CLARITA ) I, Sharon L. Dawson, CMC, City Clerk of the City of Santa Clarita, do hereby certify that the foregoing Resolution was duly adopted by the City Council of the City of Santa Clarita at a regular meeting thereof, held on the 27th day of August, 2002, by the following vote: AYES: COUNCILMEMBERS: Smyth, Weste, McLean, Kellar, Ferry NOES: COUNCILMEMBERS: None ABSENT: COUNCILMEMBERS: None ABSTAIN: - COUNCILMEMBERS: None R CITY CLERK Exhibit A RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX COMMUNITY FACILITIES DISTRICT NO. 2002-1 OF THE CITY OF SANTA CLARITA (VALENCIA TOWN CENTER) A Special Tax shall be levied and collected in Community Facilities District No. 2002-1 of the City of Santa Clarita ("CFD No. 2002-1") each Fiscal Year, in an amount determined by the City Council of the City of Santa Clarita acting in its capacity as the legislative body of CFD No. 2002- 1 through the application of the procedures described below. All of the real property in CFD No. 2002-1, unless exempted by the provisions hereof, shall be taxed for the purposes, to the extent and in the manner herein provided. A. DEFINITIONS The terms used herein shall have the following meanings: "Acreage" or "Acre" means that acreage shown on the Assessor's Parcel Map for each Assessor's Parcel. In the event that the Assessor's Parcel Map does not indicate acreage, the Acreage for any Assessor's Parcel shall be that shown or determined from the applicable condominium plan, final map or parcel map. For Condominiums, the Acreage applicable to each Condominium shall be determined by allocating the acreage of the underlying lot on which the Condominiums are or are to be constructed in proportion to each such Condominium's building square footage. "Act" means the Mello -Roos Community Facilities Act of 1982, as amended, being Chapter 2.5, Part 1, Division 2 of Title 5 of the Government Code of the State of California. "Administrative Expenses" means the following actual or reasonably estimated costs directly related to the administration of CFD No. 2002-1: the costs of computing the Special Tax Requirement and the annual Special Tax and of preparing the annual Special Tax collection schedules; the costs of collecting the Special Taxes; the costs of remitting the Special Taxes to the fiscal agent or trustee for any Bonds; the costs of the fiscal agent or trustee (including its legal counsel) in the discharge of the duties required of it under any Indenture; the costs of the City or designee in complying with the disclosure requirements of applicable federal and state securities laws and the California Government Code (including the Act), including public inquiries regarding the Special Taxes; the costs associated with the release of funds from any escrow account (to the extent not paid from other sources); the costs of the City or designee related to an appeal of the Special Tax and an allocable share of the salaries and an allocable portion of City's overhead costs relating to the foregoing; the costs of the City or designee related to any rebate calculations for CFD No. 2002-1; the fees and expenses of CFD No. 2002-1 associated with a prepayment as calculated by the CFD Administrator including, but not limited to, the costs of computing the prepayment, the costs of removing any Special Taxes from the Assessor's Roll, the costs of redeeming the Bonds, and the costs of recording and publishing any CFD No. 2002-1 Page 1 of 6 August 21, 2002 notices to evidence the prepayment and the redemption of Bonds; the costs of commencing and pursuing to completion any foreclosure action arising from delinquent Special Taxes in CFD No. 2002-1. Administrative Expenses shall also include amounts advanced by the City for any administrative purposes of CFD No. 2002-1. "Assessor's Parcel" means a lot or parcel shown in an Assessor's Parcel Map with an assigned Assessor's Parcel number. "Assessor's Parcel Map" means an official map of the Assessor of the County designating parcels by Assessor's Parcel number. "Bonds" means any bonds or other indebtedness (as defined in the Act), whether in one or more series, secured by the levy of Special Taxes within CFD No. 2002-1. "CFD Administrator" means an official of the Council, or designee thereof, responsible for determining the Special Tax Requirement and providing for the levy and collection of Special Taxes. "City" means the City of Santa Clarita, California. "Class 1 Property" means all property located within the boundaries of CFD No. 2002-1, exclusive of Assessor' s Parcel 2861-058-024 or its successor(s), which is not exempt from the Special Tax pursuant to Section E below. "Class 2 Property" means Assessor's Parcel 2861-058-024 or its successor(s). "Condominium" means a separate interest or unit meeting the statutory definition of a condominium contained in the California Civil Code, Section 1351, and for which a condominium plan has been recorded pursuant to California Civil Code, Section 1352. "Council" means the City Council of the City, acting as the legislative body of CFD No. 2002-1. "County" means the County of Los Angeles, California. "Exempt Property" means all property located within the boundaries of CFD No. 2002-1 which is exempt from the Special Tax pursuant Section E below. "Fiscal Year" means the period starting on each July 1 and ending on the following June 30. "Indenture" means the indenture, fiscal agent agreement, trust agreement, resolution or other instrument pursuant to which Bonds are issued, as modified, amended and/or supplemented from time to time, and any instrument replacing or supplementing the same. CFD No. 2002-1 Page 2 of 6 August 21, 2002 "Maximum Special Tax" means the maximum Special Tax, determined in accordance with Section C that can be levied by the Council in any Fiscal Year on any Assessor's Parcel "Special Tax" means the Special Tax to be levied in each Fiscal Year on each Assessor's Parcel of Taxable Property to fund the Special Tax Requirement. "Special Tax Requirement" means that amount required in any Fiscal Year: (1) to pay the Administrative Expenses, (2) to pay debt service on any issued and outstanding Bonds, (3) to replenish any reserve funds attributable to CFD No. 2002-1 and established in connection with the Bonds, (4) to pay the costs of remarketing, credit enhancement and liquidity facility fees (including such fees for instruments that serve as the basis of a reserve fund in lieu of cash related to any Bonds), (5) to pay for any delinquent Special Taxes or reasonably anticipated delinquent Special Taxes based on the delinquency rate for Special Taxes levied in the previous Fiscal Year, and less (6) available funds as directed under the Indenture. B. CLASSIFICATION OF PROPERTY Each Fiscal Year, all property within CFD No. 2002-1 shall be classified as either Class 1 Property, Class 2 Property, or Exempt Property. C. MAXIMUM SPECIAL TAX The Fiscal Year 2002-2003 Maximum Special Tax for each Assessor's Parcel classified as Class 1 Property shall be $27,003 per Acre. The Fiscal Year 2002-2003 Maximum Special Tax for Class 2 Property shall be $181,888 per Acre. The Maximum Special Tax for Class 1 Property and Class 2 Property shall increase at an annual rate of two percent (2.0%) commencing with Fiscal Year 2003-2004. D. METHOD OF APPORTIONMENT OF THE SPECIAL TAX Commencing with Fiscal Year 2002-2003 and for each following Fiscal Year, the Council shall determine the Special Tax Requirement. The Council shall levy the Special Tax as follows until the amount of the levy equals the Special Tax Requirement. First: The Special Tax shall be levied in equal percentages on each Assessor's Parcel of Class 1 Property and Class 2 Property, up to the Maximum Special Tax for Class 1 Property and up to fourteen and eighty-five hundredths percent (14.85 %) of the Maximum Special Tax for Class 2 Property; and Second: If additional Special Taxes are needed to satisfy the Special Tax Requirement after the fust step has been completed, the Special Tax shall be increased on Class 2 Property up to the Maximum Special Tax for such property as set forth in Section C above. CFD No. 2002-1 Page 3 of 6 August 21, 2002 E. EXEMPTIONS The Council shall not levy a Special Tax on properties owned by the State of California, Federal or other local governments or public agencies except as otherwise provided in Sections 53317.3 and 53317.5 of the Act. F. APPEALS Any property owner who feels that the amount of the Special Tax levied on their Assessor's Parcel is in error may submit a written appeal to CFD No. 2002-1. The Council may interpret this Rate and Method of Apportionment of Special Tax for purposes of clarifying any ambiguity and make determinations relative to the annual levy of the Special Tax and any property owner appeal. The CFD Administrator shall review the appeal and any errors in the amount of the Special Tax levied shall be appropriately modified. Any decision of the Council shall be final and binding as to all persons. G. MANNER OF COLLECTION The Special Tax will be collected in the same manner and at the same time as ordinary ad valorem property taxes, or alternatively, at the discretion of the Council, CFD No. 2002-1 may separately bill to and collect the Special Tax from each owner(s) of record of Class 1 Property and Class 2 Property. H. PREPAYMENT OF SPECIAL TAX 1. Prepayment in Full The Maximum Special Tax for any Assessor's Parcel may be prepaid and permanently satisfied as described herein, provided that a prepayment may be made only if at the time of the prepayment there are no delinquent Special Taxes with respect to such Assessor's Parcel and all other Assessor's Parcels which are under the same ownership and located within CFD No. 2002-1. An owner of an Assessor's Parcel intending to prepay the Special Tax shall provide the CFD Administrator with written notice of intent to prepay. Within 75 days of receipt of such written notice, the CFD Administrator shall notify such owner of the prepayment amount for such Assessor's Parcel and the date through which the amount any such prepayment shall be valid. The "Prepayment" shall be an amount equal to the sum of (1) Principal, (2) Premium, (3) Defeasance, and (4) Fees, minus the Reserve Fund Credit and the Capitalized Interest Credit, where the terms "Principal," "Premium," "Defeasance," "Fees," "Reserve Fund Credit," and "Capitalized Interest Credit" have the following meanings: CFD No. 2002-1 Page 4 of 6 August 21, 2002 "Principal" means the principal amount of Bonds to be redeemed and equals the quotient derived by dividing (a) the applicable Maximum Special Tax for the Assessor's Parcel intending to prepay by (b) the corresponding Fiscal Year aggregate special taxes for CFD No. 2002-1 commencing with $1,240,464 in Fiscal Year 2002-03 and escalating annually by two percent (2.0%) thereafter (and excluding from (b) any Maximum Special Taxes for Assessor's Parcels which have fully prepaid the Maximum Special Tax), and multiplying the quotient by the principal amount of Bonds issued and outstanding. "Premium" means an amount equal to the Principal multiplied by the applicable redemption premium, if any, for the Bonds so redeemed with the proceeds of any such Prepayment. "Defeasance" means an amount equal to the amount needed to pay interest on the Principal to be redeemed until the earliest redemption date for the outstanding Bonds less the amount that is estimated to be received from the reinvestment of the difference of the Prepayment and the Fees. Credit shall also be given for any Special Tax heretofore paid and which has not yet been utilized to pay the Special Tax Requirement. "Fees" equal the fees and expenses of CFD No. 2002-1 directly related to the Prepayment. "Reserve Fund Credit" shall equal the lesser of (i) the expected reduction in the applicable reserve fund requirement (as defined in the Indenture), if any, following the redemption of Bonds from proceeds of the prepayment or (ii) the amount derived by subtracting the new reserve fund requirement in effect after the redemption of Bonds from the balance in the reserve fund (as such term is defined in the Indenture) on the prepayment date, but in no event shall such amount be less than zero. "Capitalized Interest Credit" means the pro rata amount of capitalized interest allocable to the Assessor's Parcel intending to prepay the Special Tax, if any, determined by multiplying the quotient computed when determining Principal by the amount of capitalized interest remaining after the next succeeding interest payment. The sum of the amounts calculated in the preceding steps shall be paid to CFD No. 2002-1 and shall be used to pay and redeem Bonds in accordance with the Indenture and to pay the Fees. Upon the payment of such Prepayment to CFD No. 2002-1, the obligation to pay the Special Tax for such Assessor's Parcel shall be deemed to be permanently satisfied, the Special Tax shall not be levied thereafter on such Assessor's Parcel, and the CFD Administrator shall cause notice of cessation of the CFD No. 2002-1 Page 5 of 6 August 21, 2002 Special Tax for such Assessor's Parcel to be recorded within 30 working days of receipt of the Prepayment. 2. Prepayment in Part The Maximum Special Tax for any Assessor's Parcel may be prepaid in part as described herein, provided that a prepayment may be made only if at the time of the prepayment there are no delinquent Special Taxes with respect to such Assessor's Parcel and all other Assessor's Parcels which are under the same ownership and located within CFD No. 2002-1. An owner of an Assessor's Parcel intending to partially prepay the Special Tax shall provide the CFD Administrator with written notice of intent to prepay. Within 75 days of receipt of such written notice, the CFD Administrator shall notify such owner of the prepayment amount for such Assessor's Parcel and the date through which the amount any such prepayment shall be valid. The amount of the prepayment shall be computed pursuant to Section H.1 above substituting the portion of the Maximum Special Tax to be prepaid for the Maximum Special Tax applicable to the Parcel when computing Principal. The CFD Administrator shall cause a notice of reduction of the Special Tax for such Assessor's Parcel to be recorded within 30 working days of receipt of the prepayment. Notwithstanding the foregoing, no prepayment shall be allowed unless the amount of Maximum Special Taxes that may be levied in CFD No. 2002-1 pursuant to Section D after the proposed prepayment is at least the sum of (i) the estimated Administrative Expenses and (ii) one hundred ten percent (110 %) of the annual debt service for the Bonds, taking into account the Bonds to remain outstanding after such prepayment. K:\Cliems2\.SAWACLARUA\NMLO\Valencia TC\RMA\Valeack TC RMA RINAL.dw CFD No. 2002-1 Page 6 of 6 August 21, 2002