$815,000 COUNTY OF SANTA CRUZ LIMITED OBLIGATION IMPROVEMENT BONDS ASSESSMENT DISTRICT NO (ORCHARD DRIVE SEWER EXTENSION PROJECT)

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1 NEW ISSUE BOOK-ENTRY NOT RATED (See CONCLUDING INFORMATION - No Rating on the Bonds; Secondary Market herein) In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however to certain qualifications described herein, under existing law, the interest on the Bonds is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, although for the purpose of computing the alternative minimum tax imposed on certain corporations, such interest is taken into account in determining certain income and earnings. In the further opinion of Bond Counsel, such interest is exempt from California personal income taxes. See LEGAL MATTERS - Tax Matters herein. SANTA CRUZ COUNTY $815,000 COUNTY OF SANTA CRUZ LIMITED OBLIGATION IMPROVEMENT BONDS ASSESSMENT DISTRICT NO (ORCHARD DRIVE SEWER EXTENSION PROJECT) STATE OF CALIFORNIA Dated: Date of Delivery Due: September 2 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. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. Investment in the Bonds involves risks. See RISK FACTORS herein for a discussion of special risk factors that should be considered in evaluating the investment quality of the Bonds. The County of Santa Cruz Limited Obligation Improvement Bonds, Assessment District No (Orchard Drive Sewer Extension Project) (the Bonds ) are being issued by the County of Santa Cruz (the County ) pursuant to a Fiscal Agent Agreement, dated as of February 1, 2016 (the Fiscal Agent Agreement ), by and between the County and The Bank of New York Mellon Trust Company, N.A., as fiscal agent (the Fiscal Agent ) to: (i) finance the construction of sewer improvements, (ii) pay costs related to the issuance of the Bonds, (iii) capitalize interest on the Bonds through September 2, 2016 and (iv) make a deposit to a Reserve Fund for the Bonds. The Bonds are being issued pursuant to provisions of the Improvement Bond Act of 1915, being Division 10 of the California Streets and Highways Code (the Bond Law ). The Bonds are payable from assessments levied pursuant to the Municipal Improvement Act of 1913 (Division 12 of the California Streets and Highways Code) (the 1913 Act ). See SOURCES OF PAYMENT FOR THE BONDS and RISK FACTORS herein. Interest on the Bonds is payable semiannually on September 2 and March 2 each year, commencing September 2, 2016 (each, an Interest Payment Date ), until maturity. The Bonds are subject to optional, sinking fund and extraordinary redemption as described herein. See THE BONDS - Redemption herein. The Bonds are offered when, as and if issued subject to the approval as to their legality by Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel and certain other conditions. Certain legal matters will be passed on for the County by the County Counsel and by Jones Hall, A Professional Law Corporation, San Francisco, California, Disclosure Counsel. 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 23, The date of this Official Statement is February 10, 2016.

2 $815,000 COUNTY OF SANTA CRUZ LIMITED OBLIGATION IMPROVEMENT BONDS ASSESSMENT DISTRICT NO (ORCHARD DRIVE SEWER EXTENSION PROJECT) MATURITY SCHEDULE (Base CUSIP 80182L) $280,000 Serial Bonds Maturity Date Principal Interest Reoffering Reoffering September 2 Amount Rate Yield Price CUSIP 2017 $20, % 1.04% ED , EG , EH , EJ , EK , EL , EM , EN , EP , EQ , ER , ES , ET8 $40, % Term Bond maturing September 2, 2019, Yield 1.40%, Price CUSIP EF8 $140, % Term Bond maturing September 2, 2036, Yield 3.47%, Price CUSIP EY7 $165, % Term Bond maturing September 2, 2041, Yield 3.73%, Price CUSIP FD2 $190, % Term Bond maturing September 2, 2046, Yield 3.78%, Price CUSIP FJ9 Copyright 2016, American Bankers Association. CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services Bureau, operated by Standard & Poor s. This data is not intended to create a database and does not serve in any way as a substitute for CUSIP Global Services. CUSIP numbers have been assigned by an independent company not affiliated with the County and are included solely for the convenience of the holders of the Bonds. None of the County, the Municipal Advisor or the Underwriter takes any responsibility for the selection or uses of these CUSIP numbers, and no representation is made as to their correctness on the Bonds or as included herein. The CUSIP number for a specific maturity is subject to being changed after the issuance of the Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities of the Bonds.

3 GENERAL INFORMATION ABOUT THIS 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. Effective Date. This Official Statement speaks only as of its date, and the information and expressions of opinion contained in this Official Statement are subject to change without notice. Neither the delivery of this Official Statement nor any sale of the Bonds will, under any circumstances, create any implication that there has been no change in the affairs of the County or any other parties described in this Official Statement. Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure by the County, any press release and any oral statement made with the approval of an authorized officer of the County or any other entity described or referenced herein, the words or phrases will likely result, are expected to, will continue, is anticipated, estimate, project, forecast, expect, intend and similar expressions identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 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. Limit of Offering. No dealer, broker, salesperson or other person has been authorized by the County 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 County, the Municipal Advisor 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. Preparation of this Official Statement. The information contained in this Official Statement has been obtained from sources that are believed to be reliable, but this information is not guaranteed as to accuracy or completeness. The information and expressions of opinions herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the County since the date hereof. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose, unless authorized in writing by the County. All summaries of the Bonds, the Fiscal Agent Agreement or other documents, are made subject to the provisions of such documents and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file with the Auditor-Controller- Treasurer-Tax Collector for further information. See INTRODUCTION - Summary Not Definitive. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as 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. Bonds are Exempt from Securities Laws Registration. The issuance, sale and delivery of the Bonds has not been registered under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, in reliance upon exemptions for the execution, sale and delivery of municipal securities provided under Section 3(a)(2) of the Securities Act of 1933 and Section 3(a)(l2) of the Securities Exchange Act of Stabilization of Prices. In connection with this offering, the Underwriter may overallot or effect transactions which stabilize or maintain the market price of the Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriter may offer and sell the Bonds to certain dealers and others at prices lower than the public offering prices set forth on the inside cover page hereof and said public offering prices may be changed from time to time by the Underwriter. County Website. The County maintains a website. The information on such website is not part of this Official Statement and is not intended to be relied on by investors with respect to the Bonds unless specifically set forth or incorporated herein.

4 COUNTY OF SANTA CRUZ, CALIFORNIA BOARD OF SUPERVISORS John Leopold, Supervisor, 1st District Zach Friend, Supervisor, 2nd District Ryan Coonerty, Supervisor, 3rd District Greg Caput, Supervisor, 4th District Bruce McPherson, Supervisor, 5th District COUNTY STAFF Susan A. Mauriello, County Administrative Officer Edith Driscoll, Auditor-Controller-Treasurer-Tax Collector Carlos Palacios, Assistant County Administrative Officer John Presleigh, Director of Public Works Dana McRae, County Counsel PROFESSIONAL SERVICES Bond Counsel and Disclosure Counsel Jones Hall A Professional Law Corporation San Francisco, California Municipal Advisor Harrell & Company Advisors, LLC Orange, California Assessment Engineer Bowman & Williams Santa Cruz, California Fiscal Agent The Bank of New York Mellon Trust Company, N.A. Los Angeles, California

5 TABLE OF CONTENTS INTRODUCTION... 1 The County... 1 The District... 1 Security and Sources of Repayment for the Bonds... 1 Purpose... 2 Property Values... 2 Summary Not Definitive... 2 THE FINANCING PLAN... 3 Estimated Uses of Funds... 3 Estimated Improvement Costs... 3 THE BONDS... 4 Authority for Issuance... 4 General Provisions... 4 Book-Entry System... 5 Redemption... 5 Scheduled Debt Service on the Bonds... 8 THE DISTRICT General Assessed Values Assessment Parcels Assessed Value to Assessment Lien Ratios Delinquencies Effective Tax Rates Direct and Overlapping Debt SOURCES OF PAYMENT FOR THE BONDS Repayment of the Bonds Reserve Fund RISK FACTORS General Payment of the Assessment Not a Personal Obligation No County Obligation to Pay Debt Service Risks of Real Estate Secured Investments Generally Risks Related to Declines in Home Values Valuation of Property in the District Factors Affecting Parcel Value and Aggregate Values Other Possible Claims Upon the Value of an Assessment Parcel Risks Related to Availability of Mortgage Loans Foreclosure and Sale Proceedings Depletion of Reserve Fund Prepayment of Assessments Bankruptcy FDIC/Federal Government Interests in Properties Loss of Tax Exemption IRS Audit of Tax-Exempt Bond Issues No Acceleration Provision Proposition Ballot Initiatives and Legislative Measures Limited Secondary Market Limitations on Remedies LEGAL MATTERS Enforceability of Remedies Approval of Legal Proceedings Tax Matters Absence of Litigation CONCLUDING INFORMATION No Rating on the Bonds; Secondary Market Underwriting The Municipal Advisor Continuing Disclosure Execution APPENDIX A - COUNTY OF SANTA CRUZ INFORMATION STATEMENT APPENDIX B - SUMMARY OF THE FISCAL AGENT AGREEMENT APPENDIX C - FORM OF CONTINUING DISCLOSURE CERTIFICATE APPENDIX D - PROPOSED FORM OF OPINION OF BOND COUNSEL APPENDIX E - THE BOOK-ENTRY SYSTEM

6 SANTA CRUZ COUNTY LOCATION MAP Sacramento San Francisco San Jose Santa Cruz Fresno Bakersfield Los Angeles San Diego

7 OFFICIAL STATEMENT $815,000 COUNTY OF SANTA CRUZ LIMITED OBLIGATION IMPROVEMENT BONDS ASSESSMENT DISTRICT NO (ORCHARD DRIVE SEWER EXTENSION PROJECT) This Official Statement which includes the cover page and appendices (the Official Statement ) is provided to furnish certain information concerning the sale of the County of Santa Cruz Limited Obligation Improvement Bonds, Assessment District No (Orchard Drive Sewer Extension Project) (the Bonds ). INTRODUCTION The description and summaries of various documents hereinafter set forth do not purport to be comprehensive or definitive, and reference is made to each document for the complete details of all terms and conditions. All statements herein are qualified in their entirety by reference to each document. All capitalized terms used in this Official Statement and not otherwise defined herein have the same meaning as in the Fiscal Agent Agreement (defined below). The County The County was incorporated in It has a general law form of government. It is located on the coast of California, between the San Francisco Bay area and the Monterey Bay Peninsula, 74 miles south of San Francisco. For further information concerning the County, see APPENDIX A - COUNTY OF SANTA CRUZ INFORMATION STATEMENT herein. The District Assessment District No (the District ) was created by the County pursuant to proceedings taken under the Municipal Improvement Act of 1913 (Division 12 of the Streets and Highways Code) (the 1913 Act ). The District includes a total of 27 parcels, of which 23 parcels are subject to the Assessments (as defined below) securing the Bonds. See THE DISTRICT herein. As of the Closing Date, the Assessments total $816,500, $1,500 more than the par amount of the Bonds. Security and Sources of Repayment for the Bonds The Bonds will be issued under the Fiscal Agent Agreement, dated as of February 1, 2016 (the Fiscal Agent Agreement ), between the County and The Bank of New York Mellon Trust Company, N.A., Los Angeles, California, as fiscal agent (the Fiscal Agent ) (see APPENDIX B - SUMMARY OF THE FISCAL AGENT AGREEMENT herein) and pursuant to the Act. The Bonds are limited obligations of the County secured by a first lien on the unpaid assessments (the Assessments ) levied by the County on the parcels in the District with unpaid assessments (the Assessment Parcels ) pursuant to the 1913 Act and the funds pledged therefor under the Fiscal Agent Agreement. Assessments levied on the property in the District are estimated to be sufficient, if paid 1

8 timely, to pay the aggregate amount of the principal and interest on the Bonds. See SOURCES OF PAYMENT FOR THE BONDS and RISK FACTORS herein. The County has covenanted to cause foreclosure proceedings to be commenced and prosecuted against Assessment Parcels with delinquent installments of Assessments under certain circumstances. For a more detailed description of the foreclosure covenant see SOURCES OF PAYMENT FOR THE BONDS - Repayment of the Bonds - Foreclosure Covenant. The Bonds are special obligations of the County payable solely from the unpaid Assessments and other assets pledged therefor under the Fiscal Agent Agreement. The Bonds do not constitute a debt or liability of the County, the State of California or of any political subdivision thereof, other than the County to the limited extent described herein. The County shall only be obligated to pay the principal of the Bonds, and the interest thereon, from the funds described herein, and neither the faith and credit nor the taxing power of the County or the State of California or any political subdivision thereof is pledged to the payment of the principal of or the interest on the Bonds, except to the limited extent described herein. See SOURCES OF PAYMENT FOR THE BONDS and RISK FACTORS herein. Purpose Proceeds from the Bonds will be used to (i) finance the construction of public improvements of benefit to property within the District, (ii) pay costs related to the issuance of the Bonds, (iii) capitalize interest on the Bonds through September 2, 2016 and (iv) make a deposit to a Reserve Fund for the Bonds (see THE FINANCING PLAN - Estimated Uses of Funds herein). Property Values The County has relied on the assessed valuations of the County Assessor for the valuations for the 23 Assessment Parcels presented in this Official Statement. See RISK FACTORS and THE DISTRICT - Assessed Values. Summary Not Definitive The summaries and references contained herein with respect to the Fiscal Agent Agreement 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 Fiscal Agent Agreement. Capitalized terms used herein and not defined shall have the meaning set forth in the Fiscal Agent Agreement. Copies of the documents described herein are available for inspection during the period of initial offering of the Bonds at the offices of the Municipal Advisor, Harrell & Company Advisors, LLC, 333 City Boulevard West, Suite 1430, Orange, California 92868, telephone (714) Copies of these documents may be obtained after delivery of the Bonds from the Auditor-Controller-Treasurer-Tax Collector, County of Santa Cruz, 701 Ocean Street, Santa Cruz, California

9 Estimated Uses of Funds THE FINANCING PLAN The net proceeds from the sale of the Bonds, equal to $785, (par amount of $815,000.00, less net original issue discount of $12, and less Underwriter s discount of $16,300.00), will be applied as follows: Improvement Fund $651, Reserve Fund (1) 45, Capitalized Interest Account (2) 13, Costs of Issuance Fund (3) 75, Total Uses $785, (1) Equal to the Reserve Requirement for the Bonds as of the closing date. See SOURCES OF PAYMENT FOR THE BONDS - Reserve Fund. (2) Interest on the Bonds is capitalized through September 2, (3) Costs of Issuance includes Bond Counsel fee, Disclosure Counsel fee, Fiscal Agent fee, Municipal Advisor fee, Assessment Engineer fee, printing costs and other miscellaneous costs of issuance. Estimated Improvement Costs The data shown below is the estimated costs of the public sewer facilities (the Facilities ) contained in the Engineer s Report prepared by Bowman & Williams, Consulting Civil Engineers and construction bids received December 10, The Facilities consist of an extension of the sanitary sewer pipeline, necessary to connect homes in the District to the existing sewer system. Construction Costs (with contingency) $476,298 Design and Construction Administration 49,500 Connection Fees 192,978 County Administrative Costs 52,238 Total Improvement Costs 771,014 Less: Prepaid Assessments (119,273) Deposit to Improvement Fund $651,741 3

10 Authority for Issuance THE BONDS The Bonds are issued by the County pursuant to the 1913 Act, the Improvement Bond Act of 1915, as amended, Division 10 of the California Streets and Highways Code (the Bond Law ) and Resolution No adopted by the Board of Supervisors on January 26, 2016 (the Resolution ). General Provisions Repayment of the Bonds. The Bonds shall be issued as fully registered Bonds without coupons in the denomination of $5,000 or any integral multiple thereof, except that one Bond may contain any off amount, and shall mature as set forth on the inside front cover page. The Bonds shall bear interest at the rates set forth on the inside front cover page payable on each March 2 and September 2 (the Interest Payment Dates ) in each year, beginning September 2, Interest shall be calculated on the basis of a 360-day year composed of twelve 30-day months. Each Bond shall bear interest from the Interest Payment Date next preceding the date of authentication thereof unless (i) it is authenticated and registered as of an Interest Payment Date, in which event it shall bear interest from such Interest Payment Date, or (ii) it is authenticated prior to the first Interest Payment Date of September 2, 2016, in which event it shall bear interest from the Bond Date, which is the closing date of the Bonds. Interest on the Bonds (including the final interest payment upon maturity or earlier redemption) is payable in lawful money of the United States of America by check of the Fiscal Agent mailed by first class mail on the applicable Interest Payment Date to the registered Owner thereof at such registered Owner s address as it appears on the Bond register maintained by the Fiscal Agent at the close of business on the 15th day of the calendar month immediately preceding the applicable Interest Payment Date, whether or not such day is a Business Day (a Record Date ), or by wire transfer made on such Interest Payment Date upon written instructions of any Owner of $1,000,000 or more in aggregate principal amount of Bonds delivered to the Fiscal Agent prior to the applicable Record Date. The principal of the Bonds and any premium on the Bonds are payable in lawful money of the United States of America upon surrender of the Bonds at the Principal Office of the Fiscal Agent, except as provided in APPENDIX E - THE BOOK-ENTRY SYSTEM. Transfer or Exchange of Bonds. Any Bond may, in accordance with its terms, be transferred, upon the Bond register by the person in whose name it is registered, in person or by such person's duly authorized attorney, upon surrender of such Bond for cancellation, accompanied by delivery of a duly written instrument of transfer in a form approved by the Fiscal Agent. Whenever any Bond or Bonds are surrendered for transfer, the County shall execute and the Fiscal Agent shall authenticate and deliver a new Bond or Bonds, for like aggregate principal amount(s), maturity(ies) and interest rate(s) in the denominations authorized by the Fiscal Agent Agreement. Bonds may be presented for exchange at the Principal Office of the Fiscal Agent for a like aggregate principal amount of Bonds of authorized denominations and of the same maturity. The cost for any services rendered or any expenses incurred by the Fiscal Agent in connection with any such transfer or exchange shall be paid by the County; provided, however, that the Fiscal Agent shall collect from the Owner requesting such transfer or exchange any tax or other governmental charge required to be paid with respect to such transfer, including the costs otherwise payable by the County. Neither the County nor the Fiscal Agent will be required to make any transfer or exchange of Bonds on or after a Record Date and before the next ensuing Interest Payment Date. 4

11 The foregoing provisions regarding the transfer and exchange of the Bonds apply only if the book-entry system is discontinued. So long as the Bonds are in the book-entry system of The Depository Trust Company ( DTC ) as described below, the rules of DTC will apply for the transfer and exchange of Bonds. Book-Entry System DTC 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. Purchasers of beneficial interests in the Bonds will not receive physical certificates. For information on DTC and its book-entry system, see APPENDIX E. Discontinuance of Book-Entry System. DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the County or the Fiscal Agent. Under such circumstances, in the event that a successor securities depository is not obtained, Bonds are required to be printed and delivered as described in the Fiscal Agent Agreement. The County may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, the Bonds will be printed and delivered as described in the Fiscal Agent Agreement. Redemption Optional Redemption. The Bonds may be redeemed prior to maturity, in whole or in part, at the option of the County beginning on September 2, 2016 and on any Interest Payment Date thereafter, from any source of available funds, at a redemption price (expressed as a percentage of the principal amount of Bonds to be redeemed) together with accrued interest to the date fixed for redemption as follows: Redemption Dates Redemption Prices September 2, 2016 through and including March 2, % September 2, 2024 and March 2, % September 2, 2025 and March 2, % September 2, 2026 and any Interest Payment Date thereafter 100% Extraordinary Redemption from Assessment Prepayments. The Bonds are subject to extraordinary redemption prior to their stated maturities, as a whole or in part on a pro-rata basis among maturities, as a result of the prepayment of Assessments, from amounts deposited in the Prepayment Account of the Redemption Fund, on any Interest Payment Date, at a redemption price (expressed as a percentage of the principal amount of the Bonds to be redeemed) plus with accrued interest to the date of redemption, as follows: Redemption Dates Redemption Prices September 2, 2016 through and including March 2, % September 2, 2024 and March 2, % September 2, 2025 and March 2, % September 2, 2026 and any Interest Payment Date thereafter 100% 5

12 Mandatory Sinking Fund Redemption of Bonds. The Bonds maturing September 2, 2019, September 2036, September 2041 and September 2, 2046, (collectively, the Term Bonds ) are subject to mandatory redemption in part by lot from Sinking Fund Payments made by the County at a redemption price equal to the principal amount thereof to be redeemed, plus accrued interest to the redemption date, without premium, in the aggregate respective principal amounts and on the dates as set forth in the following schedules; provided, however, if some but not all of the Term Bonds have been redeemed through optional redemption or extraordinary redemption from prepayments, the total amount of all future Sinking Fund Payments shall be reduced by the aggregate principal amount of Term Bonds of such maturity so redeemed, to be allocated among such Sinking Fund Payments on a pro rata basis integral multiples of $5,000 as determined by the Fiscal Agent, notice of which determination shall be given by the Fiscal Agent to the County. SINKING PAYMENT SCHEDULE FOR TERM BONDS MATURING SEPTEMBER 2, 2019 Redemption Date September 2 Principal Amount 2018 $20, (maturity) 20,000 SINKING PAYMENT SCHEDULE FOR TERM BONDS MATURING SEPTEMBER 2, 2036 Redemption Date September 2 Principal Amount 2032 $25, , , , (maturity) 30,000 SINKING PAYMENT SCHEDULE FOR TERM BONDS MATURING SEPTEMBER 2, 2041 Redemption Date September 2 Principal Amount 2037 $30, , , , (maturity) 35,000 SINKING PAYMENT SCHEDULE FOR TERM BONDS MATURING SEPTEMBER 2, 2046 Redemption Date September 2 Principal Amount 2042 $35, , , , (maturity) 40,000 6

13 Selection of Bonds for Redemption. Whenever provision is made in the Fiscal Agent Agreement for the redemption of less than all of the Bonds, the County shall select Bonds for redemption in such a way that the ratio of Outstanding Bonds to issued Bonds shall be approximately the same in each annual series insofar as possible (i.e. on a pro rata basis among maturities of the Bonds). Within each annual maturity, the Fiscal Agent shall select Bonds for retirement by lot. For purposes of such selection, all Bonds will be deemed to be comprised of separate $5,000 denominations and such separate denominations will be treated as separate Bonds which may be separately redeemed. Further, the provisions of Part 11.1 of the Bond Law are applicable to the advance payment of Assessments and to the calling of the Bonds. Notice of Redemption. The Fiscal Agent shall cause notice of any redemption to be given by registered or certified mail or by personal service to the respective registered Owners of any Bonds designated for redemption, at their addresses appearing on the Bond Register in the Principal Office of the Fiscal Agent at least 30 days before the applicable Interest Payment Date. The Fiscal Agent shall also cause notice of redemption to be sent to the Securities Depositories at least one day earlier than the giving of notice to the Owners as aforesaid; provided, however, such mailing to the Securities Depositories shall not be a condition precedent to such redemption. Failure to so mail any notice of redemption, or of any person or entity to receive any such notice, or any defect in any notice of redemption, shall not affect the validity of the proceeding for the redemption of such Bonds. Rescission of Redemption. The County may rescind any optional or extraordinary redemption by written notice to the Fiscal Agent on or prior to the date fixed for redemption. Any notice of redemption shall be cancelled and annulled if for any reason inadequate funds are on deposit in the Redemption Fund 5 days prior to the redemption date, and such cancellation shall not constitute an Event of Default. The Fiscal Agent shall mail notice of rescission of redemption in the same manner notice of redemption was originally provided. Partial Redemption. Upon surrender of Bonds redeemed in part only, the County shall execute and the Fiscal Agent shall authenticate and deliver to the registered Owner, at the expense of the County, a new Bond or Bonds, of the same series and maturity, of authorized denominations in aggregate principal amount equal to the unredeemed portion of the Bond or Bonds. Effect of Redemption. From and after the date fixed for redemption, if funds available for the payment of the principal of, and interest and any premium on, the Bonds or portion of Bonds so called for redemption have been deposited in the Redemption Fund on the date fixed for redemption, then such Bonds or portion of Bonds so called for redemption shall be defeased and shall cease to be entitled to any benefit under the Fiscal Agent Agreement other than the right to receive payment of the redemption price, and no interest shall accrue thereon on or after the redemption date specified in such notice. 7

14 Scheduled Debt Service on the Bonds The following is the scheduled annual Debt Service on the Bonds. Bond Year Ending September 2 Principal Interest Annual Debt Service 2016 $ - $ 13, $ 13, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Total $815, $497, $1,312,

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16 ASSESSMENT DIAGRAM 10

17 THE DISTRICT The information set forth herein regarding ownership of real property in the District and the property owners within the District was obtained through the County and others and has not been independently verified. Neither the County, the Municipal Advisor nor the Underwriter make any representation as to the accuracy or completeness of any such information. This information has been included because it is considered relevant to an informed evaluation of the District. The information should not be construed to suggest that the Bonds or the Assessments that are pledged to pay debt service on the Bonds are personal obligations of the property owners within the District. The owners of property within the District will not be personally liable for payments of the Assessments. General The District encompasses approximately 7 net acres in an unincorporated area of the County known as Graham Hill. The District is located 2 ½ miles north of the City of Santa Cruz. At the time of formation, the District contained 27 taxable parcels, 26 of which are developed with single family homes. The assessment on 4 parcels has been prepaid in full. Accordingly, the Bonds will be secured only by the 23 Assessment Parcels (one of which is vacant property) for which the Assessments have not been prepaid. Assessed Values For all Assessment Parcels, the County-determined assessed valuation is provided as an estimate for purposes of valuation. The County assessed valuation is derived from the Fiscal Year 2015/16 County Assessor s assessed valuation of land and improvements. A complete list of Assessment Parcels, Fiscal Year 2015/16 assessed values and Assessment liens is shown below under the caption Assessment Parcels. The County s assessed valuation of land and improvements is based on the base year assessed value (which may or may not be reflective of the fair market value of the land and improvements) increased by a maximum of 2% per year each year thereafter, as allowed under Article XIIIA of the Constitution of the State of California. Values may also be decreased if inflation is negative (for example, the inflation factor for Fiscal Year 2010/11 was %). Therefore, the assessor s value typically does not accurately reflect the fair market value of the land and improvements which may be higher or lower than the Assessor s value. Further, due to timing, the Assessor s value may not reflect the most recent sale price of a parcel or new construction on a parcel. See RISK FACTORS - Valuation of Property in the District herein. The fair market value can only be established through the sale of the property or an M.A.I. appraisal of the property within the District. The County has not undertaken to obtain an M.A.I. appraisal of the property within the District. Proposition 8 Reductions. Proposition 8 provides for the assessment of real property at the lesser of its originally determined (base year) full cash value compounded annually by the inflation factor, or its full cash value as of the lien date, taking into account reductions in value due to damage, destruction, obsolescence or other factors causing a decline in market value. Reductions based on Proposition 8 do not establish new base year values, and the property may be reassessed as of the following lien date up to the lower of the then-current fair market value or the factored base year value. While the assessed value may be reduced by the County Assessor as a result of Proposition 8, the assessed value has no bearing on the calculation of the Assessments, only on the calculation of ad valorem taxes. Investors must recognize the uncertainties with respect to the assessed values of the Assessment Parcels, since the Bonds are secured by the Assessment Parcels. See RISK FACTORS herein. 11

18 Assessed Value Appeals. Further, property owners in the District may appeal the County Assessor s value, and if successful, such appeals may result in a lowering of assessed values in future years. While the assessed value may be reduced by the County Assessor if an appeal is successful, the assessed value has no bearing on the calculation of the Assessments, only on the calculation of ad valorem taxes. The County has not determined if any assessment appeals are pending for property in the District. 12

19 Assessment Parcels The following table contains the Assessment Parcels as of January 1, The information concerning the ownership was obtained from the County and complied by Harrell & Company Advisors, LLC and is believed to be reliable, but such information is not guaranteed as to accuracy or completeness, nor has it been independently verified and is not to be construed as a representation by the Municipal Advisor or the Underwriter. TABLE NO. 1 ASSESSMENT DISTRICT NO ASSESSMENT PARCEL DATA 2015/16 Value Most Most Assessed Value to Recent Sale Recent Sale Year House Lot Size APN Owner Name Land Improvements Total Assessment Lien Date Price Built SF (Acres) Aylsworth Helen Succ Trustee ETAL $ 195,182 $ 198,776 $ 393,958 $ 35, $252, , Lawrie Stacy & Craig Bray 438, , ,373 35, , , Packer John A. H/W CP RS ETAL 496, , ,104 35, , , Lloyd David G. & Linda K. H/W JT 274, , ,872 35, , , Szabo Virginia Trustee ETAL 23,476 72,852 96,328 35, , Kamian Danielle R. W/H CP RS ETAL 465, , ,342 35, , , Maddux Marylin S. Trustee 103, , ,737 35, , , Wilson Dennis & Bonnie Trustees Bachtel Pete & Marchina M. Co-Trustees Erlin Richard L. III & Susan M. Trustee 262, , ,269 35, , , Miguel Victor R & Donna L 195, , ,556 35, , , Hillaker Todd Leroy H/W CP RS ETAL 317, , ,424 35, , , Wheatland Rand 179, , ,120 35, , , Kessler Ira L. & Dianne F. 477, , ,000 35, , , Thornley Lance & Kari Trustee 165, , ,568 35, , , (1) Property owner prepaid Assessment prior to issuance of the Bonds. Source: County of Santa Cruz, as compiled by Harrell & Company Advisors, LLC. Continued on next page. (1) (1) 13

20 TABLE NO. 1 ASSESSMENT DISTRICT NO ASSESSMENT PARCEL DATA Continued from prior page. 2015/16 Value Most Most Assessed Value to Recent Sale Recent Sale Year House Lot Size APN Owner Name Land Improvements Total Assessment Lien Date Price Built SF (Acres) Wadsworth William Howard & & Julie Callahan Trustee 441, , ,610 35, , , Rosso Matthew & Sue 210, , ,076 35, , , Fontana Richard Trustee ETAL Johnston Charles & Madeleine Larronde H/W JT 459, , ,388 35, , , Loiler Brian R. & Shannon Y. H/W JT 522, , ,919 35, , , Masik Donald J. & Nancy M. H/W JT 107, , ,256 35, , , Castellanos Eric Raymond S/M AS JT ETAL 418, , ,752 35, , , Bombardieri Michael J.& Caroline J. 205, , ,620 35, , , Finch Evelyn B. ETAL ALL JT 9,303-9,303 35, Meyer Jonathan J. Trustee Brody David G. & Megan A. 443, , ,485 35, , , Zing Angela L. M/W SS 371, , ,865 35, , , $6,786,826 $5,177,099 $11,963,925 $816, (1) Property owner prepaid Assessment prior to issuance of the Bonds. Source: County of Santa Cruz, as compiled by Harrell & Company Advisors, LLC. (1) (1) 14

21 Assessed Value to Assessment Lien Ratios Assessed valuation to assessment lien ratios are derived by dividing the 2015/16 Fiscal Year County assessor s assessed valuation amount of land plus improvements, if any, by the unpaid assessments. For example, a 3:1 ratio means that the assessed value is three times the total assessment lien amount. According to the County Assessor s Office, the aggregate assessed valuation of land and improvements of the 23 Assessment Parcels with unpaid assessments is $11,963,925 for Fiscal Year 2015/16. The total lien on the Assessment Parcels is $816,500. The aggregate value-to-lien ratio is 14.7:1 (see Assessment Parcels herein). Ratios on individual Assessment Parcels range from 0.26:1 for the 0.26-acre vacant lot to 24.5:1 for a 2,600 square foot single family home on a 0.41-acre lot purchased in The aggregate value-to-lien ratio including all current overlapping tax and assessment debt of $948,835 is 12.6:1 (see Direct and Overlapping Debt below). Eleven of the parcels were purchased more than 25 years ago, and assessed values may not be representative of market values. Potential purchasers of the Bonds should be aware that if an Assessment Parcel bears an Assessment in excess of its market value, then there may be little incentive for the owner of the Assessment Parcel to pay the assessment on such Assessment Parcel and little likelihood that such property would be purchased in a foreclosure sale. See RISK FACTORS describing risks relating to market values of Assessment Parcels. Table No. 2 categorizes the assessed value to lien ratios for the Assessment Parcels within the District, but excluding any other overlapping debt (see Effective Tax Rates and Direct and Overlapping Debt below). One parcel is vacant land, and represents 4.3% of the Assessment lien. Table No. 2 categorizes the assessed value to lien ratios for the Assessment Parcels. TABLE NO. 2 ASSESSMENT DISTRICT NO SUMMARY LIEN TO ASSESSED VALUE RATIO (VALUES AS OF JANUARY 1, 2015) Assessed No. of % of Value-to Lien Parcels (1) Assessment (1) Total 10:1 and above 18 $639, % 5:1-9.99: , % 2.71:1 1 35, % 0.26:1 (2) 1 35, % Total 23 $816, % (1) Excludes parcels on which Assessment has been prepaid. (2) Vacant parcel. Source: County of Santa Cruz. No property owner in the District owns more than one Assessment Parcel. The property owners in the District will not be personally liable for payments of the Assessments to be applied to pay the principal of and interest on the Bonds. No assurance can be given that any property owner will continue to hold an interest in the Assessment Parcels. 15

22 Delinquencies The County intends to include the Assessments which secure the Bonds in the Teeter Plan, which is the County s Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds, as provided for in Section 4701 et seq. of the California Revenue and Taxation Code. However, the County reserves the option at any time to discontinue the Teeter Plan as it relates to the Assessments, in which case collections of the Assessments will reflect actual delinquencies. See RISK FACTORS - Foreclosure and Sale Proceedings for a further discussion with respect to delinquent assessment payments. A history of the County-wide delinquency rate in the payment of ordinary ad valorem property taxes is as follows: Fiscal Year % Delinquent 2006/ % 2007/ % 2008/ % 2009/ % 2010/ % 2011/ % 2012/ % 2013/ % 2014/ % All property owners in the District have paid the first installment of property taxes payable for 2015/16, which was due by December 10, Prior years property taxes for all parcels are also current, with the exception of $175 due with respect to parcel number for 2012/13 supplemental taxes. The property owners in the District are not personally liable for payments of the Assessments to be applied to pay the principal of and interest on the Bonds. No assurance can be given that any property owner will continue to hold an interest in the Assessment Parcels. See RISK FACTORS - Payment of the Assessment Not a Personal Obligation. Effective Tax Rates Each home is currently subject to 2015/16 fixed assessments of $ for mosquito abatement, parks and recreation, road repair, lighting and refuse collection. The homes are also subject to septic tank maintenance and management charges of $25.40, which will be eliminated when improvements are complete and the homes are connected to the sewer system. Finally, certain homes are subject to septic tank inspections fees in 2015/16, which will also be eliminated in future years as a result of the issuance of the Bonds. 16

23 Table No. 3 below sets forth Fiscal Year 2015/16 effective tax rates for representative single family residential homes in the District purchased at different points in time, assuming the elimination of the septic tank charges and including the estimated Assessment. TABLE NO. 3 ASSESSMENT DISTRICT NO FISCAL YEAR 2015/16 EFFECTIVE TAX RATES APN Year Purchased /16 Assessed Value $402, $739, Homeowner s Exemption (7,000.00) (7,000.00) Net Assessed Value for Ad Valorem Taxes 395, , Ad Valorem Tax Rate (1) % % Ad Valorem Taxes 4, , Special Assessments: Assessment District No Levy 2, , Other Fixed Assessments (2) Total $ 6, $ 10, Effective Tax Rate (based on Gross Assessed Value) 1.68% 1.42% (1) Comprised of 1% general tax levy, plus debt service levies for Scotts Valley Unified School District ( %) and Cabrillo Community College District ( %) General Obligation Bonds. (2) Includes County Service Area 9C Refuse Collection Charges of $56.92, billed on the tax bill for convenience. Source: Municipal Advisor. Direct and Overlapping Debt Set forth below is the direct and overlapping debt report (the Debt Report ) prepared by California Municipal Statistics, Inc., as of January 1, The Debt Report is included for general information purposes only. The Debt Report generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the District in whole or in part. Such long-term obligations are not payable from unpaid Assessments nor are they necessarily obligations secured by property within the District. In many cases, long-term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency. Presently, the Assessment Parcels are subject to $948,835 of direct and overlapping tax and assessment debt and overlapping lease obligation debt, including the outstanding amount of the Bonds. To repay the direct and overlapping tax and assessment debt and overlapping lease obligation debt, the property owners of the land within the District must pay the annual Assessments and the general property tax levy. In addition, other public agencies whose boundaries overlap those of the District could, without the consent of the County, and in certain cases without the consent of the owners of the land within the District, impose additional taxes or assessment liens on the real property within the District in order to finance public improvements or services to be located or furnished inside of or outside of the District. The lien created on the real property within the District through the levy of such additional taxes or 17

24 Assessments may be on a parity with the lien of the Assessments. The imposition of additional liens on a parity with the Assessments may reduce the ability or willingness of the property owners to pay the Assessments and increases the possibility that foreclosure proceeds, if any, will not be adequate to pay delinquent Assessments. 2015/16 Assessed Valuation: $11,963,925 TABLE NO. 4 COUNTY OF SANTA CRUZ ASSESSMENT DISTRICT NO DIRECT AND OVERLAPPING DEBT DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 1/1/16 Cabrillo Joint Community College District 0.031% $ 38,896 Scotts Valley Unified School District ,439 Santa Cruz County Assessment District No ,500 (1) TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $948,835 OVERLAPPING GENERAL FUND DEBT: Santa Cruz County Certificates of Participation 0.031% $ 23,657 Santa Cruz County Office of Education Certificates of Participation ,053 Cabrillo Joint Community College District Certificates of Participation Scotts Valley Unified School District Certificates of Participation ,317 TOTAL OVERLAPPING GENERAL FUND DEBT $ 38,313 COMBINED TOTAL DEBT $987,148 (2) (1) Excludes issue to be sold. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations. Ratios to 2015/16 Assessed Valuation: Direct Debt ($816,500) % Total Direct and Overlapping Tax and Assessment Debt % Combined Total Debt % Source: California Municipal Statistics, Inc. 18