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CA COMMUNITIES from page 1 .... - . . Marked by press events around California, State Controller Steve Westly released $1.2 billion in payments on Tuesday, July 26. Given this develop- ment, California Communities evaluated the alterna- tives and decided to defease the VLF Financing Program Notes that were issued to purchase VLF Gap Loan Receivable in March. About 150 cities and counties secured the loan by selling Revenue Anticipation Notes to investors secured by the state's promise to repay. Of the $1.2 billion total statewide gap loan, cities and counties secured more than $650 million. Twenty-six cities had enrolled in a second VLF gap loan financing, but with enactment of the state budget, including early repayment of the VLF gap loan, the second round was canceled. Under the terms of the VLF Financing Program documents, so long as the notes are outstanding, the trustee must hold any amounts received from the state until the maturity of the notes in November 2006 (the notes are not subject to early redemp- tion), The state's early payment will produce inter- est income that will be in excess of amounts needed to repay the notes. By defeasing the notes (so that they will no longer be deemed "outstanding" under the inden- ture) California Communities will be permitted to remit these excess interest earnings to program participants upon completion of the defeasance, rather than waiting until November 2006. California Communities Bond Counsel, Orrick, Herrington & Sutcliffe, LLP, will be contacting pro- gram participants to confirm payment instructions for their share of the excess interest earnings amount. The exact amount of the payment to each partici- pant will not be known until the defeasance is accomplished. The VLF Financing Program team is working this week to complete all of the requirements of a full defeasance of the notes. VLF Program participants will not incur any fees for the defeasance of the notes by the financing team. California Communi- ties expects the defeasance to be accomplished and funds wired to participants on or about Friday, August 5, 7}t-- '7 HOMELAND SECURITY from page 1 . . . The letter comes two weeks after the Senate voted down a proposal by Senators Dianne Feinstein (California) and Mary Landrieu (Louisi- ana) to increase the amount of homeland secu- rity funds distributed to states on the basis of where terrorist risk were highest. The Senate then voted to support an amendment sponsored by Senators Collins (Maine) and Lieberman (Connecticut) to increase the percentage of homeland security funds distributed to states on a non-risk basis. "We are united on the following principles of the distribution of homeland security funding supported by the Administration, the 9/11 Com- mission, and a bipartisan coalition of Members of Congress," the governors stated. "First, funds should be distributed based on the specific threats, vulnerabilities, and consequences faced by each state as detennined by the Department of Homeland Security (DHS). Second, funds should not be diminished by an across the board distribution in the fonn of state minimums: The letter continued: .We strongly believe that the best option (for distribution of funds), next to the complete elimination of state mini- mums, is the Feinstein-Comyn proposal that would allocate funds based on an analysis of risks." To view a complete copy of the letter, please see the attached document or visit the League's website at www.cacities,org. 2005 LEAGUE ANNUAL CONFERENCE: OCTOBER 5-8, MOSCONE CONVENTION CENTER, SAN FRANCISCO Plan now to attend the League's 2005 Annual Conference this fall - the first time it has been in San Francisco since 1997. Make you reservations through our online system at www.cacities,org/ac. Visit the League's Official Websiteuwww.cacities.org PRIORITY FOCUS/PAGE 3 r -