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12/03/2012 Among other things, Section 3 of Article XIIIC states, "...the initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge." The Act provides for a procedure, which includes notice, hearing, protest and voting requirements to alter the rate and method of apportionment of an existing special tax. However, the Act prohibits a legislative body from adopting any resolution to reduce the rate of any special tax or terminate the levy of any special tax pledged to repay any debt incurred pursuant to the Act unless such legislative body determines that the reduction or termination of the special tax would not interfere with the timely retirement of that debt. On July 1, 1997, the Governor of the State signed a bill into law enacting Government Code Section 5854, which states that: Section 3 of Article XIIIC of the California Constitution, as adopted at the November 5, 1996, general election, shall not be construed to mean that any owner or beneficial owner of a municipal security, purchased before or after that date, assumes the risk of, or in any way consents to, any action by initiative measure that constitutes an impairment of contractual rights protected by Section 10 of Article I of the United States Constitution. Accordingly, although the matter is not free from doubt, it is likely that Article XIIIC has not conferred on the voters the power to repeal or reduce the Special Taxes if such reduction would interfere with the timely retirement of the Bonds. It may be possible, however, for voters or the District or the City Council acting as the legislative body of the District to reduce the Special Taxes in a manner that does not interfere with the timely repayment of the Bonds, but which does reduce the maximum amount of Special Taxes that may be levied in any year below the existing levels. Furthermore, no assurance can be given with respect to the future levy of the Special Taxes in amounts greater than the amount necessary for the timely retirement of the Bonds. Therefore, no assurance can be given with respect to the levy of Special Taxes for Adm.uustrative Expenses (as defined in the Fiscal Agent Agreement). Nevertheless, the City has covenanted in the Fiscal Agent Agreement that it will not initiate proceedings to reduce the maximum Special Tax rates in the District, unless, in connection therewith, (i) the City receives a certification from one or more Independent Consultants which, when taken together, concludes that, on the basis of the land and improvements existing in the District as of the July 1 preceding the reduction, the maximum amount of the Special Tax which may be levied in each Bond Year for any Bonds Outstanding will equal at least 110% of the sum of the estin}aced Administrative Expenses and gross debt service in each Bond Year on all Bonds to remain Outstanding after the reduction is approved, (ii) the City finds that any reduction made under such conditions will not materially adversely affect the interests of the Owners of the Bonds, and (iii) the City is not delinquent in the payment of the principal of or interest on the Bonds. The City has further covenanted in the Fiscal Agent Agreement that in the event an ordinance is adopted by initiative pursuant to Section 3 of Article XIIIC of the California Constitution, which purports to reduce or otherwise alter the maximum Special Tax rates, it will commence and pursue legal action seeking to preserve its ability to comply with its covenant described in the preceding sentence. However, no assurance can be given as to the enforceability of the foregoing covenants. The interpretation and application of Article X111C and Article XIIID will ultimately be determined by the courts with respect to a number of the matters discussed above, and it is -40- 48 RESO. # 15237 MUFF # 505