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9 <br />local agencies, including the City and has had an impact of the City's budget and financial <br />planning for the future. A State General Fund budget deficit is expected to arise in one or more <br />future years and the potential impact of future budget legislation could be material to the City. <br />Loss of Tax 2 zemption <br />As discussed under the heading "TAX MATTERS," the interest represented by the <br />Bonds could become includable in gross income for purposes of federal income taxation <br />retroactive to the date of delivery of the Bonds as a result of acts or omissions of the City in <br />violation of its covenants in the Indenture and the Lease Agreement. Should such an event of <br />taxability occur, the Bonds would not be subject to a special prepayment and would remain <br />Outstanding until maturity or until prepaid under the prepayment provisions contained in the <br />Indenture. <br />Seismic Considerations <br />The City, like much of California, is subject to seismic activity that could result in <br />interference with its right to use and possession of the Leased Property. There is no evidence <br />that a ground surface rupture will occur in the event of an earthquake, but there is significant <br />potential for destructive ground- shaking during the occurrence of a major seismic event. In <br />addition, land susceptible to seismic activity may be subject to liquefaction during the <br />occurrence of such an event. In the event of a severe earthquake, there may be significant <br />damage to property and infrastructure in the City and to the Leased Property. In addition, the <br />value of land in the City as well as the Leased Property could be diminished in the aftermath of <br />such an earthquake, reducing the resulting proceeds of foreclosure sales in the event of <br />delinquencies in the payment of property taxes. <br />No Liability of Authority to the Owners <br />Except as expressly provided in the Indenture, the Authority will not have any <br />obligation or liability to the Owners of the Bonds with respect to the payment when due of the <br />Lease Payments by the City, or with respect to the performance by the City of other agreements <br />and covenants required to be performed by it contained in the Lease Agreement or the <br />Indenture, or with respect to the performance by the Trustee of any right or obligation required <br />to be performed by it contained in the Indenture. <br />-17- <br />