Wastewater Assessment District No. 1 Refunding Proposal

1. Limited Obligation Refunding BondsWastewater Assessment District No. 1 (Reassessment and Refunding of 2019) Prepared by January 10, 2019

2. Topics of Discussion Introduction/Background Current Market – Why Refinance? Additional Refunding Benefits Legal Documents for Approval Preliminary Savings to Property Owners Financing Timeline Conclusion

3. I. Introduction/Background

4. Financing Team • Wulff, Hansen & Co., Municipal Advisor • Bud Levine • Mark Pressman • Quint & Thimmig LLP, Bond and Disclosure Counsel • Paul Thimmig • Brandis Tallman, LLC, Underwriter • Nicki Tallman • Jeff Land • NBS, Assessment District Administrator • US Bank, Fiscal and Escrow Agent

5. Wastewater Assessment District No. 1 2002 Limited Obligation Improvement Bonds • November 7, 2002 – District issued Wastewater Assessment District No. 1 Limited Obligation Improvement Bonds (the “2002 Bonds”) to finance the acquisition and construction of certain public wastewater improvements • Interest rates are 5.0% through 2033 (final maturity) • Escrow required to defease the outstanding bonds is $12,300,000 • 2002 Bonds are callable on any interest payment date with zero prepayment penalty • Currently, the 2002 Bonds have an underlying rating of BBB+ by S&P. This is a recent upgrade by S&P from BBB-. • New rating being applied for with S&P

6. II. Current Market – Why Refinance?

7. Current Market • December 6th Board meeting -- Board approved moving forward with the refunding • Based on the current interest rate environment, it is a prudent time for the District to refinance the 2002 Bonds and provide savings to property owners in the District Interest rate movement since mid-October 2018 • Current interest rate is 5.00% -- Refunding is anticipated to lower interest rate to below 3.50% with an all-in interest cost (including all issuance expenses) to about 3.75% • Estimated Annual Average Cash Flow Savings – approx. $104,000 / year • Estimated Total Cash Flow Savings – approx. $1,370,000

8. Preliminary Fiscal Impact • Estimated Annual Average Cash Flow Savings -- approximately $104,000 per year • Estimated Total Cash Flow Savings – approximately $1,370,000 Reduced based on the application of prior reserve fund

9. III. Additional Refunding Benefits

10. Additional Refunding Benefits In addition to providing cash flow savings to property owners in the Assessment District, the Refunding will: • Eliminate an amount of $247,334 owed by the District to the reserve fund for the 2002 Bonds, thus freeing up funds in the general fund for other District purposes. • Reconcile and eliminate a debt variance that has developed over time, that could lead to the risk of future default. The debt variance is approximately $9,000 a year.

11. 2002 Bonds Reserve Fund – Timeline of Events (1) Source: 2002 Official Statement (2) Source: 2016/17 Audit

12. Debt Variance • There is currently a greater amount of debt service on the 2002 Bonds than is available to collect from assessment liens in the Assessment District, leaving risk of future default. • Refinancing the 2002 Bonds would reconcile/eliminate this debt variance, preventing a potential default while saving property owners money.

13. IV. Legal Documents for Approval

14. Resolutions for Adoption • A RESOLUTION OF THE BOARD OF DIRECTORS OF THE LOS OSOS COMMUNITY SERVICES DISTRICT OF INTENTION TO LEVY REASSESSMENTS AND TO ISSUE REFUNDING BONDS UPON THE SECURITY THEREOF, RELATING TO WASTEWATER ASSESSMENT DISTRICT NO. 1 • A RESOLUTION OF THE BOARD OF DIRECTORS OF THE LOS OSOS COMMUNITY SERVICES DISTRICT ADOPTING REASSESSENT REPORT FOR THE LOS OSOS COMMUNITY SERVICES DISTRICT WASTEWATER ASSESSMENT DISTRICT NO. 1, CONFIRMING AND ORDERING THE REASSESSMENTS AND AUTHORIZING AND DIRECTING ACTIONS WITH RESPECT THERETO • A RESOLUTION OF THE BOARD OF DIRECTORS OF THE LOS OSOS COMMUNITY SERVICES DISTRICT AUTHORIZING THE ISSUANCE OF LIMITED OBLIGATION REFUNDING BONDS FOR WASTEWATER ASSESSMENT DISTRICT NO. 1 PROVIDING FOR EXECUTION OF A FISCAL AGENT AGREEMENT, AND APPROVING AND AUTHORIZING OTHER MATTERS RELATED THERETO

15. Documents Included in Agenda Packet The following documents included in the agenda packet are approved as to form tonight and will be finalized and executed prior to closing. • Fiscal Agent Agreement – Document between the District and U.S. Bank as Fiscal Agent. This is the primary bond document as it describes the terms of the Bonds, as well as includes provisions relating to the redemption, prepayment, defeasance, default and amendment of or to the Bonds, including conditions under which delinquent property owners will be subject to foreclosure. • Escrow Agreement – Document establishing U.S. Bank as Escrow Agent. This document establishes an escrow fund and specifies how and when bond proceeds will be used to defease the 2002 Bonds. • Bond Purchase Agreement – Document between the District and Brandis Tallman LLC as Underwriter of the Bonds. This document is finalized and executed on the day of the sale of the bonds, obligating Brandis Tallman to purchase the refunding bonds. • Preliminary Official Statement – Offering document to potential investors that discloses material information regarding the assessment district and the refunding bonds. Investors and market intermediaries may use this information to evaluate the credit quality of the securities and potential risks of the primary offering. • Continuing Disclosure Agreement – Document required to comply with SEC obligations under Rule 15c2-12. Agreement requires the District to provide an annual disclosure report to MSRB and to report certain material events. • Preliminary Reassessment Report – Document on file (not in agenda packet) required in order to proceed with the refunding. Report reflects the minimal refunding results and not-to-exceed parameters to move forward with the refunding. Actual savings results will be reflected in the Final Reassessment report once bonds are priced.

16. V. Preliminary Savings to Property Owners

17. Preliminary Estimated Savings to Property Owners* • Average Annual Cash Flow Savings -- approximately $104,000 per year • Total Cash Flow Savings – approximately $1,370,000 • Savings represent a 6.5% lien reduction and 8% payment reduction to property owners Reduced based on the application of prior reserve fund *All numbers are subject to change until bonds are priced.

18. VI. Financing Timeline

19. Financing Timeline Participants ISS = Issuer: Los Osos CSD BC = Bond Counsel: Quint & Thimmig UW = Underwriter: Brandis Tallman LLC DC = Disclosure Counsel: Quint & Thimmig RC = Reassessment Consultant: NBS MA = Municipal Advisor: Wulff, Hansen, & Co. EA = Escrow Agent/Trustee: US Bank

20. VII. Conclusion

21. Conclusion Refunding Approved No Refunding Property owners anticipated to save approximately $104k/year representing a 6.5% lien and 8% payment reduction District relieved of $247k liability saving general fund cash for other District purposes Reconciliation of debt service to assessments complete Property owners will not realize savings on their future tax bills District must continue to pay into reserve fund ($25k/year) or $247k in total Debt variance will remain and need to be addressed in order to avoid default

22. Questions?