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Bonds under Section 103 of the Internal Revenue Code of 1986. In the event either the City or the Authority fails to comply with the foregoing tax covenant, interest on the Bonds may be includable in the gross income of the Owners thereof for federal tax purposes retroactive to the risk of issuance. See “TAX MATTERS”. Secondary Market for Bonds There can be no guarantee that there will be a secondary market for the Bonds or, if a secondary market exists, that any Bonds can be sold for any particular price. Prices of bond issues for which a market is being made will depend upon then-prevailing circumstances. Such prices could be substantially different from the original purchase price. No assurance can be given that the market price for the Bonds will not be affected by the introduction or enactment of any future legislation (including without limitation amendments to the Internal Revenue Code), or changes in interpretation of the Internal Revenue Code, or any action of the Internal Revenue Service, including but not limited to the publication of proposed or final regulations, the issuance of rulings, the selection of the the Bonds for audit examination, or the course or result of any Internal Revenue Service audit or examination of the Bonds or obligations that present similar tax issues as the Bonds. In addition, a number of local governments in the State have recently instituted bankruptcy or pre-bankruptcy proceedings. No assurance can be given that the market price for the Bonds will not be affected by the outcomes of these bankruptcy proceedings or the institution of bankruptcy or pre-bankruptcy proceedings for additional local governments in the State. IRS Audit of Tax-Exempt Issues The Internal Revenue Service (the “IRS”) has initiated an expanded program for the auditing of tax-exempt issues, including both random and targeted audits. It is possible that the Bonds will be selected for audit by the IRS. It is also possible that the market value of the Bonds might be affected as a result of such an audit of the Bonds (or by an audit of similar obligations). 37 TAX MATTERS In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however to the qualifications set forth below, 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, provided, however, that, for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining certain income and earnings. The opinions set forth in the preceding paragraph are subject to the condition that the Authority and the City comply with all requirements of the Internal Revenue Code of 1986, as amended (the "Tax Code") that must be satisfied subsequent to the issuance of the Bonds. The Authority and the City have covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of such interest in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. If the initial offering price to the public (excluding bond houses and brokers) at which a Bond is sold is less than the amount payable at maturity thereof, then such difference constitutes "original issue discount" for purposes of federal income taxes and State of California personal income taxes. If the initial offering price to the public (excluding bond houses and brokers) at which a Bond is sold is greater than the amount payable at maturity thereof, then such difference constitutes "original issue premium" for purposes of federal income taxes and State of California personal income taxes. De minimis original issue discount and original issue premium is disregarded. Under the Tax Code, original issue discount is treated as interest excluded from federal gross income and exempt from State of California personal income taxes taxes to the extent properly allocable to each owner thereof subject to the limitations described in the first paragraph of this section. The original issue discount accrues over the term to maturity of the Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). The amount of original issue discount accruing during each period is added to the adjusted basis of such Bonds to determine taxable gain upon disposition (including sale, redemption, or payment on maturity) of such Bond. The Tax Code contains certain provisions relating to the accrual of original issue discount in the case of purchasers of the Bonds who purchase the Bonds after the initial offering of a substantial amount of such maturity. Owners of such Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of purchasers who do not purchase in in the original offering, the allowance of a deduction for any loss on a sale or other disposition, and the treatment of accrued original issue discount on such Bonds under federal individual and corporate alternative minimum taxes. Under the Tax Code, original issue premium is amortized on an annual basis over the term of the Bond (said term being the shorter of the Bond's maturity date or its call date). The amount of original issue premium amortized each year reduces the adjusted basis of the owner of the Bond for purposes of determining taxable gain or loss upon disposition. The amount of original issue premium on a Bond is amortized each year over the term to maturity of the Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). Amortized Bond premium is not deductible for federal income tax purposes. Owners of premium Bonds, including purchasers who do not purchase in the 38 original offering, should consult their own tax advisors with respect to State of California personal income tax and federal income tax consequences of owning such Bonds. In the further opinion of Bond Counsel, interest on the Bonds is exempt from California personal income taxes. Owners of the Bonds should also be aware that the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may have federal or state tax consequences other than as described above. Bond Counsel expresses no opinion regarding any federal or state tax consequences arising with respect to the Bonds other than as expressly described above. CERTAIN LEGAL MATTERS The Bonds are offered when, as and if issued and received by the Underwriter and subject to the approval as to their legality by Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel. Certain legal matters will also be passed upon for the Authority and the City by Jones Hall, A Professional Law Corporation, as Disclosure Counsel. Certain legal matters will be passed upon for the City and the Authority by the City Attorney, and for the Underwriter by Nossaman LLP, Irvine California. LITIGATION The City is not aware of any pending or threatened litigation concerning the validity of the Bonds or challenging any action taken by the City with respect to the Bonds, the Indenture, the Lease, the Leased Property or any other agreements or actions undertaken in connection with the issuance of the Bonds. Furthermore, the City is not aware of any pending or threatened litigation to restrain, enjoin, question or otherwise affect the Indenture or the Lease or in any way contesting or affecting the validity or enforceability of any of the foregoing or any proceedings of the City taken with respect to any of the foregoing. There are a number of lawsuits and claims pending and threatened against the City unrelated to the Bonds or actions taken with respect to the Bonds. It is the opinion of the City as of this date that such litigation, claims and threatened litigation will not materially affect the City’s finances or impair its ability to make the Lease Payments under the Lease or the debt service payments on the Bonds. 39 FINANCIAL STATEMENTS Maze and Associates, Certified Public Accountants (the “Auditor”), audited the financial statements of the City for the Fiscal Year ended June 30, 2012. The Auditor’s examination was made in accordance with generally accepted auditing standards and Governmental Auditing Standards, issued by the Comptroller General of the United States. See “APPENDIX B -AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2012.” The City has not requested nor did the City obtain permission from the Auditor to include the audited financial statements as an appendix to this Official Statement. Accordingly, the Auditor has not performed any post-audit review of the financial condition or operations of the City. RATINGS Standard & Poor’s Financial Services LLC, a subsidiary of The McGraw-Hill Companies, Inc. (“S&P”), has assigned its municipal bond rating of “__” to the Bonds. This rating reflects only the view of the rating agency, and an explanation of the significance of this rating, and any outlook assigned to or associated with this rating, should be obtained from the rating agency. Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. The City and the Authority have provided certain additional information and materials to the rating agency (some of which does not appear in this Official Statement). There is no assurance that this rating will continue for any given period of time or that this rating will not be revised downward or withdrawn entirely by the rating agency, if in the judgment of the rating agency, circumstances so warrant. Any such downward revision or withdrawal of any rating on the Bonds may have an adverse effect on the market price or marketability of the Bonds. CONTINUING DISCLOSURE The City will covenant for the benefit of owners of the Bonds to provide certain financial information and operating data relating to the City by the date that is nine months after the end of the City’s Fiscal Year (currently March 31 based on the City’s Fiscal Year end of June 30), commencing with the report for the 2011-12 fiscal year (the “Annual Report”), and to provide notices of the occurrence of certain enumerated events. Such reports are required to be filed with the Municipal Securities Rulemaking Board through its Electronic Municipal Market Access system (“EMMA”). The specific nature of the information to be contained in the Annual Report or the notices of enumerated events is described in “APPENDIX E – FORM OF CONTINUING DISCLOSURE AGREEMENT,” attached to this Official Statement. These covenants have been made in order to 40 assist the underwriter of the Bonds in complying with Securities Exchange Commission Rule 15c2 12(b)(5). [DISCUSS: The City has complied with all of its material obligations under existing continuing disclosure undertakings during the past five years.] . FINANCIAL ADVISOR Public Financial Management, Inc., San Francisco, California (the “Financial Advisor”) has assisted the City with various matters relating to the planning, structuring and delivery of the Bonds. The Financial Advisor is a financial advisory firm and is not engaged in the business of underwriting or distributing municipal securities or other public securities. The Financial Advisor assumes no responsibility for the accuracy, completeness or fairness of this Official Statement. The Financial Advisor will receive compensation from the City contingent upon the sale and delivery of the Bonds. UNDERWRITING Stifel, Nicolaus & Company, Incorporated, dba Stone & Youngberg, a Division of Stifel Nicolaus (the "Underwriter"), has entered into a bond purchase agreement with the Authority under which it will purchase the Bonds at a price of $_____ (equal to the par amount of the Bonds, plus/less original issue premium/discount of $______, and less an Underwriter’s discount of $____). The Underwriter will be obligated to take and pay for all of the Bonds if any are taken. The Underwriter intends to offer the Bonds to the public at the offering prices set forth on the inside cover page of this Official Statement. After the initial public offering, the public offering price may be varied from time to time by the Underwriter. VERIFICATION OF MATHEMATICAL COMPUTATIONS ___________________, as verification agent (the “Verification Agent”), upon delivery of the Bonds, will deliver a report of the mathematical accuracy of certain computations, contained in schedules provided to them on behalf of the City, relating to (a) the sufficiency of the anticipated amount of proceeds of the Bonds and other funds available to pay, when due, the principal, whether at maturity or upon prior redemption, interest and redemption premium requirements of the 2001 Certificates and the 2003 Certificates and (b) the “yields” on the amount of proceeds held and invested prior to redemption of the 2001 Certificates and the 2003 Certificates and on the Bonds, as considered by Bond Counsel in connection with the opinion rendered by Bond Counsel, so not cause the Bonds to be “arbitrage bonds” within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended. The report of the Verification Agent will include the statement that the scope of their engagement is limited to verifying mathematical accuracy, of the computations contained in such 41 schedules provided to them, and that they have no obligation to update their report because of events occurring, or data or information coming to their attention, subsequent to the date of their report. PROFESSIONAL SERVICES In connection with the issuance of the Bonds, all or a portion of the fees payable to Bond Counsel, Disclosure Counsel, Underwriter’s Counsel, the Financial Advisor and the Trustee are contingent upon the issuance and delivery of the Bonds. EXECUTION The execution and delivery of this Official Statement have been authorized by the Board of Directors of the Authority and the City Council of the City. SAN LEANDRO PUBLIC FINANCING AUTHORITY By : Executive Director CITY OF SAN LEANDRO By : City Manager A-1 APPENDIX A CITY OF SAN LEANDRO GENERAL DEMOGRAPHIC AND FINANCIAL INFORMATION General The City of San Leandro (the “City”) was incorporated in 1872 and is one of the oldest communities in the San Francisco Bay Area. Prior to its incorporation, the land that would become the City was inhabited by the ancestors of the Ohlone Nation, and further developed by Spanish and Portuguese settlers. From 1856 until 1868, San Leandro served as the county seat of Alameda County (the “County”) in the State of California (the "State"). The City presently occupies 15 square miles in the central part of the County, approximately 20 miles southeast of the City and County of San Francisco. Its neighboring cities include Oakland and Hayward and it is bordered on the west by the San Francisco Bay. The City offers its approximately 86,053 residents the quiet charm and character of a community that has been established for more than 130 years. The City is established as a charter city. Once an agricultural community, San Leandro has been successful in attracting significant industrial, manufacturing and retail development to the area. The City has long been home to many food processing operations, and is home to many corporate businesses such as Ghirardelli and Otis Spunkmeyer and a Coca-Cola plant. There are five shopping centers: Bayfair Center, Westgate Center, Greenhouse Shopping Center, Marina Square Center, and Pelton Plaza. The industrial makeup of the City has been changing, moving away from its traditional manufacturing base toward more of an emphasis on services and warehousing industries. As of January 1, 2012, the County had a population estimated at 1,532,137, making it the seventh most populous county in California. The County includes the cities of Oakland and Berkeley, and Oakland is its county seat. The County occupies most of the East Bay region of the San Francisco Bay Area, spanning a total area of 821 square miles, of which 737 square miles (or 89.82%) is land and 83.57 square miles (or 10.18%) is water. The San Francisco Bay borders the County on the west, and the City and County of San Francisco, California has a small land border with the city of Alameda due to land filling. The crest of the Berkeley Hills form part of the northeastern boundary, and reaches into the center of the County. A coastal plain several miles wide lines the Bay; it is home to Oakland and the County's most populous regions. Livermore Valley lies in the eastern part of the County. The Hayward Fault, a major branch of the San Andreas Fault to the west, runs through the most populated parts of the County, while the Calaveras Fault runs through the southeastern part of the County. The northern part of the County has direct access to San Francisco Bay and the City of San Francisco. It is highly diversified with residential areas, as well as traditional heavy industry, the University of California at Berkeley, the Port of Oakland, and sophisticated manufacturing, computer services and biotechnology firms. The middle of the County is also highly developed including older established residential and industrial areas. The southeastern corner of the County has seen strong growth in residential development and manufacturing. Many high-tech firms have moved from neighboring Silicon Valley in Santa Clara County to this area. The southwestern corner of the County has seen the most development in recent years due to land availability. Agriculture and the rural characteristics of this area are disappearing as the region maintains its position as the fastest growing residential, commercial and industrial part of the County. A-2 Population The City’s population at January 1, 2012, the most recent estimate, was 86,053 according to the State Department of Finance. The table below shows population estimates for the City, the County and the State for the last five years. TABLE 1 CITY OF SAN LEANDRO, COUNTY OF ALAMEDA AND STATE OF CALIFORNIA Population Estimates As of January 1 Calendar Year City of San Leandro County of Alameda State of California 2008 83,069 1,484,085 36,704,375 2009 83,951 1,497,799 36,966,713 2010 84,977 1,509,240 37,223,900 2011 85,490 1,521,157 37,510,766 2012* 86,053 1,532,137 37,678,563 * Most recent annual data available. UPDATE -Sources: U.S. Census Bureau for 2010, State Department of Finance, Population Estimates for Cities, Counties and State with Annual Percentage Change – January 1, 2011 and 2012 (May 2012) and Population Estimates for Cities, Counties and State with Annual Percentage Change 2001-2010 and 2010 Census counts (August 2011). Municipal Government The City provides numerous municipal services including public safety; streets and roads; recreation, library and cultural services; health services; public infrastructure improvements; planning and zoning and general administrative services. City Council. The City functions under a Mayor-Council-Manager form of government. Policy-making and legislative authority are vested in a seven member governing council consisting of the Mayor and six Council Members elected by City residents (the "City Council"). The City Council is elected on a non-partisan basis. Council Members serve four-year staggered terms, with either three or four Council Members elected every four years. The Mayor is elected at large and serves a four-year term. The Mayor and Council Members are elected at large and all are subject to two-term limits. The scope of the City Council’s power and influence includes, but is not limited to the following: * The power to pass ordinances, * The authority to establish and modify operating and capital budgets, * The power to appoint voting members to other governing authorities and commissions, * The power to appoint the City Manager, City Clerk and City Attorney, * The ability to plan and direct operations, and A-3 * The authority to veto, modify, and overrule decisions. Members of the City Council are set forth below: Council Member Title Expiration of Term Stephen H. Cassidy Mayor December 2014 Michael J. Gregory Vice Mayor December 2014 Ursula Reed Councilmember December 2012 Diana M. Souza Councilmember December 2014 Tom Dlugosh Councilmember December 2012 Pauline Russo Cutter Councilmember December 2014 Jim Proula Councilmember December 2012 City Administration and Staff. The City Manager is responsible for carrying out the policies and ordinances of the City Council, for overseeing the day-to-day operations of the City and for appointing the heads of the various departments. Biographies of certain senior managers of the City are as follows: CHRIS ZAPATA, City Manager, [TO COME]. DAVID BAUM, Finance Director, [TO COME]. CARLA RODRIGUEZ, Deputy Finance Director, [TO COME]. Labor Relations. The City authorized 409 full-time equivalent (“FTE”) positions during Fiscal Year 2011-12, of which 347 were full-time employees, 62 were part-time employees, and 89 were sworn police personnel. For Fiscal Year 2012-13, the City has authorized 406.45 FTEs, of which 341 are full-time employees, 65.45 are part-time employees, and __ are sworn police personnel. The City provides retirement and other post employment benefits to City employees. See “ – Retirement System” herein. The City’s employees are represented by four labor organizations, including one new organization, the San Leandro Police Management, which entered into an agreement with the City dated January 1, 2013. [CONFIRM:] The City is currently in bargaining with representatives of each of its labor organizations for renegotiation of the labor agreements between the City and such organizations. The terms and conditions of all expired contracts currently will remain in full force following the termination date of each agreement. At this time, the City does not anticipate the results of such renegotiations to cause a material fiscal impact upon the City's General Fund. Labor relations have been generally amicable in that there have been no major strikes, work stoppages or other similar incidents. A-4 TABLE 2 CITY OF SAN LEANDRO LABOR ORGANIZATIONS Association Termination Date of Agreement San Leandro City Employees Association December 31, 2012 San Leandro Management Organization December 31, 2012 San Leandro Police Officers Association December 31, 2012 San Leandro Police Management _______________ Source: City of San Leandro. City Financial Information Accounting Policies and Financial Reporting. The City Manager employs, at the beginning of each fiscal year, an independent certified public accountant who, at such time or times as specified by the City Manager, at least annually, and at such other times as he or she shall determine, examines the combined financial statements of the City in accordance with generally accepted auditing standards, including such tests of the accounting records and such other auditing procedures as such accountant considers necessary. As soon as practicable after the end of the fiscal year, a final audit and report is submitted by such accountant to the City Manager and a copy of the financial statements as of the close of the fiscal year is published. The City, all its funds and the funds of certain other component entities of the City are audited annually by a certified public accounting firm. The firm of Maze and Associates, Certified Public Accountants is the City’s current auditor (the “Auditor”). The comprehensive annual financial report of the City for fiscal year 2011-12 is attached hereto as Appendix B. The City’s financial statements are public documents and are included within this Official Statement without the prior approval of the Auditor. Accordingly, the Auditor has not performed any post-audit of the financial condition of the City. The accounting policies of the City conform to generally accepted accounting principles. The Governmental Accounting Standards Board (“GASB”) published its Statement No. 34 “Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments” on June 30, 1999. Statement No. 34 provides guidelines to auditors, state and local governments and special purpose governments such as school districts and public utilities, on new requirements for financial reporting for all governmental agencies in the United States. Generally, the basic financial statements and required supplementary information should include (i) Management’s Discussion and Analysis; (ii) financial statements prepared using the economic measurement focus and the accrual basis of accounting and (ii) fund financial statements prepared using the current financial resources measurement focus and the modified accrual method of accounting and (iii) required supplementary information. Accounts of the City are organized on the basis of funds each of which is considered a separate accounting entity. There are three groups of funds -governmental funds (which include the General Fund), proprietary funds (which include enterprise funds and internal service funds) and fiduciary funds (which are used to account for resources held for the benefit of of parties outside the City). The City maintains 32 individual governmental funds. Information is presented in the A-5 governmental statement of revenues, expenditures, and changes in fund balances for the General Fund together with 22 other funds, in a single aggregated presentation. Supplementary information describing the City's Non-Major Governmental Funds (2), Non-Major Enterprise Funds (2), Internal Service Funds (4) and Fiduciary Funds (1) is also presented. All governmental funds and fiduciary funds use the modified accrual basis of accounting. The proprietary funds use the accrual basis of accounting. The General Fund is the general operating fund of the City and is used to account for all financial resources except those required to be accounted for in another fund. Comparative Financial Statements. The following tables provide a five-year history of the City’s comparative General Fund Balance Sheet and comparative General Fund revenues, expenditures, transfers, and ending fund balances. [OTHER DESCRIPTION AS NECESSARY] [Remainder of Page Intentionally Left Blank] A-6 TABLE 3 CITY OF SAN LEANDRO GENERAL FUND BALANCE SHEET As of June 30 for Fiscal Years 2007-08 through 2011-12 Audited 2007-08 Audited 2008-09 Audited 2009-10 Audited 2010-11 Audited 2011-12 ASSETS: Cash and cash equivalents $20,580,663 $20,036,422 $13,567,383 $13,766,993 Interest receivable 538,285 80,490 61,343 72,864 Taxes receivable ---177,812 Accounts receivable – net 4,007,342 4,095,008 7,570,423 6,645,802 Due from other funds 1,679,385 798,680 1,887,273 1,281,933 Prepaid items 6,128 342,018 5,227 -Special Assessments 106,920 102,129 83,791 72,041 Loans receivable – net 1,583,135 -30,000 5,114 Other assets ---27,521 Notes ----Advances to other funds 16,068,780 14,019,946 12,909,453 10,377,840 Total Assets $44,570,538 $39,474,693 $36,114,893 $32,427,920 LIABILITIES: Accounts payable and other current liabilities $3,972,559 $7,678,700 $7,493,882 $4,725,250 Deferred revenue 1,641,960 1,673,733 1,696.117 1,994,311 Other liabilities 1,327,595 25,673 -28,373 Compensated absences payable 326,866 407,622 522,107 -Total Liabilities $7,268,908 $9,785,728 $9.712,106 $6,747,934 FUND BALANCES: Reserved Encumbrances $497,340 $549,569 $821,057 $3,497,827 Due from other funds 16,068,780 14,019,946 12,909,453 10,377,840 Long-term notes/loans receivable 1,583,135 ---Unreserved, designated 19,152,403 15,074,450 12,672,277 11,804,319 Total Fund Balances $37,301,658 $29,688,965 $26,402,787 $25,679,986 TOTAL LIABILITIES AND FUND BALANCES $44,570,638 $39,474,693 $36,114,893 $32,427,920 Sources: City of San Leandro Audited Financial Statements; City of San Leandro. A-7 TABLE 4 CITY OF SAN LEANDRO STATEMENT OF GENERAL FUND REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE Fiscal Years 2007-08 through 2011-12 (audited) and 2012-13 (budgeted) Audited 2007-08 Audited 2008-09 Audited 2009-10 Audited 2010-11 Audited 2011-12 Adopted Budget 2012-13 REVENUES: Property and Other Taxes(1) $56,704,301 $53,445,212 $53,077,020 $57,469,043 Licenses and Permits