sacramento county sanitation districts financing authorityby the sacramento county sanitation...

NEW ISSUE-BOOK-ENTRY ONLY RATINGS: See “RATINGS” herein

In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the Authority, based upon an analysis of existing laws, regulations, rulings and court decisions and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Series 2015 Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. In the further opinion of Bond Counsel, interest on the Series 2015 Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Series 2015 Bonds. See “TAX MATTERS” herein.

$45,435,000SACRAMENTO COUNTY SANITATION DISTRICTS

FINANCING AUTHORITYRevenue Bonds, Refunding Series 2015

(Sacramento Area Sewer District)

Date: Date of Delivery Due: See Inside Front Cover Page

The $45,435,000 Revenue Bonds, Refunding Series 2015 (Sacramento Area Sewer District) (the “Series 2015 Bonds”) are being issued by the Sacramento County Sanitation Districts Financing Authority (the “Authority”) pursuant to an Indenture, dated as of June 1, 2005 (the “Master Indenture”), between the Authority and MUFG Union Bank, N.A., as trustee (the “Trustee”), as supplemented by a Third Supplemental Indenture, dated as of May 1, 2015 (the “Third Supplemental Indenture” and, together with the Master Indenture, the “Indenture”), between the Authority and the Trustee, for the purpose of providing funds (i) together with amounts available from the 2005 Bonds (defined below) and approximately $70.3 million of other available funds of the Sacramento Area Sewer District (“SASD”), to refund the Authority’s outstanding Revenue Bonds, Series 2005 (County Sanitation District No. 1) (the “2005 Bonds”) and (ii) to pay costs of issuance of the Series 2015 Bonds, as more fully described herein. See “PLAN OF REFUNDING” and “ESTIMATED SOURCES AND USES OF BOND PROCEEDS.” The 2005 Bonds were issued to finance, refinance or reimburse the costs of acquisition and construction of certain additions, betterments and improvements to the sanitation system (the “Sanitation System”) of SASD, and to pay costs of issuance related to the 2005 Bonds.

The Series 2015 Bonds are special, limited obligations of the Authority payable solely from Authority Revenues (as defined herein), consisting principally of installment payments (the “2015 Payments”) received by the Trustee from SASD pursuant to a Third Supplemental Installment Purchase Contract, dated as of May 1, 2015 (the “Third Supplemental Installment Purchase Contract”), between the Authority and SASD supplementing and amending a Master Installment Purchase Contract, dated as of June 1, 2005 (as previously supplemented, the “Master Contract” and, together with the Third Supplemental Installment Purchase Contract, the “Installment Purchase Contract”), between SASD and the Authority. The Third Supplemental Installment Purchase Contract constitutes a Parity Obligation (as defined herein) of SASD under the Master Contract, and the 2015 Payments are payable from and secured by a pledge of and first lien on the Net Revenues (as defined herein) of SASD. SASD has previously incurred Parity Obligations under the Master Contract and may issue or incur additional Parity Obligations subject to the terms and conditions of the Master Contract, as more fully described herein. SASD may also issue or incur Subordinate Obligations (as defined herein) pursuant to the Master Contract. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2015 BONDS – The Installment Purchase Contract – Additional Parity Obligations” and “- Execution of Subordinate Obligations” herein.

THE SERIES 2015 BONDS ARE SPECIAL, LIMITED OBLIGATIONS OF THE AUTHORITY AND ARE NOT SECURED BY A LEGAL OR EQUITABLE PLEDGE OF, OR CHARGE OR LIEN UPON, ANY PROPERTY OF THE AUTHORITY OR ANY OF ITS INCOME OR RECEIPTS, EXCEPT THE AUTHORITY REVENUES. NEITHER THE FULL FAITH AND CREDIT OF THE AUTHORITY NOR ITS MEMBERS (INCLUDING SASD) IS PLEDGED FOR THE PAYMENT OF THE INTEREST ON OR PRINCIPAL OF OR REDEMPTION PREMIUMS, IF ANY, ON THE SERIES 2015 BONDS AND NO TAX OR OTHER SOURCE OF FUNDS OTHER THAN THE AUTHORITY REVENUES IS PLEDGED TO PAY THE INTEREST ON OR PRINCIPAL OF OR REDEMPTION PREMIUMS, IF ANY, ON THE SERIES 2015 BONDS. NEITHER THE PAYMENT OF THE INTEREST ON OR PRINCIPAL OF OR REDEMPTION PREMIUMS, IF ANY, ON THE SERIES 2015 BONDS CONSTITUTES A DEBT, LIABILITY OR OBLIGATION OF THE AUTHORITY OR ANY MEMBER OF THE AUTHORITY (INCLUDING SASD) FOR WHICH ANY SUCH ENTITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH ANY SUCH ENTITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE AUTHORITY HAS NO TAXING POWER.

Interest on the Series 2015 Bonds is payable semiannually on February 1 and August 1 of each year, commencing August 1, 2015. The Series 2015 Bonds are being issued in fully registered form, registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). DTC will act as securities depository for the Series 2015 Bonds. Individual purchases will be made in book-entry form only in denominations of $5,000 or any integral multiple thereof. Purchasers will not receive certificates representing their beneficial ownership interest in the Series 2015 Bonds purchased. See APPENDIX B—“DTC AND THE BOOK-ENTRY ONLY SYSTEM” hereto.

The Series 2015 Bonds are subject to optional redemption prior to their respective stated maturities, as described herein.

This cover page contains certain information for general reference only and is not a summary of the issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. See “CERTAIN RISK FACTORS” for a description of certain of the risks associated with an investment in the Series 2015 Bonds.

The Series 2015 Bonds will be offered when, as and if issued by the Authority and received by the Underwriter, subject to the approval as to their validity by Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the Authority, and certain other conditions. Certain legal matters will be passed upon for SASD by its Disclosure Counsel, Stradling Yocca Carlson & Rauth, a Professional Corporation, for the Authority and for SASD by the Sacramento County Counsel, John Wisenhunt, Esq., Sacramento, California and for the Underwriter by Katten Muchin Rosenman LLP. Montague DeRose and Associates, LLC is serving as Financial Advisor to the Authority in connection with the issuance of the Series 2015 Bonds. It is expected that the Series 2015 Bonds in definitive form will be available for delivery to DTC in New York, New York on or about May 5, 2015.

BofA Merrill LynchDated: March 12, 2015

MATURITY SCHEDULE

$45,435,000 Series 2015 Serial Bonds

Maturity(August 1)

PrincipalAmount

InterestRate Yield Price

CUSIP No.†

2025 $3,260,000 5.000% 2.32% 124.296 786134VE32026 3,425,000 5.000 2.47 122.761* 786134VF02027 3,600,000 5.000 2.61 121.348* 786134VG82028 3,785,000 5.000 2.74 120.054* 786134VH62029 3,940,000 3.000 3.15 98.286 786134VJ22030 4,065,000 3.125 3.30 97.914 786134VK92031 4,230,000 5.000 2.91 118.386* 786134VL72032 4,450,000 5.000 2.96 117.901* 786134VM52033 4,675,000 5.000 3.00 117.514* 786134VN32034 4,890,000 4.000 3.44 104.794* 786134VP82035 5,115,000 5.000 3.06 116.937* 786134VQ6

* Priced to August 1, 2025 par call.† Copyright 2015, American Bankers Association. CUSIP data herein is provided by the CUSIP Global Services (CGS), managed on behalf of the

American Bankers Association by S&P Capital IQ. This data is not intended to create a database and does not serve in any way as a substitute for the CGS Database. CUSIP numbers are provided for reference only. The Authority, SASD, the Financial Advisor and the Underwriter do not assume any responsibility for the accuracy of such numbers.

Board of Directors of SASD and Governing Board of Authority

Jeannie Bruins Citrus Heights City Council, Chair Jeff Harris Sacramento City Council (Authority Board Only) Steve Ly Elk Grove City Council (Authority Board Only) Rick Jennings, II Sacramento City Council (Authority Board Only) Steve Hansen Sacramento City Council (Authority Board Only) Andy Morin Folsom City Council Patrick Hume Elk Grove City Council Bill Kristoff West Sacramento City Council (Authority Board Only) Roberta MacGlashan Sacramento County Supervisor Don Nottoli Sacramento County Supervisor Larry Carr Sacramento City Council Susan Peters Sacramento County Supervisor Phil Serna Sacramento County Supervisor, Vice Chair Dan Skoglund Rancho Cordova City Council Oscar Villegas Yolo County Supervisor (Authority Board Only) Allen Warren Sacramento City Council (Authority Board Only) Patrick Kennedy Sacramento County Supervisor

__________

Officials

Prabhakar Somavarapu District Engineer

Joseph T. Maestretti District Chief Financial Officer

Christoph Dobson Director of Policy and Planning

Rosemary Clark Director of District Operations

John Whisenhunt (Sacramento County Counsel) District and Authority Counsel

Julie Valverde (Sacramento County Director of Finance) District Treasurer

_________

Special Services

Bond Counsel Orrick, Herrington & Sutcliffe LLP

Disclosure Counsel Stradling Yocca Carlson & Rauth,

A Professional Corporation

Trustee MUFG Union Bank, N.A. San Francisco, California

Financial Advisor Montague DeRose and Associates, LLC

Westlake Village, California

Verification Agent Causey Demgen & Moore, P.C.

Denver, Colorado

No dealer, broker, salesperson or other person has been authorized by SASD, the Authority or the Underwriter to give any information or to make any representation other than those contained herein and, if given or made, such other information or representation must not be relied upon. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Series 2015 Bonds in any jurisdiction in which it is unlawful to make such offer, solicitation or sale.

This Official Statement is not to be construed as a contract with the purchasers of the Series 2015 Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact.

The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, their responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information.

The information set forth herein has been furnished by SASD, the Authority and other sources which are believed to be reliable, but is not guaranteed as to accuracy or completeness, and is not to be construed as a representation, by the Underwriter. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in affairs of SASD since the date hereof. This Official Statement, including any supplement or amendment hereto, is intended to be deposited with one or more repositories.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH MAY STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 2015 BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

Certain statements included or incorporated by reference in the following information constitute “forward-looking statements.” Such statements are generally identifiable by the terminology used such as “plan,” “expect,” “estimate,” “budget” or other similar words. The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. No assurance is given that actual results will meet SASD’s forecasts. Although SASD will provide certain information annually as specifically set forth in the Continuing Disclosure Certificate, SASD does not plan to issue any updates or revisions to those forward-looking statements if or when its expectations, or events, conditions or circumstances on which such statements are based occur or do not occur.

The Series 2015 Bonds have not been registered under the Securities Act of 1933, as amended, in reliance upon an exemption from the registration requirements contained in such Act.

References to web site addresses presented herein are for informational purposes only and may be in the form of a hyperlink solely for the reader’s convenience. Unless specified otherwise, such web sites and the information or links contained therein are not incorporated into, and are not part of, this final official statement for purposes of, and as that term is defined in, SEC rule 15c2-12.

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TABLE OF CONTENTS

PAGE

INTRODUCTION ................................................................................................................................................ 1 Purpose ............................................................................................................................................................. 1 SASD ................................................................................................................................................................ 1 The Authority .................................................................................................................................................... 2 Security and Sources of Payment for the Series 2015 Bonds ........................................................................... 2 Other Obligations of SASD .............................................................................................................................. 3 Rate Covenant ................................................................................................................................................... 3 Continuing Disclosure ...................................................................................................................................... 3 Other Matters .................................................................................................................................................... 4 Additional Information ..................................................................................................................................... 4

PLAN OF REFUNDING ...................................................................................................................................... 4 ESTIMATED SOURCES AND USES OF BOND PROCEEDS ......................................................................... 6 THE SERIES 2015 BONDS ................................................................................................................................. 6

General .............................................................................................................................................................. 6 Redemption ....................................................................................................................................................... 6

SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2015 BONDS ............................................. 8 Pledge Under the Indenture .............................................................................................................................. 8 The Installment Purchase Contract ................................................................................................................... 9 Contract Resource Obligations ....................................................................................................................... 18 No Reserve Fund for the Series 2015 Bonds .................................................................................................. 18 Master Interagency Agreement ....................................................................................................................... 18

SASD OPERATIONS ........................................................................................................................................ 19 Background ..................................................................................................................................................... 19 Existing Facilities ........................................................................................................................................... 20 Service Area .................................................................................................................................................... 20 Governance ..................................................................................................................................................... 20 Personnel and Management ............................................................................................................................ 21 Customers ....................................................................................................................................................... 22 Customer Growth ............................................................................................................................................ 24 Rate Policies ................................................................................................................................................... 24 Impact Fees and Sewer Rates ......................................................................................................................... 25 Comparative Rates .......................................................................................................................................... 26 Service Charge Collection Procedures ............................................................................................................ 27 Environmental Compliance ............................................................................................................................ 28 Insurance ......................................................................................................................................................... 29 Certain Retirement Benefits ............................................................................................................................ 30 Investments of SASD Funds; County Pool ..................................................................................................... 31 Historical Operating Results ........................................................................................................................... 33 Management’s Discussion of Financial Performance ..................................................................................... 33 Reserve Policy ................................................................................................................................................ 34 Projected Operating Results ............................................................................................................................ 35

CAPITAL IMPROVEMENT PROGRAM ......................................................................................................... 37 General ............................................................................................................................................................ 37

CERTAIN RISK FACTORS .............................................................................................................................. 38 Rate Covenant Not a Guarantee; Failure to Meet Projections ........................................................................ 38 Statutory and Regulatory Impact .................................................................................................................... 39 Earthquake, Flood or Other Natural Disasters ................................................................................................ 39 Projected Operating Results ............................................................................................................................ 40 Certain Limitations on Ability of SASD to Impose Taxes, Fees and Charges ............................................... 40

TABLE OF CONTENTS (Continued)

PAGE

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No Acceleration of Series 2015 Bonds; Potential Immediate Payment Due on Other District Obligations ... 42 Bankruptcy ...................................................................................................................................................... 42 Risks of Investment in County Investment Pool ............................................................................................. 44 Risk of Non-Payment of Direct Subsidy Payments ........................................................................................ 44

THE AUTHORITY ............................................................................................................................................ 45 ABSENCE OF LITIGATION ............................................................................................................................ 45 CONTINUING DISCLOSURE .......................................................................................................................... 45 TAX MATTERS................................................................................................................................................. 46 FINANCIAL ADVISOR .................................................................................................................................... 48 VERIFICATION OF MATHEMATICAL COMPUTATIONS ......................................................................... 48 LEGAL MATTERS ............................................................................................................................................ 48 RATINGS ........................................................................................................................................................... 49 UNDERWRITING ............................................................................................................................................. 49 INDEPENDENT AUDITOR .............................................................................................................................. 50 MISCELLANEOUS ........................................................................................................................................... 50 APPENDIX A - CERTAIN ECONOMIC AND DEMOGRAPHIC INFORMATION

CONCERNING THE SERVICE AREA OF SASD ............................................... A-1 APPENDIX B - DTC AND THE BOOK-ENTRY ONLY SYSTEM ............................................... B-1 APPENDIX C - COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR FISCAL

YEARS ENDED JUNE 30, 2014 ............................................................................ C-1 APPENDIX D - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS ......................................... D-1 APPENDIX E - FORM OF CONTINUING DISCLOSURE CERTIFICATE ................................. E-1 APPENDIX F - PROPOSED FORM OF BOND COUNSEL OPINION ......................................... F-1

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OFFICIAL STATEMENT $45,435,000

SACRAMENTO COUNTY SANITATION DISTRICTS FINANCING AUTHORITY

Revenue Bonds, Refunding Series 2015 (Sacramento Area Sewer District)

INTRODUCTION

This introduction contains only a brief summary of certain of the terms of the Series 2015 Bonds being offered and a brief description of the Official Statement (which includes the cover page and Appendices hereto). All statements contained in this introduction are qualified in their entirety by reference to the entire Official Statement. References to, and summaries of, provisions of the Constitution and laws of the State of California and any documents referred to herein do not purport to be complete and such references are qualified in their entirety by reference to the complete provisions. Capitalized terms used in this Official Statement and not defined elsewhere herein have the meanings given such terms under the Indenture or the Installment Purchase Contract. See APPENDIX D — “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS – DEFINITIONS” hereto.

Purpose

The purpose of this Official Statement is to set forth certain information concerning the issuance and sale of the Sacramento County Sanitation Districts Financing Authority $45,435,000 Revenue Bonds, Refunding Series 2015 (Sacramento Area Sewer District) (the “Series 2015 Bonds”) pursuant to an Indenture, dated as of June 1, 2005 (the “Master Indenture”), between the Authority and MUFG Union Bank, N.A., as trustee (the “Trustee”), as supplemented by a Third Supplemental Indenture, dated as of May 1, 2015 (the “Third Supplemental Indenture” and together with the Master Indenture, the “Indenture”), between the Authority and the Trustee, for the purpose of providing funds (i) together with amounts available from the 2005 Bonds and approximately $70.3 million of other available funds of SASD, to refund the Authority’s outstanding Revenue Bonds, Series 2005 (County Sanitation District No. 1) (the “2005 Bonds”) and (ii) to pay costs of issuance of the Series 2015 Bonds, as more fully described herein. The 2005 Bonds were issued to finance, refinance or reimburse the costs of acquisition and construction of certain additions, betterments and improvements to the sanitation system (the “Sanitation System”) of Sacramento Area Sewer District (“SASD”), and to pay costs of issuance related to the 2005 Bonds. See “PLAN OF REFUNDING” and “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2015 BONDS” herein.

The Series 2015 Bonds will be issued in full conformity with the Constitution and the laws of the State of California (the “State”), including the Marks-Roos Local Bond Pooling Act of 1985, being Article 4 of Chapter 5 of Division 7 of Title 1 of the Government Code of the State (the “Act”). See “THE SERIES 2015 BONDS” herein.

SASD

SASD, which was formerly known as County Sanitation District No. 1, or CSD-1 was formed in 1978 as a result of the consolidation of four sewer maintenance districts and six county sanitation districts, five of which provided sewage service to portions of the City of Sacramento and one of which provided service to the City of Folsom. Since its formation, other areas of Sacramento County have been annexed to SASD. SASD’s collection system currently serves the City of Citrus

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Heights, a portion of the City of Sacramento, the City of Elk Grove, the City of Rancho Cordova, a very small portion of the City of Folsom and the remaining unincorporated areas of Sacramento County. The service area covers approximately 270 square miles and includes a population of approximately 1.2 million. SASD maintains over 4,400 miles of pipe and operates 108 sewage pump stations. See “SASD OPERATIONS – Background” herein.

The Authority

The Authority was created by a Joint Exercise of Powers Agreement between the Sacramento Regional County Sanitation District (the “Regional Sanitation District”) and SASD pursuant to the provisions of Article 1 of Chapter 5 of Division 7 of Title 1 of the California Government Code. The Authority was created for the purpose of facilitating the financing of the acquisition and/or construction of real and personal property in and for the Regional Sanitation District and SASD. Under the Joint Exercise of Powers Agreement and the Act, the Regional Sanitation District has no liability for the Series 2015 Bonds or the 2015 Payments (as hereinafter defined). See “THE AUTHORITY” herein.

Security and Sources of Payment for the Series 2015 Bonds

The Series 2015 Bonds are special, limited obligations of the Authority payable solely from Authority Revenues, consisting principally of installment payments (the “2015 Payments”) received by the Trustee (as assignee of the Authority) from SASD pursuant to the Third Supplemental Installment Purchase Contract, dated as of May 1, 2015 (the “Third Supplemental Installment Purchase Contract”), between the Authority and SASD, supplementing and amending the Master Installment Purchase Contract, dated as of June 1, 2005, (as previously supplemented, the “Master Contract” and together with the Third Supplemental Installment Purchase Contract, the “Installment Purchase Contract”) between the Authority and SASD, together with all interest or other income derived from the investment of any money in any fund or account held under the Indenture (other than money on deposit in the Series 2015 Bonds Rebate Fund, including investment proceeds thereof, established under the Indenture and any other money held under the Indenture relating to Bonds other than the Series 2015 Bonds) (the “Authority Revenues”). The Authority is not obligated to pay interest on or principal of or redemption premiums, if any, on the Series 2015 Bonds except from Authority Revenues.

The Third Supplemental Installment Purchase Contract constitutes a Parity Obligation under the Master Contract, and the 2015 Payments are payable from and secured by a pledge of and first lien on the Net Revenues (as defined herein) of SASD. SASD has previously incurred Parity Obligations under the Master Contract and may issue or incur additional Parity Obligations, subject to the terms and conditions of the Master Contract. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2015 BONDS – The Installment Purchase Contract – Additional Parity Obligations” herein. SASD may also issue or incur Subordinate Obligations, subject to the terms and conditions of the Installment Purchase Contract, as more fully described herein. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2015 BONDS – The Master Installment Purchase Contract – Execution of Subordinate Obligations” herein.

THE SERIES 2015 BONDS ARE SPECIAL, LIMITED OBLIGATIONS OF THE AUTHORITY AND ARE NOT SECURED BY A LEGAL OR EQUITABLE PLEDGE OF, OR CHARGE OR LIEN UPON, ANY PROPERTY OF THE AUTHORITY OR ANY OF ITS INCOME OR RECEIPTS, EXCEPT THE AUTHORITY REVENUES. NEITHER THE FULL FAITH AND

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CREDIT OF THE AUTHORITY NOR ITS MEMBERS (INCLUDING SASD) IS PLEDGED FOR THE PAYMENT OF THE INTEREST ON OR PRINCIPAL OF OR REDEMPTION PREMIUMS, IF ANY, ON THE SERIES 2015 BONDS AND NO TAX OR OTHER SOURCE OF FUNDS OTHER THAN THE AUTHORITY REVENUES IS PLEDGED TO PAY THE INTEREST ON OR PRINCIPAL OF OR REDEMPTION PREMIUMS, IF ANY, ON THE SERIES 2015 BONDS. NEITHER THE PAYMENT OF THE INTEREST ON OR PRINCIPAL OF OR REDEMPTION PREMIUMS, IF ANY, ON THE SERIES 2015 BONDS CONSTITUTES A DEBT, LIABILITY OR OBLIGATION OF THE AUTHORITY OR ANY MEMBER OF THE AUTHORITY (INCLUDING SASD) FOR WHICH ANY SUCH ENTITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH ANY SUCH ENTITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE AUTHORITY HAS NO TAXING POWER.

Other Obligations of SASD

SASD previously incurred Parity Obligations, which are currently outstanding in the principal amount of $130,555,000 (with respect to the 2005 Bonds) and $123,200,000 (with respect to the Authority’s Revenue Bonds, Series 2010 (Sacramento Area Sewer District). As described herein in “PLAN OF REFUNDING,” upon issuance of the Series 2015 Bonds, the 2005 Bonds will be defeased.

Rate Covenant

Pursuant to the Installment Purchase Contract, SASD has covenanted that it will at all times fix, prescribe and collect rates, fees and charges for the Sanitation Service during each Fiscal Year which are reasonably fair and nondiscriminatory and which are estimated to yield Adjusted Annual Net Revenues for such Fiscal Year equal to at least the Coverage Requirement for such Fiscal Year. SASD may make adjustments from time to time in such fees and charges and may make such classification thereof as it deems necessary, but shall not reduce the rates, fees and charges then in effect unless the Adjusted Annual Net Revenues from such reduced rates, fees and charges are estimated to be sufficient to meet the requirements of the aforementioned covenant. “Coverage Requirement” means, for any Fiscal Year or twelve (12) calendar month period, an amount of Adjusted Annual Net Revenues equal in each case to at least (i) one hundred twenty percent (120%) of the Adjusted Annual Debt Service for such Fiscal Year or twelve (12) calendar month period and (ii) one hundred percent (100%) of all obligations of SASD payable in such Fiscal Year or twelve (12) calendar month period, subject to the provisions of the Installment Purchase Contract. As described under “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2015 BONDS – The Installment Purchase Contract – Consent to Installment Purchase Contract Amendments,” the purchasers of the Series 2015 Bonds will, by purchase and acceptance of the 2015 Bonds, be deemed to have consented to amendments of the definition of Coverage Requirement. The amended definition of Coverage Requirement is described in this Official Statement. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2015 BONDS – The Installment Purchase Contract – Rate Covenant; Collection of Rates and Charges” herein.

Continuing Disclosure

SASD has covenanted for the benefit of the holders and beneficial owners of the Series 2015 Bonds to provide certain financial information and operating data relating to SASD by not later than 210 days following the end of SASD’s Fiscal Year (presently June 30) (the “Annual Report”), commencing with the report for Fiscal Year 2014-15, and to provide notices of the occurrence of

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certain enumerated events. The Annual Report and notices of material events will be filed by SASD with the Municipal Securities Rulemaking Board through its EMMA system. The specific nature of the information to be contained in the Annual Report and the notice of material events is set forth in APPENDIX E — “FORM OF CONTINUING DISCLOSURE CERTIFICATE” hereto. These covenants have been made in order to assist the Underwriter in complying with S.E.C. Rule 15c2-12(b)(5) (the “Rule”). See “CONTINUING DISCLOSURE” herein.

Other Matters

The summaries of and references to all documents, statutes, reports and other instruments referred to herein do not purport to be complete, comprehensive or definitive, and each such summary and reference is qualified in its entirety by reference to each document, statute, report or instrument. The capitalization of any word not conventionally capitalized, or otherwise defined herein, indicates that such word is defined in a particular agreement or other document and, as used herein, has the meaning given it in such agreement or document.

Copies of the Installment Purchase Contract and the Indenture will be available for inspection at the offices of SASD in Sacramento, California, and will be available upon request and payment of duplication costs from the Trustee.

Additional Information

Additional information regarding this Official Statement may be obtained by contacting:

Joseph T. Maestretti Chief Financial Officer

Sacramento Area Sewer District 10060 Goethe Road

Sacramento, CA 95827 (916) 876-6116

PLAN OF REFUNDING

The Series 2015 Bonds are being issued by the Authority (i) together with amounts available from the 2005 Bonds and approximately $70.3 million of other available funds of SASD, to currently refund the 2005 Bonds; and (ii) to pay the costs of issuance of the Series 2015 Bonds, all as more fully described herein.

The Authority will apply a portion of the proceeds of the sale of the Series 2015 Bonds, together with other available moneys, to establish an irrevocable escrow fund to defease the 2005 Bonds. All of the currently outstanding 2005 Bonds, set forth in the table below, will be refunded.

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Sacramento County Sanitation Districts Financing Authority Revenue Bonds, Series 2005

(County Sanitation District No. 1)

Maturity Date

(August 1) Par Amount Interest

Rate Redemption

Date Redemption

Price

CUSIP No. (Base CUSIP

786134) †

2015 $4,130,000 5.00% 8/1/2015* N/A JR8 2016 4,345,000 5.00 8/1/2015 100% JS6 2017 4,565,000 5.00 8/1/2015 100 JT4 2018 4,805,000 5.00 8/1/2015 100 JU1 2019 5,045,000 5.00 8/1/2015 100 JV9 2020 5,305,000 5.00 8/1/2015 100 JW7 2021 5,580,000 5.00 8/1/2015 100 JX5 2022 5,865,000 5.00 8/1/2015 100 JY3 2023 6,170,000 5.00 8/1/2015 100 JZ0 2024 6,480,000 5.00 8/1/2015 100 KA3 2025 6,815,000 5.00 8/1/2015 100 KB1 2026 7,160,000 5.00 8/1/2015 100 KC9 2028 15,445,000 5.00 8/1/2015 100 KD7 2030 17,075,000 5.00 8/1/2015 100 KE5 2035 31,770,000 5.00 8/1/2015 100 KF2

Total $130,555,000

*Scheduled maturity date.

Upon the issuance and delivery of the Series 2015 Bonds, a portion of the proceeds of the Series 2015 Bonds and other available moneys of SASD will be held in a separate Escrow Fund under the terms of an escrow agreement, dated as of May 1, 2015(the “Escrow Agreement”), between SASD and the Trustee as Escrow Agent for the 2005 Bonds (“Escrow Agent”), in cash or investments that will provide for the payment of principal and redemption price of and interest on the 2005 Bonds on August 1, 2015.

Pursuant to the Escrow Agreement, the Escrow Agent will apply the amounts on deposit to the payment of debt service with respect to the 2005 Bonds when due and redemption of the 2005 Bonds on the redemption date plus accrued interest thereon to such redemption date at the redemption price specified above.

For information on mathematical verification of the funds held by the Escrow Agent (together with the investment earnings on the securities held in the Escrow Fund) to make such payments, see “VERIFICATION OF MATHEMATICAL COMPUTATIONS” herein. Upon such irrevocable deposit with the Escrow Agent, the 2005 Bonds will be defeased and will no longer be entitled to the pledge of and charge and lien upon the revenues pursuant to the Supplemental

† Copyright 2015, American Bankers Association. CUSIP data herein is provided by the CUSIP Global Services (CGS), managed on behalf of the American Bankers Association by S&P Capital IQ. This data is not intended to create a database and does not serve in any way as a substitute for the CGS Database. CUSIP numbers are provided for reference only. The Authority, SASD, the Financial Advisor and the Underwriter do not assume any responsibility for the accuracy of such numbers.

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Indenture pursuant to which the 2005 Bonds were issued. Amounts held by the Escrow Agent pursuant to the Escrow Agreement, will not be available for payment of debt service on the Series 2015 Bonds.

ESTIMATED SOURCES AND USES OF BOND PROCEEDS

The estimated sources and uses of funds for the Series 2015 Bonds are as follows:

Sources: Par Amount of the Series 2015 Bonds $45,435,000.00 Net Original Issue Premium 6,440,714.20 District Contribution 70,270,562.48 Available Funds from 2005 Bonds(1) 12,135,974.31 Total $134,282,250.99 Uses: Deposit to Escrow $133,815,668.00 Costs of Issuance (2) 466,582.99 Total $134,282,250.99 (1) Consists of approximately $7.4 million from the debt service reserve fund for the 2005 Bonds and

approximately $4.7 million from the debt service fund. (2) Includes rating agency, legal, financial advisory, printing, trustee fees, Underwriter’s discount and

other costs of issuance.

THE SERIES 2015 BONDS

General

The Series 2015 Bonds shall be dated the date of delivery, shall bear interest (computed on the basis of a 360-day year consisting of twelve 30-day calendar months) at the rates per annum (payable semiannually on February 1 and August 1 in each year, commencing on August 1, 2015) and shall mature and become payable on August 1 in each of the years in the principal amounts set forth on the inside front cover page hereof. The Series 2015 Bonds shall be issued in fully registered form in denominations of five thousand dollars ($5,000) or any integral multiple of five thousand dollars ($5,000) (not exceeding the principal amount of Series 2015 Bonds maturing on any one date). The Series 2015 Bonds will be issued in book-entry form only and, when delivered, will be registered in the name of a nominee of The Depository Trust Company, New York, New York (“DTC”), which will act as securities depository for the Series 2015 Bonds. For so long as Cede & Co., as nominee of DTC, is registered owner of the Series 2015 Bonds, payments of the principal of, premium, if any, and interest on Series 2015 Bonds will be made directly to DTC. Disbursement of such payment to the DTC Participants is the responsibility of the DTC Participants and the Indirect Participants, each such term as hereinafter defined. See APPENDIX B — “DTC AND THE BOOK-ENTRY ONLY SYSTEM” hereto.

Redemption

Optional Redemption. The Series 2015 Bonds maturing on or after August 1, 2026, are subject to optional redemption by the Authority prior to their respective maturity dates, as a whole or in part on any date on or after August 1, 2025, from any lawfully available money of the Authority,

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at a redemption price equal to the sum of the principal amount thereof plus accrued interest thereon to the redemption date, without a redemption premium.

Selection of Series 2015 Bonds to Be Redeemed. Subject to DTC’s procedures relating to the selection of bonds for redemption, if less than all the Outstanding Series 2015 Bonds are to be redeemed at the option of the Authority at any one time, the Authority shall select the maturity date or dates of the Series 2015 Bonds to be redeemed, and if less than all Outstanding Series 2015 Bonds maturing by their terms on any one maturity date are to be redeemed at the option of the Authority at any one time, the Trustee shall select by lot the Series 2015 Bonds or portions thereof of such maturity date to be redeemed in integral multiples of five thousand dollars ($5,000). The Authority shall notify the Trustee in writing at least five (5) Business Days prior to the date fixed for the selection of any Series 2015 Bonds for redemption, and after such selection the Trustee shall promptly notify the Authority in writing of the numbers of the Series 2015 Bonds selected for redemption in whole or in part.

Notice. Notice of redemption shall be mailed by first-class mail by the Trustee, not less than thirty (30) nor more than sixty (60) days prior to the redemption date, to (i) DTC, or if DTC is not the sole Holder, to the respective Holders of the Series 2015 Bonds designated for redemption at their addresses appearing on the registration books of the Trustee, and (ii) to the Information Services. Each notice of redemption shall state the date of such notice, the Series 2015 Bonds to be redeemed, the date of the Series 2015 Bonds, the redemption date, the redemption price, the place of redemption (including the name and appropriate address of the Principal Corporate Trust Office of the Trustee), the CUSIP number (if any) of the maturity or maturities, and, if less than all of any such maturity is to be redeemed, the distinctive numbers of the Series 2015 Bonds of such maturity to be redeemed and, in the case of Series 2015 Bonds to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed. Each such notice shall also state that on the redemption date there will become due and payable on each of the Series 2015 Bonds to be redeemed the redemption price thereof, and in the case of a Series 2010 Bond to be redeemed in part only, the specified portion of the principal amount thereof to be redeemed, together with interest accrued thereon to the redemption date, and that from and after such redemption date interest thereon shall cease to accrue, and shall require that such Series 2015 Bonds be then surrendered at the address of the Trustee specified in the redemption notice; provided, that neither failure to receive any such notice nor any immaterial defect contained therein shall invalidate any of the proceedings taken in connection with such redemption.

Any notice of redemption may be rescinded by written notice given to the Trustee by the Authority no later than five (5) Business Days prior to the date specified for redemption. The Trustee shall give notice of such rescission as soon as thereafter practicable in the same manner, and to the same persons, as notice of such redemption was given as described above.

Effect of Redemption. If notice of redemption has been duly given and money for the payment of the redemption price of the Series 2015 Bonds called for redemption is held by the Trustee, then on the redemption date designated in such notice the Series 2015 Bonds called for redemption shall become due and payable, and from and after the date so designated interest on such Series 2015 Bonds shall cease to accrue, and the Holders of such Series 2015 Bonds shall have no rights in respect thereof except to receive payment of the redemption price thereof.

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SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2015 BONDS

Pledge Under the Indenture

The Series 2015 Bonds are special, limited obligations of the Authority payable solely from Authority Revenues, consisting principally of the 2015 Payments received by the Trustee (as assignee of the Authority) from SASD pursuant to the Third Supplemental Installment Purchase Contract, together with all interest or other income derived from the investment of any money in any fund or account held under the Indenture (other than money on deposit in the Series 2015 Bonds Rebate Fund, including investment proceeds thereof, established under the Indenture and any other money held under the Indenture relating to Bonds other than the Series 2015 Bonds). The Authority is not obligated to pay the interest on or principal of or redemption premiums, if any, on the Series 2015 Bonds except from Authority Revenues.

As and to the extent set forth in the Indenture, all Authority Revenues received by the Authority are assigned to the Trustee by the Authority for the benefit of the registered owners of the Series 2015 Bonds, and are irrevocably pledged to the payment of the interest on and principal of and redemption premium, if any, on the Series 2015 Bonds as provided in the Indenture and the Authority Revenues shall not be used for any other purpose while any of the Series 2015 Bonds remain Outstanding; provided, that the Authority Revenues may be applied for such purposes as are permitted under the Indenture. All the Series 2015 Bonds are equally and ratably secured in accordance with the terms and conditions of the Indenture by a pledge of and charge and lien on the Authority Revenues.

A debt service reserve fund with respect to the Series 2015 Bonds will not be established pursuant to the Indenture.

THE SERIES 2015 BONDS ARE SPECIAL, LIMITED OBLIGATIONS OF THE AUTHORITY AND ARE NOT SECURED BY A LEGAL OR EQUITABLE PLEDGE OF, OR CHARGE OR LIEN UPON, ANY PROPERTY OF THE AUTHORITY OR ANY OF ITS INCOME OR RECEIPTS, EXCEPT THE AUTHORITY REVENUES. NEITHER THE FULL FAITH AND CREDIT OF THE AUTHORITY NOR ITS MEMBERS (INCLUDING SASD) IS PLEDGED FOR THE PAYMENT OF THE INTEREST ON OR PRINCIPAL OF OR REDEMPTION PREMIUMS, IF ANY, ON THE SERIES 2015 BONDS AND NO TAX OR OTHER SOURCE OF FUNDS OTHER THAN THE AUTHORITY REVENUES IS PLEDGED TO PAY THE INTEREST ON OR PRINCIPAL OF OR REDEMPTION PREMIUMS, IF ANY, ON THE SERIES 2015 BONDS. NEITHER THE PAYMENT OF THE INTEREST ON OR PRINCIPAL OF OR REDEMPTION PREMIUMS, IF ANY, ON THE SERIES 2015 BONDS CONSTITUTES A DEBT, LIABILITY OR OBLIGATION OF THE AUTHORITY OR ANY MEMBER OF THE AUTHORITY (INCLUDING SASD) FOR WHICH ANY SUCH ENTITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH ANY SUCH ENTITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE AUTHORITY HAS NO TAXING POWER.

Pursuant to the Master Indenture, the Authority may issue additional bonds from time to time upon satisfaction of certain specified requirements, including that SASD execute a Supplemental Contract which shall provide for payments thereunder sufficient to amortize such additional bonds in accordance with the Supplemental Indenture authorizing the issuance of such additional bonds. See APPENDIX D — “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS – INDENTURE –

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Conditions for the Issuance of a Series of Bonds” hereto. In addition, the Authority may issue additional bonds for the benefit of SASD under separate indentures.

The Installment Purchase Contract

Consent to Installment Purchase Contract Amendments. Immediately upon the issuance of the 2015 Bonds, a new definition of “Subsidy” will be added to the Installment Purchase Contract, and the definition of “Revenues” contained in the Installment Purchase Contract will be amended such that “Revenues” include any “Subsidy.” The amended definition of “Revenues” and the added definition of “Subsidy” are described below under the subheading “2015 Payments.” The definition of “Coverage Requirement” contained in the Installment Purchase Contract also will be amended immediately upon the issuance of the Series 2015 Bonds to exclude both the amount of Annual Debt Service expected to be paid from a Subsidy and the amount of Revenues expected to be received from such Subsidy from the calculation. The amended definition of “Coverage Requirement” is described below under the subheading “Rate Covenant; Collection of Rates and Charges.” Purchasers of the Series 2015 Bonds (but not the underwriter of the Series 2015 Bonds) will, by their purchase and acceptance of the Series 2015 Bonds, be deemed to have consented to these amendments without further act. The underwriter of the Series 2015 Bonds has not consented to, and shall not be deemed to have consented to, these amendments. SASD receives “Subsidies” as described in the amendments in connection with the Authority’s Revenue Bonds, Series 2010A Federally Taxable Direct Subsidy Build America Bonds (Sacramento Area Sewer District).

2015 Payments. SASD has agreed in the Third Supplemental Installment Purchase Contract to make the 2015 Payments, but solely from Net Revenues of SASD as described below. As provided in the Installment Purchase Contract, the Third Supplemental Installment Purchase Contract constitutes a Parity Obligation under the Master Contract. The obligation of SASD to make the 2015 Payments is absolute and unconditional, and until such time as the 2015 Payments have been paid in full (or provision for the payment thereof shall have been made pursuant to the Installment Purchase Contract), SASD will not discontinue or suspend any 2015 Payments required to be paid by it under the Installment Purchase Contract whether or not the Sanitation System or any part thereof is operating or operable, or its use is suspended, interfered with, reduced or curtailed or terminated in whole or in part, and such 2015 Payments will not be subject to reduction whether by offset, abatement or otherwise and will not be conditioned upon the performance or nonperformance by any party of any agreement for any cause whatsoever.

The obligation of SASD to pay the 2015 Payments is limited to the Net Revenues. “Net Revenues” means, for any Fiscal Year or twelve (12) calendar month period, the Revenues during such Fiscal Year or twelve (12) calendar month period less the Maintenance and Operation Costs (defined below) during such Fiscal Year or twelve (12) calendar month period. “Revenues” means, for any Fiscal Year or twelve (12) calendar month period, all income and revenue received or receivable by SASD during such Fiscal Year or twelve (12) calendar month period from the ownership or operation of the Sanitation System, determined in accordance with Generally Accepted Accounting Principles, including all rates, fees and charges received by SASD for the Sanitation Service and the other services of the Sanitation System and all proceeds of insurance covering business interruption loss relating to the Sanitation System and all connection fees and charges payable to SASD for the Sanitation Service made available or provided by the Sanitation System and all payments for the lease of property comprising a part of the Sanitation System and all other income and revenue howsoever derived by SASD from the ownership or operation of the Sanitation System or arising from the Sanitation System, and including all Payment Agreement Receipts, and including

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all income from the investment of amounts on deposit in the Revenue Fund, the Parity Obligation Payment Fund and the Rate Stabilization Fund and including any Subsidy, but excluding in all cases any proceeds of taxes and any refundable deposits made to establish credit, any connection fees paid through the use of credits and any advances or contributions in aid of construction and excluding any income from the investment of amounts on deposit in the Improvement Fund and excluding any earnings of a separate utility system acquired and constructed by SASD pursuant to the Installment Purchase Contract. Notwithstanding the foregoing, there shall be deducted from Revenues any amounts transferred into the Rate Stabilization Fund, as contemplated by the Installment Purchase Contract, and there shall be added to Revenues any amounts transferred out of the Rate Stabilization Fund, as contemplated by the Installment Purchase Contract.

“Maintenance and Operation Costs” means, for any Fiscal Year or twelve (12) calendar-month period, all reasonable and necessary costs paid or incurred by SASD during such Fiscal Year or twelve (12) calendar- month period for maintaining and operating the Sanitation System, determined in accordance with Generally Accepted Accounting Principles, including all reasonable expenses of management and repair and other expenses necessary to maintain and preserve the Sanitation System in good repair and working order, and including all delinquencies payable to the Regional Sanitation District, and including all amounts due under Contract Resource Obligations (but only at times described in the Installment Purchase Contract) and including all administrative costs of SASD that are charged directly or apportioned to the operation of the Sanitation System, such as salaries and wages of employees, overhead, taxes (if any), insurance premiums and payments into pension funds, and including all other reasonable and necessary costs of SASD or charges required to be paid by it to comply with the terms of the Installment Purchase Contract or of any resolution authorizing the execution of any Supplemental Contract or of such Supplemental Contract, such as compensation, reimbursement and indemnification of the Trustee and fees and expenses of Independent Certified Public Accountants and Independent Engineers and the Director of Finance, but excluding in all cases depreciation, replacement and obsolescence charges or reserves therefor and amortization of intangibles.

“Subsidy” means any subsidy, reimbursement or other payment from the federal government of the United States of America under the American Recovery and Reinvestment Act of 2009 (or any similar legislation or regulation of the federal government of the United States of America or any other governmental entity or any extension of any of such legislation or regulation).

Pledge of Net Revenues. Pursuant to the Installment Purchase Contract, SASD has irrevocably granted and pledged the Net Revenues first, to secure Parity Obligations and second, to secure Subordinate Obligations. All Parity Obligations shall be of equal rank without preference, priority or distinction of any Parity Obligations over any other Parity Obligations. All Subordinate Obligations shall be of equal rank without preference, priority or distinction of any Subordinate Obligations over any other Subordinate Obligations.

Application of Revenues. SASD has covenanted in the Installment Purchase Contract to deposit all Revenues received by it in the Sacramento Area Sewer District Revenue Fund (the “Revenue Fund”) which fund the Director of Finance agrees to hold and maintain so long as any Payments under the Installment Purchase Contract shall be Outstanding. Moneys in the Revenue Fund will be used:

first, to pay all Maintenance and Operation Costs (including amounts reasonably required to be set aside in contingency reserves for Maintenance and Operation Costs the payment of

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which is not then immediately required) as they become due and payable and to make such deposits in the Rate Stabilization Fund as SASD may determine from time to time in accordance with the Installment Purchase Contract;

second, on or before the last Business Day in each month, the Director of Finance shall, from the remaining money then on deposit in the Revenue Fund, deposit in the “Sacramento Area Sewer District Parity Obligation Payment Fund (the “Parity Obligation Payment Fund”),” which fund the Director of Finance agrees to hold and maintain so long as any Parity Payments due under the Installment Purchase Contract shall be Outstanding the following amounts in the following order of priority:

(1) a sum equal to (a) the interest and principal payments becoming due and payable under all Supplemental Contracts that are Parity Obligations, plus (b) the net payments becoming due and payable on all Parity Payment Agreements (except any Termination Payments), plus (c) any other amounts with respect to Parity Obligations (including any letter of credit and remarketing fees) in each case, during the next succeeding month; plus

(2) (unless otherwise covered by subparagraph (1) above) a sum equal to (a) one-sixth (1/6) of the amount of interest becoming due and payable under all Supplemental Contracts that are Parity Obligations on the next succeeding Interest Payment Date, plus (b) one-twelfth (1/12) of the amount of principal becoming due and payable under all Supplemental Contracts that are Parity Obligations on the next succeeding Principal Payment Date, except that no such deposit need be made if the Director of Finance then holds money in the Parity Obligation Payment Fund equal to the amount of interest becoming due and payable under all Supplemental Contracts that are Parity Obligations on the next succeeding Interest Payment Date plus the amount of principal becoming due and payable under all Supplemental Contracts that are Parity Obligations on the next succeeding Principal Payment Date plus the net payments due on all Parity Payment Agreements on such dates (except any Termination Payments) plus any other amounts becoming due and payable with respect to Parity Obligations (including any letter of credit and remarketing fees); plus

(3) all amounts due to make up any deficiency in the Reserve Funds and Reserve Accounts for Parity Obligations in accordance with the provisions of the applicable Issuing Document, including all Reserve Fund Credit Facility Costs. All money on deposit in the Parity Obligation Payment Fund shall be transferred by the Director of Finance to the Trustee or other third party payee thereof to make and satisfy the Parity Payments due on the next applicable Payment Dates on such dates;

third, after the payments contemplated above have been made, any amounts thereafter remaining in the Revenue Fund shall from time to time be used for the payment of the interest and principal payments becoming due and payable under all Supplemental Contracts that are Subordinate Obligations and the net payments becoming due and payable on all Subordinate Payment Agreements (except any Termination Payments) and any other amounts becoming due and payable with respect to Subordinate Obligations (including any letter of credit and remarketing fees and any other amounts becoming due and payable to make up any deficiency in the Reserve Funds and the Reserve Accounts for Subordinate Obligations,

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including all Reserve Fund Credit Facility Costs) and any Termination Payments on all Parity Payment Agreements; so long as the following conditions are met:

(1) all Maintenance and Operations Costs are being and have been paid and are then current; and

(2) all deposits and payments contemplated above shall have been made in full and no deficiency in any Reserve Fund or Reserve Account for Parity Obligations shall exist, and there shall have been paid, or segregated within the Revenue Fund, the amounts currently payable pursuant to the Parity Obligations;

fourth, after deposits contemplated above have been made, any amounts thereafter remaining in the Revenue Fund may be used for any lawful purpose, including, but not limited to, the payment of any Termination Payments on all Subordinate Payment Agreements.

Rate Stabilization Fund. A Sacramento Area Sewer District Rate Stabilization Fund (the “Rate Stabilization Fund”) is established pursuant to the Installment Purchase Contract, which fund the Director of Finance agrees to hold and maintain as directed by SASD so long as any Payments due under the Installment Purchase Contract shall be Outstanding. SASD may at any time deposit in the Rate Stabilization Fund any Net Revenues and any other money available to be used therefor, and SASD may at any time withdraw from the Rate Stabilization Fund any money therein for deposit in the Revenue Fund and SASD shall withdraw from the Rate Stabilization Fund any money therein for deposit in the Revenue Fund in the event there are insufficient amounts in the Revenue Fund to make the deposits and transfers required by the Installment Purchase Contract and described above under “Application of Revenues;” provided, that any such deposits or withdrawals may be made up to and including the date one hundred eighty (180) days after the end of the Fiscal Year or twelve (12) calendar month period for which such deposit or withdrawal will be taken into account in determining as Adjusted Annual Revenues; and provided further, that no deposit of Net Revenues shall be made into the Rate Stabilization Fund to the extent that such deposit would prevent SASD from meeting the Coverage Requirement in any Fiscal Year or twelve (12) calendar month period. Currently, $7 million of existing reserves are on deposit in the Rate Stabilization Fund.

Rate Covenant; Collection of Rates and Charges. SASD has covenanted under the Installment Purchase Contract to fix, prescribe and collect rates, fees and charges for the Sanitation Service during each Fiscal Year which are reasonably fair and nondiscriminatory and which will be at least sufficient to yield Adjusted Annual Net Revenues for such Fiscal Year equal to at least the Coverage Requirement for such Fiscal Year. SASD may make adjustments from time to time in such fees and charges and may make such classification thereof as it deems necessary, but shall not reduce the rates, fees and charges then in effect unless the Adjusted Annual Net Revenues from such reduced rates, fees and charges will at all times be sufficient to meet the requirements described in this paragraph.

SASD has further covenanted under the Installment Purchase Contract to have in effect at all times rules and regulations requiring each consumer or customer located on any premises connected with the Sanitation System to pay the rates, fees and charges applicable to the Sanitation Service to such premises and providing for the billing thereof and for a due date and a delinquency date for each bill. SASD will not permit any part of the Sanitation System or any facility thereof to be used or taken advantage of free of charge by any corporation, firm or person, or by any public agency (including the United States of America, the State and any city, county, district, political subdivision,

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public corporation or agency of any thereof); provided, that SASD may without charge use the Sanitation System.

“Coverage Requirement” is defined in the Installment Purchase Contract to mean, for any Fiscal Year or twelve (12) calendar month period, an amount of Adjusted Annual Net Revenues (as defined hereinafter) equal in each case to at least (i) one hundred twenty per cent (120%) of the Adjusted Annual Debt Service (as defined hereinafter) for such Fiscal Year or twelve (12) calendar-month period, and (ii) one hundred per cent (100%) of all obligations of SASD payable in such Fiscal Year or twelve (12) calendar month period; provided, that for purposes of determining compliance with the Coverage Requirement, the following provisions shall apply:

(A) Generally. Except as otherwise provided by subparagraph (B) of this proviso with respect to Variable Interest Rate Contracts and by subparagraph (C) of this proviso with respect to obligations with respect to which a Payment Agreement is in force, interest on any Obligation shall be calculated based on the actual amount of interest that is payable under such Obligation;

(B) Interest on Variable Interest Rate Contracts. Interest deemed to be payable on any Variable Interest Rate Contract for periods when the actual interest rate can be determined shall be the actual Variable Interest Rates and for periods when the actual interest rate cannot yet be determined shall be calculated on the assumption that the interest rate on such Variable Interest Rate Contract would be equal to the rate (the “assumed RBI-based rate”) that is ninety per cent (90%) of the average RBI during the twelve (12) calendar month period immediately preceding the date in which such calculation is made;

(C) Interest on Obligations with respect to which a Payment Agreement is in force. Interest deemed to be payable on any Obligation with respect to which a Payment Agreement is in force shall be based on the net economic effect on SASD expected to be produced by the terms of such obligation and such Payment Agreement, including but not limited to the effects that (i) such Obligation would, but for such Payment Agreement, be treated as an obligation bearing interest at a Variable Interest Rate instead shall be treated as an obligation bearing interest at a fixed interest rate, and (ii) such Obligation would, but for such Payment Agreement, be treated as an obligation bearing interest at a fixed interest rate instead shall be treated as an obligation bearing interest at a Variable Interest Rate; and accordingly, the amount of interest deemed to be payable on any Obligation with respect to which a Payment Agreement is in force shall be an amount equal to the amount of interest that would be payable at the rate or rates stated in such Obligation plus the Payment Agreement Payments minus the Payment Agreement Receipts, and for the purpose of calculating as nearly as practicable the Payment Agreement Receipts and the Payment Agreement Payments under such Obligation, the following assumptions shall be made:

(1) SASD Obligated to Pay Net Variable Payments. If a Payment Agreement has been entered into by SASD with respect to an Obligation resulting in the payment of a net variable interest rate with respect to such Obligation and Payment Agreement by SASD, the interest rate on such Obligation for future periods when the actual interest rate cannot yet be determined shall be assumed (but only during the period the Payment Agreement is in effect) to be equal to the sum of (i) the fixed rate or rates stated in such Obligation, minus (ii) the fixed rate paid by the Qualified Counterparty to SASD, plus (iii) the lesser of (A) the interest rate cap, if any, provided by a Qualified Counterparty with respect to such Payment Agreement (but only during the period that such interest rate cap is in effect) and (B) the assumed RBI-based rate; and

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(2) SASD Obligated to Pay Net Fixed Payments. If a Payment Agreement has been entered into by SASD with respect to an Obligation resulting in the payment of a net fixed interest rate with respect to such Obligation and Payment Agreement by SASD, the interest on such Obligation shall be included in the calculation of the Coverage Requirement (but only during the period the Payment Agreement is in effect) by including for each Fiscal Year or twelve (12) calendar month period an amount equal to the amount of interest payable at the fixed interest rate pursuant to such Payment Agreement;

(D) For purposes of calculating the Annual Debt Service on any Balloon Contract, it shall be assumed that the principal of such Balloon Contract, together with interest thereon at a rate equal to the assumed RBI-based rate, will be amortized in equal annual installments over a term of thirty (30) years; and

(E) For purposes of any calculation of the Coverage Requirement under the Master Contract, (1) any calculation of Annual Debt Service (or other obligations payable by SASD) for any period of time with respect to specified Obligations shall be reduced by the amount of any Subsidy that the Authority or SASD receives or expects to receive during such period of time relating to or in connection with such Obligations and (2) to the extent the calculation of Annual Debt Service is reduced by the Subsidy as provided in clause (1) of this subparagraph (E), any calculation of Adjusted Annual Net Revenues for any period of time shall be reduced by the amount of any Subsidy received or expected to be received by the Authority or SASD with respect to or in connection with the specified Obligations during such period of time.

“Adjusted Annual Debt Service” is defined in the Installment Purchase Contract to mean for any Fiscal Year or twelve (12) calendar month period, the Annual Debt Service for such Fiscal Year or twelve (12) calendar month period minus the amount of such Annual Debt Service paid from the proceeds of Parity Obligations or from any interest earnings from amounts on deposit in all Reserve Funds and Reserve Accounts established in connection with Parity Obligations, as set forth in a Certificate of SASD.

“Adjusted Annual Net Revenues” is defined in the Installment Purchase Contract to mean for any Fiscal Year or twelve (12) calendar month period, the Adjusted Annual Revenues during such Fiscal Year or twelve (12) calendar month period minus the Maintenance and Operation Costs during such Fiscal Year or twelve (12) calendar month period.

2015 Payments Schedule and Debt Service Schedule. Subject to the provisions of the Installment Purchase Contract, the Third Supplemental Installment Purchase Contract requires annual payments of principal and semi-annual payments of interest to the Trustee, as assignee of the Authority, commencing August 1, 2015. Pursuant to the Indenture and the Third Supplemental Installment Purchase Contract, the 2015 Payments will be deposited in the Revenue Fund established pursuant to the Indenture and applied in accordance with the provisions thereof. A table of the annual SASD payments with respect to the Series 2010 Bonds and the Series 2015 Bonds is set forth below:

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DEBT SERVICE SCHEDULE

Fiscal Year

Ending June 30

Series 2010A(1) Series 2010B Series 2015

Principal Interest Principal Interest Principal Interest Total

2015 - $6,985,553 $890,000 $519,225 - - $8,394,778 2016 - 6,985,553 920,000 492,075 - $1,527,898 9,925,526 2017 - 6,985,553 950,000 459,275 - 2,067,831 10,462,659 2018 - 6,985,553 990,000 420,475 - 2,067,831 10,463,859 2019 - 6,985,553 1,030,000 374,925 - 2,067,831 10,458,309 2020 - 6,985,553 1,085,000 327,475 - 2,067,831 10,465,859 2021 - 6,985,553 1,130,000 277,525 - 2,067,831 10,460,909 2022 - 6,985,553 1,180,000 225,675 - 2,067,831 10,459,059 2023 - 6,985,553 1,230,000 177,475 - 2,067,831 10,460,859 2024 - 6,985,553 1,275,000 127,375 - 2,067,831 10,455,759 2025 - 6,985,553 1,335,000 75,175 - 2,067,831 10,463,559 2026 6,985,553 1,385,000 24,238 $3,260,000 1,986,331 13,641,122 2027 $1,440,000 6,941,453 - - 3,425,000 1,819,206 13,625,659 2028 1,495,000 6,851,568 - - 3,600,000 1,643,581 13,590,149 2029 1,560,000 6,758,009 - - 3,785,000 1,458,956 13,561,965 2030 1,615,000 6,660,774 - - 3,940,000 1,305,231 13,521,005 2031 1,685,000 6,559,712 - - 4,065,000 1,182,616 13,492,328 2032 5,205,000 6,343,501 - - 4,230,000 1,013,350 16,791,851 2033 5,420,000 6,007,485 - - 4,450,000 796,350 16,673,835 2034 5,645,000 5,657,554 - - 4,675,000 568,225 16,545,779 2035 5,890,000 5,292,760 - - 4,890,000 353,550 16,426,310 2036 6,130,000 4,912,628 - - 5,115,000 127,875 16,285,503 2037 13,720,000 4,284,871 - - - - 18,004,871 2038 14,295,000 3,398,897 - - - - 17,693,897 2039 14,895,000 2,475,763 - - - - 17,370,763 2040 15,520,000 1,513,889 - - - - 17,033,889 2041 16,175,000 511,534 - - - - 16,686,534 Total $110,690,000 $157,997,028 $13,400,000 $3,500,912 $45,435,000 $32,393,651 $363,416,595

(1) Does not reflect any Subsidies expected to be received by SASD with respect to the 2010A Bonds. Totals may not add due to rounding.

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Additional Parity Obligations. SASD may at any time incur any Parity Obligations payable as provided in the Installment Purchase Contract; provided:

(a) There shall be on file with SASD either:

(1) A Certificate of SASD demonstrating that, during the last audited Fiscal Year or twelve (12) calendar month period during the immediately preceding eighteen (18) calendar month period, the Adjusted Annual Net Revenues were at least equal to the Coverage Requirement (with the term “Adjusted Annual Debt Service” in the definition of Coverage Requirement meaning the greater of (x) the sum of the Adjusted Annual Debt Service on all Outstanding Supplemental Contracts that are Parity Obligations plus the Parity Payments becoming due in the first full Fiscal Year on the Parity Obligation proposed to be executed or (y) the Average Annual Debt Service as computed for all Outstanding Supplemental Contracts that are Parity Obligations, including the Parity Obligation proposed to be executed); provided, that for the purpose of providing this Certificate, SASD may adjust the foregoing Adjusted Annual Net Revenues to reflect:

(i) An allowance for Net Revenues that would have been derived from each new connection to the Sanitation System that was made prior to the execution of any Outstanding Supplemental Contract but which, during all or any part of such Fiscal Year or twelve (12) calendar month period, was not in existence, in an amount equal to ninety-five per cent (95%) of the estimated additional Net Revenues that would have been derived from each such connection if it had been made prior to the beginning of such Fiscal Year or twelve (12) calendar month period, and

(ii) An allowance for Net Revenues that would have been derived from any increase in the rates, fees and charges fixed and prescribed for Sanitation Service which became effective prior to the execution of such Outstanding Supplemental Contract but which, during all or any part of such Fiscal Year or twelve (12) calendar month period, was not in effect, in an amount equal to ninety-five per cent (95%) of the estimated additional Net Revenues that would have been derived from such increase in rates, fees and charges if it had been in effect prior to the beginning of such Fiscal Year or twelve (12) calendar month period; or

(2) An Engineer’s Report that the estimated Adjusted Annual Net Revenues for each of the five (5) Fiscal Years next following the earlier of (i) the end of the period during which interest on the Parity Obligation proposed to be executed is to be capitalized or, if no interest is capitalized, the Fiscal Year in which the Parity Obligation proposed to be executed is executed, or (ii) the date on which substantially all Projects financed with the Parity Obligation proposed to be executed plus all Projects financed with all existing Supplemental Contracts are expected to commence operations, will be at least equal to the Coverage Requirement for such period; provided, that for the purpose of providing this Engineer’s Report, the Independent Engineer may adjust the foregoing estimated Adjusted Annual Net Revenues to reflect:

(i) An allowance for Net Revenues that are estimated to be derived from any increase in the rates, fees and charges for Sanitation Service in effect and being charged or from any increase in the rates, fees and charges for Sanitation Service that are expected to be charged; and

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(ii) An allowance for Net Revenues that are estimated to be derived from customers of the Sanitation System anticipated to be served by the additions, betterments or improvements to the Sanitation System to be financed by the Parity Obligation proposed to be executed together with any additional Supplemental Contracts expected to be executed and entered into during such five (5) year period;

(b) A Certificate of SASD that the Project to be acquired and constructed with the proceeds of such Parity Obligation is technically feasible and the estimated cost of the acquisition and construction thereof is reasonable, and (after giving effect to the completion of all uncompleted Projects) the rates, fees and charges estimated to be fixed and prescribed for the Sanitation Service for each Fiscal Year from the Fiscal Year in which such Parity Obligation is executed to and including the first complete Fiscal Year after the latest Date of Operation of any uncompleted Project are economically feasible and reasonably considered necessary based on projected operations for such period.

Notwithstanding the foregoing, under the Installment Purchase Contract, there is no limitations on the ability of SASD to execute any Parity Obligation at any time to refund any Outstanding Obligation.

Outstanding Obligations. In addition to First Supplemental Installment Purchase Contract executed in connection with the 2005 Bonds, SASD entered into the Second Supplemental Installment Purchase Contract (the “Second Supplemental Contract”) with the Authority in connection with the issuance by the Authority of its Revenue Bonds, Series 2010A (Sacramento Area Sewer District), which are currently outstanding in the principal amount of $110,690,000, and its Revenue Bonds, Series 2010B (Sacramento Area Sewer District), which are currently outstanding in the principal amount of $12,510,000. The First Supplemental Contract and the Second Supplemental Contract constitute Parity Obligations pursuant to the Installment Purchase Contract. SASD may incur additional Parity Obligations, subject to the terms and conditions of the Installment Purchase Contract, as more fully described herein. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2015 BONDS – The Installment Purchase Contract – Additional Parity Obligations” herein.

The Series 2010A Bonds were issued as bonds designated as “Build America Bonds” under the provisions of the American Recovery and Reinvestment Act of 2009 (the “Recovery Act”), the interest on which is not excluded from gross income for purposes of federal income taxation. The Authority expects to receive a cash subsidy payment from the United States Treasury equal to 35% of the interest payable on the Series 2010A Bonds on or about each Interest Payment Date for the Series 2010A Bonds. Such cash subsidy payment may be offset against other liabilities of SASD to the federal government or reduced or eliminated. See “CERTAIN RISK FACTORS - Risk of Non-Payment of Direct Subsidy Payments.”

Execution of Subordinate Obligations. SASD may at any time execute any Subordinate Obligations provided that no Event of Default has occurred and is continuing. See APPENDIX D — “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS — MASTER INSTALLMENT PURCHASE CONTRACT — Conditions for the Execution of Subordinate Obligations” hereto.

There are currently no Subordinate Obligations outstanding.

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Nothing contained in the Installment Purchase Contract limits the ability of SASD to execute obligations payable from a lien on Net Revenues that is subordinate to the lien of Net Revenues for the benefit of Subordinate Obligations.

Contract Resource Obligations

The Installment Purchase Contract permits SASD to enter into Contract Resource Obligations subject to certain specified requirements, and to treat payments made pursuant to such Contract Resource Obligations as Maintenance and Operation Costs. Pursuant to the Installment Purchase Contract, “Contract Resource Obligations” are defined as an obligation of SASD, designated as a Contract Resource Obligation and entered into pursuant to the Installment Purchase Contract, to make payments for Sanitation Service or any other commodity or service to another person or entity (including without limitation a separate utility system created pursuant to the Installment Purchase Contract), the payments under which without the application of the provision of the Installment Purchase Contract described in this section would not be treated as Maintenance and Operation Costs under Generally Accepted Accounting Principles. SASD may at any time enter into one or more Contract Resource Obligations for the acquisition, from facilities to be constructed, of sanitation services or other capacity or service relating to the Sanitation System. SASD may determine that, and may agree under a Contract Resource Obligation to provide that, all payments under that Contract Resource Obligation (including payments prior to the time that sanitation services or other capacity or service is being provided, or during a suspension or after termination of supply or service) shall be Maintenance and Operation Costs if specified requirements as provided in the Installment Purchase Contract are met at the time such a Contract Resource Obligation is entered into. See APPENDIX D—“SUMMARY OF PRINCIPAL LEGAL DOCUMENTS — MASTER INSTALLMENT PURCHASE CONTRACT – Contract Resource Obligations” herein.

No Reserve Fund for the Series 2015 Bonds

The Series 2015 Bonds are not secured by a debt service reserve fund.

Master Interagency Agreement

As described herein, SASD receives wastewater treatment and disposal services from the Regional Sanitation District pursuant to a Master Interagency Agreement, dated as of November 1, 1974, and amended and restated on December 11, 1996 (the “Master Interagency Agreement”) among SASD, the County of Sacramento, the Regional Sanitation District, the City of Sacramento and the City of Folsom. In addition, pursuant to a Wastewater Services Agreement between the Regional Sanitation District and the City of West Sacramento, dated as of March 31, 2004, the Regional Sanitation District has been providing wastewater conveyance and treatment services to the City of West Sacramento. In order to finance and refinance certain capital improvements of the Regional Sanitation District, from time to time the Authority has issued certain revenue bonds, of which approximately $1.4 billion are currently outstanding (the “Regional Sanitation District Bonds”). As a Contributing Agency of the Regional Sanitation District pursuant to the Master Interagency Agreement, SASD is obligated to make certain payments to the Regional Sanitation District, including payments to reimburse the Regional Sanitation District for delinquent services charges of SASD customers to the Regional Sanitation District. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS — The Installment Purchase Contract — Application of Revenues” and “SASD OPERATIONS — Service Charge Collection Procedures” herein.

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The current term of the Master Interagency Agreement expires on June 30, 2024, which is prior to the final maturity of the Series 2015 Bonds. In the event that the Master Interagency Agreement expires, SASD would have to make other arrangements for the treatment of wastewater that it collects. While there can be no assurances that the Master Interagency Agreement will be renewed prior to its expiration, SASD expects that the Regional Sanitation District System will continue to constitute the most economically practical means of wastewater treatment and disposal services for the Contributing Agencies throughout the term of the Series 2015 Bonds and beyond into the foreseeable future, and that the renewal of the Master Interagency Agreement beyond the term of the Series 2015 Bonds will occur. However, in the event that the Master Interagency Agreement did expire, there can be no assurances that such circumstances would not significantly increase the Maintenance and Operation Costs of SASD.

SASD OPERATIONS

Background

SASD is a county sanitation district. SASD is also a Contributing Agency of the Sacramento Regional County Sanitation District (the “Regional Sanitation District”) pursuant to the Master Interagency Agreement. SASD was formed in 1978 by the consolidation of four sewer maintenance districts and six county sanitation districts which provided sewer services to portions of the cities of Sacramento and Folsom as well as the urban, unincorporated areas of the County. This reorganization provided for a common service rate structure for the customers of the affected areas. This reorganization also achieved savings and reduced administrative efforts associated with operating one sanitation district instead of ten and it provided a more equitable representation on the Regional Sanitation District Board of Directors than would have been possible for the former districts under previous law.

SASD was formed for the purpose of planning, designing, constructing, and operating wastewater collection services for the County’s urban, unincorporated area as well as the cities of Citrus Heights, Elk Grove, and Rancho Cordova, and portions of the cities of Sacramento and Folsom. SASD is governed by a Board of Directors consisting of the County of Sacramento Board of Supervisors, plus one representative from each of the Sacramento, Folsom, Elk Grove, Rancho Cordova and Citrus Heights City Councils.

On October 1, 1993, SASD entered into a Joint Exercise of Powers Agreement with the Regional Sanitation District to form the Authority for the purpose of facilitating the financing, acquisition and/or construction of real and personal property in and for SASD and the Regional Sanitation District. The Board of Directors of the Regional Sanitation District serves as the Authority’s governing board. See “THE AUTHORITY.”

Sacramento County’s Sanitation Districts Agency (“SDA”) staffs SASD and the Regional Sanitation District. The SDA operates and maintains all of the Regional facilities, as well as the facilities operated by SASD. SASD is responsible for collection of wastewater while the Regional Sanitation District is responsible for its treatment and disposal.

Until 2008, SASD was known as County Sanitation District No. 1. Its name was changed pursuant to the Local Government Omnibus Act of 2008, effective January 2009.

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Existing Facilities

The existing SASD collection system consists of approximately 3,000 miles of main sewer pipelines. Over 90% of the sewers are made of vitrified clay pipe. Most of the larger pipes (greater than 24 inches in diameter) are reinforced concrete pipe. Other pipe materials in the system include asbestos cement, cast iron, ductile iron, and plastic. The pipes range in age up to about 60 years old; about 46% of the system is less than 30 years old.

The SASD sewer system includes over 65,000 access structures, mostly manholes. There are also 108 pump stations in the system with pumps ranging in capacity from 50 to 6,000 gallons per minute (gpm).

There are an estimated 1,400 miles of lower laterals in the SASD system which are small pipes (typically 4 inches in diameter) that connect homes and businesses to the collection system sewer mains. The maintenance and repair of these pipes are also the responsibility of SASD.

Service Area

SASD currently encompasses an area of approximately 270 square miles which constitutes approximately 27% of the area of the County. The population of SASD’s service area is estimated at approximately 1.2 million, which accounts for approximately 80% of the County’s total population. The cities of Citrus Heights, Elk Grove and Rancho Cordova, portions of the City of Sacramento, a small area in the City of Folsom, and the large urban unincorporated portion of Sacramento County are located within the service area of SASD.

For additional demographic information concerning SASD’s service area see APPENDIX A—“CERTAIN ECONOMIC AND DEMOGRAPHIC INFORMATION CONCERNING THE SERVICE AREA OF SASD” hereto.

Governance

SASD is an independent special district created under the California Health and Safety Code. SASD has no staff of its own. Through contractual arrangement, it relies upon the SDA for its staffing which provides all administrative, operational, maintenance and engineering services. The County is an independent political subdivision and SASD is a county sanitation district. SASD’s finances are separately audited each year. By statute, SASD is governed by a Board of Directors (the “Board”) which is comprised of representatives of the cities of Sacramento, Folsom and Citrus Heights, Elk Grove and Rancho Cordova and the Sacramento County Board of Supervisors. The membership of the Board is changed to reflect the incorporation of cities within SASD’s service area.

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The members of the Board of Directors of SASD (the “Board”) and dates of expiration of their terms of office are set forth below:

Director Position Term Expires

Andy Morin Mayor, Folsom City Council December 2018 Jeannie Bruins Vice Mayor, Citrus Height City Council December 2018 Patrick Hume Vice Mayor, Elk Gove City Council December 2018 Larry Carr Member, Sacramento City Council December 2018 Roberta MacGlashan Member, County Board of Supervisors December 2016 Don Nottoli Member, County Board of Supervisors December 2018 Susan Peters Member, County Board of Supervisors December 2016 Dan Skogland Member, Rancho Cordova City Council December 2018 Phil Serna Chair, County Board of Supervisors December 2018 Patrick Kennedy Member, County Board of Supervisors December 2018

Personnel and Management

The County of Sacramento, through its SDA provides the staffing for SASD as well as for the Regional Sanitation District (collectively, the “Sanitation Districts”). A District Engineer is appointed by the Regional Sanitation District and serves as the Executive Officer of the Sanitation Districts, reporting to the governing bodies of each of the Sanitation Districts. All SASD facilities are operated and maintained by staff of the SDA. The SDA has a permanent staff of 776 persons, of which 290 are assigned to the SASD. The remaining 480 employees of SDA are assigned to the Regional Sanitation District.

The 290 positions assigned to SASD are based at two locations: the Goethe Road office and the North Area Corporation Yard (“NACY”). The Goethe Road office, which is approximately 11 miles from downtown Sacramento, serves as SASD headquarters and includes the South Area Corporation Yard. The SDA staff at Goethe Road are responsible for engineering, policy and planning, and technical support of SASD’s collections systems. Staff supporting the Regional Sanitation District interceptor system are also located at the Goethe Road office. The South Area Corporation Yard is co-located at the Goethe Road office and is responsible for operation and maintenance of the collection system for all locations south of the American River. Staff at NACY are responsible for the operations and maintenance of the collection system north of the American River.

SDA personnel assigned to SASD are represented by an assortment of recognized employee organizations (“REOs”) with the exception that a few high level managers are unrepresented. The International Union of Operating Engineers, Stationary Engineers, Local 39 represents about 39% of the employees, mostly in non-supervisory operations and maintenance jobs. The Sacramento-Sierra Building & Construction Trades Council represents about 7% of the employees, typically in non-supervisory trades such as electricians. The Teamsters, Local 150 represents about 9% of the employees, typically in supervisory roles. The Association of Professional Engineers, County of Sacramento represents engineers and makes up about 13% of the employees. An assortment of other REOs covers most of the remaining staff. The contracts with each of these REOs either expired on June 30, 2013, or on June 30, 2014. The County reached agreements through 2018 with REOs representing a majority of the SASD’s employees. Employees represented by REOs that have not reached agreements are continuing to work under the terms of the expired contracts. The new agreements include annual cost of living adjustments (COLAs) of 2% to 5% based on the consumer

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price index; with additional retention-related adjustments for a limited number of employee classifications. The County is continuing to negotiate agreements with the few remaining REOs and expects that the remainder of the agreements will be renewed with comparable terms. The cost of the salary increases will be reduced in part by annually increasing employee retirement contributions. By fiscal year 2017-18 employees are expected to contribute 50% of the annual retirement contribution.

The key management personnel of SDA are set forth below. These personnel also serve as the management of the Regional Sanitation District and SASD.

Prabhakar Somavarapu is the District Engineer for the Regional Sanitation District and SASD. He is the chief executive responsible for overseeing all activities of the Regional Sanitation District and SASD. Prior to being appointed to his current position in July 2013, Mr. Somavarapu served as the Director of Policy and Planning for the Regional Sanitation District and SASD from July 2010. Prior to his appointment as Director of Policy and Planning Mr. Somavarapu served as Director of Operations, managing operations, maintenance, and engineering for the Regional Sanitation District. He has been working for the Regional Sanitation District and SASD in various capacities since 1996. Mr. Somavarapu holds a Bachelor’s and a Master’s degree in Civil Engineering.

Christoph Dobson is the Director of Policy and Planning for the Regional Sanitation District and SASD. He is responsible for policy, planning, regulatory, and legislative affairs for both the Regional Sanitation District and SASD. Prior to being appointed to his current position in July 2013, Mr. Dobson served as the Director of Operations, managing operations, maintenance, and engineering for the SASD. He has been working for the Sanitation Districts in various capacities since 1993. Mr. Dobson holds a Bachelor’s degree in Civil Engineering and is a registered Professional Engineer.

Rosemary Clark is SASD’s Director of Operations, which includes responsibility for maintenance and operations, engineering, customer care and safety. She was appointed in 2013 after serving as Principal Engineer over SASD’s Engineering Section. She has worked for SASD since 1999 in various staff and managerial positions. Mrs. Clark holds a Bachelor of Science Degree in Civil Engineering.

Joseph Maestretti is the Chief Financial and Administrative Officer for the Regional Sanitation District, SASD, and the Sacramento County Sanitation Districts Financing Authority. He was appointed in April of 2011. Mr. Maestretti had previously been employed with the City of Stockton since 1990 serving as the Budget Officer for the City from 2008 to 2011 and the Capital Improvement Program Coordinator from 2006 to 2008. He also served the City as the Fiscal Manager of the Stockton Police Department from 1990 to 2006. From 1996 to 2010, Mr. Maestretti also served as Financial Advisor to the San Joaquin Area Flood Control Agency. From 1985 to 1990, Mr. Maestretti served as an Auditor and Audit Supervisor with the California State Auditor. Mr. Maestretti holds a Bachelor of Science Degree in Finance and a Master of Science Degree in Accounting. He is also a Certified Public Accountant actively licensed in the State since 1987.

Customers

The following table shows certain historical operating information for SASD, including the number of residential and commercial customers, industrial customers as well as the approximate

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percentages of service charge revenues derived from the combined residential and commercial use and industrial use for the five Fiscal Years ended June 30, 2014. The number of customers is expressed as “equivalent single family dwellings” or “ESDs.”

Table 1 Residential and Commercial Customers

Residential/Commercial

Fiscal Year

Ended June 30

Number of ESDs

Percentage of Service Charge

Revenues

2010 399,298 99.0% 2011 400,178 99.0 2012 401,405 99.0 2013 402,705 99.0 2014 404,647 99.0

Source: SASD.

The 10 largest industrial customers of SASD for the Fiscal Year ended June 30, 2014 are shown below. Total revenues received from industrial customers was $287,000 for services of SASD, approximately 0.30% of SASD’s total service charge revenues of approximately $96,566,000.

Table 2 Largest Industrial Customers of SASD

for the Fiscal Year Ended June 30, 2014

Largest Industrial Customers Revenues Received % of Total Service Charge Revenue

Sacramento County Airport System - SIA $147,532 0.15% Proctor & Gamble Manufacturing 33,602 0.03 City of Sacramento, EA Fairbaim WTP 29,945 0.03 H.P. Hood, LLC 19,225 0.02 Aerojet Commercial 15,210 0.02 Huhtamaki Food Services. Inc 11,958 0.01 Rio Cosumnes Correctional Center 9,866 0.01 Air Products Manufacturing Corporation 7,901 0.01 Mission Linen Supply 6,730 0.01 Raging Waters, Sacramento 5,135 0.01 TOTAL $287,104 0.30% Source: SASD

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Customer Growth

The Projected Operating Results in Table 8 assume growth of ESDs of approximately 0.5% per year. SASD historical average annual customer growth for the period from Fiscal Year 2004-05 through Fiscal Year 2013-14 has been approximately 1.2%. Average annual customer growth for the period from Fiscal Year 2009-10 through Fiscal Year 2013-14 has been approximately 0.4%.

The Projected Operating Results assume that, in future years approximately 75% of new connections will be “expansion” ESDs and 25% will be “relief” ESDs. See “SASD OPERATIONS — Impact Fees and Sewer Rates.”

SASD believes the growth projections described above and used for purposes of the Projected Operating Results are reasonable. However, there can be no assurances that prevailing economic conditions, flooding, drought, the continuing imposition of limitations on development as a result of the threat of flooding, or any combination of the foregoing or other factors, will not result in less growth in the service area of SASD than SASD currently projects. See “CERTAIN RISK FACTORS — Rate Covenant Not a Guarantee; Failure to Meet Projections” and “– Earthquake, Flood or Other Natural Disasters.”

Rate Policies

The Board annually sets rates and charges for SASD services after a public hearing. SASD is not subject to the jurisdiction of, or regulation by, the California Public Utilities Commission or any other regulatory body with respect to the rate setting. SASD sets service charges to recover maintenance and operations costs for SASD’s facilities, to pay debt service with respect to indebtedness incurred for capital improvements (e.g. the 2005 Payments and 2010 Payments), to provide contributions to SASD’s Reserve for Replacement (the funds of which are utilized to replace SASD’s facilities), and to finance capital-related costs related to the acquisition of equipment for, and the improvement of, SASD’s existing facilities (See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2015 BONDS – The Master Installment Purchase Contract – Rate Covenant; Collection of Rates and Charges” herein and “Management’s Discussion of Financial Performance” below for a discussion concerning SASD’s covenant in the Installment Purchase Contract regarding rates and charges.). In Fiscal Year 2013-14, sewer impact fees constituted approximately 2% of the total revenues of SASD See “CERTAIN RISK FACTORS–Certain Limitations on Ability of SASD to Impose Taxes, Fees and Charges” herein.

SASD has three general customer classes. The residential and commercial classes include all residences and businesses whose wastewater is domestic in nature and whose flow does not exceed 25,000 gallons per day. The industrial class includes all businesses with flows in excess of 25,000 gallons per day and some smaller businesses whose flows have wastewater characteristics not typical of domestic wastewater. Businesses that produce certain controlled wastes are required to meet an EPA-approved, pre-treatment program administered by the Sacramento Regional County Sanitation District before their wastewater enters the collection system but do not pay additional costs to SASD.

Cost for maintenance, operation and administration of SASD’s collection system facilities are recovered through a monthly rate established for each customer category. SASD annually determines the adequacy of the rates after consideration of expected operations, maintenance, and capital costs. In accordance with Board policy, operating surpluses may be added to SASD reserves or returned to ratepayers through mitigation of future rate increases.

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SASD adopted a two-tier impact fee system in April 2003. SASD previously had a single impact fee that was charged to all new customers no matter where the development was located in SASD’s service boundary. The revised sewer impact fee program recognized that the cost to expand sewer services within areas already with sewer services (relief areas) was less than the cost to provide new sewer services in outlying areas (expansion areas). Relief and expansion areas were separated and assessed fees appropriate to recover the respective costs of the sewer infrastructure.

Impact fees for new connections are paid at the time the permit for sewer service is obtained by the project developer. SASD offers a fee deferral program to stimulate economic development and allows for deferral of fee payments up to three years for market rate residential units, and up to five years for commercial and industrial customers. For qualified residential projects, a limited fee waiver program is available for affordable housing for very low income households. Sewer service rates for connected customers commence after occupancy of the facility and initiation of wastewater service which delays rate revenue for sometimes one to two years after the impact fee is paid.

In January 2013 SASD revised its methodology for calculating impact fees. The revised impact fee structure spreads the infrastructure cost recovery period over a longer period of time resulting in a reduced fee that is more closely aligned with the proportionate cost to provide service. The impact fee structure also separately addressed administrative costs associated with plan review and coordination with developers. A portion of the fee revenue is used to reimburse SASD’s investments in trunk construction, as well as reimburse developers who have, under a developer reimbursement agreement, financed and constructed sewer trunks. Developer reimbursement agreements often include connection fee credit options in lieu of cash reimbursements.

Impact Fees and Sewer Rates

In Fiscal Year 2013-14, over 92% of SASD’s revenues were derived from monthly sewer rates, 2% were derived from impact fee revenues, and the remainder was derived from non-operating revenues. Impact fees are charged to a new customer in order to offset the cost of providing system capacity to be utilized by such customer. Through Fiscal Year 2007-08, impact fees constituted a larger percentage of SASD revenues. However as a result of the national economic recession and housing slowdown and general economic conditions, the number of new connections in the SASD’s service area significantly decreased through Fiscal Year 2011-12, with a corresponding decrease in impact fee revenues, before increasing modestly in Fiscal Years 2012-13 and 2013-14. See “PROJECTED OPERATING RESULTS” and “SASD OPERATIONS - Customer Growth.”

Table 3 contains sewer service rate and impact fee historical information and projections utilized in the preparation of the Projected Operating Results. The Projected Operating Results provide for service rate and impact fee increases in the projection period. Such rate and fee increases would be subject to Board approval, as well as the requirements of Proposition 218. See “CERTAIN RISK FACTORS - Certain Limitations on the Ability of SASD to Impose Taxes, Fees and Charges.

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TABLE 3 HISTORICAL AND PROJECTED RATES AND CHARGES

Approved Projected; Subject to Board Approval FY 12-13 FY 13-14 FY 14-15 FY 15-16 FY 16-17 FY 17-18 FY 18-19 FY 19-20 Impact Fees $ per ESD (expansion) 2,500 2,362 2,550 2,637 2,722 2,815 2,912 3,012 $ per ESD (relief) 2,000 461 612 628 640 656 677 693 Sewer Service Fee $ per ESD 19.85 19.85 19.85 19.85 19.85 19.85 19.85 19.85 Percent Increase 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Source: SASD.

Comparative Rates

The following tables set forth the currently applicable monthly sewer service charges for single-family residences within SASD and, the comparable charges charged to single-family residences within the jurisdictions of certain other cities and districts.

Table 4 Comparison of Sewer Service Rates

for Single-Family Residences

Comparison Cities Regional Local Total Effective Date

Berkeley, City of + EBMUD $ 22.40 $ 41.66 $ 64.06 1/1/2004 Contra Costa Central Sanitary District - 36.58 36.58 7/1/2014 Davis, City of - 45.16 45.16 12/1/2012 Dublin-San Ramon Service District - 31.08 31.08 7/1/2014 Fairfield-Suisun Sewer District - 32.71 32.71 7/1/2014 Folsom, City of 29.00 16.15 45.15 7/1/2013 Fresno, City of - 25.81 25.81 7/1/2014 Oakland, City of + EBMUD 22.40 34.72 57.12 1/1/2014 Orange County Sanitation District 26.33 18.00 44.33 7/1/2014 Placer County, (Granite Bay) - 48.12 48.12 1/1/2012 Roseville, City of 32.62 30.75 63.37 7/1/2014 Sacramento Area Sewer District (SASD) + SRCSD 29.00 19.85 48.85 7/1/2014 Sacramento, City of + SRCSD 29.00 22.42 51.42 7/1/2014 San Diego, City of - 47.72 47.72 6/20/2012 Stockton, City of - 40.67 40.67 7/1/2014 Union Sanitary District - 29.75 29.75 7/15/2014 Vacaville, City of - 57.03 57.03 3/1/2014 Vallejo Sanitation and Flood Control District - 43.35 43.35 7/1/2014 West Sacramento City of + SRCSD 29.00 8.35 37.35 7/1/2014 Woodland, City of - 45.74 45.74 7/1/2014 Source: SASD

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Service Charge Collection Procedures

SASD’s service charges are collected by the Municipal Services Agency’s Consolidated Utilities Billing System (“CUBS”) which is operated by County employees. This system is responsible for collecting service charges from SASD and Regional Sanitation District customers who generally reside in the unincorporated areas of the County, as well as residents who are served by SASD.

The bimonthly invoices sent to customers of SASD list an amount for “Local Sewer” (which is the service charge imposed by SASD for the wastewater collection services) and a separate amount for “Regional Sewer.” The “Regional Sewer” portion is established by the Regional Sanitation District, and constitutes a service charge imposed on customers of SASD for the wastewater treatment and disposal services provided by the Regional Sanitation District to SASD customers. The Regional Sewer portion is remitted directly to the Regional Sanitation District. Pursuant to the Master Interagency Agreement, SASD is obligated to pay the Regional Sanitation District the full amount of the “Regional Sewer” amount billed to SASD customers, whether or not actually paid by such customers.

While SASD is responsible for delinquencies of its customers pursuant to the Master Interagency Agreement, historically the amounts which SASD has been required to pay pursuant to this obligation have been minimal. At the end of each fiscal year, SASD includes all delinquent services charges for that fiscal year on the Sacramento County property tax rolls for the following fiscal year. Approximately 94% of these delinquent amounts are collected with regular property tax payments.

Beginning in Fiscal Year 1993-1994, the County adopted the alternative method of secured property tax apportionment known as the “Teeter Plan.” Pursuant to the Teeter Plan, the service charges which are not collected with the regular property tax payments are paid to SASD by the County. In return, the County is entitled to retain all interest and penalties on such delinquent amounts. Monthly service charges for houses in foreclosure are treated in the same method. Table 5 sets forth the amount of delinquent service charges which were added to the tax rolls for the five Fiscal Years ending June 30, 2014. Table 6 sets forth the portion of service fees placed on the tax rolls that were not collected with the regular tax collection, and were assigned to the County pursuant to the Teeter Plan.

Table 5 SASD Delinquencies Placed on Tax Roll

for the Fiscal Years Ended June 30

Fiscal Year Ended June 30

Number of Delinquent Accounts

Percent of Accounts Delinquent

Delinquent Amount Placed on Tax Rolls

2010 20,081 6.77% $12,186,728 2011 18,709 6.28 11,702,902 2012 17,240 5.77 11,699,567 2013 16,458 5.48 11,345,030 2014 15,851 5.26 11,210,658

Source: SASD

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Table 6 Service Charges for SASD Collected Through Teeter Plan

for the Fiscal Years Ended June 30 (rounded to nearest thousands)

Fiscal Year Ended June 30

Total Amount of Service Charges

Total Amount Collected(1)

Amount Assigned to County under Teeter Plan

2010 $83,516,000 $82,182,940 $1,333,060 2011 94,813,872 93,504,682 1,309,190 2012 95,988,816 94,690,531 1,298,285 2013 95,825,402 94,544,361 1,281,041 2014 96,565,734 95,546,823 1,018,911

(1) Includes delinquent service charges from prior fiscal years collected through property tax bills. Source: SASD.

The ability of SASD to impose rates, fees and charges is subject to certain limitations. See “CERTAIN RISK FACTORS — Certain Limitations on the Ability of SASD to Impose Taxes, Fees and Charges” herein.

Environmental Compliance

Regulations with respect to sanitary sewer systems pertain to the prohibition against overflows or bypasses of untreated wastewater. In general, such overflows and bypasses that reach the surface waters of the United States are violations of the Federal Clean Water Act (“CWA”) and subject to fines by the State of California Water Resources Control Board (“SWRCB”) and Central Valley Regional Water Quality Control Boards (“CVRWQCB”), which have the authority to enforce the provisions of the CWA in California.

In 2006, the SWRCB adopted Statewide General Waste Discharge Requirements for Sanitary Sewer Systems (the “Order”). The Order required public entities that own or operate sanitary sewer systems greater than one mile in length conveying flow to a publicly owned treatment facility to comply with the order. The Order’s provisions require that such agencies allocate adequate resources for the operation, maintenance, and repair of its sanitary sewer system, by establishing a proper rate structure, accounting mechanisms, and auditing procedures to ensure an adequate measure of revenues and expenditures. The Order requires that all such agencies develop, approve, and implement a system-specific Sewer System Management Plan (“SSMP”). The SSMP must contain a rehabilitation and replacement plan, and should include a capital improvement plan that addresses the proper management and protection of the infrastructure assets, including a schedule for developing the funds needed for the capital improvement plan. The SASD Board of Directors approved the SASD SSMP on April 8, 2009. SASD is subject to the jurisdiction of the CVRWQCB and SWRCB and believes it is in compliance with the Order. The SWRCB may re-open the Order for review and comment, modify the Order’s requirements and conduct facility audits to verify compliance. SASD staff will actively participate in that review and audit process, participate in stakeholder meetings and provide written and verbal testimony, if appropriate.

SASD believes it complies with current operations and reporting requirements of local, state and federal regulators, although the SASD sewer system regularly experiences sanitary sewer overflows (“SSOs”). Regulations may change and there can be no assurances that compliance with

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future requirements, including potential requirements relating to reduction of SSO’s will not significantly increase SASD’s costs.

Certain Environmental Conditions Affecting SASD. SASD is currently conducting groundwater remediation to address a known release of the chlorinated solvent PCE in the vicinity of a former dry cleaning business in Sacramento, California. In 1987, PCE in groundwater was detected in nearby Citizens Utility Company of California Supply Well 64. Subsequent investigations concluded that the source of the release was the dry cleaner operation at the site. In 1995, SASD received a draft Cleanup and Abatement Order from the CVRWQCB naming SASD as a responsible party. SASD and CUCC entered into an agreement for wellhead treatment in June 1996, culminating in SASD purchasing Well 64 in August 2000. Remediation of the contamination at the site has included soil vapor extraction and groundwater pumping and treatment. SASD is currently evaluating additional remediation strategies.

In compliance with the Cleanup and Abatement Order, SASD is continuing to treat groundwater at extraction at Well 64 and sample groundwater utilizing numerous monitoring wells surrounding the location. SASD reports to the CVRWQCB on a semi-annual basis providing quarterly test data. To date, SASD has spent approximately $1.5 million on cleanup activities relating to Well 64. There can be no assurances that such costs will not increase.

In addition, the CVRWQCB has indicated that certain ground water wells in the area of Fruitridge Road and Stockton Boulevard are impacted with PCE, and that SASD may be responsible. Pursuant to an CVRWQCB order, SASD performed soil, soil gas, and ground water sampling in the area identified by the CVRWQCB from September 2009 through January 2010 and submitted a report to the CVRWQCB in February 2010. Based on the work performed, the report conclusions could not confirm or deny that PCE contamination entered soil or ground water from SASD sewer lines. Further work conducted by SASD identified a number of current and historic property owners of the contaminated sites and meetings were conducted with many of these owners to discuss their liability for PCE contamination. SASD provided the information to the CVRWQCB and the CVRWQB has ordered many of these owners to provide work plans for further investigation and possible remediation. At this time, the CVRWQB has indicated that no further work from SASD is required. However, the contamination remains and the Regional Board may seek further action from SASD in the future. SASD has identified historical general liability policies available to address the contamination related costs should the need arise. To date, SASD has spent approximately $500,000 on this issue.

In March 2011, California Sportfishing Protection Alliance filed suit against SASD, alleging violations of the Clean Water Act for sewer overflows from SASD’s system. In 2012, SASD settled the lawsuit, resulting in increases to operations and maintenance costs to ensure compliance with the six-year agreement. Beginning July 2016, no additional costs are projected to be needed to meet the requirements from the legal settlement.

Insurance

SASD, together with any and all districts and commissions administered or operated by or under the jurisdiction of the County and/or the Board of Supervisors, participates in the County’s pooled insurance program with respect to both property and liability insurance. The County maintains an “All Risk” pooled blanket property insurance program with limits in the aggregate amount of $1.73 billion. Flood coverage limits are at $1.315 billion. Coverage applies to all County-

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owned buildings and personal property, as well as SASD. The All Risk coverage carries a $50,000 deductible per occurrence. The flood coverage carries a deductible of 2% of insured value (per unit) subject to a minimum of $100,000. In addition, sub-limits on the property program include: an earthquake coverage sub-limit of $25 million with a deductible of 5% of insured value (per unit) subject to a minimum of $100,000; a sub-limit of $200 million applies to sabotage and terrorism subject to a $500,000 deductible; and boiler and machinery coverage has a $100 million limit for any one loss subject to a $5,000 deductible.

Property coverage is placed through the California State Association of Counties - Excess Insurance Authority (“CSAC-EIA”) Property Program. The CSAC-EIA Property Program utilizes risk-sharing pools and excess insurance policies to provide member coverage. In addition to providing coverage for SASD, the County, and various entities related to the County, the insurance policies provided by CSAC-EIA described in the first paragraph also provide coverage for other government entities. In the event of a single covered event which affects the County and other government entities participating in the CSAC-EIA program, the limits set forth above would apply with respect to all of the claims made, and therefore there can be no assurance that insurance proceeds in the amounts described above would actually be available to SASD.

The County currently purchases General Liability and Automobile Liability insurance of $25,000,000 excess over a self-insured retention of $2,000,000. The excess coverage has been in effect since July 1, 1986. Coverage in excess of $2,000,000 is purchased through the County’s liability broker, IOA Insurance Services, Inc. The County’s insurance program may change in the future due to insurance market conditions and the availability of insurance to public entities.

Internal service funds are used to account for the County’s self-insurance activities (which relate primarily to liability claims under the policies described above). It is the County’s policy to provide in each fiscal year, by charge to affected operating funds, amounts sufficient to cover the estimated liabilities incurred during such year for self-insured claims. Charges to operating funds are recorded as expenditures of such funds and as revenues to the internal service funds relating to self-insurance. As a result of a recent accounting change, the County’s self-insurance program is currently treated as an unfunded liability of the County. Deductibles and uninsured losses under the property coverage are the responsibility of SASD.

Certain Retirement Benefits

Salaries and benefits costs of SASD include funding of retirement benefits for employees assigned to SASD who, as County employees, participate in the Sacramento County Employee Retirement System (“SCERS”). Retirement payments, with respect to employees assigned to SASD (which includes payments to SCERS as well as an allocated portion of the County debt service with respect to pension obligation bonds), were approximately $3.7 million in Fiscal Year 2010-11, approximately $3.4 million in Fiscal Year 2011-12, approximately $3.5 million in Fiscal Year 2012-13, and approximately $3.9 million in Fiscal Year 2013-14. The County estimates that SASD’s required contribution for Fiscal Year 2014-15 will be approximately $4.5 million. Approximately 27% of the required contribution for each fiscal year has been paid by SASD’s employees. The amounts above include the SASD’s allocable portion of debt service on pension obligation bonds issued by the County. For a variety of reasons, including investment losses and enhanced retirement benefits for County employees, SCERS has experienced increased unfunded liabilities and retirement costs in recent years. Although the required contributions are expect to increase, recently settled labor contracts provide for annual increases in the portion of the contribution amount paid by

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employees. By Fiscal Year 2017-18 most County employees, including those assigned to SASD, will be paying 50% of the required contribution amount. While this may mitigate increases, there can be no assurance that the SASD’s retirement costs will not materially increase in the future. See APPENDIX C — “COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR FISCAL YEARS ENDED JUNE 30, 2014” — Note 9 to the Basic Financial Statements” for a discussion of retirement liabilities payable by SASD.

In addition to required contributions for retirement benefits for employees, the County pays certain post-employment health care and other non-pension (“OPEB”) benefits for certain eligible employees on a pay-as-you-go basis. SASD’s OPEB related payments were approximately $167,300 in Fiscal Year 2012-13 and approximately $115,900 in Fiscal Year 2013-14. See APPENDIX C — “COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR FISCAL YEARS ENDED JUNE 30, 2014” — Note 8 to the Basic Financial Statements” for a discussion of OPEB liabilities payable by SASD, as well as the SASD’s current unfunded OPEB liability.

Investments of SASD Funds; County Pool

State law requires that all monies of the County, school districts, and most special districts (including SASD) be held by the County Treasurer (Director of Finance). Pursuant to State law and subject to annual review and renewal by the Board of Supervisors, the Director of Finance is authorized to invest and reinvest the funds. SASD’s funds, among other funds, are invested in the County Pool, which is managed by the Director of Finance.

The County Pool is governed by the Sacramento County Annual Investment Policy for the Pooled Investment Fund (the “Investment Policy”) as authorized by Sections 53601 et seq. and 53635 et seq. of the California Government Code which the Director of Finance annually recommends to the Board of Supervisors. The Board of Supervisors reviews and approves the Investment Policy at a public meeting. This Investment Policy defines investible funds, authorized instruments, credit quality required, maximum maturities and concentrations, collateral requirements, and provides the approved credit standards, investment objectives and specific constraints of the portfolios managed. The Investment Policy also authorizes the establishment and periodic review of investment guidelines, which provide specific guidance to the portfolio managers. These investment guidelines are fully consistent with and subordinate to the Investment Policy.

Authorized investments are required to match the general categories established by Sections 53601 et seq., 53635 et seq., and 16429.1 et seq. of the California Government Code, including the specific categories of financial futures and financial options contracts established by California Government Code Section 53601.1.

As of December 31, 2014, the County Pool was invested in a diversified portfolio of high-quality securities, including but not limited to U.S. Treasury notes and bills, U.S. agency securities, commercial paper, negotiable certificates of deposit, money market funds, and time deposits. Additionally, up to $50 million of the assets of the County Pool may be invested in the Local Agency Investment Fund (LAIF), the California State investment pool. LAIF is a diversified investment pool, with an average maturity of approximately 200 days, offering participants daily liquidity.

The Investment Policy currently provides the following: (1) the maximum maturity of any investment will be five years and the dollar weighted average maturity of all securities will be equal to or less than three years; (2) no more than 80% of the portfolio may be invested in issues other than

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U.S. Treasuries and Government Agencies, and no more than 10% of the portfolio, except U.S. Treasuries and Government Agencies, may be invested in the securities of a single issuer including its related entities; (3) repurchase agreements are authorized in a maximum maturity not exceeding one year; (4) reverse repurchase agreements are authorized in connection with securities owned and fully paid for by the local agency for a minimum of 30 days prior to sale and in a maximum maturity of 92 days, unless the agreement includes a written codicil guaranteeing a minimum earning or spread for the entire period between the sale of a security using a reverse repurchase agreement and the final maturity date of the same security, and the proceeds of a reverse repurchase agreement may not be invested beyond the expiration of the agreement; and (5) repurchase agreements must be collateralized with either (a) U.S. Treasuries and Government Agencies with a market value of 102% for collateral maturing between one day to five years, marked to market daily or (b) money market instruments which are on the approved list for the County and which meet the qualifications of the Investment Policy, with a market value of 102%. Use of mortgage-backed securities for collateral is not permitted. For the purpose of investing the daily excess bank balance, the collateral provided by the County’s depository bank must be worth between 110% and 150% of the value of the deposits, depending on the security type (U.S. Treasuries, Government Agencies, Municipal Bonds or Mortgage-Backed Securities, etc.).

Investments within the County Pool are reviewed monthly by an internal Investment Review Group, which consists of the Director of Finance and his designees. The Investment Review Group reviews the investments to ensure compliance with California Government Code and the Investment Policy. Additionally, a separate internal Investment Group, consisting of the Director of Finance and his designees, reviews the strategies and investment guidelines in relation to the changing financial markets and maintains certain approved lists under the Investment Policy. In both the cases of the Investment Review Group and the Investment Group, the role of the designees is advisory except where specifically authorized by the Director of Finance. Each quarter, a ten-member Treasury Oversight Committee monitors the investment activities by reviewing the portfolio reports. These reports validate the compliance of all investment activities to the established investment parameters and monitoring guidelines.

The Investment Policy may be changed at any time at the discretion of the Board of Supervisors (subject to the State law provisions relating to authorized investments) and as the California Government Code is amended. There can be no assurance, therefore, that State law and/or the Investment Policy will not be amended in the future to allow for investments which are currently not permitted under such State law or the Investment Policy, or that the objectives of the County with respect to investments will not change.

“CERTAIN RISK FACTORS — Risks of Investment in County Investment Pool.”

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Historical Operating Results

The following table sets forth certain financial results of the SASD for the five Fiscal Years ended June 30, 2014, including debt service coverage calculated in accordance with the Installment Purchase Contract.

TABLE 7 Historical Operating Results

($ in thousands)

Revenues 2010 2011 2012 2013 2014 Operating Revenues

Sewer Service Fees $83,516 $94,814 $95,989 $95,825 $96,566 Sewer Impact Fees 652 1,060 4,124 252 2,296 Other 6,781 3,499 3,812 4,002 3,404

Total Operating Revenues $90,949 $99,373 $103,925 $100,079 $102,266 Non-operating Revenues

Interest Income 454 1,249 1,743 789 511 Build America Bond Subsidy - 1,155 2,445 2,445 2,251

Total Non-operating Revenues 454 2,404 4,188 3,234 2,762 Total Revenues $91,403 $101,777 $108,113 $103,313 $105,028

Maintenance & Operations Expenses Total Operating Expenses $82,913 $85,476 $85,492 $92,276 $103,860 Less: Dep. And Amortization (27,408) (29,331) (30,797) (33,481) (34,181) Net Maintenance & Operations Expenses $55,505 $56,145 $54,695 $58,795 $69,679

Net Revenue, including impact fees $35,898 $45,632 $53,418 $44,518 $35,349 Parity Obligation Debt Service $10,554 $14,139 $18,949 $18,952 $18,952 Coverage Requirement(1) Compliance Parity Obligation Coverage 3.40x 3.23x 2.82x 2.35x 1.87x Designated Reserve Balance(2), end of year $30,367 $32,995 $33,023 $34,023 $41,036 (1) Determined in accordance with the Installment Purchase Contract. (2) Reflects budgetary reserves as discussed in “SASD OPERATIONS - Reserve Policy.” Designated reserves are

approved by the Board of Directors in SASD’s annual budget documents and do not constitute a legal restriction of cash balances.

Source: SASD

Management’s Discussion of Financial Performance

Total revenues of SASD have continued to increase since 2005 reflecting consistent increases to monthly service charges and strong ESD growth through 2011. Between 2009 and 2014, these revenues have been offset with an increase in maintenance and operation costs primarily due to additional labor, contract services, and capital maintenance costs associated with new programs required by increased regulations. Management believes that the operating and maintenance cost structure in place as of 2014 is adequate to meet the regulations currently in effect and do not expect significant operating and maintenance cost increases going forward unless additional regulations are imposed. Because of early rate increases and cost containment efforts due to the recent recession SASD was able to build substantial unreserved cash balances between 2007 and 2014. A portion of

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these excess reserves can now be used to pay down a portion of SASD outstanding debt. This will reduce debt service going forward and offset a portion of the increased costs that resulted from increased regulation.

In April 2000, the Board adopted a financial management policy statement (the “Policy Statement”) that identifies certain fiscal objectives of SASD. The Policy Statement provides that SASD’s service charges will be adjusted annually, if necessary, to avoid large increases at infrequent intervals. Additionally, in anticipation of the incurrence of such indebtedness for further capital improvement projects, the Policy Statement provides that SASD will implement adequate rate increases in advance of the incurrence of such indebtedness. The Policy Statement further provides that SASD intends to maintain the Reserve for Replacement adequate to provide financing for replacement of major components of the Sanitation System reaching the end of their useful lives. Notwithstanding the foregoing, the Policy Statement may be amended or modified by the Board of SASD from time to time.

Reserve Policy

In 2005, a reserve policy was approved by the SASD Board that established the current reserves and the basis for their levels. The historical and projected amount of these budgetary reserves (the “Designated Reserve”) is reflected in Table 7 and Table 8. For Fiscal Year 2014‐15, SASD budgeted the Designated Reserve at a total of $42,125,756. Undesignated reserves totaled $112,281,865 at the beginning of Fiscal Year 2014-15. The Projected Operating Results provide funding of the reserves each year in accordance with SASD’s reserve policy, as described below; provided, however that SASD is not contractually obligated to maintain these reserves in the manner described herein. The amounts set forth with respect to the various reserve funds are based on the SASD’s adopted budget for Fiscal Year 2014-15, and are unaudited.

The General Reserve ($15,445,687 for Fiscal Year 2014-15) covers emergency costs and other unexpected expenditures, such as lawsuit settlements, or to offset temporary fluctuations in revenues. This reserve is currently at its designated target level of 25% of operating expenses net of depreciation.

The Metro Airpark Reserve ($2,436,733 for Fiscal Year 2014-15) was developer funded at this level by agreement between SASD and the developer of Metro Airpark to cover additional future maintenance and repair expenditures expected in this area. This reserve will be increased each year by a 2% general inflation factor to cover cost increases resulting from inflation.

The McClellan Airpark Reserve ($1,500,000 for Fiscal Year 2014-15) was developer funded at this level by agreement between SASD and the developer of McClellan Airpark to finance a future construction project to increase capacity when expected growth occurs. The agreement required an additional $500,000 payment from the developer in Fiscal Year 2013-14, and 2% annual increases are included thereafter to cover inflation.

The Construction Reserve is split into three reserves as follows:

1. The first reserve is the Relief Project Reserve ($7,170,336 for Fiscal Year 2014-15). This reserve is funded from impact fees collected from the infill areas of SASD and is used to finance projects that provide relief or improve capacity in areas of SASD that already have sewer infrastructure. The Relief Project Reserve

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target is is assumed to increase at a 2% annual rate. Changes in this reserve level will be based on the Asset Management Plan and the SASD Sewer System Capacity Plan.

2. The second reserve is the Asset Replacement Reserve ($7,573,000 for Fiscal Year 2014-15) which is funded from monthly rates and will be used to finance replacements of pipelines, buildings, and equipment assets as they reach the end of their useful lives. The target for this reserve is currently set at $19 million by Fiscal Year 2020-21, and changes in this reserve will be based on asset replacement needs identified annually in the SASD Asset Management Plan.

3. The third reserve is the Vehicle/Equipment Replacement Reserve ($1,000,000 for Fiscal Year 2014-15) funded from monthly rates and used to finance replacement of vehicles and major mobile equipment assets as they reach the end of their useful lives. The target for this reserve is $1 million.

The Rate Stabilization Reserve ($7,000,000 for Fiscal Year 2014-15) is available to make sure debt coverage ratios of at least 1.20x as required by bond agreements are met when revenues decline without requiring an immediate increase in rates. As projected debt levels decline in 2015 this reserve amount will also decline.

In addition to the Designated Reserves SASD maintains unreserved cash to provide a flexible source of funding to take advantage of opportunities to maximize long-term economic benefits for ratepayers, such as the early repayment of debt and the financing of future capital project expenditures without the need for additional debt. This strategy should provide SASD ratepayers with the current rate for the longest possible time.

SASD is not contractually obligated to maintain the Designated Reserves or unreserved cash at or above any particular levels, and SASD may change its reserve policy in its discretion at any time. There can be no assurances that the actual amount of Designated Reserves or unreserved cash from time to time will not be significantly less than the amounts projected by SASD.

Projected Operating Results

Table 8 contains the Projected Operating Results. The projected operating results are based upon certain assumptions and qualifications. Significant assumptions include the following:

Customer Growth. The Projected Operating Results assume that ESD growth will remain at historically low levels of 0.5% through the projection period. See “SASD OPERATIONS – Customer Growth” for a discussion of historical growth as well as factors which may affect future customer growth.

Rates. The Projected Operating Results assume there will be no rate increases during the projection period.

Impact Fees. Impact Fees are expected to gradually increase from current fee levels ($612/ESD for relief areas and $2,550/ESD for expansion areas) based on inflation adjustment. However, this may change based on the System Capacity Plan Update scheduled for completion by the end of 2016. Fees reflect the same slow growth in ESD assumptions used for rate revenues and assume that 60% of the fees are paid with developer credits as described below.

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As described herein under “CAPITAL IMPROVEMENT PROGRAM – General,” SASD has implemented a program whereby developers of properties in the expansion area may elect to install certain facilities. Upon acceptance of the completed facilities by SASD, SASD reimburses the developer for the agreed upon cost of such facilities; provided, however, that the total reimbursement by SASD to all developers under this program in any year may not exceed moneys available for payment of such reimbursements. In lieu of receiving such reimbursement in the form of a payment from SASD, developers may elect to use the reimbursable amount as a credit against connection fees that they would otherwise owe to SASD in connection with the subsequent development of the subject property. Pursuant to the Installment Purchase Contract executed in connection with the Series 2015 Bonds, connection fee obligations of developers which are satisfied through the use of credits (rather than cash payments made to SASD) are not included in “Net Revenues” for purposes of the rate covenant contained in the Installment Purchase Contract. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2015 BONDS – The Master Installment Purchase Contract” herein. However, because of the housing slowdown, Table 8 assumes that no credits will be utilized.

Operating Expenses. Salaries and benefits are projected to increase between 3.12% and 4.85% per year to reflect increases for cost of living adjustments negotiated in labor agreements, and additional employees ranging between 1 and 7 per year to meet program growth. Services and supplies are projected to increase between 2.3% and 4.58% per year based on program growth needs and general inflation estimated at 2% annually over the forecast period.

Designated Reserves. See “SASD OPERATIONS - Reserve Policy” for a description of the assumptions relating to the level of Designated Reserves.

Other Assumptions. The Projected Operating Results also assume that there will not be any changes in applicable regulatory requirements which materially affect the operations of the System, and no environmental conditions will be discovered which materially affect the System. See “CERTAIN RISK FACTORS.”

While SASD believes these assumptions to be reasonable, the assumptions may vary significantly from actual future conditions due to unanticipated events and circumstances. Any forecast is subject to uncertainties. Some of the assumptions used to develop the forecasts will not be realized, and unanticipated events and circumstances could occur. Therefore, there are likely to be differences between the forecast and the actual results, and those differences may be material. To the extent that actual future conditions vary from those assumed by SASD, the actual results will vary from those contained in the Table. Changes in circumstances, including lower than expected Revenues, or higher than expected Operation and Maintenance Expenses, could have a material adverse impact on the ability of SASD to pay the principal of and interest on the Series 2015 Bonds.

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Table 8 PROJECTED OPERATING RESULTS

($ IN THOUSANDS) (see major assumptions on preceding two pages)

Revenues 2015 2016 2017 2018 2019 Operating Revenues

Sewer Service Fees $97,418 $97,905 $98,394 $98,886 $99,380 Sewer Impact Fees 4,155 3,009 3,130 3,256 3,387 Other 3,585 4,768 5,007 5,031 5,056

Total Operating Revenues $105,158 $105,682 $106,531 $107,173 $107,823 Non-operating Revenues

Interest Income 536 713 748 752 756 Build America Bond Subsidy 2,251 2,251 2,251 2,251 2,251

Total Non-operating Revenues 2,787 2,964 2,999 3,003 3,007 Total Revenues $107,945 $108,646 $109,530 $110,176 $110,830

Maintenance & Operations Expenses Total Operating Expenses $110,204 $113,761 $117,478 $120,198 $123,583 Less: Dep. And Amortization (35,590) (35,946) (36,305) (36,668) (37,035) Net Maintenance & Operations Expenses $74,614 $77,815 $81,173 $83,530 $86,548

Net Revenue, including impact fees $33,331 $30,831 $28,357 $26,646 $24,282 Parity Obligation Debt Service $14,079 $9,926 $10,463 $10,464 $10,458 Parity Obligation Coverage(1) 2.63x 3.72x 3.18x 2.97x 2.68x Designated Reserve Balance(2) end of year $42,126 $47,356 $52,422 $53,242 $55,733 (1) As defined in the Installment Purchase Contract. Parity Obligation Coverage calculation reflects exclusion of amount of

Subsidies received from Revenues and Parity Obligation Debt Service. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2015 BONDS - The Installment Purchase Contract – Consent to Installment Purchase Contract Amendments.”

(2) Reflects budgetary reserves as discussed in “SASD OPERATIONS - Reserve Policy.” Designated reserves are approved by the Board of Directors in SASD’s annual budget documents and do not constitute a legal restriction of cash balances.

Source: SASD

CAPITAL IMPROVEMENT PROGRAM

General

The SASD Sewer System Capacity Plan 2010 Update (SCP) was completed in 2012. The SCP is an update which focuses solely on conveyance facilities referred to as trunks.

As the Sacramento area grows, the Sanitation System must be able to continue to meet community needs. Thus, funds are needed to perform extensive improvements to the collection system to reduce or eliminate potential sewer overflows and serve new growth. The SCP identifies areas where growth is expected and where additional facilities will be needed and evaluates the need for future replacement of existing facilities. SASD then plans its expenditures over the next several years on the basis of the SCP. The SCP identified a need to expend approximately $167 million for new facilities before the end of 2020. SASD is responsible for $22 million of future trunk upgrades and Developers are responsible for the remaining $145 million of trunk expansion. Developers are

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reimbursed through impact fee collections as impact fee funds become available. This estimate does not include work required for the rehabilitation of existing facilities.

SASD capital improvement projects are identified and tracked as projects which serve existing and new users, with the costs allocated proportionately. Capital improvement projects allocated to future users are used to set impact fees such that ultimately those costs will be recovered from new users. The CIP is continually being updated by SASD staff. See “SASD OPERATIONS – Rate Policies” herein.

The most recent five-year CIP reflects reduced growth resulting from the housing slow down but increased rehabilitation costs for existing facilities due to new regulations. The proposed ten-year CIP of approximately $142 million is described in the SASD Long Term Financial Plan and includes capacity relief projects, and rehabilitation improvements to upgrade the system and reduce or eliminate sanitary sewer overflows. The costs of the CIP are expected to be paid from available balances in the Capital Fund, impact fees, Net Revenues available after payment of debt service, and interest income.

The SCP includes projects outside the ten-year scope of the CIP. Additional projects are anticipated in the future and may be financed through the issuance of additional Parity Obligations.

In order to efficiently provide for construction of trunks and other facilities in expansion areas within its service area, SASD implemented a program pursuant to which developers may elect to install such facilities (using SASD provided standards and specifications), subject to reimbursement by SASD for such facilities upon acceptance of the completed facilities by SASD. In such circumstances, prior to the construction of the facilities, SASD and the developer enter into a reimbursement agreement, which provide for the terms of the reimbursement. In lieu of receiving reimbursement, developers may elect to utilize the reimbursable amount as a credit against connection fees they otherwise might owe. See “SASD OPERATIONS – Historical Financial Results” herein.

CERTAIN RISK FACTORS

The following factors, which represent certain major risk factors, should be considered along with all other information in this Official Statement by potential investors in evaluating the Series 2015 Bonds. There can be no assurance made that other major risk factors do not currently exist or will not become evident at any future time.

Rate Covenant Not a Guarantee; Failure to Meet Projections

The ability of SASD to make the 2015 Payments and thereby pay the principal of and interest on the Series 2015 Bonds depends on the ability of SASD to generate Net Revenues in the levels required by the Installment Purchase Contract. Although, as more particularly described herein, SASD expects that sufficient revenues will be generated through the imposition and collection of impact fees, connection fees, and other Revenues described herein, there is no assurance that such imposition of impact fees, connection fees or other Revenues will result in the generation of Net Revenues in the amounts required by the Installment Purchase Contract. SASD’s covenants do not constitute a guarantee that sufficient Net Revenues will be available to make debt service payments on the Series 2015 Bonds.

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In addition, SASD’s financial projections are based on a number of assumptions. Changes in circumstances could have a material adverse impact on the ability of SASD to make the 2015 Payments and thereby pay the principal of and interest on the Series 2015 Bonds.

Statutory and Regulatory Impact

Laws and regulations governing treatment and disposal of wastewater are enacted and promulgated by government agencies on the federal, state and local levels. Compliance with these laws and regulations may be costly, and, as more stringent standards are developed to protect the environment, these costs will likely increase. Claims against SASD with respect to its facilities and services could be significant. Such claims are payable from assets of SASD or from other legally available sources.

Although service fees are the major source of funding for regulatory costs and SASD has covenanted in the Installment Purchase Contract to establish such fees as are necessary to enable SASD to make all 2015 Payments required to be made pursuant to the Installment Purchase Contract, no assurance can be given that the cost of compliance with such laws and regulations will not materially adversely affect the ability of SASD to generate Net Revenues in the amounts required by the Installment Purchase Contract and to pay the 2015 Payments.

Earthquake, Flood or Other Natural Disasters

The occurrence of an earthquake, flood or other natural disaster which resulted in the temporary or permanent closure of major components of the Sanitation System or resulted in significantly increased costs could materially adversely affect the ability of SASD to operate the Sanitation System or to generate Net Revenues at the levels required by the Installment Purchase Contract. See “SASD — Insurance” herein.

During the severe winter storms in the Sacramento area in 1986, 1997 and 2006, the American and Sacramento levee systems carried a record volume of water due to heavy rainfall of long duration. Although these storms caused some flooding in certain areas, the major levee systems that protect properties in the Sacramento area from disaster withstood the record water flows.

However, in June 2006, the Army Corps of Engineers stated that, primarily because of underseepage, levees in the Natomas Basin area of the County (which contains a large number of homes and commercial establishments, as well as the Sacramento International Airport) were no longer certifiable for a 100-year flood event (i.e., a flood event that has a 1% chance of occurrence in any year). In December 2006, the Federal Emergency Management Agency (“FEMA”) notified the City of Sacramento and the County that it planned to revise the existing Flood Insurance Rate Map resulting in the entire Natomas Basin being placed within a regulatory Special Flood Hazard Area (an area where National Flood Insurance Program (NFIP) floodplain management regulations must be enforced and where mandatory purchase of flood insurance applies). FEMA mapped the Natomas area flood hazard on the Flood Insurance Rate Maps December 2008, effectively halting new development in the Natomas Basin.

Federal and state agencies are currently taking various actions to remedy the deficiencies in the system of levees providing protection to the Natomas Basin. In public statements, the Sacramento Area Flood Control Agency (“SAFCA”), the local agency responsible for the construction of levee improvements, has publicly stated that 100-year protection can be restored by

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the end of 2022. However, there can be no assurance that the levee improvements will be completed by the date anticipated by SAFCA. Delay in such improvements, and the restoration of 100-year flood protection in the affected areas of the County, could adversely affect future growth.

Depending upon its severity, flooding could result in damage to and/or disruption of facilities of SASD. Such circumstances could have a material adverse impact on the ability of SASD to generate Net Revenues at the levels required by the Installment Purchase Contract.

Projected Operating Results

The Projected Operating Results included herein are based on certain assumptions and forecasts. Any forecast is subject to uncertainties. There will usually be differences between actual and forecast results because not all events and circumstances occur as expected, and those differences may be material.

Accordingly, the Projected Operating Results are not necessarily indicative of future performance, and SASD does not assume any responsibility for the failure to meet such projections. In addition, certain assumptions with respect to future business and financing decisions of SASD are subject to change. No representation is made or intended, nor should any representation be inferred, with respect to the likely existence of any particular future set of facts or circumstances, and prospective purchasers of the Series 2015 Bonds are cautioned not to place undue reliance upon the Projected Operating Results. If actual results are less favorable than the results projected or if the assumptions used in preparing such projections prove to be incorrect, the amount of Net Revenues may be materially less than expected and consequently, the ability of SASD to make timely payment of the principal of and interest on the Series 2015 Bonds may be materially adversely affected.

Neither SASD’s independent auditors, nor any other independent accountants have compiled, examined or performed any procedures with respect to the Projected Operating Results, nor have they expressed any opinion or any form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, Projected Operating Results, nor have they expressed any opinion or any form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, Projected Operating Results.

Certain Limitations on Ability of SASD to Impose Taxes, Fees and Charges

On November 5, 1996, the voters of the State approved Proposition 218, a constitutional initiative, entitled the “Right to Vote on Taxes Act” (“Proposition 218”). Proposition 218 added Articles XIIIC and XIIID to the California Constitution and contains a number of interrelated provisions affecting the ability of local governments, including SASD, to levy and collect both existing and future taxes, assessments, fees and charges.

Section 3 of Article XIIIC expressly extends the initiative power to give voters the power to reduce or repeal local taxes, assessments, fees and charges, regardless of the date such taxes, assessments, fees or charges were imposed. Section 3 expands the initiative power to include reducing or repealing assessments, fees and charges, which had previously been considered administrative rather than legislative matters and therefore beyond the initiative power. This extension of the initiative power is not limited by the terms of Article XIIIC to fees imposed after November 6, 1996, the effective date of Proposition 218, and absent other legal authority could result

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in the reduction in any existing taxes, assessments or fees and charges imposed prior to November 6, 1996.

“Fees” and “charges” are not expressly defined in Article XIIIC or in SB 919, the Proposition 218 Omnibus Implementation Act enacted in 1997 to prescribe specific procedures and parameters for local jurisdictions in complying with Article XIIIC and Article XIIID (“SB 919”). However, on July 24, 2006, the California Supreme Court ruled in Bighorn-Desert View Water Agency v. Virjil (Kelley) (the “Bighorn Decision”) that charges for ongoing water delivery are property related fees and charges within the meaning of Article XIIID and are also fees or charges within the meaning of Section 3 of Article XIIIC. The California Supreme Court held that such water service charges may, therefore, be reduced or repealed through a local voter initiative pursuant to Section 3 of Article XIIIC.

In the Bighorn Decision, the Supreme Court did state that nothing in Section 3 of Article XIIIC authorizes initiative measures that impose voter-approval requirements for future increases in fees or charges for water delivery. The Supreme Court stated that water providers may determine rates and charges upon proper action of the governing body and that the governing body may increase a charge which was not affected by a prior initiative or impose an entirely new charge.

The Supreme Court further stated in the Bighorn Decision that it was not holding that the initiative power is free of all limitations and was not determining whether the initiative power is subject to the statutory provision requiring that water service charges be set at a level that will pay debt service on bonded debt and operating expenses. Such initiative power could be subject to the limitations imposed on the impairment of contracts under the contract clause of the United States Constitution. Additionally, SB 919 provides that the initiative power provided for in Proposition 218 “shall not be construed to mean that any owner or beneficial owner of a municipal security, purchased before or after (the effective date of Proposition 218) assumes the risk of, or in any way consents to, any action by initiative measure that constitutes an impairment of contractual rights” protected by the United States Constitution. However, no assurance can be given that the voters within the service area of SASD will not, in the future, approve an initiative which reduces or repeals local taxes, assessments, fees or charges.

Article XIIID defines a “fee” or “charge” as any levy other than an ad valorem tax, special tax, or assessment imposed upon a parcel or upon a person as an incident of property ownership, including a user fee or charge for a property-related service. A “property-related service” is defined as “a public service having a direct relationship to a property ownership.” In the Bighorn Decision, the California Supreme Court held that a public water agency’s charges for ongoing water delivery are fees and charges within the meaning of Article XIIID. Article XIIID requires that any agency imposing or increasing any property-related fee or charge must provide written notice thereof to the record owner of each identified parcel upon which such fee or charge is to be imposed and must conduct a public hearing with respect thereto. The proposed fee or charge may not be imposed or increased if a majority of owners of the identified parcels file written protests against it. As a result, the local government’s ability to increase such fee or charge may be limited by a majority protest.

SASD believes that it has complied with the applicable notice and protest procedures of Article XIIID for all increases in its rates and charges approved since the effective date of Article XIIID, and that the Bighorn decision will not require any changes in the procedures it has utilized. There has not been nor is there any pending challenge to any of SASD’s fees and charges approved since the effective date of Proposition 218.

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In addition, Article XIIID also includes a number of limitations applicable to existing fees and charges including provisions to the effect that (i) revenues derived from the fee or charge shall not exceed the funds required to provide the property-related service; (ii) such revenues shall not be used for any purpose other than that for which the fee or charge was imposed; (iii) the amount of a fee or charge imposed upon any parcel or person as an incident of property ownership shall not exceed the proportional cost of the service attributable to the parcel; and (iv) no such fee or charge may be imposed for a service unless that service is actually used by, or immediately available to, the owner of the property in question. Property-related fees or charges based on potential or future use of a service are not permitted.

Pursuant to the Master Contract, SASD has covenanted that it will at all times fix, prescribe and collect rates, fees and charges for the Sanitation Service during each Fiscal Year which are reasonably fair and nondiscriminatory and which are estimated to yield Adjusted Annual Net Revenues for such Fiscal Year equal to at least the Coverage Requirement for such Fiscal Year. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2015 BONDS – The Installment Purchase Contract – Rate Covenant; Collection of Rates and Charges” herein. In the event that proposed increased service charges cannot be imposed as a result of a majority protest, such circumstances may adversely affect the ability of SASD to generate revenues in the amounts required by the Installment Purchase Contract, and to make 2015 Payments representing principal and interest with respect to the Series 2015 Bonds.

No Acceleration of Series 2015 Bonds; Potential Immediate Payment Due on Other District Obligations

Pursuant to the Installment Purchase Contract, the payment of principal and interest on the Payments shall not be accelerated upon the declaration of an Event of Default under the Installment Purchase Contract. The Series 2015 Bonds are not subject to acceleration upon an Event of Default under the Indenture. The Installment Purchase Contract, however, permits SASD to incur Obligations that relate to variable rate bonds that SASD can be obligated to purchase under certain circumstances, including the occurrence and continuance of specified events of default thereunder. If a variable rate bond becomes subject to purchase, and SASD complies with its obligation to purchase such variable rate bond, such variable rate bond will be paid in full prior to other bonds being paid, including bonds payable from Parity Obligations. This result can occur regardless of whether the variable rate bonds are payable from Parity Obligations or Subordinate Obligations. Although SASD does not currently have outstanding Obligations that relate to variable rate bonds that require purchase by SASD, SASD could in the future incur Parity Obligations or Subordinate Obligations that relate to variable rate bonds that would be subject to purchase by SASD under certain circumstances. As a result, regardless of the terms of the Series 2015 Bonds, variable rate bonds could be purchased and thus paid in full prior to the payment of the Series 2015 Bonds.

Bankruptcy

While an involuntary bankruptcy petition cannot be filed against SASD or the Authority, each of SASD and the Authority is authorized to file for bankruptcy under certain circumstances. Should SASD or the Authority file for bankruptcy, there could be adverse effects on the holders of the Series 2015 Bonds.

To the extent that the Net Revenues are “special revenues” under the Bankruptcy Code and the Series 2015 Bonds are covered by the provisions of the Bankruptcy Code relating to pledges of

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special revenues, then Net Revenues collected after the date of the bankruptcy filing should secure SASD’s obligations under the Installment Purchase Contract. If any or all of the Net Revenues are determined not to be special revenues or if it is determined that the Series 2015 Bonds are not covered by the relevant provisions of the Bankruptcy Code, then any such amounts collected after the commencement of the bankruptcy case will likely not secure SASD’s obligations under the Installment Purchase Agreement. The holders of the Series 2015 Bonds may not be able to assert a claim against any property of SASD other than the Net Revenues, and if any or all of the Net Revenues no longer secure the Installment Purchase Agreement, then there may be limited, if any, funds from which the holders of the Series 2015 Bonds are entitled to be paid.

The Bankruptcy Code provides that “special revenues” can be applied to necessary operating expenses of the project or system, before they are applied to other obligations. This rule applies regardless of the provisions of the transaction documents. It is not clear precisely which expenses would constitute necessary operating expenses and any definition in the transaction documents may not be applicable.

If SASD or the Authority is in bankruptcy, the parties (including the Trustee and the holders of the Series 2015 Bonds) may be prohibited from taking any action to collect any amount from the bankrupt party or to enforce any obligation of the bankrupt party, unless the permission of the bankruptcy court is obtained. These restrictions may also prevent the Trustee from making payments to the holders of the Series 2015 Bonds from funds in the Trustee’s possession. If the Authority is in bankruptcy, it may be able to require that all amounts due under the Installment Purchase Contract (including Net Revenues) be paid directly to it, notwithstanding the provisions of the transaction documents that require such payments be made directly to the Trustee. The rate covenant (see “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2015 BONDS -The Installment Purchase Contract - Rate Covenant; Collection of Rates and Charges”) may not be enforceable in bankruptcy by the Trustee or the holders of the Series 2015 Bonds.

SASD is permitted to commingle the Revenues with its own funds for certain periods of time before turning over the Net Revenues to the Trustee. If SASD goes into bankruptcy, SASD may not be required to turn over to the Trustee any Net Revenues that are in its possession at the time of the bankruptcy filing and have been commingled with other moneys. If SASD has possession of Net Revenues (whether collected before or after commencement of the bankruptcy) and if SASD does not voluntarily turn over such Net Revenues to the Trustee, it is not entirely clear what procedures the Trustee and the holders of the Series 2015 Bonds would have to follow to attempt to obtain possession of such Net Revenues, how much time it would take for such procedures to be completed, or whether such procedures would ultimately be successful.

If SASD or the Authority is in bankruptcy it may be able to repudiate the Installment Purchase Contract. If the Installment Purchase Contract is repudiated, SASD will no longer be obligated to make any payments under it.

SASD may be able to borrow additional money that is secured by a lien on any of its property (including the Net Revenues), which lien could have priority over the lien of the Installment Purchase Agreement, or to cause some of the Net Revenues to be released to it, free and clear of lien of the Installment Purchase Agreement, in each case as long as the bankruptcy court determines that the rights of the Authority will be adequately protected.

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If SASD or the Authority is in bankruptcy it may be able, without the consent and over the objection of the Trustee and the holders of the Series 2015 Bonds, to alter the priority, interest rate, principal amount, payment terms, collateral, maturity dates, payment sources, covenants (including tax-related covenants), and other terms or provisions of the Installment Purchase Contract, the Indenture, and the Series 2015 Bonds, as long as the bankruptcy court determines that the alterations are fair and equitable.

There may be delays in payments on the Series 2015 Bonds while the court considers any of these issues. There may be other possible effects of a bankruptcy of SASD or the Authority that could result in delays or reductions in payments on the Series 2015 Bonds, or result in losses to the holders of the Series 2015 Bonds. Regardless of any specific adverse determinations in a District or Authority bankruptcy proceeding, the fact of a District or Authority bankruptcy proceeding could have an adverse effect on the liquidity and value of the Series 2015 Bonds.

Risks of Investment in County Investment Pool

SASD intends to invest the Revenues in the County’s Investment Pool. Should those investments suffer any losses, including as a result of a bankruptcy of the County. Net Revenues may be lower than expected and there may be delays or reductions in payments on the Series 2015 Bonds.

Risk of Non-Payment of Direct Subsidy Payments

The Build America Bond subsidy payments that SASD receives from the federal government in connection with the Series 2010A Bonds constitute “Revenues” pursuant to the Installment Purchase Contract. The U.S. Treasury may offset any subsidy payment to which SASD is otherwise entitled against any other liability of SASD payable to the United States of America, including without limitation withholding or payroll taxes, or other penalties or interest that may be owed at any time to the United States of America. The Code authorizes federal regulations and other guidance to carry out the Build America Bond program, which may reduce the certainty of receipt of subsidy payments by SASD. Subsidy payments do not constitute full faith and credit obligations of or guarantees by the United States of America, but are to be paid as tax credits by the U.S. Treasury under the Recovery Act. Accordingly, no assurance can be given that the U.S. Treasury will make payment of the subsidy payments in the amounts which SASD expects to receive, or that such payments will be made in a timely manner. No assurance can be given that Congress will not amend or repeal provisions of the program and thereby affect the payment of subsidy payments. In order for SASD to be entitled to receive the subsidy payments, the Series 2010A Bonds must comply with all of the requirements of the Internal Revenue Code of 1986 applicable to comparable tax-exempt obligations. SASD’s entitlement to receive the subsidy payments is subject to audit by the IRS. If SASD fails to comply with the conditions to receiving the subsidy payments throughout the term of the Series 2010A Bonds, it may no longer receive such payments and could be subject to a claim for the return of previously received payments. SASD has not made any covenant to comply with all of the conditions to the receipt of the subsidy payments.

Pursuant to certain federal budget legislation adopted in August 2011, starting as of March 1, 2013, the government’s Build America Bond subsidy payments were reduced as part of a government-wide “sequestration” of many program expenditures. The reduction of the Build America Bond subsidy payment is presently scheduled to continue until 2024, although Congress can terminate or modify it sooner, or extend it. Each Build America Bond subsidy payment was reduced

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by 8.7 percent for the federal 2013 fiscal year (ended September 30, 2013) and 7.2 percent for the federal 2014 fiscal year (ended September 30, 2014). This resulted in a reduction of approximately $176,035 in subsidies from a total of $2,444,943 expected to be received during the federal 2014 fiscal year. The sequestration percentage is recalculated for each fiscal year, and has been set at 7.3 percent for the federal 2015 fiscal year.

SASD is obligated to make payments of principal of and interest on the Series 2010A Bonds without regard to the receipt of subsidy payments

THE AUTHORITY

The Authority was created in December 1993 by a Joint Exercise of Powers Agreement, which was entered into between the Regional Sanitation District and SASD pursuant to the provisions of the Act. Under the Joint Exercise of Powers Agreement, the Authority is a public entity, separate from the Regional Sanitation District and SASD. The debts, liabilities and obligations of the Authority shall not constitute debts, liabilities or obligations of the Regional Sanitation District or SASD. The Authority is administered by a governing board consisting of the board of directors of the Regional Sanitation District.

The Authority has the power to cause the acquisition and/or construction of real and personal property in and for SASD and/or the Regional Sanitation District and to sell or lease such real and personal property to SASD and/or the Regional Sanitation District, and the power to purchase, with the proceeds of its revenue bonds, obligations issued by SASD or the Regional Sanitation District at public or private sale, all in accordance with the Act.

The Authority shall continue in effect until June 30, 2024, or so long as any obligation of the Authority remains unpaid or any Authority bonds are outstanding.

ABSENCE OF LITIGATION

There is no controversy or litigation of any nature now pending or threatened restraining or enjoining the issuance of the Series 2015 Bonds or in any way contesting or affecting the validity of the Series 2015 Bonds or any proceedings of SASD or the Authority taken with respect to the execution, delivery or sale thereof.

In addition, there is no litigation pending or threatened against SASD or the Authority which, in the opinion of their respective counsel, would materially adversely affect the Sanitation System, the financial condition of SASD or the sources of payment for the 2015 Payments.

CONTINUING DISCLOSURE

SASD has covenanted for the benefit of Owners and beneficial owners of the Series 2015 Bonds to provide certain financial information and operating data relating to SASD by not later than 210 days following the end of SASD’s fiscal year (which fiscal year presently ends on June 30) (the “Annual Report”), commencing with the Annual Report for the 2014-15 fiscal year, and to provide notices of the occurrence of certain enumerated events. The Annual Report and notices of enumerated events will be filed by SASD with the Municipal Securities Rulemaking Board through its EMMA system. The specific nature of the information to be contained in the Annual Report or the notices of material events is set forth in the Form of Continuing Disclosure Certificate (the

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“Continuing Disclosure Certificate”). See APPENDIX E—“FORM OF CONTINUING DISCLOSURE CERTIFICATE.” These covenants have been made in order to assist the Underwriter in complying with S.E.C. Rule 15c2-12(b)(5). In the last five years, SASD did not make filings with respect to certain changes in the rating of the insurer of the 2005 Bonds as well as a change in SASD’s underlying rating resulting from a general “recalibration” of municipal ratings in 2010.

The obligation of SASD under the Continuing Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all the Series 2015 Bonds. The provisions of the Continuing Disclosure Certificate are intended to be for the benefit of the Owners of the Series 2015 Bonds and beneficial owners of the Series 2015 Bonds and in order to assist the Underwriter in complying with the Rule and shall be enforceable by any Owner or beneficial owners of the Series 2015 Bonds, provided that any enforcement action by any such person shall be limited to a right to obtain specific enforcement of SASD’s obligations under the Continuing Disclosure Certificate any failure by SASD to comply with the provisions thereof shall not be an Event of Default under the Indenture.

TAX MATTERS

In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the Authority (“Bond Counsel”), based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Series 2015 Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Code and is exempt from State of California personal income taxes. Bond Counsel is of the further opinion that interest on the Series 2015 Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. A complete copy of the proposed form of opinion of Bond Counsel is set forth in Appendix F hereto.

To the extent the issue price of any maturity of the Series 2015 Bonds is less than the amount to be paid at maturity of such Series 2015 Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Series 2015 Bonds), the difference constitutes “original issue discount,” the accrual of which, to the extent properly allocable to each Beneficial Owner thereof, is treated as interest on the Series 2015 Bonds which is excluded from gross income for federal income tax purposes and State of California personal income taxes. For this purpose, the issue price of a particular maturity of the Series 2015 Bonds is the first price at which a substantial amount of such maturity of the Series 2015 Bonds is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue discount with respect to any maturity of the Series 2015 Bonds accrues daily over the term to maturity of such Series 2015 Bonds on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Series 2015 Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Series 2015 Bonds. Beneficial Owners of the Series 2015 Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Series 2015 Bonds with original issue discount, including the treatment of Beneficial Owners who do not purchase such Series 2015 Bonds in the original offering to the public at the first price at which a substantial amount of such Series 2015 Bonds is sold to the public.

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Series 2015 Bonds purchased, whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (or, in some cases, at their earlier call date) (“Premium Bonds”) will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of the bonds, like the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax-exempt interest received, and a Beneficial Owner’s basis in a Premium Bond, will be reduced by the amount of amortizable bond premium properly allocable to such Beneficial Owner. Beneficial Owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances.

The Code imposes various restrictions, conditions and requirements relating to exclusion from gross income for federal income tax purposes of interest on obligations such as the Series 2015 Bonds. The Authority and SASD have made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the Series 2015 Bonds will not be included in federal gross income. Inaccuracy of these representations or failure to comply with these covenants may result in interest on the Series 2015 Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Series 2015 Bonds. The opinion of Bond Counsel assumes the accuracy of these representations and compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether actions taken (or not taken), or events occurring (or not occurring), or any other matters coming to Bond Counsel’s attention after the date of issuance of the Series 2015 Bonds may adversely affect the value of, or the tax status of interest on, the Series 2015 Bonds. Accordingly, the opinion of Bond Counsel is not intended to, and may not, be relied upon in connection with any such actions, events or matters.

Although Bond Counsel is of the opinion that interest on the Series 2015 Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes, the ownership or disposition of, or the accrual or receipt of amounts treated as interest on, the Series 2015 Bonds may otherwise affect a Beneficial Owner’s federal, state or local tax liability. The nature and extent of these other tax consequences depends upon the particular tax status of the Beneficial Owner or the Beneficial Owner’s other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences.

Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the Series 2015 Bonds to be subject, directly or indirectly, in whole or in part, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent Beneficial Owners from realizing the full current benefit of the tax status of such interest. For example, the Obama Administration’s budget proposals in recent years have proposed legislation that would limit the exclusion from gross income of interest on the Series 2015 Bonds to some extent for high-income individuals. The introduction or enactment of any such legislative proposals or clarification of the Code or court decisions may also affect, perhaps significantly, the market price for, or marketability of, the Series 2015 Bonds. Prospective purchasers of the Series 2015 Bonds should consult their own tax advisors regarding the potential impact of any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel is expected to express no opinion.

The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel’s judgment as to the proper treatment of the Series 2015 Bonds for federal income tax purposes. It is not binding on the Internal

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Revenue Service (“IRS”) or the courts. Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the Authority or SASD, or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. The Authority and SASD have covenanted, however, to comply with the requirements of the Code.

Bond Counsel’s engagement with respect to the Series 2015 Bonds ends with the issuance of the Series 2015 Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the Authority, SASD or the Beneficial Owners regarding the tax-exempt status of the Series 2015 Bonds in the event of an audit examination by the IRS. Under current procedures, parties other than the Authority, SASD and their appointed counsel, including the Beneficial Owners, would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax-exempt bonds is difficult, obtaining an independent review of IRS positions with which the Authority or SASD legitimately disagrees, may not be practicable. Any action of the IRS, including but not limited to selection of the Series 2015 Bonds for audit, or the course or result of such audit, or an audit of bonds presenting similar tax issues may affect the market price for, or the marketability of, the Series 2015 Bonds, and may cause the Authority, SASD or the Beneficial Owners to incur significant expense.

FINANCIAL ADVISOR

Montague DeRose and Associates, LLC is employed as Financial Advisor to SASD in connection with the issuance of the Series 2015 Bonds. Montague DeRose and Associates, LLC, in its capacity as Financial Advisor, does not assume any responsibility for the information, covenants and representations contained in any of the legal documents with respect to the federal income tax status of the Series 2015 Bonds, or the possible impact of any present, pending or future actions taken by any legislative or judicial bodies.

The Financial Advisor to SASD has provided the following sentence for inclusion in this Official Statement. The Financial Advisor has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to SASD and, as applicable, to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Financial Advisor does not guarantee the accuracy or completeness of such information.

VERIFICATION OF MATHEMATICAL COMPUTATIONS

Upon delivery of the Series 2015 Bonds, Causey Demgen & Moore P.C., independent certified public accountants, will deliver a report stating that the firm has verified the mathematical accuracy of certain computations relating to the adequacy of the cash and securities deposited pursuant to the Escrow Agreement to pay the applicable principal and redemption price of and accrued interest on, the 2005 Bonds on their respective payment and redemption dates.

LEGAL MATTERS

The validity of the Series 2015 Bonds and certain other legal matters are subject to the approving opinion of Orrick Herrington & Sutcliffe LLP, Bond Counsel to the Authority. A complete copy of the proposed form of Bond Counsel Opinion is contained in Appendix F. Certain legal matters will be passed on for SASD by its Disclosure Counsel, Stradling Yocca Carlson & Rauth, a Professional Corporation and the Underwriter by Katten Muchin Rosenman LLP. Such

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counsel do not undertake any responsibility for the accuracy, completeness or fairness of this Official Statement.

RATINGS

Moody’s Investors Service, Standard & Poor’s Ratings Group and Fitch Ratings have rated the Series 2015 Bonds “Aa2,” “AA” and “AA,” respectively. Certain information was supplied by SASD to such rating agencies to be considered in evaluating the Series 2015 Bonds. The ratings reflect only the views of the rating agencies and any explanation of the significance of such ratings and any ratings on any of SASD’s outstanding obligations may be obtained only from such rating agencies as follows: Moody’s Investors Service, 99 Church Street, New York, New York 10017; Standard & Poor’s Ratings Group, 55 Water Street, New York, New York 10041; and Fitch Ratings, One State Street Plaza, New York, New York 10004. There is no assurance that the ratings will remain in effect for any given period of time or that they will not be revised downward or withdrawn entirely by such rating agencies, or any of them, if, in their respective judgment, circumstances so warrant. Any downward revision or withdrawal of any rating may have an adverse effect on the market price of the Series 2015 Bonds.

UNDERWRITING

Pursuant to the terms of a Bond Purchase Contract (the “Bond Purchase Contract”), the Underwriter has agreed, subject to certain conditions, to purchase the Series 2015 Bonds at an aggregate purchase price equal to $51,720,205.20 (representing $45,435,000 aggregate principal amount of the Bonds less $155,509.00 of Underwriter’s discount plus $6,440,714.20 of net original issue premium). The Bond Purchase Contract provides that the Underwriter will purchase all the Series 2015 Bonds if any are purchased. The Series 2015 Bonds may be offered and sold by the Underwriter to certain dealers and others at prices lower than such public offering price, and such public offering price may be changed, from time to time, by the Underwriter.

The Underwriter and its respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage services. The Underwriter and its respective affiliates have, from time to time, performed, and may in the future perform, various investment banking services for SASD, for which they received or will receive customary fees and expenses.

SASD intends to use a portion of the proceeds from this offering to redeem the 2005 Bonds. To the extent the Underwriter or an affiliate thereof is an owner of the 2005 Bonds, such Underwriter or its affiliate, as applicable, would receive a portion of the proceeds from the issuance of the Bonds contemplated herein in connection with such 2005 Bonds being redeemed by SASD.

In the ordinary course of its various business activities, the Underwriter and its respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities, which may include credit default swaps) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve securities and instruments of SASD.

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The Underwriter and its respective affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments.

INDEPENDENT AUDITOR

The audited financial, statements of SASD for the fiscal years ended June 30, 2014, included in Appendix C to this Official Statement, have been examined by the firm of Vavrinek, Trine, Day & Co., LLP, Rancho Cucamonga, California, independent certified public accountants, to the extent and for the periods indicated in its report, which also appears in Appendix C hereto. Vavrinek, Trine, Day & Co., LLP has not consented to the inclusion of its report as Appendix C hereto and has not undertaken to update its report or to take any action intended or likely to elicit information concerning the accuracy, completeness or fairness of the statements made in this Official Statement, and no opinion is expressed by Vavrinek, Trine, Day & Co., LLP with respect to any event subsequent to its report dated December 1, 2014.

MISCELLANEOUS

Included herein are brief summaries of certain documents and reports, which summaries do not purport to be complete or definitive, and reference is made to such documents and reports for full and complete statements of the contents thereof. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the Authority, SASD and the purchasers or owners of any of the Series 2015 Bonds.

The execution and delivery of this Official Statement has been duly authorized by the Authority and SASD.

SACRAMENTO COUNTY SANITATION DISTRICTS FINANCING AUTHORITY

By /s/ Joseph T. Maestretti Chief Financial Officer

SACRAMENTO AREA SEWER DISTRICT, a Sanitation District Organized under the Laws of the State of California

By /s/ Joseph T. Maestretti Chief Financial Officer

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APPENDIX A CERTAIN ECONOMIC AND DEMOGRAPHIC INFORMATION

REGARDING THE SERVICE AREA OF SASD

Appendix A contains certain economic and demographic information relating to Sacramento County and the Sacramento Metropolitan Statistical Area. As described in the Official Statement, SASD currently encompasses an area of approximately 270 square miles which constitutes approximately 27% of the area of the County. The population of SASD’s service area is estimated at approximately 1.2 million, which accounts for approximately 80% of the County’s total population. The cities of Citrus Heights, Elk Grove and Rancho Cordova, portions of the City of Sacramento, a small area in the City of Folsom, and the large urban unincorporated portion of Sacramento County are located within the service area of SASD. SASD’s service area therefore does not include all of Sacramento County and the Sacramento Metropolitan Statistical Area. The information in Appendix A is included for general reference only.

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Population

Sacramento County currently has seven incorporated cities: Citrus Heights, Elk Grove, Folsom, Galt, Isleton, Rancho Cordova and Sacramento, with 33% of the County’s population living in the City of Sacramento.

Population/Percent Increase

Area 1970 1980 1990 2000 2010 2014 Cities: Citrus Heights --- --- --- 85,071 83,267 84,544 Elk Grove --- --- --- --- 152,925 160,688 Folsom 5,810 11,003 29,802 51,884 72,201 74,014 Galt 3,200 5,514 8,889 19,472 23,641 24,289 Isleton 909 914 833 828 804 815 Rancho Cordova --- --- --- --- 64,413 67,839 Sacramento 257,105 275,741 369,365 407,018 466,279 475,122 Unincorporated Area:

367,349 409,209 632,330 659,226 553,529 567,095

Total: 634,373 783,381 1,041,219 1,223,499 1,417,059 1,454,406

% Increase over prior period:

23.49% 32.84% 17.50% 15.82% 2.63%

State Population: 19,935,134 23,782,000 29,828,496 34,095,209 37,223,900 38,340,074 % Increase over

prior period: 19.30% 25.42% 14.30% 9.17% 2.99%

________________ Sources: U.S. Census Bureau; 2014 from California Department of Finance.

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Industry and Employment

The following table contains certain information concerning the labor market in Sacramento County.

Sacramento County Labor Market Survey Calendar Years 2009 to 2013

(Amounts Expressed in Thousands)

Industry 2009 2010 2011 2012 2013 Mining 100 100 200 200 200 Construction 26,900 23,500 22,600 23,600 27,000 Manufacturing-Nondurable goods 7,600 7,200 7,400 7,300 7,000 Manufacturing-Durable goods 12,900 12,200 12,900 13,800 13,800 Transp., Warehouse, Pub Utilities 12,800 11,900 11,500 12,200 13,000 Information 14,200 13,200 12,600 11,800 11,300 Wholesale Trade 14,700 14,100 14,800 15,800 15,500 Retail Trade 55,400 55,600 56,400 58,300 59,200 Finance, Insurance, Real Estate 36,000 32,100 30,500 31,100 31,600 Services 531,400 517,900 515,200 524,900 534,000 Government 168,800 164,300 159,900 156,400 156,200 Agriculture 2,700 2,600 2,500 2,600 2,600 Other 20,400 20,100 19,700 19,600 19,500 Total: 903,900 874,800 866,200 877,600 890,900 Source: California State Employment Development Department; not seasonally adjusted; as of each end-

December.

Major Employers

Major private sector employers in the Sacramento Metropolitan Statistical Area, their type of business and their number of full-time equivalent (FTE) employees in 2014, and major public sector employers in the County of Sacramento only, are detailed in the following two tables.

Major Private Sector Employers 2014

Company Type of Business No. of FTE Employees

Sutter Health Health Care 10,431 Kaiser Permanente Health Care 8,845 Dignity Health Health Care 7,020 Intel Corporation Semiconductor Manufacturer 6,000 Raley’s Retail Grocery 5,456 Wells Fargo Financial Services 3,250 Apple Research, development, customer service and

distribution for digital consumer products 2,500

Squaw Valley Resort Hospitality, ski industry, tourism 2,500 Thunder Valley Casino Resort Casino/hotel, hospitality 2,391 VSP Global Vision Health Care 2,382 Health Net Inc. Health Care 2,307 Source: Sacramento Business Journal Annual 2014 Book of Lists.

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Major Public Sector Employers-Sacramento County Only 2014

Company Number of FTE Positions

State of California 72,220 Sacramento County 10,700 U.S. Government 9,906 UC Davis Health System 9,905 Sutter Health Sacramento Sierra Region 7,352 Dignity Health 6,212 Intel Corporation 6,000 Kaiser Permanente 5,421 Elk Grove Unified School District 5,410 Sacramento City Unified School District 4,200

Source: Sacramento Business Journal Annual 2014 Book of Lists.

Taxable Transactions Activity

The following table shows a summary of taxable sales within Sacramento County.

SACRAMENTO COUNTY Total Taxable Transactions Calendar Year 2009 through 2013*


Category 2009 2010 2011 2012 2013* Apparel Stores $ 772,262 $ 786,230 $ 800,952 $ 855,369 $ 631,543 General Merchandise Stores 1,904,847 1,959,729 2,016,537 2,076,421 1,472,704 Electronics & Appliance Stores 589,946 598,142 585,468 606,913 462,853 Food & Beverage Stores 838,995 854,810 900,349 916,005 668,280 Health & Personal Care Stores 313,541 346,264 394,957 412,707 306,693 Eating and Drinking Places 1,643,893 1,665,337 1,743,327 1,854,027 1,445,830 Home Furnishings, Appliances 262,196 248,592 264,527 278,066 223,089 Building Materials, Farm Implements 890,055 911,945 994,959 1,024,765 891,489 Service Stations 1,355,959 1,537,994 1,831,391 1,935,830 1,443,153 Sporting Goods, Hobby, Book & Music 446,317 441,373 439,845 443,795 333,047 Miscellaneous Store Retailers 553,894 543,302 553,313 563,728 431,025 Nonstore Retailers 111,544 103,390 101,914 132,031 571,358 Motor Vehicle & Parts Dealers 1,568,867 1,618,580 1,875,269 2,266,802 1,938,744

Total Retail Outlets: $11,252,319 $11,615,687 $12,502,808 $13,366,459 $ 10,395,470 All Other Outlets $ 5,311,534 $ 5,288,841 $ 5,500,957 $ 5,723,389 $ 4,362,957

Total All Outlets: $16,563,853 $16,904,528 $18,003,765 $19,089,848 $ 14,758,426 *First, Second, and Third Quarter 2013 Source: State Board of Equalization, Taxable Sales in California

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Housing Market

Historical growth rates of assessed values are reflected in the table below.

Historical Growth/(Decline) in Gross Assessed Valuation (Secured/Unsecured)

FY 2004-05 to 2014-15 (Thousands)

FY Gross Roll Values % Change

2004-05 $95,302,760 +12.01% 2005-06 109,328,224 +14.72% 2006-07 125,674,965 +14.95% 2007-08 137,707,020 +9.57% 2008-09 140,630,362 +2.12% 2009-10 131,627,517 (6.40%) 2010-11 128,769,550 (2.17%) 2011-12 124,811,746 (3.07%) 2012-13 121,495,031 (2.66%) 2013-14 126,311,591 +4.00% 2014-15 134,497,818 +6.48

Source: County Assessor’s Office

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APPENDIX B

DTC AND THE BOOK-ENTRY ONLY SYSTEM

The information in this Appendix concerning The Depository Trust Company (“DTC”), New York, New York, and DTC's book entry system has been obtained from DTC and SASD and the Underwriter take no responsibility for the completeness or accuracy thereof. SASD and the Underwriter cannot and do not give any assurances that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Holders (a) payments of interest, principal or premium, if any, with respect to the Series 2015 Bonds, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Series 2015 Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Series 2015 Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current “Rules” applicable to DTC are on file with the Securities and Exchange Commission and the current “Procedures” of DTC to be followed in dealing with DTC Participants are on file with DTC.

The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the Series 2015 Bonds. The Series 2015 Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Series 2015 Bond will be issued for each maturity of the Series 2015 Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC.

DTC, the world’s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity, corporate and municipal debt issues, and money market instrument from over 100 countries that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org.

Purchases of the Series 2015 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2015 Bonds on DTC’s records. The ownership interest of each actual purchaser of each Series 2015 Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction.

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Transfers of ownership interests in the Series 2015 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Series 2015 Bonds, except in the event that use of the book-entry system for the Series 2015 Bonds is discontinued.

To facilitate subsequent transfers, all Series 2015 Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Series 2015 Bonds with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2015 Bonds ; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Series 2015 Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the Series 2015 Bonds may wish to take certain steps to augment transmission to them of notices of significant events with respect to the Series 2015 Bonds, such as redemptions, tenders, defaults, and proposed amendments to the security documents. For example, Beneficial Owners of Series 2015 Bonds may wish to ascertain that the nominee holding the Series 2015 Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of the notices be provided directly to them.

Redemption notices shall be sent to DTC. If less than all of the Series 2015 Bonds within a maturity are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.

Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Series 2015 Bonds unless authorized by a Direct Participant in accordance with DTC’s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to SASD as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Series 2015 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Principal and interest payments on the Series 2015 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts, upon DTC’s receipt of funds and corresponding detail information from SASD or the Trustee on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC nor its nominee, the Trustee, or SASD, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of SASD or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

DTC may discontinue providing its services as securities depository with respect to the Series 2015 Bonds at any time by giving reasonable notice to SASD or the Trustee. Under such circumstances,

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in the event that a successor securities depository is not obtained, Security certificates are required to be printed and delivered.

SASD may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered to DTC.

APPENDIX C

COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR FISCAL YEARS ENDED JUNE 30, 2013 AND 2014

STATE OF CALIFORNIA

2014COMPREHENSIVE ANNUAL

FINANCIAL REPORT

FOR THE FISCAL YEARS ENDED JUNE 30, 2014 & 2013

SACRAMENTO AREA SEWER DISTRICT

Sacramento, California

COMPREHENSIVE ANNUAL FINANCIAL REPORT

For the Fiscal Years Ended June 30, 2014 and 2013

Prepared by: Prabhakar Somavarapu Joseph T. Maestretti

District Engineer District Chief Financial Officer

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Table of Contents

INTRODUCTORY SECTION �Transmittal Letter ............................................................................................................................. iii Officials ........................................................................................................................................... xi Organizational Chart ...................................................................................................................... xii Certificate of Achievement for Excellence in Financial Reporting ................................................ xiii FINANCIAL SECTION Independent Auditors’ Report .......................................................................................................... 1 Management’s Discussion and Analysis (Required Supplementary Information) .......................... 3 Basic Financial Statements: � Statements of Net Position .................................................................................................... 10 � Statements of Revenues, Expenses and Changes in Fund Net Position ............................ 11 � Statements of Cash Flows ................................................................................................... 12 � Notes to the Basic Financial Statements ............................................................................. 14 STATISTICAL SECTION Index to statistical section .............................................................................................................. 32 Tables Presented: � Net Position by Component .................................................................................................. 33 � Changes in Net Position ....................................................................................................... 34 � Operating Revenues by Source ........................................................................................... 35 � Operating Expenses ............................................................................................................. 36 � Non-operating Revenues and Expenses ............................................................................. 38 � Capital Contributions ............................................................................................................ 39 � Wastewater Collected and Conveyed .................................................................................. 40 � Number of Customers by Type ............................................................................................ 41 � Sewer Rates ......................................................................................................................... 42 � Ten Largest Customers ........................................................................................................ 43 � Pledged – Revenue Coverage ............................................................................................. 44 � Net Ratios of Outstanding Debt by Type .............................................................................. 46 � Demographic and Economic Statistics ................................................................................. 47 � Principal Employers .............................................................................................................. 48 � Number of Employees by Identifiable .................................................................................. 49 � Operating and Capital Indicators .......................................................................................... 50 BOND DISCLOSURE SECTION Required Information ..................................................................................................................... 54

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Intentionally Blank

IN

TROD

UC

TORY SEC

TION

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December 1, 2014 Honorable Board of Directors Sacramento Area Sewer District The Comprehensive Annual Financial Report (CAFR) of the Sacramento Area Sewer District (District) for the Fiscal Years ended June 30, 2014 and 2013 is hereby submitted. Responsibility for both the accuracy of the data, and the completeness and fairness of the presentation, including all disclosures, rests with the District. To the best of our staff’s knowledge and belief, the enclosed data is accurate in all material respects and is reported to present fairly the financial position and results of operations of the District. All disclosures necessary to enable the reader to gain an understanding of the District’s financial activities have been included. The CAFR is divided into four sections: introductory, financial, statistical, and bond disclosure. The introductory section includes this transmittal letter, a listing of the District’s Board of Directors, a listing of officials, an organizational chart, and a Certificate of Achievement for Excellence in Financial Reporting. The financial section includes the independent auditor’s report, Management’s Discussion and Analysis (MD&A), and audited financial statements. The statistical section includes selected financial and demographic information generally presented on a multi-year basis. The bond disclosure section includes disclosures required by Security and Exchange Commission Rule 15c2-12(b) (5) for any municipal bond issue closing after July 1, 1995. An independent auditor audits the financial statements of the District each year. The firm of Vavrinek, Trine, Day & Co., LLP was selected to perform the independent audit for the Fiscal Years ended June 30, 2014 and 2013. The independent auditor’s report is presented as the first component of the financial section of this report. The goal of the independent audit is to provide reasonable assurance that the basic financial statements of the District are free of material misstatement. The independent audit involves examining, on a test basis, evidence supporting the amounts and disclosures in the basic financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. Based upon the audit the independent auditor concluded that there was a reasonable basis for rendering an unmodified opinion that the District’s financial statements for the fiscal years ended June 30, 2014 and 2013 are fairly presented in all material respects in conformity with United States generally accepted accounting principles. Generally accepted accounting principles require that management provide a narrative introduction

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overview, and analysis to accompany the basic financial statements in the form of Management’s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. The District’s MD&A can be found immediately following the report of the independent auditor. PROFILE OF THE DISTRICT The Sacramento Area Sewer District (District), a sanitation district organized under the laws of the State of California, is also a contributing agency of the Sacramento Regional County Sanitation District (Regional San). The District was formed in 1978 by consolidating 10 smaller districts to provide a common service rate structure for the customers in the affected areas as well as savings gained through efficiencies and economy of scale due to operating one district instead of 10. The District is governed by a 10-member Board of Directors comprised of the Sacramento County Board of Supervisors, plus a member of the city councils of the cities of Sacramento, Folsom, Citrus Heights, Elk Grove, and Rancho Cordova. The District’s 270 square-mile service area consists of the urban, unincorporated area of Sacramento County as well as the cities of Citrus Heights, Elk Grove, and Rancho Cordova; portions of the City of Sacramento; and a small area in the City of Folsom. Serving 1.2 million people, the District maintains and operates 3,000 miles of main line pipes, 1,400 miles of lower lateral pipes, 65,000 manholes, and 108 pump stations. The District is staffed by Sacramento County employees in the Sanitation Districts Agency (SDA). Employees of the SDA’s Department of Sacramento Area Sewer District Operations operate and maintain the wastewater collection system owned by the District. Oversight of personnel matters is provided through the Board of Supervisors and the County Executive’s Office. FACTORS AFFECTING FINANCIAL CONDITION The Sacramento region continued showing signs of economic stabilization in 2013. Unemployment, as high as 10.7 percent in July 2012 according to the Bureau of Labor Statistics (BLS), decreased to 7.4 percent as of July 2014. In its second quarter report on employment trends, employment specialist Pacific Staffing indicated overall hiring in the region is up since 2008. The Sacramento region has a high concentration of government employers, many of which are continuing to recover from fiscal difficulties. Analysts from the University of the Pacific’s Eberhardt School of Business project government employment to stabilize in 2014 with slow state and local government employment growth thereafter. Although unemployment has decreased, the U.S. census figures indicate the median household income in the Sacramento region fell slightly in 2013. The Capital region’s private sector saw some gains in healthcare offset by closures of Campbell’s Soup Company and Comcast. Real estate activity in the Sacramento region continues to show signs of improvement. Foreclosures and short sales continue to decline and homes spend less time on the real estate market. The July 2014 Sacramento Business Review states the median price of existing homes rose about 13 percent in June 2014 compared to June 2013, however new home sales decreased 10.3 percent, per the Sacramento Bee.

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Impact Fees and Equivalent Single-Family Dwelling (ESDs) The District realized an increase of 1,942 ESDs in Fiscal Year 2013-14 and projects an increase of 1,890 ESDs in 2014-15. The table below illustrates a five-year history of ESD growth for the District.

District Equivalent Single-Family Dwellings

Residential/Commercial Customers Fiscal Years 2009-10 through 2013-14

2009-10 2010-11 2011-12 2012-13 2013-14

Total

399,298

400,178

401,405

402,705

404,647

Effective February 23, 2013, the District’s impact fees decreased from $2,500 to $2,282 per ESD in expansion areas and from $2,000 to $420 per ESD in relief areas. These reductions are the result of a change in methodology for calculating impact fees derived from the District’s Rate and Fee Study. The District’s sewer impact fee revenue decrease in Fiscal Year 2013-14 resulted from a Fiscal Year 2012-13 mid-year impact fee reduction of 10 percent per ESD while impact fees increased by 3 percent per ESD in Fiscal Year 2013-14.

Despite the slow economic recovery, reduction of impact fees, slow growth, and lower interest earnings, the District has maintained a strong financial position. The District does not rely on impact fees from growth in order to meet its debt service and capital needs. By maintaining status quo budgets for several years, the District met, and continues to meet, its financial obligations and operating goals. CRITICAL ISSUES AFFECTING THE DISTRICT While the District has maintained a financially stable position, there are critical issues that have occurred or could occur over the next several years that could impact the District.

� Legal challenges continue to be a hazard of the wastewater industry. In 2012, the District settled a lawsuit brought by the California Sportfishing Protection Alliance that increased planned maintenance and operational costs and called for higher service-level requirements that continue to affect the District.

� Increasing state regulations continue to affect the District. The State Waste Discharge

Requirements placed on public wastewater collection systems are increasing costs to own and operate a collection system. Other areas of stricter regulations include Stormwater-quality at construction sites and the District’s North County and Goethe Road corporation yards, and air quality regulations for heavy equipment and generators.

� In order to address emerging age-related infrastructure issues, the District developed an

asset sustainability strategy that includes a comprehensive condition assessment program for mainlines, pump stations, force mains, lower-laterals, and reinforced concrete pipe. Estimates of cost increases and appropriate reserve levels associated with the condition assessment program could be significant. By the year 2022, the North Area Corporation Yard will require significant renewal or replacement.

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� Recently negotiated labor contracts call for cost-of-living adjustments over the next three to five years that will result in higher salary costs.

� Retirement and health benefit costs for government employees have been increasing at a rate higher than general inflation and are projected to continue to increase at high rates until broad reforms are implemented. Recent labor settlements have some labor groups that represent some of the District’s employees picking up a larger share of retirement benefit costs beginning in FY 2014-15. This could reduce the level of cost increases for retirement benefits over the next three years.

LONG-TERM FINANCIAL PLANNING The District prepares a number of long-term planning documents to assist in achieving its vision and goals while carrying out its mission. Some of these planning documents are:

� Comprehensive Long-Term Financial Plan (CLTFP) – The District prepared its first CLTFP in the fall of 2012. The CLTFP will be updated in the fall of 2014. The CLTFP is comprised of data regarding financial markets and trends, financial performance measures, critical issues, a 10-year financial forecast and forecast assumptions, a 10-year Capital Funding Projection that serves as the strategic document to estimate the District’s funding needs, and debt policies, goals and strategies for managing the District’s debt portfolio. The updated CLTFP will be presented to the District’s Board of Directors in the fall of 2014 and will continue to be updated at least annually.

� 2010 Sewer System Capacity Plan – Adopted by the Board of Directors in January 2012,

the plan ensures the District’s sewer collection system continues to serve its customers now and into the future by identifying areas of possible capacity deficiencies. Focused on existing and build-out sewer capacity over the 10-year horizon, the plan identifies potential capacity deficiencies, develops possible solutions to re-establish system performance in relief areas, and updates trunk expansion alternatives from previous planning documents. Modeling of hydraulic performance resulted in capital cost projections of $911 million in 2010 dollars over the next 100 years. Future customers will pay capital costs via sewer impact fees, and projects benefiting existing customers will be funded through monthly service charges.

� 2012 Asset Management Plan – Projects the lifecycle of the District’s assets and

provides an overview of asset maintenance, operation, and replacement costs as well as life expectancies and long-range projections for sustainability.

� The District is continuing its extensive rate and fee study to analyze methodologies for calculating monthly sewer rates and impact fees in order to optimize a sustainable rate and fee structure. The scope of the study includes identification and development of financial policies that will support the rate and fee structure and a revised revenue model to assist in projecting future revenue requirements.

ACCOMPLISHMENTS The District produces an annual State of the District Report that highlights yearly accomplishments. These accomplishments include meeting or exceeding six of the District’s targeted service levels. Examples of service levels are included in the table below.

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Service Level Target Score Main line overflow rate per 100 miles of sewer main lines 0.50 0.34Lower lateral overflow rate per 100 miles of sewer lower lateral lines 8.0 8.1 Customer Satisfaction 90% 94%

The District continued to promote its FOG (fats, oils and grease) program by distributing its new “Stop the Clog” materials at six local area events, including the Elk Grove Giant Pumpkin Festival and the Safetyville Halloween Haunt Harvest Festival. The District takes opportunities to form and maintain beneficial partnerships with organizations throughout its service area. Organizations provide a venue to reach out and educate the public regarding the District’s mission and programs. Below are two examples of successful partnerships:

� Partnership with the Sacramento Rental Housing Association to further FOG outreach efforts by informing property owners, managers, maintenance staff, and tenants about FOG related sewer problems.

� Partnership with the Sacramento Area Creeks Council to provide public educational

opportunities about the District’s sewer system and the protection of local creeks. The partners participate in Creek Week and Creek Cleanup Day.

CURRENT MAINTENANCE, DESIGN, AND CONSTRUCTION ACTIVITIES The District continues to carry out its comprehensive sewer rehabilitation program to address its aging sewer pipes and structures, some of which are more than 50 years old. The goal of this program is to maintain the serviceability of the sanitary sewer system and protect the community’s $4.0 billion investment (replacement cost) in this critical infrastructure. The condition of the District’s sewer pipelines is closely monitored to assist in maintaining the system's sustainability. A detailed evaluation is performed when needed to ascertain the condition of the sewer pipelines and potential risks to the District and its customers. A number of programs and projects to assist in maintaining the collection system and reduce blockages and sewer overflows have been implemented.

� Lower Lateral Overflow Reduction Program consists of annual cleaning of lower-laterals to reduce lower-lateral pipeline sewer overflows. The Program includes installation of about 1,200 cleanouts and television inspections of approximately 2,100 lower-lateral pipelines. The annual cost is approximately $2.0 million.

� Lower Lateral Cleaning and Backups-into-Structures Reduction Program consists of

annual cleaning of about 15,600 lower-lateral pipelines to reduce sewer overflows and backups into structures. The annual cost is approximately $1.33 million.

� Lower Lateral Root Mitigation Lining Project focuses on eliminating roots in pipelines and reducing the need for high frequency cleaning in about 500 lower-lateral pipelines by installing a cured-in-place pipeline inside the existing pipeline. The annual cost is approximately $1.2 million.

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� Main Line Cleaning Program consists of cleaning approximately 10,000 smaller-in- diameter main line pipes to reduce sewer overflows. The annual cost is about $1.25 million.

� Main Line Maintenance and Repair Program consists of ongoing repair of sewer

cleanouts, lower lateral and main line pipelines, and pump station components. The annual cost is approximately $1.5 million.

The following capital projects are currently in design or under construction.

� The Creek Protection Project Phase 2 is in design and will address five additional sites that require repair or modification of existing District pipelines in order to reduce the risk of overflows into waterways. Repairs and modifications could include re-routing of sewage flows; tunneling under the waterway to a lift station; and installation of new structural supports, casings, and carrier pipelines.

� Main Line Root Mitigation Project is focused on reducing or eliminating the need for

frequent maintenance associated with root mitigation, thereby helping the District continue to meet the Main Line Overflow Rate Service Level. Work includes installing approximately 10,596 feet of 6-inch diameter cured-in-place pipe in main lines located in backyard easements, as well as reinstating 256 lateral connections.

� Lower Lateral Replacement Projects is the replacement of approximately 400 lower

lateral pipelines in various areas throughout the District’s service area. The annual cost is approximately $3.7 million.

� Lower Lateral Lining Projects is concentrated on lining approximately 200 lower lateral

pipelines in various areas throughout the District’s service area. The annual cost is approximately $0.7 million.

� Main Line Lining Projects will include the lining of a 39-inch sewer pipeline crossing a

waterway along Franklin Boulevard. The approximate cost is $4.15 million.

� Cleanout Installation Projects consist of installation of approximately 300 cleanouts at various locations throughout the District’s service area. The annual cost is approximately $580,000.

� Pump Station/Force Main Rehabilitation is focused on rehabilitation of up to five pump

stations and the assessment of five additional pump stations. The annual cost is approximately $770,000.

� Rollingwood Sewer Replacement is under construction and addresses capacity deficiencies from Treeleaf Way across I-80, along Oakberry Way and Rollingwood Boulevard to Antelope Road.

FUTURE DESIGN AND CONSTRUCTION ACTIVITIES The District continues to conduct evaluations and planning level activities for future relief and rehabilitation projects while ensuring sufficient capacity will be available when needed.

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� Marconi Fulton Sewer Replacement project is in the planning stage and will address predicted capacity deficiencies along Marconi Avenue and Pope Avenue near Fulton Avenue.

� Don Julio/Watt Sewer Replacement project is in the planning stage and will address

predicted capacity deficiencies in the area of Don Julio Boulevard and Watt Avenue.

� Arden Gold Sewer Replacement project will address predicted capacity deficiencies east of Hazel Avenue near Madison Avenue. This project is currently being evaluated.

� Rio Linda 5th Street Sewer Relief project is in the planning stage and will address wet-

weather capacity deficiencies in the gravity system on Rio Linda Boulevard at O Street, east on O Street, south on 5th Street, east on K Street, and K Street at 6th Street.

INTERNAL CONTROLS The District’s management is responsible for establishing and maintaining internal controls designed to ensure that the assets of the District are protected from loss, theft, or misuse and to ensure that accounting data are compiled to allow for the preparation of financial statements in conformity with generally accepted accounting principles. The internal controls are designed to provide a reasonable, but not absolute, assurance that these objectives are met recognizing that: (1) the cost of control should not exceed the benefits likely to be derived, and (2) the valuation of costs and benefits requires estimates and judgments by management. BUDGETARY CONTROLS The District prepares annual operational and capital budgets to serve as an approved financial plan for operational control and performance evaluation. The District prepares only a final budget for adoption by the Board of Directors in late May or early June. The adopted budget becomes effective on July 1st of the corresponding fiscal year. The final budget for Fiscal Year 2013-14 was approved by the District’s Board of Directors on May 8, 2013. Department and County level controls require the use of requisitions, purchase orders, contracts, and specific approval, as well as verification procedures to verify expenses and ensure budgeted amounts are not exceeded. Monthly comparison of actual-to-budgeted revenues and expenses identify significant variances that may require the District to take corrective action. DEBT ADMINISTRATION In July 2010, the District issued $110.7 million in Federally Taxable Direct Subsidy Build America Bonds (BABs) (Series 2010A) and Tax-exempt Revenue Bonds in the amount of $15.9 million (Series 2010B). The District will receive revenue from federal subsidies for the BABs of $63.8 million over the life of the bonds. As of June 30, 2014, the District has approximately $267.5 million in outstanding long-term debt and has no plans to issue bonds in the foreseeable future. An indicator of the District’s continuing strong financial performance is its underlying bond ratings. The District’s most recent uninsured bond ratings were Aa2, AA, and AA by Moody’s, Standard & Poor’s, and Fitch, respectively.

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AWARDS AND ACKNOWLEDGEMENTS In 2013, the District received several awards for its public outreach and education programs.

� Communications Concepts Inc. National APEX - Publication Excellence Award, Campaigns, Programs and Plans – Government Agency Communications category for the District’s Fats, Oil & Grease (FOG) Program Media Campaign.

� Rental Housing Association (RHA) – Community Partner of the Year Award, the Districts’s partnership with RHA on the FOG awareness program.

� Marcom Awards – Honorable Mention Award , Print Media, Direct Marketing, Advertising Campaign category for the Districts’s Customer Awareness Ad Campaign.

� Sacramento Environmental Commission – Honorable Mention Award, Achievement of a

Successful Environmental Education/Outreach Program for the District’s FOG Program The District’s Comprehensive Annual Financial Report for the fiscal years ended June 30, 2013 and 2012 was awarded the Certificate of Achievement for Excellence in Financial Reporting by the Government Finance Officers Association of the United States and Canada (GFOA). The Certificate of Achievement is the highest form of recognition for excellence in state and local government financial reporting. In order to be awarded a Certificate of Achievement, a government unit must publish an easily readable and efficiently organized Comprehensive Annual Financial Report, in which contents conform to program standards. Such a report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe the District continues to conform to the Certificate of Achievement program requirements, and we will be submitting our Comprehensive Annual Financial Report for the current year to the GFOA to determine its eligibility for another certificate. We would especially like to offer our sincere thanks and gratitude to Glen Iwamura and supporting staff for their conscientious and timely work. This internally-generated CAFR represents an important accomplishment for the District, and it is our hope and expectation to continue to improve upon the award-winning CAFRs the District has presented in past years. The District would also like to recognize the unwavering support of the Board of Directors. The tangible result of this support is inherent in the high standard of professionalism and fiscal management outlined in this document. Respectfully submitted,

Joseph T. Maestretti, CPA District Chief Financial Officer

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Sacramento Area Sewer District

Board of Directors

Jeannie Bruins City of Citrus Heights, and Vice-Chair

Jim Cooper City of Elk Grove

Darrell Fong City of Sacramento

Kerri Howell City of Folsom

Roberta MacGlashan Sacramento County Supervisor

Don Nottoli Sacramento County Supervisor, and Chair

Susan Peters Sacramento County Supervisor

Phil Serna Sacramento County Supervisor

Dan Skoglund City of Rancho Cordova

Jimmie R. Yee Sacramento County Supervisor

Officials

Prabhakar Somavarapu District Engineer

Christoph Dobson

Director of Policy and Planning

Rosemary Clark Director of Sacramento Area Sewer District Operations

Joseph T. Maestretti, CPA

Chief Financial Officer

Karen Stoyanowski Director of Internal Services

Claudia Goss

Public Affairs Manager

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Organizational Chart

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SACRAMENTO AREA SEWER DISTRICT CERTIFICATE OF ACHIEVEMENT FOR EXCELLENCE IN

FINANCIAL REPORTING

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Intentionally Blank

FIN

AN

CIAL SEC

TION

1

INDEPENDENT AUDITORS' REPORT Board of Directors Sacramento Area Sewer District Sacramento, California Report on the Financial Statements We have audited the accompanying financial statements of the Sacramento Area Sewer District (the District), as of and for the years ended June 30, 2014 and 2013, and the related notes to the financial statements, as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Vavrinek, Trine, Day & Co., LLPCertified Public Accountants

VALUE THE D IFFERENCE

FRESN O • L AGUN A H I L LS • PALO ALTO • P LEASANTON • RAN C HO CUC AMON GA • R I V E R S I D E • SACRAMENTO2151 River Plaza Drive, Suite 308 Sacramento, CA 95833 Tel: 916.570.1880 Fax: 916.570.1875 www.vtdcpa.com

2

Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the District as of June 30, 2014 and 2013, and its changes in financial position and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis on pages 3 through 9 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the District’s basic financial statements. The introductory section, statistical and bond disclosure sections are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such additional information has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. Other Reports Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 1, 2014, on our consideration of the District’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Sacramento, California December 1, 2014


MANAGEMENT’S DISCUSSION AND ANALYSIS

FOR THE FISCAL YEARS ENDED JUNE 30, 2014 AND 2013

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This section of the District’s Comprehensive Annual Financial Report (CAFR) presents a discussion and analysis of the District’s financial performance during the fiscal years ending June 30, 2014 and 2013. Please read it in conjunction with the transmittal letter at the front of this report and the District’s basic financial statements following this section. FINANCIAL HIGHLIGHTS

� At June 30, 2014, the assets of the District exceed liabilities by $769 million (net position). Of this amount, $10 million was restricted for specific purposes, $124 million was unrestricted and $635 million was invested in capital assets, net of related debt. The assets of the District exceed liabilities at June 30, 2013 by $751 million (net position). Of this amount, $12 million was restricted for specific purposes, $115 million was unrestricted and $624 million was invested in capital assets, net of related debt.

� The District’s total net position increased by $18.0 and $8.7 million during 2013-14 and 2012-13, respectively. The increase during fiscal year 2013-14 was attributable to contributed capital of $33.9 million offset by a $15.9 million operating loss. The increase during fiscal year 2012-13 was attributable to normal operations and contributed capital.

� The decrease in long-term debt of $5 million in 2013-14 was due to scheduled debt service payments of $5 million. The decrease in long-term debt of $5 million in 2012-13 was due to scheduled debt service payments of $5 million.

OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the District’s basic financial statements. The District’s basic financial statements are comprised of two components: the basic financial statements and notes to the basic financial statements. Basic Financial Statements are designed to provide readers with a broad overview of the District’s finances. The Statements of Net Position (page 10) present information on all District assets and liabilities, with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the District is improving or deteriorating. The Statements of Revenues, Expenses, and Changes in Net Position (page 11) present information showing how net position changed during the most recent two fiscal years. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will result in cash flows in future fiscal periods (e.g., uncollected service charges).The Statements of Cash Flows (page 14) present information about the cash receipts and cash payments of the District during the two most recent fiscal years. When used with related disclosures and information in the other financial statements, the information provided in these statements should help financial report users assess the District’s ability to generate future net cash flows, its ability to meet its obligations as they come due, and its need for external financing. It also provides insight into the reasons for differences between operating income and associated cash receipts and payments; and the effects on the District’s


MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued)


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financial position of its cash and its noncash investing, capital, and related financing transactions during the year. Notes to the Basic Financial Statements (page 14) provide additional information that is essential to a full understanding of the data provided in the District’s basic financial statements. The notes are included immediately following the basic financial statements within this report. FINANCIAL ANALYSIS As previously noted, net position may serve over time as a useful indicator of the District’s financial position. As of June 30, 2014 and 2013, total net position was $769 million and $751 million, respectively. During the fiscal years ended June 30, 2014 and 2013, net position increased $18.0 million and $8.7 million, respectively. These increases in net position corroborate an improved financial position of the District during those years, compared to 2012. The following table summarizes the changes between assets, deferred outflows, liabilities, and net position as of June 30, 2014, 2013 and 2012:

Condensed Statements of Net Position

2014 % Change 2013 % Change 2012Assets:Current assets 168,755$ 3.4% 163,268$ 11.8% 146,073$ Noncurrent assets 17,849 -19.4% 22,157 -74.9% 88,106 Capital assets, net 895,303 1.1% 885,462 -0.7% 892,003 Total assets 1,081,907 1.0% 1,070,887 -4.9% 1,126,182

Liabilities:Current and other liabilities 15,893 8.1% 14,704 -80.1% 73,991 Long-term obligations 262,246 -2.0% 267,480 -1.9% 272,529 Other noncurrent liabilities 34,347 -7.9% 37,275 0.9% 36,951 Total liabilities 312,486 -2.2% 319,459 -16.7% 383,471

Net position: Net investment in capital assets 635,140 1.8% 624,118 -1.3% 632,623 Restricted for capital construction - -100.0% 1,000 -9.2% 1,101 Restricted for debt service 10,532 -3.5% 10,917 2.4% 10,661 Unrestricted 123,750 7.2% 115,393 17.4% 98,326 Total net position 769,422$ 2.4% 751,428$ 1.2% 742,711$





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In fiscal year ended 2014, noncurrent assets decreased by $4 million primarily due to the use of bond proceeds. The increase in unrestricted net position of $8 million is a result of revenues from sewer impact fees and other revenues. In fiscal year ended 2013, noncurrent assets decreased by $66 million primarily due to the use of bond proceeds. The bond proceeds were used mainly for the final payment to the Sacramento Regional County Sanitation District for the Goethe Building capital lease. The increase in unrestricted net position of $17 million is a result of positive operating income and intergovernmental revenue The largest portion of the District’s net position (83% and 83% at June 30, 2014 and 2013, respectively) reflects its investment in capital assets (e.g., land, structures and improvements, equipment, and construction in progress), less any related debt still outstanding used to acquire those assets. The District uses these capital assets to provide services to customers; consequently, these assets are not available for future spending. Although the District’s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. Another portion of the District’s net position (1% and 2% at June 30, 2014 and 2013, respectively) represent restricted resources that are subject to external restrictions on how they may be used. The remaining amount (16% and 15% at June 30, 2014 and 2013, respectively) may be used to meet the District’s ongoing obligations to customers and creditors.




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The following table summarizes the changes in net position for the fiscal years ended June 30, 2014, 2013, and 2012:

% %2014 Change 2013 Change 2012

Operating revenues: Sewer service fees 96,566$ 0.8% 95,825$ -0.2% 95,989$ Other 3,404 -14.9% 4,001 5.0% 3,812

Nonoperating revenues: Interest income 511 -35.2% 789 -54.7% 1,743 Other, net 2,208 -8.5% 2,412 0.4% 2,403 Total revenues 102,689 -0.3% 103,027 -0.9% 103,947

Operating expenses: County labor - water quality 36,835 4.6% 35,216 6.1% 33,203 Depreciation and amortization 34,181 2.1% 33,481 8.7% 30,797 Billing 1,146 100.0% - -100.0% 429 Other operating expenses 31,697 34.4% 23,578 11.9% 21,063 Nonoperating expenses: Interest expense 13,841 -13.6% 16,011 0.0% 16,011 Other, net 923 42.9% 646 -53.8% 1,397 Total expenses 118,623 8.9% 108,932 5.9% 102,900

Income (loss) before Capital Contributions (15,934) 169.8% (5,905) -664.0% 1,047

Capital Contributions: Pipe from developers 31,632 120.1% 14,370 36.9% 10,495 Sewer impact fees 2,296 811.1% 252 -93.9% 4,123 Total Capital Contributions 33,928 132.0% 14,622 0.0% 14,618

Increase (decrease) in net position 17,994 106.4% 8,717 -44.4% 15,665 Net position, beginning of year 751,428 742,711 727,046 Net position, end of year 769,422$ 751,428$ 742,711$

Changes in Net Position(Amounts Expressed in Thousands)

Total operating revenues, which consist of sewer service fees and other revenues, increased approximately $144 thousand and $25 thousand in 2013-14 and 2012-13, respectively. In 2013-14, there was no significant growth in the number of customers served or an increase in service fees. In 2012-13, there was no significant growth in the number of customers served or an increase in service fees.




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Interest revenue decreased by approximately $278 thousand in 2013-14 due to a decrease in interest rates over the prior year. Interest revenue decreased by approximately $1 million in 2012-13 due to a decrease in interest rates over the prior year Other non-operating revenues did not change significantly in 2012-13 compared to the 2011-12 year. The majority of the revenue is derived from the Build America Bond subsidy and has remained the same over the past three years. Effective February 23, 2013, the District changed the amount charged for impact fees. Sewer impact fees for the “relief” area decreased from $2,000 per ESD to $420 per ESD. Sewer impact fees for “expansion” areas decreased from $2,500 per ESD to $2,282 per ESD. These reductions are the result of a change in the methodology for calculating impact fees resulting from the District’s Rate and Fee Study. Sewer impact fees increased by 1,316% in 2013-14 as a result of there being an increase in the amount of building permits. Sewer impact fees decreased by 94% in 2012-13 as a result of there being a decrease in the amount of building permits issued and the reduced rate charge for impact fees. In 2013-14 total expenses increased by approximately $10 million. The primary reason for this increase was $2 million in higher labor costs, $1 million in higher depreciation expense, $4 million in higher pipeline maintenance costs, $2 million increase in consulting costs, $1 million increase in billing costs and $1 million increase in data processing. The increases were offset by a $3 million decrease in other nonoperating expenses. In 2012-13 total expenses increased by approximately $6 million. The primary reason for this increase was $2 million in higher labor costs, $3 million in higher depreciation expense, $2 million in higher pipeline maintenance costs and offset by a $1 million decrease in other nonoperating expenses. Total capital contributions increased by $19 million during the 2013-14 year as compared to the prior year. Pipe from developers increased by $17 million and sewer impact fees increased by $2 million. Total capital contributions remained consistent during the 2012-13 year as compared to the prior year. Pipe from developers increased by $4 million and was offset by a decrease of $4 million in sewer impact fees. CAPITAL ASSETS AND LONG-TERM DEBT ACTIVITY Capital Assets, net of accumulated depreciation, totaled $896 and $885 million at June 30, 2014 and 2013, respectively. This corresponded to an increase of $10 million for the year ended June 30, 2014 and a decrease of $7 million for the year ended June 30, 2013. The following table summarizes the changes in capital assets for the fiscal years ended 2014, 2013, and 2012:

% %2014 Change 2013 Change 2012

Land 9,257$ -0.1% 9,262$ 0.1% 9,257$ Software, structures, improvements and equipment 1,250,558 3.4% 1,208,928 3.3% 1,170,823 Construction in progress 46,312 2.4% 45,244 -25.3% 60,541 Less accumulated depreciation (410,824) 8.7% (377,972) 8.4% (348,618)

895,303$ 1.1% 885,462$ -0.7% 892,003$

Changes in Capital Assets(Amounts Expressed in Thousands)




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In 2013-14, construction in progress increased by $1 million due to $12 million in additions offset by $11 million in completion of ongoing projects. When completed projects are placed into service, they are transferred to structures, improvements, and equipment. Software, structures, improvements and equipment increased by $42 million. $11 million of the increase was due to the completion of projects formerly recorded as construction in progress, $32 million increase was due to contributed capital and the remaining amount of the increase was from current year construction activity. This was offset by $1 million in disposed capital assets. In 2012-13, construction in progress decreased by $15 million due to $10 million in additions offset by $25 million in completion of ongoing projects. Software, structures, improvements and equipment increased by $38 million. Most of the increase was due to the completion of $25 million in projects formerly recorded as construction in progress. Additional information on capital assets can be found in the Note 3 to the basic financial statements included in this report. Long-term obligations totaled $270 and $275 million at June 30, 2014 and 2013, respectively. These amounts were comprised of loan payable to financing authority, capital leases and compensated absences.

Fiscal Years Ended June 30,2014 2013 2012

Loan payable to Financing Authority 267,480$ 272,529$ 277,403$ Capital lease - - 59,240 Compensated absences 2,476 2,439 2,309

269,956$ 274,968$ 338,952$

Summary of Outstanding Long-term Obligations(Amounts Expressed in Thousands)

The decrease in long-term debt in 2013-14 was primarily due to $5 million in scheduled debt service payments. The decrease in long-term debt in 2012-13 was primarily due to $5 million in scheduled debt service payments and a $59 million final payment on the Goethe Building capital lease. Additional information on long-term debt obligations can be found in the Note 4 to the basic financial statements included in this report. ADDITIONAL INFORMATION This financial report is designed to provide a general overview of the District’s finances for all those with an interest. Questions concerning any of the information provided in the report or requests for additional financial information should be addressed to Joseph T. Maestretti, Chief Financial Officer, Sacramento Area Sewer District, 10060 Goethe Rd, Sacramento, CA 95827, or phone (916) 876-6116.

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Sacramento, California

Basic Financial Statements

For the Fiscal Years Ended June 30, 2014 and 2013


STATEMENTS OF NET POSITIONJUNE 30, 2014 AND 2013

2014 2013ASSETS:

CURRENT ASSETS:Cash and investments 154,407,621$ 146,777,532$ Sewer services fees receivable 12,723,160 14,018,616 Due from local governments

Interest receivable 639,938 809,613 Taxes receivable - 333,504 Other - 382,503

Inventories 984,573 946,723 TOTAL CURRENT ASSETS 168,755,292 163,268,491

NONCURRENT ASSETS:Restricted cash and investments 17,848,606 22,103,320 Deposits with others - 54,102 Capital assets:

Land 9,257,261 9,262,261 Construction in progress 46,312,385 45,243,168 Software 1,849,229 1,849,229 Structures and improvements 1,238,667,293 1,197,697,454 Equipment 10,041,667 9,381,460 Total capital assets 1,306,127,835 1,263,433,572 Less accumulated depreciation (410,824,485) (377,971,774) Total capital assets (net of accumulated depreciation) 895,303,350 885,461,798 TOTAL NONCURRENT ASSETS 913,151,956 907,619,220 TOTAL ASSETS 1,081,907,248 1,070,887,711

LIABILITIES:CURRENT LIABILITIES:

Warrants payable 2,247,650 910,973 Accounts and retentions payable 2,105,708 2,359,709 Interest payable 5,934,324 5,996,183 Compensated absences 371,489 365,778 Due to local governments - 22,735 Current portion of loan payable 5,233,989 5,048,989

TOTAL CURRENT LIABILITIES 15,893,160 14,704,367

NONCURRENT LIABILITIES:Developer reimbursement payable 30,267,688 33,134,903 Compensated absences 2,105,104 2,072,745 Due to local governments 1,973,418 2,067,117 Long-term obligations 262,246,283 267,480,273

TOTAL NONCURRENT LIABILITIES 296,592,493 304,755,038 TOTAL LIABILITIES 312,485,653 319,459,405

NET POSITION:Net investment in capital assets 635,140,183 624,118,669 Restricted for capital construction - 999,589 Restricted for debt service 10,531,501 10,917,186 Unrestricted 123,749,911 115,392,862

TOTAL NET POSITION 769,421,595$ 751,428,306$

See accompanying notes to the basic financial statements.

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2014 2013

OPERATING REVENUES:Sewer service fees 96,565,734$ 95,825,402$ Other revenue 3,404,320 4,001,462 Total operating revenues 99,970,054 99,826,864

OPERATING EXPENSES:County labor - SDA 36,834,704 35,215,521 Office equipment 660,261 503,494 Depreciation and amortization 34,180,869 33,481,261 Services and supplies 1,491,555 1,246,479 Consultants 5,399,106 2,834,498 County labor - other 2,271,463 1,793,871 Chemicals 426,672 256,370 Billing 1,146,188 - Pipeline maintenance 15,564,139 12,075,207 Insurance 1,226,705 1,634,435 Utilities 481,150 416,589 Electricity 869,707 855,075 Data processing 3,308,135 1,963,129 Total operating expenses 103,860,654 92,275,929

Operating Income (loss) (3,890,600) 7,550,935

NONOPERATING REVENUES (EXPENSES):Interest revenue 510,982 789,443 Interest expense (13,840,761) (16,011,407) Intergovernmental revenue 2,208,248 2,411,714 Other expense (923,112) (645,425) Total nonoperating revenues (expenses) (12,044,643) (13,455,675)

Income (loss) before capital contributions (15,935,243) (5,904,740)

CAPITAL CONTRIBUTIONS:Pipe from developers 31,632,360 14,369,952 Sewer impact fees 2,296,172 252,364 Total capital contributions 33,928,532 14,622,316

Change in net position 17,993,289 8,717,576

Net position, beginning of year 751,428,306 742,710,730

Net position, end of year 769,421,595$ 751,428,306$



FOR THE FISCAL YEARS ENDED JUNE 30, 2014 AND 2013CHANGES IN NET POSITION

STATEMENTS OF REVENUES, EXPENSES AND

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2014 2013CASH FLOWS FROM OPERATING ACTIVITIES:

Receipts from customers and users 97,861,190$ 96,900,995$ Receipts from others 4,078,005 4,936,318 Payments to County for labor force (39,184,531) (37,929,855) Payments to suppliers for goods and services (29,274,791) (21,320,331) Payments to others (2,251,271) (4,772,991)

Net cash provided by operating activities 31,228,602 37,814,136

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES:Acquisition and construction of capital assets (14,129,017) (7,648,161) Principal payments on long-term debt (4,635,000) (63,699,521) Interest payments on long-term debt (14,316,609) (16,509,563) Build America Bond interest subsidy 2,250,570 2,444,943 Sewer impact fees collected 2,296,172 252,364

Net cash used by capital and related financing activities (28,533,884) (85,159,938)

CASH FLOWS FROM INVESTING ACTIVITIES:Interest received 680,657 901,728

Net increase (decrease) in cash and cash equivalents 3,375,375 (46,444,074)

Cash and cash equivalents, beginning of year 161,564,602 208,008,676

Cash and cash equivalents, end of year 164,939,977$ 161,564,602$

RECONCILIATION OF CASH AND CASH EQUIVALENTSTO THE STATEMENT OF NET POSITION:Cash and investments 154,407,621$ 146,777,532$ Restricted cash and investments 17,848,606 22,103,320 Less long-term investments (7,316,250) (7,316,250)

Total cash and cash equivalents 164,939,977$ 161,564,602$


STATEMENTS OF CASH FLOWSFOR THE FISCAL YEARS ENDED JUNE 30, 2014 AND 2013


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2014 2013

RECONCILIATION OF NET CASH PROVIDED BY OPERATINGACTIVITIES TO OPERATING INCOME:Operating income (loss) (3,890,600)$ 7,550,935$ Adjustments to reconcile operating income to netcash provided by operating activities:

Depreciation and amortization 34,180,869 33,481,261 Other expense (2,306,900) (4,386,953) Intergovernmental expense (42,322) (33,229) Change in assets and liabilities:

Sewer service fees receivable 1,295,456 1,075,593 Due from local governments - taxes 333,504 (245,190) Due from local governments - other 382,503 1,213,275 Inventories (37,850) 24,673 Warrants payable 1,336,677 440,272 Due to local governments (22,735) (1,306,501) Net cash provided by operating activities 31,228,602$ 37,814,136$

SCHEDULE OF NON-CASH INVESTING, CAPITAL AND FINANCING ACTIVITIES:Pipe contributed by developers 31,632,360$ 14,369,952$ Acquisition of capital assets with accounts

and retentions payable (2,105,708) (2,359,709) Acquisition of capital assets with

developer reimbursement payable (30,267,688) (33,134,903)


STATEMENTS OF CASH FLOWS (Continued)FOR THE FISCAL YEARS ENDED JUNE 30, 2014 AND 2013


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NOTES TO THE BASIC FINANCIAL STATEMENTS


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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Reporting Entity The District is a political subdivision of the State of California. The District is governed by a Board of Directors comprised of the five members of the Sacramento County Board of Supervisors, plus one representative each from the Sacramento, Folsom, Citrus Heights, Elk Grove and Rancho Cordova city councils. Each city representative is selected by their respective city council to serve on the District board. The length of appointment is subject to the discretion of each city council, but can be no longer than the individual’s term of office. In October 1993, the District entered into a Joint Exercise of Powers Agreement organized under Section 6500 et seq. of the California Government Code with the Sacramento Regional County Sanitation District (SRCSD) to form the Sacramento County Sanitation Districts Financing Authority (Financing Authority) for the purpose of facilitating the financing of acquisition and/or constructing of real and personal property in and for the District and SRCSD. The Board of Directors of SRCSD serves as the Financing Authority’s governing board. For financial reporting purposes, the Financing Authority and SRCSD have a financial and operational relationship which requires that the Financing Authority’s financial statements be blended into SRCSD’s financial statements. This includes reporting SASD’s portion of debt. SASD makes base payments to the Financing Authority that are at least equal to the required debt service. SASD recognizes its relationship with the Financing Authority as a related entity. Separate financial statements for the Financing Authority are available from the District at 10060 Goethe Road, Sacramento CA, 95827, upon request. The accompanying basic financial statements of the Sacramento Area Sewer District (District) have been prepared in conformity with accounting principles generally accepted in the United States of America as applicable to government units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. Budgetary Process The District prepares an annual operating and capital budget, which is approved and adopted by the Board of Directors. The budget serves as an approved plan to facilitate financial control and operational evaluation. California state law does not require formal adoption of appropriated budgets for enterprise funds. Measurement Focus and Basis of Accounting The District uses the accounting principles applicable to enterprise funds. The District uses an economic resources measurement focus and the accrual basis of accounting. Revenues are recognized when earned and expenses are recognized when incurred, regardless of the timing of related cash flows.


NOTES TO THE BASIC FINANCIAL STATEMENTS (Continued)


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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The District distinguishes operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the District’s operations. The principal operating revenues of the District are customer service charges for sewer services. The principal operating expenses of the District are county labor, maintenance, services and supplies, and depreciation. Non-operating revenues and expenses consist of those revenues and expenses that are related to financing and investing activities and result from non-exchange transactions or ancillary activities. The principal non-operating revenue is intergovernmental revenue, which relates to transactions between the County of Sacramento (the County), the Sacramento County Regional Sanitation District and the federal government for the Build America Bond subsidy. Significant non-operating expenses include interest expense paid on the Districts’ outstanding loans with the Financing Authority. When both restricted and unrestricted resources are available for use, it is the District’s policy to use restricted resources first. Cash Equivalents and Investments For purposes of the statements of cash flows, the District considers all short-term highly liquid investments with an original maturity of one year or less, including restricted cash and investments, to be cash equivalents. Amounts held in the County’s investment pool are available on demand to individual entities; thus, they are considered highly liquid and cash equivalents for purposes of the statements of cash flows. Investments are presented at fair value based on quoted market information obtained from fiscal agents or other sources, except for the guaranteed investment contracts which is presented at cost. Receivables The District does not accrue an allowance for doubtful accounts on the sewer service fees as the District writes off uncollectible accounts and transfers past due amounts to the County to be placed on the property tax roll for collection. In addition, the District participates in the County’s Teeter tax buyout plan whereby the County remits 100% of any delinquent amounts to the District. Inventories Inventory is valued at cost, which approximates fair value, using the weighted average method.




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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Capital Assets Capital assets are stated at historical cost. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the basic financial statements. Any gain or loss from the retirement or disposal of an asset is reflected in the statements of revenues, expenses, and changes in net position for the period. Depreciation/amortization is provided on each asset using the straight-line method over the following estimated useful lives: Software 5 years

Equipment 5 to 35 years Structures and improvements 40 to 100 years District policy is to capitalize all land and to capitalize all other assets with a cost greater than $20,000 and a useful life of more than one year. The exception is light vehicles and software, which has a capitalization threshold of $15,000 and $100,000 respectively. Maintenance and repairs are charged to expense as incurred. Significant additions or improvements are capitalized and depreciated/amortized over their estimated useful lives. Costs incurred for major improvements or construction of assets is carried in construction in progress until the project is completed, at which time costs related to the project are capitalized in the appropriate asset account. Contributed capital that are received from developers are recorded at fair value. Developer Reimbursement Payable Under the District’s Trunk Reimbursement Program, developers may elect to enter into a developer reimbursement agreement. Under the agreement, the developer agrees to install trunks and other facilities on behalf of the District and the District agrees to reimburse the developer for the agreed upon cost of such facilities; provided that the total reimbursement by the District to all developers under this program in any year may not exceed funds available for payment of such reimbursements. In lieu of receiving such reimbursement in the form of a payment from the District, developers may elect to use the reimbursable amount as a credit against sewer impact fees that they would otherwise owe to the district. Obligations to developers who have elected to apply their reimbursement to future sewer impact fees are reported as developer reimbursement payable on the District’s statements of net position. Compensated Absences The District’s labor force are employees of the County. Employees accrue vacation in varying amounts based on classification and length of service. Additionally, certain employees are allowed compensated time off in lieu of overtime compensation and/or working on holidays.




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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Sick leave is earned by regular, full-time employees. Any sick leave hours not used during the period are carried forward to following years, with no limit to the number of hours that can be accumulated. Any sick leave hours unused at the time of an employee’s retirement are added to the actual period of service when computing retirement benefits. Upon retirement, management employees have the option of receiving payment for one half of accrued sick leave with the balance included in the calculation of retirement benefits. It is the policy of the County not to pay accumulated sick leave to employees who terminate prior to retirement. The liability for compensated absences earned through year-end, but not yet taken, is accrued in the accompanying financial statements. Compensated absences for the fiscal years ended June 30, 2014 and June 30, 2013 can be found in Note 4 on long term obligations. Risk Management The District is covered by the County’s insurance policies and participates in the County’s self-insurance. Annual premiums are based primarily on claims experience and are charged to expense when paid. During the past three fiscal years, there were no instances of settlements which exceeded insurance coverage and no significant reductions in insurance coverage. The following is a summary of the District’s coverage:

� General and automobile liability - $25 million limit per occurrence � Workers’ Compensation and Employer’s Liability – $5 million � Pollution Liability - $10 million limit per occurrence � Property - $3.045 billion limit per occurrence � Earthquake - $25 million limit per occurrence � Boiler and machinery - $100 million limit per occurrence � Crime/Dishonesty/Forgery - $10 million limit per occurrence

Capitalization of Interest Interest costs relating to the acquisition of capital assets are capitalized as a component of the cost of the capital assets. For the years ended June 30, 2014 and June 30, 2013, the District incurred interest costs totaling $13,840,761 and $16,011,407. Of these amounts, a portion was related to the construction and improvements which resulted in capitalized interest. There was no capitalized interest for the year ended June 30, 2014 and 2013. Reclassifications Certain accounts in the prior-year financial statements have been reclassified for comparative purposes to conform to the presentation in the current-year financial statements.




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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) New Accounting Pronouncements GASB Statement No. 66 – In March 2012, GASB issued Statement No. 66, Technical Corrections – 2012 – and amendment of GASB Statements No. 10 and 62. The objective of this Statement is to improve accounting and financial reporting for a governmental financial reporting entity by resolving conflicting guidance that resulted from the issuance of two pronouncements, Statements No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, and No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. This Statement is effective for financial statements ending June 30, 2014. This statement did not have any impact on the financial statements. GASB Statement No. 67 – In June 2012, GASB issued Statement No. 67, Financial Reporting for Pension Plans – an amendment of GASB Statement No. 25. The objective of this Statement is to improve financial reporting by State and local governmental pension plans. This Statement replaces the requirements of Statements No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, and No. 50, Pension Disclosures, as they relate to pension plans that are administered through trusts or equivalent arrangements (hereafter jointly referred to as trusts) that meet certain criteria. The requirements of Statements No. 25 and No. 50 remain applicable to pension plans that are not administered through trusts covered by the scope of this Statement and to define contribution plans that provide postemployment benefits other than pensions. This Statement is effective for financial statements ending June 30, 2014. This Statement did not have any impact on the financial statements. GASB Statement No. 70 – In April 2013, GASB issued Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees. The objective of this Statement is to improve accounting and financial reporting by State and local governments that extend and receive nonexchange financial guarantees. The Statement requires a government that extends a nonexchange financial guarantee to recognize a liability when qualitative factors and historical data, if any, indicate that it is more likely than not that the government will be required to make a payment on the guarantee. This Statement is effective for financial statements ending June 30, 2014. This Statement did not have any impact on the financial statements.




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2. CASH EQUIVALENTS AND INVESTMENTS The District maintains specific cash deposits and investments with the County of Sacramento and participates in the Sacramento County Pooled Investment Fund. At June 30, 2014 and 2013, the carrying amount of the District’s cash and investments held in the fund was $154,407,621 and $146,777,532, respectively. The weighted average maturity of the Treasurer’s cash and investment pool was 293 and 301 days at June 30, 2014 and 2013, respectively. California Government Code authorizes the Treasurer of the County to invest excess funds in the following list of eligible securities:

a) Obligations of the State, County or any local agency in the State of California.

b) Obligations of the U.S. Treasury, agencies and instrumentalities.

c) Bankers acceptances eligible for purchase by the Federal Reserve System.

d) Commercial paper with an A-1 rating by Moody’s Investors Service or a P-1 rating by Standard and Poor’s Corporation.

e) Repurchase agreements or reverse repurchase agreement.

f) Medium-term notes with a five-year maximum maturity from corporations operating

within the United States and rated in the top three rating categories by Moody’s Investment Service and Standard and Poor’s Corporation.

g) Shares of beneficial interest issued by diversified management companies (money

market funds) investing in securities and obligations as outlined in a) through e) above. Certain security rankings and/or organizational requirements apply to this type of investment.

The County Treasurer’s cash and investment pool is subject to regulatory oversight by the Treasury Oversight Committee. The value of the pool shares in the County Treasurer’s cash and investment pool that may be withdrawn is determined on an amortized cost basis, which is different than the fair value of the District’s position in the pools. The District reports investments at fair value, with the exception of guaranteed investment contracts, which are carried at cost. The County of Sacramento, acting in a fiduciary capacity, segregates and invests the Financing Authority’s bond proceeds in accordance with long-term obligation covenants. Bond reserves are held by an outside fiscal agent as required by the bond indentures. At June 30, 2014 and 2013, all cash held by fiscal agents was covered by federal depository insurance or by collateral held by the County’s financial institutions in the County’s name.




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2. CASH EQUIVALENTS AND INVESTMENTS (Continued) Restricted cash and investments consist of the following at June 30, 2014 and 2013:

2014 2013Restricted proceeds from debt issues held by:

County Treasurer's cash and investment pool 6,021$ 522,833$ Investments held by County as Fiscal Agent 10,526,335 14,264,237 Investments held by Financial Institution as bond trustee 7,316,250 7,316,250

Total restricted cash and investments 17,848,606$ 22,103,320$

At June 30, 2014 and 2013, the District had $7,316,250 in a guaranteed investment contract. This contract matures on July 21, 2035 and is not rated by credit rating agencies. Investment of debt proceeds held by the bond trustee is governed by provisions of the debt agreements rather than the general provisions of the California Government Code or the District’s investment policy. The following tables identify the investment types that are authorized for investments held by bond trustee, identifies certain provisions of these debt agreements that address interest rate risk, credit risk, and concentration of credit risk. Investments Authorized by Debt Agreements

Maximum MaximumAuthorized Maximum Percentage Investment

Investment Type Maturity Allowed in One Issuer

Defeasance Securities None None NoneU.S. Treasury Obligations None None NoneU.S. Agency Securities None None NoneU.S. dollar denominate deposit accounts, federal funds and bankers' acceptances 180 days None NoneCommercial Paper 270 days None NoneMoney Market Fund None None NonePre-refunded municipal obligations None None NoneMunicipal Obligations None None NoneCounty of Sacramento Pooled Investment Fund None None NoneInvestment Agreements None None None




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2. CASH EQUIVALENTS AND INVESTMENTS (Continued) Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. The District’s investments held by bond trustees are monitored for interest rate risk by measuring the weighted average maturity.

Fair Value at Weighted Average Fair Value at Weighted Average

Investment Type June 30, 2014 Maturity (in years) June 30, 2013 Maturity (in years)

Held by Bond Trustee:FNMA Discount Notes -$ - 2,945,372$ 0.08FHLB Discount Notes 10,526,318 0.07 11,318,858 0.12Mutual Funds 17 0.25 7 0.75Guaranteed Investment Contract 7,316,250 21.09 7,316,250 22.09

Total 17,842,585$ 21,580,487$

Credit Risk This is the risk than an issuer or other counterparty to a debt instrument will not fulfill its obligations. The District is permitted to hold investments of issuers with a short-term rating of superior capacity and a minimum long-term rating of upper medium grade by the top two nationally recognized statistical rating organizations (rating agencies). For short-term rating, the issuers’ rating must be A-1 and P-1 and the long-term rating must be A and A2, respectively, by Standard & Poor’s and Moody’s rating agencies. In addition, the District is permitted to invest in the State’s Local Agency Investment Fund, collateralized certificate of deposits and notes issued by the County that are not rated.

Fair Value at Ratings as of Fair Value at Ratings as ofInvestment Type June 30, 2014 June 30, 2014 June 30, 2013 June 30, 2013

Held by Bond Trustee:FNMA Discount Notes -$ - 2,945,372$ P-1/A-1+FHLB Discount Notes 10,526,318 P-1/A-1+ 11,318,858 P-1/A-1+Mutual Funds 17 Aaa/AAA 7 Aaa/AAAGuaranteed Investment Contract 7,316,250 Not Rated 7,316,250 Not Rated

Total 17,842,585$ 21,580,487$




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2. CASH EQUIVALENTS AND INVESTMENTS (Continued) Concentration of Credit Risk This is the risk of loss attributed to the magnitude of a government’s investment in a single issuer. Investments in any one issuer that represent five percent or more of the District’s total investments are shown below as of June 30, 2014 and 2013. Mutual funds are excluded from this disclosure. Issuer Investment Type June 30, 2014 June 30, 2013

FNMA Discount Notes Government Securities -$ 2,945,372$ FHLB Discount Notes Government Securities 10,526,318 11,318,858 FSA Guaranteed Investment Contract 7,316,250 7,316,250

Custodial Credit Risk This is the risk that in the event a financial institution or counterparty fails, the District would not be able to recover the value of its deposits and investments. As of June 30, 2014 and 2013, one hundred percent of the District’s investments are held in the County’s name. The District does not have a policy for custodial credit risk. At June 30, 2014 and 2013 the District’s bond reserves are in guaranteed investment contracts issued by FSA Capital Management Services LLC. There is no limitation on amounts invested in this type of investment. The guaranteed investment contracts are valued at cost.




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3. CAPITAL ASSETS Capital assets activity for the fiscal years ended June 30, 2014 and 2013 were as follows:

July 1, 2013 Increase Decrease June 30, 2014Capital assets not being depreciated: Land 9,262,261$ -$ (5,000)$ 9,257,261$ Construction in progress 45,243,168 12,159,221 (11,090,004) 46,312,385 Total capital assets not being depreciated 54,505,429 12,159,221 (11,095,004) 55,569,646

Capital assets being depreciated: Structures and improvements 1,197,697,454 42,022,814 (1,052,975) 1,238,667,293 Equipment 9,381,460 1,040,022 (379,815) 10,041,667 Software 1,849,229 - - 1,849,229 Total capital assets being depreciated 1,208,928,143 43,062,836 (1,432,790) 1,250,558,189

Less accumulated depreciation: Structures and improvements (372,904,658) (33,219,879) 948,344 (405,176,193) Equipment (3,957,578) (591,145) 379,814 (4,168,909) Software (1,109,538) (369,845) - (1,479,383) Total accumulated depreciation (377,971,774) (34,180,869) 1,328,158 (410,824,485) Total capital assets being depreciated, net 830,956,369 8,881,967 (104,632) 839,733,704 Net capital assets 885,461,798$ 21,041,188$ (11,199,636)$ 895,303,350$

July 1, 2012 Increase Decrease June 30, 2013Capital assets not being depreciated: Land 9,257,261$ 5,000$ -$ 9,262,261$ Construction in progress 60,541,417 9,825,320 (25,123,569) 45,243,168 Total capital assets not being depreciated 69,798,678 9,830,320 (25,123,569) 54,505,429

Capital assets being depreciated: Structures and improvements 1,161,537,619 36,438,641 (278,806) 1,197,697,454 Equipment 7,435,627 2,590,878 (645,045) 9,381,460 Software 1,849,229 - - 1,849,229 Total capital assets being depreciated 1,170,822,475 39,029,519 (923,851) 1,208,928,143

Less accumulated depreciation: Structures and improvements (343,783,604) (29,399,860) 278,806 (372,904,658) Equipment (4,094,783) (503,968) 641,173 (3,957,578) Software (739,692) (369,846) - (1,109,538) Total accumulated depreciation (348,618,079) (30,273,674) 919,979 (377,971,774) Total capital assets being depreciated, net 822,204,396 8,755,845 (3,872) 830,956,369

Net capital assets 892,003,074$ 18,586,165$ (25,127,441)$ 885,461,798$




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3. CAPITAL ASSETS (Continued) Depreciation expense included in the statements of revenues, expenses and changes in net position for fiscal years ended June 30, 2014 and 2013 totaled $34,180,869 and $30,273,674. 4. LONG-TERM OBLIGATIONS The Financing Authority issued the 2010 Series Revenue Bonds and the 2005 Series Revenue Bonds which is reported in the Financing Authority’s financial statements. The District and Financing Authority entered into a master installment agreement. The District makes loan payments to the Financing Authority on the 2010 Series Revenue Bonds and the 2005 Series Revenue Bonds. 2010 Series Revenue Bonds In August 2010, the Financing Authority issued $110,690,000 Revenue Bonds, Series 2010A Federally Taxable Direct Subsidy Build America Bonds and $15,930,000 Revenue Bonds, Series 2010B. The bonds mature serially from August 2011 through August 2040. Interest rates for the Series A Bonds range from 6.125% to 6.325%, principal payments ranging from $1,440,000 to $16,175,000 with the first payment starting in 2026 and ending in 2040. Interest rates for the Series B Bonds range from 2.5% to 5.0%, principal payments ranging from $820,000 to $1,180,000 with the first payment starting in 2011 and ending in 2021. The proceeds were used to finance improvements to the collection system to reduce or eliminate potential sewer overflows, serve new growth, and to purchase capital improvements completed by SRCSD. 2005 Series Revenue Bonds In June 2005, the Financing Authority issued the 2005 Series Revenue Bonds in the amount of $165,620,000 with interest rates ranging from 2.65% to 4.25%, principal payments ranging from $2,855,000 to $8,750,000 with the first payment starting in 2006 and ending in 2036, net of premium of $11,266,047. Proceeds from this debt issue were used to advance refund all outstanding 2000 Revenue Bonds and to finance the acquisition and construction of new facilities. On June 30, 2014 and 2013, $38,675,000 and $40,090,000 of the 2000 defeased Revenue Bonds were outstanding, respectively.




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4. LONG-TERM OBLIGATIONS (Continued) Maturity Schedule Future debt service requirements on bonds as of June 30, 2014 are as follows:

Fiscal years ending June 30: Principal Interest Total2015 4,820,000$ 14,130,778$ 18,950,778$ 2016 5,050,000 13,902,128 18,952,128 2017 5,295,000 13,657,453 18,952,453 2018 5,555,000 13,395,903 18,950,903 2019 5,835,000 13,116,103 18,951,103

2020-2024 33,865,000 60,885,665 94,750,665 2025-2029 43,115,000 51,499,549 94,614,549 2030-2034 54,750,000 38,708,276 93,458,276 2035-2039 68,595,000 21,056,794 89,651,794 2040-2041 31,695,000 2,025,423 33,720,423

258,575,000$ 242,378,072$ 500,953,072$

Pursuant to the Indenture with the County and Union Bank of California, N.A., as trustee, and the Master Installment Purchase Contract between the Financing Authority and the District, the District is required to faithfully perform and abide by all of the covenants, undertakings, and provisions of the above agreement so long as any of the bonds are outstanding. Specific covenants include the following:

� Punctual payment of interest and principal will be made when due.

� Proceeds of the bonds will be used by the District, as agent for the Financing Authority, to pay the costs of financing the acquisition and construction (together with the incidental costs and expenses related thereto) of the Projects approved by the Board of Directors.

� Rates, fees, and charges will be fixed and collected at least sufficient to yield adjusted

annual net revenues, as defined, equal to at least the amount required by the coverage requirement for the fiscal year.

For the fiscal years ended 2014 and 2013, the District was in compliance with the preceding covenants.




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4. LONG-TERM OBLIGATIONS (Continued) Changes in long-term obligations for the years ended June 30, 2014 and 2013 were as follows:

Balance Balance Due WithinJuly 1, 2013 Increase Decrease June 30, 2014 One Year

Loan Payable to Financing Authority 263,210,000$ -$ (4,635,000)$ 258,575,000$ 4,820,000$ Plus premium 9,319,262 - (413,989) 8,905,273 413,989 Compensated absences 2,438,523 403,848 (365,778) 2,476,593 371,489

274,967,785$ 403,848$ (5,414,767)$ 269,956,866$ 5,605,478$

Balance Balance Due WithinJuly 1, 2012 Increase Decrease June 30, 2013 One Year

Loan Payable to Financing Authority 267,670,000$ -$ (4,460,000)$ 263,210,000$ 4,635,000$ Plus premium 9,733,251 - (413,989) 9,319,262 413,989 Capital lease 59,239,521 - (59,239,521) - - Compensated absences 2,309,058 475,824 (346,359) 2,438,523 365,778

338,951,830$ 475,824$ (64,459,869)$ 274,967,785$ 5,414,767$

5. RELATED PARTY TRANSACTIONS

For fiscal years 2013-14 and 2012-13, the County paid the District $170,560 and $793,475, respectively, for interest earned on Treasury deposits. The District’s labor force are employees of the County and the District uses other County departments for other services, such as risk management, engineering, accounting, utility billing, etc. Expenses paid to the County during fiscal years 2013-14 and 2012-13 were $48,515,611 and $45,895,894, respectively. In addition, for the fiscal years 2013-14 and 2012-13, the District paid the Financing Authority $18,951,609 and $18,951,841 respectively for debt service. 6. CAPITAL LEASE OBLIGATION In July 2010, the District entered into a Lease to Purchase Agreement with the Sacramento Regional County Sanitation District (SRCSD) for the Goethe Road Building and Corporation Yard in the amount of $60,900,000. The terms of the lease are for three years with annual payments due on June 30 in the amount of $2,900,000 with an option to purchase at the end of the agreement. Funding of the purchase was provided from proceeds of the Series 2010 Bond. The total purchase price entitled the District to an 80% undivided fee interest in the property with the final 20% remaining with SRCSD. The final payment of the lease was paid in June 2013 and the District exercised the option to purchase the building. The District paid $61,257,136 on the lease which consisted of $59,239,521 of principal and $2,017,615 in interest.




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7. COMMITMENTS AND CONTINGENCIES The District has entered into contracts for the construction of certain projects. At June 30, 2014 and 2013, the unexpended balance of the contract commitments was $2,440,892 and $5,312,589, respectively. The District is a defendant in various matters of litigation. Of these matters, management and the District’s legal counsel do not anticipate any material effect on the June 30, 2014 and 2013 basic financial statements. 8. OTHER POST-EMPLOYMENT BENEFITS (a) Plan Description The District’s labor force are employees of the County. For certain retired employees, the County provides a subsidy towards medical insurance and dental insurance. These subsidy/offset payments are authorized by the Board of Supervisors on an annual basis. The Board of Supervisors must approve the benefit annually or it is terminated. All annuitants are eligible to enroll in a retiree medical and/or dental insurance plan in a given calendar year if (1) they began receiving a continuing retirement allowance from Sacramento County Employees Retirement System (SCERS) during that calendar year, or (2) they were enrolled in the annual plan previously approved by the County, or (3) they previously waived coverage but elected to enroll during the County authorized enrollment period with a coverage date effective January of the given calendar year (continuous coverage). Annuitants who retired for any reason on or before May 31, 2007 are eligible to receive a County-paid medical or dental insurance subsidy/offset payment during calendar year 2008 and thereafter. Annuitants who retire after May 31, 2007 are not entitled to any subsidy/offset payment. The amount of subsidy/offset payments for the calendar year 2014 and 2013 ranged from $40 to $244 depending upon the years of service credit. The amount of any medical subsidy/offset payments made available to annuitants (who retire on or before May 31, 2007) shall be calculated based upon the annuitant’s SCERS service credit. The amount of any dental subsidy/offset payments made available to annuitants shall be set by the Board of Supervisors. Neither Sacramento County Employees’ Retirement System (SCERS) nor the County guarantees that a subsidy/offset payment will be made available to retirees for the purchase of County-sponsored medical and/or dental insurance. Subsidy/offset payments are not a vested benefit of County employment or SCERS membership.




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8. OTHER POST-EMPLOYMENT BENEFITS (Continued) (b) Funding Policy The District currently pays for post employment health benefits on a pay-as-you go basis. These financial statements assume that pay-as-you-go funding will continue. (c) Annual OPEB Cost and Net OPEB Obligation The annual OPEB cost and net OPEB obligation at June 30, 2014, 2013 and 2012 were as follows:

2014 2013 2012

Annual required contribution 303,908$ 260,205$ 279,077$ ARC adjustment (23,701) (27,107) (17,669) Interest on net OPEB obligation 20,158 16,938 16,159 Annual OPEB cost 300,365 250,036 277,567 Contributions made (115,901) (167,311) (207,913) Increase (decrease) in net OPEB obligation 184,464 82,725 69,654 Net OPEB obligation, beginning of year 518,758 436,033 366,379 Net OPEB obligation, end of year 703,222$ 518,758$ 436,033$

For the fiscal year ended June 30, 2014, the District’s annual OPEB cost was $300,365. Contributions of $115,901 were equal to the pay-as-you-go amount and represented 38.6% of the annual OPEB cost. For the fiscal year ended June 30, 2013, the District’s annual OPEB cost was $250,036. Contributions of $167,311 were equal to the pay-as-you-go amount and represented 66.9% of the annual OPEB cost. For the fiscal year ended June 30, 2012, the District’s annual OPEB cost was $277,567. Contributions of $207,913 were equal to the pay-as-you-go amount and represented 74.9% of the annual OPEB cost. The net OPEB obligation is owed to the County and the District reports the obligation in the financial statement as Noncurrent due to other local governments. Additional details, actuarial assumptions, funded status of the plan and required supplementary information can be found in the County of Sacramento Comprehensive Annual Financial Report. 9. DEFINED PENSION BENEFIT PLAN All full-time employees of the District participate in the Sacramento County Employees’ Retirement System (Retirement System), a cost-sharing multiple-employer defined benefit public employee retirement system. A separate stand-alone report for the Retirement System may be obtained from the County Department of Finance. The payroll expense for District employees covered by the Retirement System for the fiscal years ended June 30, 2014 and 2013 was $19,716,703 and $18,728,335 respectively. The District’s total payroll expense for the fiscal years ended June 30, 2014 and 2013 was $21,500,543 and $20,672,336 respectively.




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9. DEFINED PENSION BENEFIT PLAN (Continued) Retirement benefits are based on member years of service and compensation. Additionally, the Retirement System provides for benefits upon death or disability of eligible members. Upon reaching five years of service, members have earned the right to receive a retirement benefit, subject to certain restrictions if retirement is prior to attaining age 50 or less than 10 years service has been achieved. Under the actuarial funding method used by the Retirement System, investments are at fair value and all unrealized gains and losses are recognized over the next five years. Therefore, contribution rates reflect the impact of market fluctuations of investments during the five-year period after they occur. Member contributions are required by law. Member contribution rates are actuarially determined and are based on age of entry into the system. Fund contributions are actuarially determined to provide for the balance of contributions needed. The Retirement Board adopts a rate based on the actuary’s recommendation. The rate is then forwarded to the Board of Supervisors for their information and adoption for budget purposes. The Financing Authority for both benefit provisions and contributions obligations is derived from the County Employees Retirement Act of 1937, Section 31450 et seq. of the California Government Code. The contribution requirement for the year ended June 30, 2014 was $3,954,790 that consisted of $2,909,899 from the District and $1,044,891 from its employees; these contributions represent 14.76 percent and 5.30 percent, respectively, of covered payroll. The contribution requirement for the year ended June 30, 2013 was $3,515,920 that consisted of $2,533,898 from the District and $982,022 from its employees; these contributions represent 13.53 percent and 5.24 percent, respectively, of covered payroll. The following table shows the District’s required contribution (annual pension cost) and the percentage contributed for the current year and each of the two preceding years:

Annual Pension Percentage of APCFiscal Year Cost (APC) Contributed

2013-14 2,909,899$ 100%

2012-13 2,533,898$ 100%

2011-12 2,383,806$ 100%

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Intentionally Blank

STATISTICA

L SECTIO

N

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SACRAMENTO AREA SEWER DISTRICT Sacramento, California

Statistical Section

For the fiscal Years Ended June 30, 2014 and 2013

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Index to Statistical Section This part of the Sacramento Area Sewer District’s comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures and required supplementary information says about the District’s overall financial health. Contents Financial Trends These schedules contain trend information to help the reader understand how the District’s financial performance has changed over time:

� Net Position by Component – Fiscal Years 2004-2005 through 2013-2014 � Changes in Net Position - Fiscal Years 2004-2005 through 2013-2014 � Operating Revenues by Source - Fiscal Years 2004-2005 through 2013-2014 � Operating Expenses - Fiscal Years 2004-2005 through 2013-2014 � Non-operating Revenues and Expenses - Fiscal Years 2004-2005 through 2013-2014 � Capital Contributions - Fiscal Years 2004-2005 through 2013-2014

Revenue Capacity These schedules contain information to help the reader assess the factors affecting the District’s ability to generate its sewer service fees:

� Wastewater Collected and Conveyed - Fiscal Years 2004-2005 through 2013-2014 � Number of Customers by Type - Fiscal Years 2004-2005 through 2013-2014 � Sewer Rates - Fiscal Years 2004-2005 through 2013-2014 � Ten Largest Customers – Fiscal Years 2014 and 2005

Debt Capacity These schedules present information to help the reader assess the affordability of the District’s current level of outstanding debt and its ability to issue additional debt in the future:

� Pledged Revenue Coverage - Fiscal Years 2004-2005 through 2013-2014 � Net Ratios of Outstanding Debt by Type - Fiscal Years 2004-2005 through 2013-2014

Demographic and Economic Information These schedules present demographic and economic indicators to help the reader understand the environment within which the District’s financial activities take place:

� Demographic and Economic Statistics - Fiscal Years 2004-2005 through 2013-2014 � Principal Employers - Fiscal Years 2014 and 2005

Operating Information These schedules contain service and infrastructure information to help the reader understand how the information in the District’s financial report relates to the services the District provides and the activities it performs:

� Number of Employees by Identifiable Activity - Fiscal Years 2004-2005 through 2013-2014

� Operating and Capital Indicators - Fiscal Years 2004-2005 through 2013-2014

Net Investmentin Capital Capital Debt Total Net

Assets Construction Service Unrestricted Position

2014 635,140,183$ -$ 10,531,501$ 123,749,911$ 769,421,595$ 2013 624,118,669 999,589 10,917,186 115,392,862 751,428,306 2012 1 632,622,714 1,100,748 10,661,071 98,326,197 742,710,730 2011 1 669,164,254 372,573 10,730,881 46,777,902 727,045,610 2010 651,455,187 2,911,431 14,186,289 15,466,826 684,019,733 2009 639,419,942 13,662,473 13,998,009 1,395,021 668,475,445 2008 648,520,639 8,685,092 8,126,284 (13,960,943) 651,371,072 2007 539,929,051 6,794,901 7,178,907 17,761,170 571,664,029 2006 452,320,674 3,280,356 6,642,927 25,623,957 487,867,914 2005 392,813,849 28,148 - 44,581,392 437,423,389

Note 1: Fiscal year 2011 and 2012 have been revised in accordance with the implementationguidance in GASB Statement No. 65 Items Previously Reported as Assets and Liabilities. Prior years have not been restated as permitted by the standard.

FiscalYear

Restricted


Net Position by Component

Fiscal Years 2004-2005 through 2013-2014Schedule 1

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Operating Nonoperating ChangeOperating Operating Income Revenues Capital in Net Beginning EndingRevenues Expenses (Loss) (Expenses) Contributions Position Net Position Net Position

2014 99,970,054$ 103,860,654$ (3,890,600)$ (12,044,643)$ 33,928,532$ 17,993,289$ 751,428,306$ 769,421,595$ 2013 99,826,864 92,275,929 7,550,935 (13,455,675) 14,622,316 8,717,576 742,710,730 751,428,306 2012 2 99,801,183 85,491,988 14,309,195 (13,262,552) 14,618,477 15,665,120 727,045,610 742,710,730 2011 2 98,313,027 85,476,487 12,836,540 (4,445,112) 41,002,327 49,393,755 677,651,855 727,045,610 2010 90,296,524 82,912,961 7,383,563 (691,345) 8,852,070 15,544,288 668,475,445 684,019,733 2009 83,983,625 88,508,836 (4,525,211) (8,196) 21,637,780 17,104,373 651,371,072 668,475,445 2008 69,567,747 73,726,947 (4,159,200) (8,656,336) 92,522,579 79,707,043 571,664,029 651,371,072 2007 62,458,198 62,345,478 112,720 1,408,427 82,274,968 83,796,115 487,867,914 571,664,029 2006 54,103,550 56,163,422 (2,059,872) (906,179) 53,410,576 50,444,525 437,423,389 487,867,914 2005 1 51,855,940 50,093,107 1,762,833 (1,340,676) 85,194,098 85,616,255 351,807,134 437,423,389

Note 1: Since 2005, the District classified sewer impact fees as capital contributions;previous years were classified as operating revenues. In addition, since 2005,the District classified "other revenues" as operating revenues; previous years were classified as non-operating revenues/expenses.

Note 2: Fiscal year 2011 and 2012 have been revised in accordance with theimplementation guidance in GASB Statement No. 65 Items Previously Reported as Assets and Liabilities . Prior years have not been restated as permitted by thestandard.


Changes in Net Position


FiscalYear

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TotalFiscal Sewer Other OperatingYear Service Fees Revenue Revenues

2014 96,565,734$ 3,404,320$ 99,970,054$ 2013 95,825,402 4,001,462 99,826,864 2012 95,988,816 3,812,367 99,801,183 2011 94,813,872 3,499,155 98,313,027 2010 83,516,003 6,780,521 90,296,524 2009 71,057,207 12,926,418 83,983,625 2008 67,271,350 2,296,397 69,567,747 2007 60,620,812 1,837,386 62,458,198 2006 53,528,389 575,161 54,103,550 2005 49,596,891 2,259,049 51,855,940


Operating Revenues by Source


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Operating Expenses


Depreciation ServicesWater and andQuality Other Total Amortization Electricity Other Total Supplies

2014 36,834,704$ 2,271,463$ 39,106,167$ 34,180,869$ 869,707$ 481,150$ 1,350,857$ 1,491,555$ 2013 35,215,521 1,793,871 37,009,392 33,481,261 855,075 416,589 1,271,664 1,246,479 2012 1 33,203,007 1,760,272 34,963,279 30,797,283 799,864 450,815 1,250,679 1,476,071 2011 1 33,648,768 1,760,526 35,409,294 29,331,096 899,408 499,617 1,399,025 1,328,513 2010 30,587,779 2,195,639 32,783,418 27,408,014 717,571 539,142 1,256,713 2,667,492 2009 29,325,535 2,803,425 32,128,960 26,719,428 619,699 780,450 1,400,149 4,184,202 2008 21,130,174 3,355,171 24,485,345 24,652,503 452,439 873,791 1,326,230 4,435,300 2007 27,809,479 1,327,998 29,137,477 21,954,788 455,228 214,666 669,894 1,062,677 2006 24,904,123 1,561,164 26,465,287 19,301,332 363,382 218,792 582,174 1,734,911 2005 20,568,885 1,437,713 22,006,598 15,510,609 311,306 298,678 609,984 3,579,192

Note 1: Fiscal year 2012 and 2011 has been revised in accordance withthe implementation guidance in GASB Statement No. 65 Items Previously Reported as Assets and Liabilities . Prior years havenot been restated as permitted by the standard.

FiscalYear

Labor Force Utilities

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Operating Expenses (Continued)


TotalPipeline Data Office Operating

Billing Maintenance Processing Equipment Consultants Chemicals Insurance Expenses

1,146,188$ 15,564,139$ 3,308,135$ 660,261$ 5,399,106$ 426,672$ 1,226,705$ 103,860,654$ - 12,075,207 1,963,129 503,494 2,834,498 256,370 1,634,435 92,275,929

429,177 9,979,224 1,587,138 482,019 2,837,442 167,501 1,522,175 85,491,988 1,414,128 9,215,748 2,084,978 548,004 3,473,699 34,920 1,237,082 85,476,487 2,023,470 8,905,808 1,325,874 273,865 3,974,067 313,310 1,980,930 82,912,961 2,092,691 10,514,505 1,067,562 307,551 5,750,984 - 4,342,804 88,508,836 2,689,215 6,549,433 1,005,425 459,761 3,459,190 292,118 4,372,427 73,726,947 2,709,007 2,177,175 1,052,653 299,182 1,796,348 287,276 1,199,001 62,345,478 2,573,102 1,895,198 964,949 462,177 1,408,490 268,444 507,358 56,163,422 2,663,531 2,093,897 467,504 813,507 1,518,317 253,657 576,311 50,093,107

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Inter- Arbitrage Totalgovernmental Rebate Non-operating

Fiscal Interest Interest Revenue Revenue Other RevenuesYear Expense Income (Expense) (Expense) Expenses (Expenses) 1

2014 (13,840,761)$ 510,982$ 2,208,248$ -$ (923,112)$ (12,044,643)$ 2013 (16,011,407) 789,443 2,411,714 - (645,425) (13,455,675) 2012 (16,010,762) 1,743,221 2,402,439 - (1,397,450) (13,262,552) 2011 (8,860,822) 1,249,327 3,471,743 - (305,360) (4,445,112) 2010 (2,369) 454,205 356,611 - (1,499,792) (691,345) 2009 - 741,153 (19,303) 464,832 (1,194,878) (8,196) 2008 - 1,503,998 (7,267,272) (52,936) (2,840,126) (8,656,336) 2007 (287,314) 3,475,325 (1,132,523) (411,896) (235,165) 1,408,427 2006 (5,108,172) 6,125,873 (172,349) - (1,751,531) (906,179) 2005 (529,750) 1,447,004 (1,325,985) - (931,945) (1,340,676)

Note 1: "Other revenues" for all years have been reclassified to operating revenues to conform to 2006 presentation.


Non-operating Revenues and Expenses


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Sewer Other TotalFiscal Pipe From Impact Capital CapitalYear Developers Fees Contributions Contributions

2014 31,632,360$ 2,296,172$ -$ 33,928,532$ 2013 14,369,952 252,364 - 14,622,316 2012 10,494,903 4,123,574 - 14,618,477 2011 21,890,680 1,059,508 18,052,139 41,002,327 2010 8,200,178 651,892 - 8,852,070 2009 19,949,586 1,688,194 - 21,637,780 2008 89,145,269 3,377,310 - 92,522,579 2007 73,260,361 9,014,607 - 82,274,968 2006 42,243,987 11,166,589 - 53,410,576 2005 74,271,454 10,922,644 - 85,194,098


Capital Contributions


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Connected MonthlyEquivalent Sewer

Fiscal Single-Family RateYear Dwelling (ESD) per ESD

2014 404,647 19.85$ 2013 402,705 19.85 2012 401,405 19.85 2011 400,178 19.85 2010 399,298 17.50 2009 396,800 15.00 2008 393,864 14.00 2007 386,071 13.00 2006 377,979 11.50 2005 367,493 11.50

Source: ESD - Chief Financial Officer's Billing ReportDistrict Sewer Rate Ordinances


Wastewater Collected and Conveyed


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FiscalYear

ResidentialESD's

Commercial 1

ESD's Total ESD's 2

IndustrialFlow

Customers Total

2014 360,111 44,536 404,647 64 404,711 2013 358,650 44,055 402,705 62 402,767 2012 357,721 43,584 401,305 66 401,371 2011 356,158 44,020 400,178 54 400,232 2010 399,298 - 399,298 59 399,357 2009 396,800 - 396,800 55 396,855 2008 393,864 - 393,864 51 393,915 2007 386,071 - 386,071 51 386,122 2006 377,979 - 377,979 49 378,028 2005 367,493 - 367,493 48 367,541

Source: Customer billing records

Note 1: FY2004 - FY2010 Commercial is incorporated with the Residential totals as data is unavailable for these fiscal years

Note 2: Total ESD's for Residential and Commercial is not the total number of customers by type since many customers have multiple types of ESD's


Number of Customers by Type


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2014 2013 2012 2011 2010 2009 2008 2007 2006 2005

Residential Rates 1:Operations and Maintenance $15.56 $13.46 $13.15 $13.15 $13.30 $10.80 $9.80 $9.55 $9.30 $9.30Rehabilitation 4 4.29 6.39 6.70 6.70 4.20 1.50 1.50 1.50 1.50 1.50Trunk 4 0.00 0.00 0.00 0.00 0.00 2.70 2.70 1.95 0.70 0.70Total $19.85 $19.85 $19.85 $19.85 $17.50 $15.00 $14.00 $13.00 $11.50 $11.50

Industrial Rates 3:Fixed Amount $7.16 $7.16 $7.16 $7.16 $7.16 $7.16 $7.16 $7.16 $7.16 $7.16Per Million Gallons 72.73 72.73 72.73 72.73 72.73 72.73 72.73 72.73 72.73 72.73Per Thousand Lbs SS 2 5.10 5.10 5.10 5.10 5.10 5.10 5.10 5.10 5.10 5.10

Source: District ordinances

Notes 1: Monthly rate at June 30 per equivalent single-family dwelling (ESD).

Notes 2: SS=Suspended Solids.

Notes 3: Industrial rates are based on flow (millions of gallons) per thousands of pounds of BOD (Biochemical Oxygen Demand) and SS.

Notes 4: Combined Rehabilitation and Trunk into Rehabilitation only - 07/01/2009.


Sewer Rates


Fiscal Year

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Intentionally Blank

Customer Service Fees 1 %Sacramento County Airport System 147,532$ 0.15%Procter and Gamble Manufacturing 33,602 0.03%City of Sacramento, EA Fairbairn WTP 29,945 0.03%H.P. Hood, LLC 19,225 0.02%Aerojet Commercial 15,210 0.02%Huhtamaki Food Services, Inc. 11,958 0.01%Rio Cosumnes Correctional Center 9,866 0.01%Air Products Manufacturing Co 7,901 0.01%Mission Linen Supply 6,730 0.01%Raging Waters, Sacramento 5,135 0.01%

Subtotal (10 largest) 287,104 0.30%

Balance from other customers 96,278,630 99.70%

Grand totals 96,565,734$ 100.00%

Customer Service Fees 1 %Campbell Soup Company 54,240$ 0.11%Huhtamaki Food Services, Inc. 23,169 0.05%Proctor-Gamble Manufacturing 18,130 0.04%Crystal Belvedere 6,790 0.01%Mission Industries 5,470 0.01%Rio Consumnes Correctional Center 5,402 0.01%Aramark Uniform Services, Inc. 4,472 0.01%Sacramento Power Authority 2,520 0.01%Golden State Services 2,359 0.00%Pepsi-Cola Bottling Co., Inc. 2,295 0.00%

Subtotal (10 largest) 124,847 0.25%

Balance from other customers 49,543,683 99.75%

Grand totals 49,668,530$ 100.00%

Note 1: Amount includes base rate charges, as well as multiple meters on various accounts.

Control Section.

Fiscal Year 2005

Fiscal Year 2014


Ten Largest Customers

Current Year and Nine Years AgoSchedule 10

Source: Annual customer billing records, from Wastewater Source

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Pledged-Revenue Coverage


SewerFiscal Operating Impact Interest Other GrossYear Revenues Fees Revenue Revenue 1 Revenues

2014 99,970,054$ 2,296,172$ 510,982$ 2,250,570$ 105,027,778$ 2013 99,826,864 252,364 789,443 2,444,943 103,313,614 2012 99,801,182 4,123,574 1,743,221 2,444,943 108,112,920 2011 98,313,027 1,059,508 1,249,327 1,154,557 101,776,419 2010 90,296,524 651,892 454,205 - 91,402,621 2009 83,983,625 1,688,194 741,153 - 86,412,972 2008 69,567,747 3,377,310 1,503,998 - 74,449,055 2007 62,458,198 9,014,607 3,475,325 - 74,948,130 2006 54,103,550 11,166,589 6,125,873 - 71,396,012 2005 51,855,940 10,922,644 1,447,004 - 64,225,588

pledged revenues. The coverage ratio differs from those required by specific bond indentures.

Note 2: This schedule presents all non–general obligation long-term debt backed by

Note 1: Other Revenue consists of the Build America Bond subsidy

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LessOperating Expenses Net(excluding Available Coverage

depreciation) Revenues Principal Interest Total Ratio 2

69,679,785$ 35,347,993$ 4,635,000$ 14,316,609$ 18,951,609$ 1.8758,794,668 44,518,946 4,460,000 14,491,841 18,951,841 2.3554,694,704 53,418,216 4,285,000 14,663,728 18,948,728 2.8256,145,391 45,631,028 3,325,000 10,814,162 14,139,162 3.2355,504,947 35,897,674 3,165,000 7,389,013 10,554,013 3.4061,789,408 24,623,564 3,040,000 7,516,088 10,556,088 2.3349,074,444 25,374,611 2,940,000 7,613,388 10,553,388 2.4040,390,690 34,557,440 2,855,000 7,700,313 10,555,313 3.2736,862,090 34,533,922 4,960,000 5,055,359 10,015,359 3.4534,582,498 29,643,090 900,000 2,671,000 3,571,000 8.30

Revenue Bonds Debt Service

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DebtNet Advances Per Equivalent Percentage

Fiscal Revenue from Other Capital Total Debt Single-Family of PersonalYear Bonds Governments Lease Outstanding Dwelling 2 Income 3

2014 267,480,273$ -$ -$ 267,480,273$ 661.02$ N/A2013 272,529,262 - - 272,529,262 676.75 0.45%2012 273,659,030 - 59,239,521 332,898,551 829.33 0.61%2011 278,160,954 - 60,086,436 338,247,390 845.24 0.63%2010 153,910,022 - - 153,910,022 385.45 0.29%2009 157,253,493 - - 157,253,493 396.30 0.29%2008 160,471,964 - - 160,471,964 407.43 0.31%2007 163,590,434 - - 163,590,434 423.73 0.33%2006 166,623,904 7,325,379 - 173,949,283 460.21 0.37%2005 171,762,375 7,301,283 - 179,063,658 487.26 0.40%

Note 3: Per capita income data is shown at Schedule 13. Personal income for 2014 not yet available.

Note 1: Details regarding the District's outstanding debt can be found in the notes to the financial statements.

Note 2: Equivalent single-family dwelling data is shown at schedule 7.

Outstanding Debt1


Net Ratios of Outstanding Debt by Type


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PerPersonal Capita County County

Fiscal County Income Personal Unemployment School LaborYear Population (in thousands) Income Rate Enrollment Force 2

2014 1,462,000 NA NA 8.8% 240,000 679,3002013 1,450,000 60,668,975 41,837 10.5% 238,000 684,0002012 1,436,000 54,861,602 38,202 12.1% 237,000 685,4002011 1,422,000 53,612,730 37,700 12.6% 237,000 677,4002010 1,409,000 52,377,247 37,184 11.3% 238,000 682,0002009 1,394,000 54,078,812 38,782 7.2% 238,000 682,7002008 1,381,000 52,572,684 38,064 5.4% 238,000 681,8002007 1,370,000 50,165,916 36,629 4.8% 238,000 677,2002006 1,361,000 47,563,421 34,952 5.0% 239,000 670,1002005 1,349,000 45,282,367 33,569 5.6% 238,000 664,000

Note: NA = Not available until April 2015. Information will be updated next fiscal year.

Note 2: County Labor Force numbers from California Employment Department were historically updated March 2011 from FY2003 thru FY2011.

Source: Sacramento County Comprehensive Financial Report County Labor Force from California Employment Department


Demographic and Economic Statistics


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Percent ofNumber of County Labor

Employer Employees a Force 1 c

2014 2014Kaiser Permanente 9,494 1.53%Sutter/California Health Services 9,109 1.47%Raley's Inc. / Bel-Air 7,397 1.19%Mercy/Catholic Healthcare West 6,240 1.01%Intel Corporation 6,000 0.97%Hewlett-Packard Co. 3,249 0.52%Wells Fargo & Co. 3,200 0.52%HealthNet of CA 2,400 0.39%Cache Creek Casino Resort 2,358 0.38%Pacific Gas & Electric 2,223 0.36%

2005 b 2005 c

Kaiser Permanente 11,729 1.88%Intel Corporation 11,284 1.81%Raley's Inc. / Bel-Air 8,203 1.31%Sutter/California Health Services 8,000 1.28%Mercy/Catholic Healthcare West 6,000 1.04%SBC Communications 5,753 0.92%Hewlett-Packard Co. 4,500 0.72%Wal-Mart 3,220 0.52%EDS 3,693 0.59%HealthNet of CA 3,300 0.53%

Note 1: County labor force is shown in schedule 13

Source a: Sacramento Business Journal Annual Book of ListsSource b: Sacramento Area Commerce and Trade OrganizationSource c: California Employment Development Department, Labor Market Information


Principal Employers

Current Year and Nine Years AgoSchedule 14

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2014 2013 2012 (2) 2011 2010 2009 (1) 2008 2007 2006 2005

Maintenance andOperations 181 187 178 169 167 168 166 166 204 198

Engineering 66 46 48 44 46 40 46 46 51 40

Administration 44 43 47 96 100 102 97 98 55 50

Total Employees 291 276 273 309 313 310 309 310 310 288

for the District.

(1) In 2009 Administration includes staff from Administration, Warehouse, Safety & Training, Technical Support, Communication Media Officer, and Asset Management.

(2) In 2012 the Sanitation District Agency went through re-organization; 33 FTE positions were moved from Sacramento Area Sewer District to Sacramento Regional County Sanitation District.

Source: SASD Operations budget documents.

Note: The District has no employees; the above reflects County employees working


Number of Employees by Identifiable Activity


Full-time-Equivalent Employees as of June 30

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2014 2013 2012 2011 2010 2009

Pump Stations 108 107 106 104 103 98

Service Connections 290,446 286,259 284,241 282,862 281,593 280,139

Miles of Serviceline 1,384 1,358 1,348 1,339 1,333 1,326

Miles of Pipe 2,995 2,991 2,984 3,019 2,977 2,979

Manholes 64,816 65,093 64,998 65,021 64,840 64,762

Area of SASD (square miles) 273 270 270 270 270 270

Note: NA = Information not available

Source: SASD Geographic Information System report

Schedule 16


Operating and Capital Indicators

Fiscal Years 2004-2005 through 2013-2014

Fiscal Year

- 50 -

2008 2007 2006 2005

98 96 95 90

277,077 263,377 250,033 244,140

1,312 1,247 1,184 1,156

2,966 2,923 2,876 2,811

64,415 62,970 61,860 60,460

268 268 268 268

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Intentionally Blank

BOND DISCLOSURE SECTION

- 53 -

SACRAMENTO AREA SEWER DISTRICT Sacramento, California

Bond Disclosure Section

For the Fiscal Year Ended June 30, 2014

ANNUAL REPORT FOR THE SACRAMENTO COUNTY SANITATION DISTRICT FINANCING AUTHORITY AND


Fiscal Year 2013-2014

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On October 1, 1993, the District entered into a Joint Exercise of Powers Agreement with the Sacramento Regional County Sanitation District (SRCSD) to form the Sacramento County Sanitation Districts Financing Authority (the Authority) for the purpose of facilitating the financing of acquisition and/or construction of real and personal property in and for the District and SRCSD. The Board of Directors of the District serves as the Authority’s governing board. This section is provided in accordance with the requirements of the: “Continuing Disclosure Certificate for the Sacramento County Sanitation Districts Financing Authority of its Revenue Bonds Series 2005” “Continuing Disclosure Certificate for the Sacramento County Sanitation Districts Financing Authority of its Revenue Bonds, Series 2010A Federally Taxable Direct Subsidy Build America Bonds and Series 2010B (2010 Bonds)” The material provided under the Certificates is intended to meet or exceed the requirements of Securities and Exchange Commission Rule 15c2-12(b) (5) (the Rule). The data tables provided herein apply to the Series 2005 Revenue Bond and the Series 2010 Revenue Bond issue. This Bond Disclosure Section included within the District’s Comprehensive Annual Financial Report (CAFR) provides the information required by the Continuing Disclosure Certificate. The CAFR, in turn, will be filed with the MSRB’s Electronic Municipal Market Access (EMMA) which transmits it to the National Repositories. The CAFR may also be found at www.sacsewer.com. ANNUAL REPORT As required by the Certificates, this annual report is incorporated into the CAFR and thus, includes by reference, the audited financial statements of the District for the prior fiscal year. The annual report also contains the following six (6) sections as required in the Certificate:

(1) A table indicating the number or residential and commercial customer accounts (by equivalent single family dwellings or other appropriate measure) and the percentage of service charge revenues for the immediately preceding five (5) fiscal years.

(2) A table listing the ten (10) largest industrial customers and the total service charge revenues received from each of such customers for the immediately preceding fiscal year.

(3) A table providing a comparison of sewer service rates and impact fees for single-family residences for the District.

(4) A table providing the amount of delinquent service charges which were added to the tax rolls for the immediately preceding five (5) fiscal years.

(5) A table setting forth the collection rates for charges imposed by the District on its customers for the immediately preceding five (5) fiscal years.

(6) A table showing the Revenues, Maintenance and Operation Costs, and Net Revenues (as these three terms are defined in the Installment Purchase Contract), debt service coverage, and certain fund balances of the District for the immediately preceding five (5) fiscal years.




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REPORTING OF SIGNIFICANT EVENTS As of June 30, 2014, none of the events listed in Section 5 of the Certificates have occurred for the Series 2005 and Series 2010 Bonds issued by the Financing Authority. As of June 30, 2014, there is no knowledge on the part of the Board of Directors, officers, or employees of Sacramento Area Sewer District of any impending significant event that would require disclosure under the provisions of the Certificate. ADDITIONAL INFORMATION The District collects service charges for SASD and SRCSD per the Master Interagency Agreement. The bimonthly invoices sent to customers list an amount for “Local Sewer” (to recover charges for the wastewater collection systems operated by the District), and a separate amount for “Regional Sewer” (to recover the charges imposed by SRCSD for treatment services).

Section (1) A table indicating the number of residential and commercial customer

accounts (by equivalent single-family dwelling) and the percentage of service charge revenues for the immediately preceding five (5) fiscal years.

Residential/Commercial

Fiscal Year Ended Number of Equivalent Percentage of ServiceJune 30, Single-family Dwelling Charge Revenues

2010 399,298 99.0%2011 400,178 99.0%2012 401,405 99.0%2013 402,705 99.0%2014 404,647 99.0%

for the Fiscal Year Ended June 30




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Section (2) A table listing the ten (10) largest industrial customers and the total service

charge revenues received from each of such customers for the immediately preceding fiscal year.

RevenuesLargest Industrial Customers Received

Sacramento County Airport System 147,532$ Procter and Gamble Manufacturing 33,602 City of Sacramento, EA Fairbaim WTP 29,945 H.P. Hood, LLC 19,225 Aerojet Commercial 15,210 Huhtamaki Food Services, Inc. 11,958 Rio Cosumnes Correctional Center 9,866 Air Products Manufacturing Co 7,901 Mission Linen Supply 6,730 Raging Waters, Sacramento 5,135

TOTAL 287,104$

Section (3) A table providing a comparison of sewer service rates and impact fees for single-family residences for the District.

Sewer Rates and Impact Fees

for the Fiscal Year Ended June 30, 2014

SRCSD SASD TOTALMonthly Services Charges 26.00$ 19.85$ 45.85$

Sewer Impact Fees (a) 4,304$ 2,362$ 6,666$

(a) – SRCSD impact fee is based on new area fee. Infill area impact fee is $2,543. SASD fee is based on expansion area. Relief area impact fee is $461.




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Section (4) A table providing the amount of delinquent service charges which were

added to the tax rolls for the immediately preceding five (5) fiscal years.

Fiscal Year Number of Delinquent Percent of Accounts Delinquent AmountsEnded June 30 Accounts Delinquent Placed on Tax Rolls

2010 20,081 6.77% $12,186,7282011 18,709 6.28% 11,702,9022012 17,240 5.77% 11,699,5672013 16,458 5.48% 11,345,0302014 15,851 5.26% 11,210,658

Collection Rates for SASDfor the Fiscal Year Ended June 30

(rounded to nearest thousand)

Section (5) A table setting forth the collection rates for charges imposed by the District

on its customers for the immediately preceding five (5) fiscal years.

Amount Assigned toFiscal Year Total Amount of Service Total Amount County under Teeter

Ended June 30 Charges Collected Plan

2010 $83,516,000 $82,182,940 $1,333,0602011 94,813,872 93,504,682 1,309,1902012 95,988,816 94,690,531 1,298,2852013 95,825,402 94,544,361 1,281,0412014 96,565,734 95,546,823 1,018,911




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Section (6) A table showing the Revenues, maintenance and Operation Costs, Net Revenues, debt service coverage (as these three term are defined in the Installment Purchase Contract), and certain fund balances of the district for the immediately preceding five (5) fiscal years.

Revenues: 2010 2011 2012 2013 2014 Operating revenues: Sewer service fees 83,516$ 94,814$ 95,989$ 95,825$ 96,566$ Sewer Impact fees 652 1,060 4,124 252 2,296 Other 6,781 3,499 3,812 4,002 3,404

90,949 99,373 103,925 100,079 102,266 Non-operating revenues: Interest income 454 1,249 1,743 789 511 Build America Bond subsidy - 1,155 2,445 2,445 2,251 454 2,404 4,188 3,234 2,762

Total revenue 91,403 101,777 108,113 103,313 105,028

M&O Expenses: Total operating expense 82,912 85,476 85,492 92,276 103,860 Less depreciation and amortization (27,408) (29,331) (30,797) (33,481) (34,181)

55,504 56,145 54,695 58,795 69,679

Net revenue, including impact fees 35,899$ 45,632$ 53,418$ 44,518$ 35,349$

Senior lien debt service (1) 10,554$ 14,139$ 18,949$ 18,952$ 18,952$

Net revenue coverage 3.40 3.23 2.82 2.35 1.87

Reserve balances, end of year 30,367$ 32,995$ 33,023$ 34,023$ 41,036$

Revenues, Maintenance and Operations Costs,Net Revenues, Debt Service Coverage and Certain Fund Balances of the

District for the Fiscal Years Ended June 30(amounts expressed in thousands)

ACKNOWLEDGEMENTSThis Comprehensive Annual Financial Report was prepared by the Sacramento Area Sewer District Finance Section

Prabhakar SomavarapuDistrict EngineerSacramento Area Sewer District

Joseph T. MaestrettiChief Financial Administrative OfficerSacramento Area Sewer District

Steve DeLozierSenior Accounting ManagerSacramento Area Sewer District

Glen IwamuraAccounting ManagerSacramento Area Sewer District

printed on recycled paper

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APPENDIX D

SUMMARY OF PRINCIPAL LEGAL DOCUMENTS

The following is a summary of certain provisions of the Master Installment Purchase Contract, the Third Supplemental Installment Purchase Contract, the Indenture and the Third Supplemental Indenture. This summary does not purport to be complete or definitive and is qualified in its entirety by reference to the full terms of the Master Installment Purchase Contract, the Third Supplemental Installment Purchase Contract, the Indenture and the Third Supplemental Indenture.

Immediately upon the issuance of the Series 2015 Bonds, a new definition of “Subsidy” will be added to the Master Contract (as defined below) and the definition of “Revenues” contained in the Master Contract will be amended such that “Revenues” expressly includes any Subsidy. Immediately upon the issuance of the Series 2015 Bonds, the definition of “Coverage Requirement” contained in the Master Contract will also be amended to exclude the amount of any Subsidy from both the amount of Annual Debt Service and the amount of Adjusted Annual Net Revenues used to calculate the Coverage Requirement. The amended definition of “Revenues,” the amended definition of “Coverage Requirement” and the added definition of “Subsidy” are described below under the subheading “DEFINITIONS.” Purchasers of the Series 2015 Bonds (but not the underwriter of the Series 2015 Bonds) will, by their purchase and acceptance of the Series 2015 Bonds, be deemed to have consented to these amendments without further act. The underwriter of the Series 2015 Bonds has not consented to, and shall not be deemed to have consented to, these amendments.

DEFINITIONS

The following are definitions of certain terms used in this Summary of Principal Legal Documents or elsewhere in this Official Statement.

“2005 Payments” means the outstanding payments scheduled to be paid by the District under the First Supplemental Contract.

“2015 Payments” means the Payments scheduled to be paid by the District under the Third Supplemental Contract.

“Accountant’s Report” means a report signed by an Independent Certified Public Accountant.

“Act” means the Joint Exercise of Powers Act of the State (being Chapter 5, Division 7, Title 1 of the California Government Code, as amended), and all laws amendatory thereof or supplemental thereto.

“Adjusted Annual Debt Service” means, for any Fiscal Year or 12 calendar month period, the Annual Debt Service for such Fiscal Year or 12 calendar month period minus the amount of such Annual Debt Service paid from the proceeds of Parity Obligations or from any interest earnings from amounts on deposit in all Reserve Funds and Reserve Accounts established in connection with Parity Obligations, as set forth in a Certificate of the District.

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“Adjusted Annual Net Revenues” means, for any Fiscal Year or 12 calendar month period, the Adjusted Annual Revenues during such Fiscal Year or 12 calendar month period minus the Maintenance and Operation Costs during such Fiscal Year or 12 calendar month period.

“Adjusted Annual Revenues” means, for any Fiscal Year or 12 calendar month period, the Revenues during such Fiscal Year or 12 calendar month period plus the deposits in the Revenue Fund from the Rate Stabilization Fund during or allocable to such Fiscal Year or 12 calendar month period minus the deposits in the Rate Stabilization Fund from the Revenue Fund during or allocable to such Fiscal Year or 12 calendar month period. “Annual Debt Service” means, for any Fiscal Year or 12 calendar month period, the Parity Payments required to be made under all Supplemental Contracts in such Fiscal Year or 12 calendar month period.

“Authority” means the Sacramento County Sanitation Districts Financing Authority, a joint exercise of powers entity duly organized and existing under and by virtue of the laws of the State.

“Average Annual Debt Service” means the sum of the Annual Debt Service for the remaining Fiscal Years to the last Fiscal Year in which any Parity Payments are due under the last Outstanding Supplemental Contract divided by the number of such Fiscal Years.

“Balloon Contract” means any Supplemental Contract described as such in such Supplemental Contract.

“Board of Directors” means the Board of Directors of the District.

“Bonds” means all revenue bonds of the Authority executed, authenticated and delivered under the Indenture that are at any time Outstanding pursuant to the terms thereof and of all Supplemental Indentures. “Serial Bonds” means all Bonds for which no Sinking Fund Payments are provided. “Term Bonds” means all Bonds which are payable on or before their maturity date or dates from Sinking Fund Payments established for that purpose and calculated to retire such Bonds on or before their maturity date or dates.

“Business Day” means any day (other than a Saturday or a Sunday) on which banks in New York, New York, are open for business and on which the Trustee is open for business at its principal corporate trust office.

“Certificate of the Authority” means an instrument in writing signed by the Chair or by any other officer of the Authority duly authorized by the Authority for that purpose.

“Certificate of the District” means an instrument in writing signed by the Chair, or by any other officer of the District duly authorized by the Board of Directors for that purpose.

“Chair,” with respect to the District, means the Chair of the Board of Directors and with respect to the Authority, means the Chair of the Authority.

“Clerk” means the Clerk of the Authority.

“Code” means the Internal Revenue Code of 1986, and all then applicable regulations issued thereunder.

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“Continuing Disclosure Certificate” means that certain Continuing Disclosure Certificate, executed by the District and dated the date of the original issuance of the Series 2015 Bonds, as originally executed and as it may be amended from time to time in accordance with the terms thereof.

“Contract” or “Contracts” means the Master Contract and all Supplemental Contracts.

“Contract Resource Obligation” means an obligation of the District designated as a Contract Resource Obligation and entered into pursuant to the Master Contract, to make payments for Sanitation Service or any other commodity or service to another person or entity (including without limitation a separate utility system created pursuant to the Master Contract), the payments under which without the application of the Master Contract’s terms relating thereto would not be treated as Maintenance and Operation Costs in accordance with Generally Accepted Accounting Principles.

“Costs of Issuance” means all costs or expenses directly or indirectly payable by or reimbursable to the Authority or the District that are related to the authorization, execution and delivery of the Indenture and the Contract and the execution, authentication and delivery of any Series of Bonds, including, but not limited to, all costs of preparation and reproduction of documents, costs of Rating Agencies and costs to provide information required by the Rating Agencies, filing and recording fees, initial fees and charges of the Trustee, legal fees and charges, fees and disbursements of consultants and professionals, fees and expenses of the underwriter, fees and charges for preparation, execution and safekeeping of any Series of Bonds, fees of the Authority and any other cost or expense in connection with the original execution, authentication and delivery of any Series of Bonds.

“Costs of Issuance Fund” means the Sacramento County Sanitation Districts Financing Authority Revenue Bonds (Sacramento Area Sewer District) Costs of Issuance Fund established under the Indenture.

“Coverage Requirement” means, for any Fiscal Year or 12 calendar month period, an amount of Adjusted Annual Net Revenues equal in each case to at least (i) 120% of the Adjusted Annual Debt Service for such Fiscal Year or 12 calendar month period and (ii) 100% of all obligations of the District payable in such Fiscal Year or 12 calendar month period; provided, that for purposes of determining compliance with the Coverage Requirement, the following provisions shall apply:

(A) Generally. Except as otherwise provided by subparagraph (B) below with respect to Variable Interest Rate Contracts and by subparagraph (C) below with respect to Obligations with respect to which a Payment Agreement is in force, interest on any Obligation shall be calculated based on the actual amount of interest that is payable under such Obligation;

(B) Interest on Variable Interest Rate Contracts. Interest deemed to be payable on any Variable Interest Rate Contract for periods when the actual interest rate can be determined shall be the actual Variable Interest Rates and for periods when the actual interest rate cannot yet be determined shall be calculated on the assumption that the interest rate on such Variable Interest Rate Contract would be equal to the rate (the “assumed RBI-based rate”) that is 90% of the average RBI during the 12 calendar month period immediately preceding the date in which such calculation is made;

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(C) Interest on Obligations with respect to which a Payment Agreement is in force. Interest deemed to be payable on any Obligation with respect to which a Payment Agreement is in force shall be based on the net economic effect on the District expected to be produced by the terms of such Obligation and such Payment Agreement, including but not limited to the effects that (i) such Obligation would, but for such Payment Agreement, be treated as an obligation bearing interest at a Variable Interest Rate instead shall be treated as an obligation bearing interest at a fixed interest rate, and (ii) such Obligation would, but for such Payment Agreement, be treated as an obligation bearing interest at a fixed interest rate instead shall be treated as an obligation bearing interest at a Variable Interest Rate; and accordingly, the amount of interest deemed to be payable on any Obligation with respect to which a Payment Agreement is in force shall be an amount equal to the amount of interest that would be payable at the rate or rates stated in such Obligation plus the Payment Agreement Payments minus the Payment Agreement Receipts, and for the purpose of calculating as nearly as practicable the Payment Agreement Receipts and the Payment Agreement Payments under such Obligation, the following assumptions shall be made:

(1) District Obligated to Pay Net Variable Payments. If a Payment Agreement has been entered into by the District with respect to an Obligation resulting in the payment of a net variable interest rate with respect to such Obligation and Payment Agreement by the District, the interest rate on such Obligation for future periods when the actual interest rate cannot yet be determined shall be assumed (but only during the period the Payment Agreement is in effect) to be equal to the sum of (i) the fixed rate or rates stated in such Obligation, minus (ii) the fixed rate paid by the Qualified Counterparty to the District, plus (iii) the lesser of (A) the interest rate cap, if any, provided by a Qualified Counterparty with respect to such Payment Agreement (but only during the period that such interest rate cap is in effect) and (B) the assumed RBI-based rate; and

(2) District Obligated to Pay Net Fixed Payments. If a Payment Agreement has been entered into by the District with respect to an Obligation resulting in the payment of a net fixed interest rate with respect to such Obligation and Payment Agreement by the District, the interest on such Obligation shall be included in the calculation of the Coverage Requirement (but only during the period the Payment Agreement is in effect) by including for each Fiscal Year or 12 calendar month period an amount equal to the amount of interest payable at the fixed interest rate pursuant to such Payment Agreement;

(D) For purposes of calculating the Annual Debt Service on any Balloon Contract, it shall be assumed that the principal of such Balloon Contract, together with interest thereon at a rate equal to the assumed RBI-based rate, will be amortized in equal annual installments over a term of 30 years; and

(E) For purposes of any calculation of the Coverage Requirement under the Master Contract, (1) any calculation of Annual Debt Service (or other obligations payable by the District) for any period of time with respect to specified Obligations shall be reduced by the amount of any Subsidy that the Authority or the District receives or expects to receive during such period of time relating to or in connection with such Obligations and (2) to the extent the calculation of Annual Debt Service is reduced by the Subsidy as provided in clause (1) of this subparagraph (E), any calculation of Adjusted Annual Net Revenues for any period of time shall exclude the amount of any Subsidy received or expected to be received by the Authority or the District with respect to or in connection with the specified Obligations during such period of time.

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“Credit Facility” means any line of credit, letter of credit, insurance policy, surety bond or other credit source deposited with the Trustee pursuant to the Indenture.

“Date of Operation” means, with respect to any uncompleted Project, the estimated date by which such Project will have been completed and, in the opinion of an Independent Engineer, will be ready for continuous and reliable operation by the District.

“Director of Finance” means the Director of Finance of the County of Sacramento, as treasurer of the District and the Authority.

“District” means Sacramento Area Sewer District (formerly known as County Sanitation District No. 1), a county sanitation district duly organized and existing under and by virtue of the laws of the State.

“DTC” means The Depository Trust Company, and its successors or assigns.

“Engineer’s Report” means a report signed by an Independent Engineer.

“Escrow Agent” means MUFG Union Bank, N.A.

“Escrow Agreement” means the escrow agreement, dated as of May 1, 2015, between the Authority and the Escrow Agent providing for the refunding of the Refunded Series 2005 Bonds.

“Event of Default” means, with respect to the Master Contract, an event described under the heading “Master Installment Purchase Contract – Events of Default” and, with respect to the Indenture, an event described under the heading “Indenture – Events of Default” in this Summary.

“First Supplemental Contract” means the First Supplemental Installment Purchase Contract, dated as of June 1, 2005, between the District and the Authority, supplemental to the Master Contract.

“Fiscal Year” means the period beginning on July 1 of each year and ending on the next succeeding June 30, or any other annual accounting period hereafter selected and designated by the Board of Directors as the Fiscal Year of the District (or the Authority as the Fiscal Year of the Authority).

“Fitch” means Fitch, Inc. dba FitchRatings, a corporation duly organized and existing under and by virtue of the laws of the State of Delaware, and its successors or assigns, but only to the extent that such entity is then rating the Bonds (or, with respect to the Master Contract, any obligations secured by Parity Payments) at the request of the Authority.

“Generally Accepted Accounting Principles” means the uniform accounting and reporting procedures set forth in publications of the American Institute of Certified Public Accountants or its successor, or by any other generally accepted authority on such procedures, and includes, as applicable, the standards set forth by the Governmental Accounting Standards Board or its successor.

“Holder” means any person who shall be the registered owner of any Outstanding Bond.

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“Improvement Fund” means the Sacramento Area Sewer District Improvement Fund established under the Master Contract.

“Indenture” means that certain Indenture executed and entered into as of June 1, 2005, between the Authority and the Trustee, as supplemented and amended.

“Independent Certified Public Accountant” means any firm of certified public accountants duly licensed and entitled to practice and practicing as such under the laws of the State, appointed and paid by the District or the Authority, and each of whom –

(1) is in fact independent and not under the domination of the District or the Authority;

(2) does not have a substantial financial interest, direct or indirect, in the operations of the District or the Authority; and

(3) is not connected with the District or the Authority as a director, officer or employee of the District or the Authority, but may be regularly retained to audit the accounting records of and make reports thereon to the District or the Authority.

“Independent Engineer” means any registered engineer or firm of registered engineers of national reputation generally recognized to be well qualified in engineering matters relating to sanitation collection systems, appointed and paid by the District, and who or each of whom –

(1) is in fact independent and not under the domination of the District;

(2) does not have a substantial financial interest, direct or indirect, in the operations of the District; and

(3) is not connected with the District as a director, officer or employee of the District, but may be regularly retained to make reports to the District.

“Information Services” means Financial Information, Inc.’s “Daily Called Bond Service,” 30 Montgomery Street, 10th Floor, Jersey City, New Jersey 17302, Attention: Editor, Kenny Information Services’ “Called Bond Service,” 55 Broad Street, 28th Floor, New York, New York 10004, Moody’s “Municipal and Government,” 99 Church Street, 8th Floor, New York, New York 10007, Attention: Municipal News Reports, and S&P’s “Called Bond Service,” 25 Broadway, 3rd Floor, New York, New York 10004, to the extent that any of them is providing information with respect to called bonds; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other services providing information with respect to called bonds as the Authority may designate in a Certificate of the Authority delivered to the Trustee.

“Interest Account” means the account by that name in the Revenue Fund established under the Indenture.

“Interest Payment Date” means, with respect to the Master Contract, a date on which any interest installment of the Payments is due and payable and, with respect to the Indenture, a date on which interest is due on any of the Bonds.

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“Issuing Document” means the Indenture and any other indenture, trust agreement or other document the obligations issued or delivered pursuant to which are secured by Payments under Contracts; provided, that the trustee under each Issuing Document shall be the Trustee.

“Law” means the County Sanitation District Law (being Sections 4700 et seq. of the California Health and Safety Code, as amended), and all laws amendatory thereof or supplemental thereto.

“Maintenance and Operation Costs” means, for any Fiscal Year or 12 calendar month period, all reasonable and necessary costs paid or incurred by the District during such Fiscal Year or 12 calendar month period for maintaining and operating the Sanitation System, determined in accordance with Generally Accepted Accounting Principles, including all reasonable expenses of management and repair and other expenses necessary to maintain and preserve the Sanitation System in good repair and working order, and including all delinquencies payable to the Sacramento Regional County Sanitation District, and including all amounts due under Contract Resource Obligations (but only at the times described in the Master Contract), and including all administrative costs of the District that are charged directly or apportioned to the operation of the Sanitation System, such as salaries and wages of employees, overhead, taxes (if any), insurance premiums and payments into pension funds, and including all other reasonable and necessary costs of the District or charges required to be paid by it to comply with the terms of the Master Contract or of any resolution authorizing the execution of any Supplemental Contract or of such Supplemental Contract, such as compensation, reimbursement and indemnification of the Trustee and fees and expenses of Independent Certified Public Accountants and Independent Engineers and the Director of Finance, but excluding in all cases depreciation, replacement and obsolescence charges or reserves therefor and amortization of intangibles.

“Master Contract” means the Master Installment Purchase Contract, dated as of June 1, 2005, between the District and the Authority, as supplemented and amended.

“Master Interagency Agreement” means that certain agreement, dated as of November 1, 1974, as amended, to which the District is a party, a copy of which shall be kept on file at the office of the Trustee.

“Moody’s” means Moody’s Investors Service, a corporation duly organized and existing under and by virtue of the laws of the State of Delaware, and its successors or assigns, but only to the extent that such entity is then rating the Bonds (and with respect to the Master Contract, any obligations secured by Parity Payments) at the request of the Authority.

“Net Proceeds” means, when used with respect to any condemnation award or any insurance proceeds received with respect to the Sanitation System, the amount of such condemnation award or insurance proceeds remaining after payment of all expenses (including attorneys’ fees) incurred in the collection of such award or proceeds.

“Net Revenues” means, for any Fiscal Year or 12 calendar month period, the Revenues during such Fiscal Year or 12 calendar month period less the Maintenance and Operation Costs during such Fiscal Year or 12 calendar month period.

“Obligations” means all Parity Obligations and all Subordinate Obligations.

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“Opinion of Counsel” means a written opinion of counsel of recognized national standing in the field of law relating to municipal bonds, retained by the District or the Authority and satisfactory to the Trustee (who shall be under no liability by reason of such approval).

“Outstanding” means (i), with respect to the Payments, all Payments which have not been paid or otherwise satisfied as provided in of the Master Contract, and with respect to the Supplemental Contracts, all Supplemental Contracts the Payments under which have not been paid or otherwise satisfied as provided in the Master Contract and (ii) when used as of any particular time with reference to the Bonds, means (subject to the provisions of the Indenture) all Bonds executed, authenticated and delivered under the Indenture except (1) Bonds cancelled by the Trustee or surrendered to the Trustee for cancellation; (2) Bonds paid or deemed to have been paid within the meaning of the Indenture; and (3) Bonds in lieu of or in substitution for which other Bonds shall have been executed, authenticated and delivered pursuant to the Indenture.

“Parity Obligation Payment Fund” means the Sacramento Area Sewer District Parity Obligation Payment Fund established under the Master Contract.

“Parity Obligations” means all Supplemental Contracts or Payment Agreements, the Parity Payments under which (other than Termination Payments) are secured by a senior lien on Net Revenues created thereby and are payable on a parity therefrom.

“Parity Payment Agreement” means a Payment Agreement which is a Parity Obligation.

“Parity Payments” means all installment payments scheduled to be paid by the District under all Parity Obligations.

“Payment Agreement” means a written agreement for the purpose of managing or reducing the District’s exposure to fluctuations in interest rates or for any other interest rate, investment, asset or liability managing purposes, entered into either on a current or forward basis by the District and a Qualified Counterparty as authorized under any applicable laws of the State in connection with, or incidental to, the entering into of any Supplemental Contract, that provides for an exchange of payments based on interest rates, ceilings or floors on such payments, options on such payments or any combination thereof, or any similar device.

“Payment Agreement Payments” means the amounts periodically required to be paid by the District to all Qualified Counterparties under all Payment Agreements.

“Payment Agreement Receipts” means the amounts periodically required to be paid by all Qualified Counterparties to the District under all Payment Agreements.

“Payment Date” means any date on which Payments are scheduled to be paid by the District.

“Payments” means (i) with respect to the Master Contract, the Parity Payments and the Subordinate Payments and (ii) with respect to the Indenture, the installment payments scheduled to be paid by the District pursuant to all Supplemental Contracts (as defined in the Indenture).

“Permitted Investments” means any of the following investments as authorized by applicable law at the time of making such investment, namely:

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(1) (a) Direct obligations of, or obligations the interest on and principal of which are unconditionally guaranteed by, the United States of America, including obligations issued or held in book-entry form on the books of the Department of the Treasury of the United States of America and including a receipt, certificate or any other evidence of any ownership interest in such an obligation or in specified portions thereof (which may consist of specified portions of interest thereon) or (b) tax-exempt obligations of a state or political subdivision thereof which have been defeased under irrevocable escrow instructions by the deposit of money or securities of the type described in clause (1)(a) of this definition and which are then rated in the highest rating category by each of the Rating Agencies;

(2) Obligations issued by the Resolution Funding Corporation, the Federal National Mortgage Association, the Federal Home Loan Bank Board, the Federal Farm Credit Bank or the Federal Home Loan Mortgage Association, or obligations, participations or other instruments of or issued by, or fully guaranteed as to interest and principal by, the Government National Mortgage Association (excluding stripped mortgage backed securities which are valued at greater than par on the unpaid principal);

(3) Bills of exchange or time drafts drawn on and accepted by a commercial bank (excluding the Trustee), otherwise known as bankers acceptances, which are eligible for purchase through a bank that is a member of the Federal Reserve System and which are drawn on any such commercial bank the short-term obligations of which are rated in the highest letter and numerical rating category by each of the Rating Agencies; provided, that purchases of eligible bankers acceptances may not exceed 270 days’ maturity;

(4) Commercial paper of “prime” quality of a corporation which is rated in the highest rating category (without regard to any gradations within a rating category) by each of the Rating Agencies, which commercial paper is limited to issuing corporations that are organized and operating within the United States of America and that have total assets in excess of $500,000,000 and that have an “A” or higher rating for the issuer’s unsecured debentures, other than commercial paper, by each of the Rating Agencies; provided, that purchases of eligible commercial paper may not exceed 180 days’ maturity nor represent more than 10% of the outstanding commercial paper of an issuing corporation; or medium-term notes with a maximum maturity of five years and subject to the credit qualifications listed above;

(5) Negotiable and non-negotiable certificates of deposit or thrift or bank notes issued by a state or national bank or a state-licensed branch of a foreign bank (excluding the Trustee) that have maturities of not more than 365 days and that are fully insured by the Federal Deposit Insurance Corporation or the short-term obligations of which state or national bank or state-licensed branch of a foreign bank are rated no lower than “A1” by Moody’s and “A+” by S&P, or medium-term notes with a maximum maturity of five years and subject to the same credit qualifications contained in the Master Contract;

(6) Any repurchase agreement or reverse repurchase agreement of any securities enumerated in subdivisions (1) and (2) of this definition with any state or national bank (excluding the Trustee) or government bond dealer reporting to, trading with, and recognized as a primary dealer by the Federal Reserve Bank of New York; provided, that any such repurchase agreement or reverse repurchase agreement is: (A) with any institution which has debt rated no lower than “A1” by Moody’s and “A+” by S&P or whose commercial paper is rated no lower than “P-1” by Moody’s and “A-1” by S&P; or (B) with any corporation or other entity that falls under the jurisdiction of the

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Federal Bankruptcy Code, so long as (i) the term of such repurchase agreement or reverse repurchase agreement is less than one (1) year or due on demand; (ii) the market value of the collateral (as determined at least once in every 7 days) exceeds the principal amount of such repurchase agreement or reverse repurchase agreement plus accrued interest thereon and the market value of the collateral is maintained at levels acceptable to the Rating Agencies; (iii) the Trustee or a third party acting solely as agent for the Trustee has possession of the collateral; (iv) the Trustee has a perfected first priority security interest in the collateral; (v) the collateral is free and clear of third-party liens and, in the case of a Securities Investors Protection Corporation broker, was not acquired pursuant to a repurchase agreement or reverse repurchase agreement; and (vi) the failure to maintain the requisite collateral percentage will require the Trustee to liquidate the collateral immediately; and provided further, that with respect to any such reverse repurchase agreement, the investment is solely done to supplement the income normally received from such securities;

(7) Certificates, notes, warrants, bonds or other evidences of indebtedness of the State or any local agencies therein which are rated in the highest short-term rating category or within one of the three highest long-term rating categories by each of the Rating Agencies (excluding securities that do not have a fixed par value and/or whose terms do not provide a fixed dollar amount at the maturity date or redemption date thereof);

(8) Tax-exempt obligations of a state or a political subdivision thereof which have ratings at least equal to the ratings assigned by each of the Rating Agencies on the Bonds;

(9) For amounts less than $100,000, interest-bearing demand or time deposits (including certificates of deposit) in any state or national bank fully insured by the Federal Deposit Insurance Corporation, including the Trustee or any affiliate thereof; provided, that not greater than $100,000 in the aggregate shall be deposited in any one financial institution;

(10) Investments in units of a money-market fund portfolio that is rated in the highest letter and numerical rating category by each of the Rating Agencies and that is composed of obligations guaranteed by the full faith and credit of the United States of America or repurchase agreements collateralized by such obligations, including such portfolios for which the Trustee or an affiliate provides investment advice or other services;

(11) Investment agreements with entities that meet (or guarantors of such entities that meet) and maintain the following credit and collateral requirements: (a) if a corporation, they are initially rated “Aaa” by Moody’s and “AAA” by S&P; if a domestic bank, they are initially rated Fitch “B/C” or better; and if a foreign bank, they are initially rated Fitch “B” or better; (b) if credit quality reaches Moody’s “Aa3” or S&P “AA-” for corporations, Fitch “B/C” for domestic banks and Fitch “B” for foreign banks, provider (1) will respond with adequate collateralization within 10 Business Days, (2) will value assets weekly, and (3) will present collateral at 102% on U.S. Government and 105% on U.S. Government Agency securities; (c) provider must maintain minimum credit quality of Moody’s “A2” or S&P “A” for corporations, Fitch “C” for domestic banks, or Fitch “B/C” for foreign banks; and (d) investment agreement will be terminated if credit ratings reach Moody’s “A3” or S&P “A-” for corporations, Fitch “C/D” for domestic banks and Fitch “C” for foreign banks;

(12) Investments in the County of Sacramento Pooled Investment Fund;

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(13) Investments in the Local Agency Investment Fund maintained by the California State Treasurer, which such investments shall only be invested in the special portion of the Local Agency Investment Fund for bond proceeds that are not subject to arbitrage restrictions, and for which such investments the Trustee shall be designated as the authorized authority to transact investments from such fund; and

(14) Other legally authorized investments approved by the Rating Agencies.

“Principal Corporate Trust Office” means the corporate trust office of the Trustee in San Francisco, California, at which at any particular time its corporate trust business is being administered or such other office in Los Angeles or San Francisco, California, that may be designated by the Trustee from time to time as its Principal Corporate Trust Office (except that with respect to presentation of Bonds for registration, payment, redemption, transfer or exchange, such term shall mean the principal corporate trust office of the Trustee in Los Angeles, California).

“Principal Payment Date,” with respect to the Master Contract, means a date on which any principal installment of the Payments is due and payable and, with respect to the Indenture, means a date on which principal is due on any of the Bonds.

“Principal Subaccount” means the subaccount by that name in the Redemption Account established under the Indenture.

“Prior Projects” means those certain additions, betterments and improvements to the Sanitation System of the District financed or refinanced as provided in the First Supplemental Contract.

“Project” means any additions, betterments and improvements to the Sanitation System designated by the Board of Directors in a Supplemental Contract as a designated Project, the acquisition and construction of which (together with the incidental costs and expenses related thereto) will be financed by the proceeds of any Supplemental Contract as provided therein.

“Project Accounts” means collectively all the accounts established in the Improvement Fund by all the Supplemental Contracts to finance the acquisition and construction of all the Projects.

“Projects” means those additions, betterments and improvements to the Sanitation System as determined in a Supplemental Indenture authorizing the issuance of a Series of Bonds.

“Qualified Counterparty” means a party (other than the District or a party related to the District) who is the other party to a Payment Agreement and (1) (a) who is rated at least equal to the ratings assigned by each of the Rating Agencies to the obligations secured by Parity Payments (without regard to any gradations within a rating category), (b) whose senior debt obligations are rated at least equal to the ratings assigned by each of the Rating Agencies to the obligations secured by Parity Payments (without regard to any gradations within a rating category), or guaranteed by an entity so rated, (c) whose obligations under the Payment Agreement are guaranteed for the entire term of the Payment Agreement by a bond insurer or other institution which has been assigned a credit rating at least equal to the ratings assigned by each of the Rating Agencies to the obligations secured by Parity Payments, or (d) whose obligations under the Payment Agreement are collateralized in such a manner as to obtain a rating at least equal to the ratings assigned by each of

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the Rating Agencies to the obligations secured by Parity Payments, and (2) who is otherwise qualified to act as the other party to a Payment Agreement under all applicable laws of the State.

“Rate Stabilization Fund” means the Sacramento Area Sewer District Rate Stabilization Fund established under the Master Contract.

“Rating Agencies” means collectively Fitch, Moody’s and S&P, together with any other nationally recognized municipal securities rating agency or agencies selected by the Authority that is then rating any obligations secured by Parity Payments at the request of the Authority.

“RBI” means the Bond Buyer Revenue Bond Index or comparable index, or, if no comparable index can be obtained, 80% of the interest rate on actively traded 30 year United States Treasury Bonds, except that if no such United States Treasury Bonds are actively traded, it means 80% of the interest rate on actively traded United States Treasury obligations or other obligations generally recognized to constitute “Benchmark Securities” in the municipal bond industry.

“Record Date” means, with respect to any Interest Payment Date, the 15th day of the month next preceding such Interest Payment Date.

“Redemption Account” means the account by that name in the Revenue Fund established under the Indenture.

“Refunded Series 2005 Bonds” means all of the Series 2005 Bonds currently outstanding.

“Refunded 2005 Payments” means all of the remaining principal components of the 2005 Payments and the interest accruing thereon to the related payment or prepayment date thereof.

“Refunding Price” means the principal amount of the 2015 Payments plus the interest thereon owed by the District to the Authority under the Third Supplemental Contract.

“Representation Letter” means the blanket letter of representation countersigned by DTC from either the Authority or the Trustee, as applicable, allowing each Series of Bonds to be registered in book-entry form with DTC as the registered owner thereof.

“Request of the District” means an instrument in writing signed by the District duly authorized by the Board of Directors for that purpose.

“Reserve Fund” and “Reserve Account,” with respect to the Master Contract, shall have the meanings given to such terms in any Issuing Document or Supplemental Contract and with respect to the Indenture, means the account by that name in the Revenue Fund established under the Indenture.

“Reserve Fund Credit Facility Cost” means the repayment of draws, expenses and accrued interest or other similar costs payable in connection with a line of credit, letter of credit, insurance policy, surety bond or other credit source deposited with the Trustee for the credit of a Reserve Fund or Reserve Account.

“Revenue Fund,” with respect to the Master Contract, means the Sacramento Area Sewer District Revenue Fund established under the Master Contract and with respect to the Indenture, means the Sacramento County Sanitation Districts Financing Authority Revenue Bonds (Sacramento Area Sewer District) Revenue Fund established under the Indenture.

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“Revenues,” with respect to the Master Contract, means for any Fiscal Year or 12 calendar month period, all income and revenue received or receivable by the District during such Fiscal Year or 12 calendar month period from the ownership or operation of the Sanitation System, determined in accordance with Generally Accepted Accounting Principles, including all rates, fees and charges received by the District for the Sanitation Service and the other services of the Sanitation System and all proceeds of insurance covering business interruption loss relating to the Sanitation System and all connection fees and charges payable to the District for the Sanitation Service made available or provided by the Sanitation System and all payments for the lease of property comprising a part of the Sanitation System and all other income and revenue howsoever derived by the District from the ownership or operation of the Sanitation System or arising from the Sanitation System, and including all Payment Agreement Receipts, and including all income from the investment of amounts on deposit in the Revenue Fund, the Parity Obligation Fund and the Rate Stabilization Fund, and including any Subsidy but excluding in all cases any proceeds of taxes, any refundable deposits made to establish credit, any connection fees which are paid through the use of credits, and any advances or contributions in aid of construction and excluding any income from the investment of amounts on deposit in the Improvement Fund and excluding any earnings of a separate utility system acquired and constructed by the District pursuant to the Master Contract relating to Contract Resource Obligations. Notwithstanding the foregoing, there shall be deducted from Revenues any amounts transferred into the Rate Stabilization Fund as contemplated by the Master Contract, and there shall be added to Revenues any amounts transferred out of the Rate Stabilization Fund as contemplated by the Master Contract. “Revenues,” with respect to the Indenture, means all Payments and other payments paid by the District pursuant to the Supplemental Contracts, together with all interest or other income from any investment pursuant to the Indenture of any money on deposit in any of the accounts and funds established under the Indenture.

“Sanitation Service” means the sanitation collection service furnished, made available or provided by the Sanitation System.

“Sanitation System” means all facilities for providing sanitation collection service now owned by the District and all other facilities acquired and constructed by the District and determined to be a part of the Sanitation System, together with all additions, betterments and improvements to such facilities or any part thereof hereafter acquired and constructed by the District, but excluding any separate utility system acquired or constructed by the District pursuant to the Master Contract related to Contract Resource Obligations.

“S&P” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., a corporation duly organized and existing under and by virtue of the laws of the State of New York, and its successors or assigns, but only to the extent that such entity is then rating any obligations secured by Parity Payments at the request of the Authority.

“Series 2005 Bonds” means the Sacramento County Sanitation Districts Financing Authority Revenue Bonds, Series 2005 (County Sanitation District No. 1) issued and outstanding under the Indenture.

“Series 2015 Bonds” means the Sacramento County Sanitation Districts Financing Authority Revenue Bonds, Refunding Series 2015 (Sacramento Area Sewer District) issued and outstanding under and pursuant to the Indenture and the Third Supplemental Indenture.

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“Series 2015 Bonds Rebate Fund” means the Sacramento County Sanitation Districts Financing Authority Revenue Bonds, Refunding Series 2015 (Sacramento Area Sewer District) Rebate Fund established under the Third Supplemental Indenture.

“Series of Bonds” means any series of the Bonds authorized, executed and authenticated pursuant to the Indenture and pursuant to one or more Supplemental Indentures as constituting a single series of the Bonds and delivered on initial issuance in a simultaneous transaction pursuant to the Indenture, and any Bonds thereafter executed, authenticated and delivered in lieu thereof or in substitution therefor pursuant to the Indenture.

“Sinking Fund Payment Date” means a date on which any Sinking Fund Payment is due for any of the Bonds.

“Sinking Fund Payments” means the payments required by all Supplemental Indentures to be deposited in the Sinking Fund Subaccount for the payment of the Term Bonds.

“Sinking Fund Subaccount” means the subaccount by that name in the Redemption Account established under the Indenture.

“State” means the State of California.

“Subordinate Obligations” means all Supplemental Contracts or Payment Agreements the Subordinate Payments under which (other than Termination Payments related to Subordinate Payment Agreements) are secured by the subordinate lien on Net Revenues created thereby and are payable on a parity therefrom.

“Subordinate Payment Agreements” means a Payment Agreement which is a Subordinate Obligation.

“Subordinate Payments” means all installment payments scheduled to be paid by the District under all Subordinate Obligations.

“Subsidy” means any subsidy, reimbursement or other payment from the federal government of the United States of America under the American Recovery and Reinvestment Act of 2009 (or any similar legislation or regulation of the federal government of the United States of America or any other governmental entity or any extension of any of such legislation or regulation).

“Supplemental Contracts,” with respect to the Indenture, means all installment purchase contracts supplementing the Master Contract executed and entered into by and between such parties in connection with any Supplemental Indenture, and with respect to the Master Contract, means all installment purchase contracts supplemental to the Master Contract, executed and entered into by the District and the Authority under and pursuant to the Master Contract and applicable law, as originally executed and entered into and as they may from time to time be amended or supplemented in accordance with the Master Contract and therewith.

“Supplemental Indenture” means any indenture then in full force and effect which has been duly executed and entered into by the Authority and the Trustee amendatory or supplemental to the Indenture; but only if and to the extent that such Supplemental Indenture is specifically authorized under the Indenture.

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“Tax Certificate,” (i) with respect to the Master Contract, means any certificate or agreement delivered with respect to the maintenance of the tax-exempt status of Payments the interest component of which is intended to be excluded from gross income pursuant to Section 103 of the Code, and (ii) with respect to the Third Supplemental Indenture, means the Tax Certificate relating to the Series 2015 Bonds delivered by the Authority and the District at the time of the execution and delivery of the Series 2015 Bonds, as the same may be amended or supplemented from time to time in accordance with its terms.

“Termination Payments” means any payments due and payable to a Qualified Counterparty in connection with the termination of a Payment Agreement.

“Third Supplemental Contract” means the Third Supplemental Installment Purchase Contract, dated as of May 1, 2015, between the District and the Authority supplemental to the Master Contract.

“Third Supplemental Indenture” means the Third Supplemental Indenture, dated as of May 1, 2015, between the Authority and the Trustee supplemental to the Indenture.

“Trustee” means MUFG Union Bank, N.A., a national banking association duly organized and existing under the laws of the United States of America, as Trustee under each Issuing Document, or any other banking corporation which may at any time be substituted in its place as provided in each Issuing Document.

“Variable Interest Rate” means any variable interest rate or rates to be paid under any Supplemental Contracts, the method of computing which variable interest rate shall be as specified in the applicable Supplemental Contract, which Supplemental Contract shall also specify either (i) the payment period or periods or time or manner of determining such period or periods or time for which each value of such variable interest rate shall remain in effect, and (ii) the time or times based upon which any change in such variable interest rate shall become effective, and which variable interest rate may, without limitation, be based on the interest rate on certain bonds or may be based on interest rate, currency, commodity or other indices.

“Variable Interest Rate Contracts” means, for any period of time, any Supplemental Contracts that bear a Variable Interest Rate during such period, except that no Supplemental Contract shall be treated as a Variable Interest Rate Contract if the net economic effect of interest rates on any particular Payments or such Supplemental Contract and interest rates on any other Payments of the same Supplemental Contract, as set forth in such Supplemental Contract, or the net economic effect of a Payment Agreement with respect to any particular Payments, in either case is to produce obligations that bear interest at a fixed interest rate, and any Supplemental Contract with respect to which a Payment Agreement is in force shall be treated as a Variable Interest Rate Contract if the net economic effect of the Payment Agreement is to produce obligations that bear interest at a Variable Interest Rate.

“Written Request of the Authority” means an instrument in writing signed by the Director of Finance, or by any other officer of the Authority duly authorized by the Authority for that purpose.

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MASTER INSTALLMENT PURCHASE CONTRACT

Under the Master Contract, the Authority agrees to finance and refinance the costs of the acquisition and construction of the Projects for and to sell the Projects to the District and appoint the District as its agent for the purpose of such acquisition and construction. Certain provisions of the Master Contract are summarized below. This summary does not purport to be complete or definitive and is qualified in its entirety by reference to the full terms of the Master Contract.

Acquisition, Construction and Sale of Projects

The Authority agrees to finance and refinance the costs of the acquisition and construction of the Projects for and to sell the Projects to the District, and the District agrees to buy the Projects from the Authority; and in order to implement this provision, the Authority appoints the District as its agent for the purpose of such acquisition and construction, and the District agrees to enter into such construction contracts and purchase orders as may be necessary, as agent for the Authority, to provide for the complete acquisition and construction of the Projects, and the District agrees that as such agent it will cause the acquisition and construction of the Projects to be diligently completed after the deposit of funds in the Improvement Fund for such purpose under the Master Contract, and that it will use its best efforts to cause the acquisition and construction of the Projects to be completed in a timely fashion, unforeseeable delays beyond the reasonable control of the District only excepted. Notwithstanding the foregoing, it is expressly understood and agreed that the Authority shall be under no liability of any kind or character whatsoever for the payment of any costs or expenses incurred by the District for the acquisition and construction of the Projects and that all such costs and expenses shall be paid by the District, regardless of whether the funds deposited in the Improvement Fund are sufficient to cover all such costs and expenses.

Improvement Fund

There is established the “Sacramento Area Sewer District Improvement Fund,” which fund the Director of Finance agrees to hold and maintain until the completion of the acquisition and construction of all Projects to be financed from the Project Accounts established in such fund as provided in all Supplemental Contracts; and all money in the Improvement Fund (and interest earnings thereon) shall be used and withdrawn by the Director of Finance to pay the costs of the acquisition and construction of the Projects (or to reimburse the District for such costs paid by it), including the payment of interest on the Obligations, upon receipt of a Request of the District filed with the Director of Finance, each of which shall be sequentially numbered and shall state the person or entity to whom payment is to be made, the amount of money to be paid, the purpose for which the obligation to be paid was incurred and that such payment is a proper charge against the related Project Account in the Improvement Fund and has not been the subject of a previous Request of the District. After the completion of the acquisition and construction of each Project to be financed from the related Project Account in the Improvement Fund, any remaining balance of money in such Project Account shall be transferred to the District for any lawful purpose of the District subject to the provisions of any Tax Certificate.

Rate Stabilization Fund

There is established the “Sacramento Area Sewer District Rate Stabilization Fund,” which fund the Director of Finance agrees to hold and maintain as directed by the District so long as any Payments due under the Master Contract shall be Outstanding. The District may at any time deposit in the Rate Stabilization Fund any Net Revenues and any other money available to be used therefor,

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the District may at any time withdraw from the Rate Stabilization Fund any money therein for deposit in the Revenue Fund and the District shall withdraw from the Rate Stabilization Fund any money therein for deposit in the Revenue Fund in the event there are insufficient amounts in the Revenue Fund to make the deposits and transfers required by the Master Contract; provided, that any such deposits or withdrawals may be made up to and including the date that is 180 days after the end of the Fiscal Year or 12 calendar month period for which such deposit or withdrawal will be taken into account in determining Adjusted Annual Revenues; and provided further, that no deposit of Net Revenues shall be made into the Rate Stabilization Fund to the extent that such deposit would prevent the District from meeting the Coverage Requirement in any Fiscal Year or 12 calendar month period.

Revenue Fund; Pledge of Net Revenues

There is established the “Sacramento Area Sewer District Revenue Fund,” which fund the Director of Finance agrees to hold and maintain so long as any Payments due under the Master Contract shall be Outstanding. The District irrevocably grants and pledges the Net Revenues first, to secure Parity Obligations and second, to secure Subordinate Obligations. Such lien and pledge shall constitute a first lien on Net Revenues. The District represents and states that it has not previously granted any lien or charge on any of the Net Revenues; provided, that out of Net Revenues there may be apportioned such sums for such purposes as are expressly permitted under the Master Contract. All Parity Obligations shall be of equal rank without preference, priority or distinction of any Parity Obligations over any other Parity Obligations. All Subordinate Obligations shall be of equal rank without preference, priority or distinction of any Subordinate Obligations over any other Subordinate Obligations. In order to carry out and effectuate the obligation of the District contained in the Master Contract and in all Supplemental Contracts and Payment Agreements to pay the Payments, the District agrees and covenants that all Revenues received by it shall be deposited when and as received in the Revenue Fund, and all money on deposit in the Revenue Fund shall be applied and used only in the following order as provided in the Master Contract:

(A) The District shall pay all Maintenance and Operation Costs (including amounts reasonably required to be set aside in contingency reserves for Maintenance and Operation Costs the payment of which is not then immediately required) from the Revenue Fund as they become due and payable and shall make such deposits in the Rate Stabilization Fund as it may determine and in accordance with the Master Contract; and

(B) On or before the last Business Day in each month, the Director of Finance shall, from the remaining money then on deposit in the Revenue Fund, deposit in the “Sacramento Area Sewer District Parity Obligation Payment Fund,” which fund the Director of Finance agrees to hold and maintain so long as any Parity Payments due under the Master Contract shall be Outstanding the following amounts in the following order of priority:

(1) a sum equal to (a) the interest and principal payments becoming due and payable under all Supplemental Contracts that are Parity Obligations, plus (b) the net payments becoming due and payable on all Parity Payment Agreements (except any Termination Payments), plus (c) any other amounts with respect to Parity Obligations (including any letter of credit and remarketing fees, in each case, during the next succeeding month; plus

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(2) (unless otherwise covered by (B)(1) above) a sum equal to (a) one-sixth of the amount of interest becoming due and payable under all Supplemental Contracts that are Parity Obligations on the next succeeding Interest Payment Date, plus (b) one-twelfth of the amount of principal becoming due and payable under all Supplemental Contracts that are Parity Obligations on the next succeeding Principal Payment Date, except that no such deposit need be made if the Director of Finance then holds money in the Parity Obligation Payment Fund equal to the amount of interest becoming due and payable under all Supplemental Contracts that are Parity Obligations on the next succeeding Interest Payment Date plus the amount of principal becoming due and payable under all Supplemental Contracts that are Parity Obligations on the next succeeding Principal Payment Date plus the net payments due on all Parity Payment Agreements on such dates (except any Termination Payments) plus any other amounts becoming due and payable with respect to Parity Obligations (including any letter of credit and remarketing fees; plus

(3) all amounts due to make up any deficiency in the Reserve Funds and Reserve Accounts for Parity Obligations in accordance with the provisions of the applicable Issuing Document, including all Reserve Fund Credit Facility Costs.

All money on deposit in the Parity Obligation Payment Fund shall be transferred by Director of Finance to the Trustee or other third party payee thereof to make and satisfy the Parity Payments due on the next applicable Payment Dates on such dates.

After the payments contemplated by subparagraphs (A) and (B) above have been made, any amounts thereafter remaining in the Revenue Fund may from time to time be used for the payment of the interest and principal payments becoming due and payable under all Supplemental Contracts that are Subordinate Obligations and the net payments becoming due and payable on all Subordinate Payment Agreements (except any Termination Payments) and any other amounts becoming due and payable with respect to Subordinate Obligations (including any letter of credit and remarketing fees and any other amounts becoming due and payable to make up any deficiency in the Reserve Funds and the Reserve Accounts for Subordinate Obligations, including all Reserve Fund Credit Facility Costs) and any Termination Payments on all Parity Payment Agreements; so long as the following conditions are met:

(1) all Maintenance and Operations Costs are being and have been paid and are then current; and

(2) all deposits and payments contemplated by subparagraphs (A) and (B) above shall have been made in full and no deficiency in any Reserve Fund or Reserve Account for Parity Obligations shall exist and no Reserve Fund Credit Facility Costs shall be due and payable, and there shall have been paid, or segregated within the Revenue Fund, the amounts currently payable pursuant to subparagraphs (A) and (B) above.

After deposits contemplated under this heading have been made, any amounts thereafter remaining in the Revenue Fund may be used for any lawful purpose, including, but not limited to the payment of any Termination Payments on all Subordinate Payment Agreements.

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Conditions for the Execution of Parity Obligations

The District may at any time execute any Parity Obligations payable as provided in the Master Contract; provided:

(a) There shall be on file with the District either:

(1) A Certificate of the District demonstrating that, during the last audited Fiscal Year or 12 calendar month period during the immediately preceding 18 calendar month period, the Adjusted Annual Net Revenues were at least equal to the Coverage Requirement (with the term Adjusted Annual Debt Service in the definition of Coverage Requirement meaning the greater of (x) the sum of the Adjusted Annual Debt Service on all Outstanding Supplemental Contracts that are Parity Obligations plus the Parity Payments becoming due in the first full Fiscal Year on the Parity Obligation proposed to be executed or (y) the Average Annual Debt Service as computed for all Outstanding Supplemental Contracts that are Parity Obligations, including the Parity Obligation to be executed); provided, that for the purpose of providing this Certificate, the District may adjust the foregoing Adjusted Annual Net Revenues to reflect:

(i) An allowance for Net Revenues that would have been derived from each new connection to the Sanitation System that was made prior to the execution of any Outstanding Supplemental Contract but which, during all or any part of such Fiscal Year or 12 calendar month period, was not in existence, in an amount equal to 95% of the estimated additional Net Revenues that would have been derived from each such connection if it had been made prior to the beginning of such Fiscal Year or 12 calendar month period, and

(ii) An allowance for Net Revenues that would have been derived from any increase in the rates, fees and charges fixed and prescribed for Sanitation Service which became effective prior to the execution of such Outstanding Supplemental Contract but which, during all or any part of such Fiscal Year or 12 calendar month period, was not in effect, in an amount equal to 95% of the estimated additional Net Revenues that would have been derived from such increase in rates, fees and charges if it had been in effect prior to the beginning of such Fiscal Year or 12 calendar month period; or

(2) An Engineer’s Report that the estimated Adjusted Annual Net Revenues for each of the five (5) Fiscal Years next following the earlier of (i) the end of the period during which interest on the Parity Obligation proposed to be executed is to be capitalized or, if no interest is capitalized, the Fiscal Year in which the Parity Obligation proposed to be executed is executed, or (ii) the date on which substantially all Projects financed with the Parity Obligation proposed to be executed plus all Projects financed with all existing Supplemental Contracts are expected to commence operations, will be at least equal to the Coverage Requirement for such period; provided, that for the purpose of providing this Engineer’s Report, the Independent Engineer may adjust the foregoing estimated Adjusted Annual Net Revenues to reflect:

(i) An allowance for Net Revenues that are estimated to be derived from any increase in the rates, fees and charges for Sanitation Service in effect and being

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charged or from any increase in the rates, fees and charges for Sanitation Service that are expected to be charged; and

(ii) An allowance for Net Revenues that are estimated to be derived from customers of the Sanitation System anticipated to be served by the additions, betterments or improvements to the Sanitation System to be financed by the Parity Obligation proposed to be executed together with any additional Supplemental Contracts expected to be executed and entered into during such five year period;

(b) A Certificate of the District that the Project to be acquired and constructed with the proceeds of such Parity Obligation is technically feasible and the estimated cost of the acquisition and construction thereof is reasonable, and (after giving effect to the completion of all uncompleted Projects) the rates, fees and charges estimated to be fixed and prescribed for the Sanitation Service for each Fiscal Year from the Fiscal Year in which such Parity Obligation is executed to and including the first complete Fiscal Year after the latest Date of Operation of any uncompleted Project are economically feasible and reasonably considered necessary based on projected operations for such period.

Notwithstanding the foregoing provisions, there shall be no limitations on the ability of the District to execute any Parity Obligation at any time to refund any outstanding Obligation.

Conditions for the Execution of Subordinate Obligations

The District may at any time execute any Subordinate Obligations payable as provided in the Master Contract; provided that no Event of Default has occurred and is continuing. Nothing contained in the Master Contract shall limit the ability of the District to execute obligations payable from a lien on Net Revenues that is subordinate to the lien of Net Revenues contained in the Master Contract.

Compliance with Contracts

The District will punctually pay the Payments in strict conformity with the terms of the Master Contract, and will faithfully observe and perform all the agreements, conditions, covenants and terms contained in the Master Contract required to be observed and performed by it, and will not terminate the Contracts for any cause including, without limiting the generality of the foregoing, any acts or circumstances that may constitute failure of consideration, destruction of or damage to the Projects or the Sanitation System, commercial frustration of purpose, any change in the tax or other laws of the United States of America or of the State or any political subdivision of either of them or any failure of the Authority to observe or perform any agreement, condition, covenant or term contained in the Master Contract required to be observed and performed by it, whether express or implied, or any duty, liability or obligation arising out of or connected herewith or the insolvency, or deemed insolvency, or bankruptcy or liquidation of the Authority, the Trustee or any force majeure, including Acts of God, tempest, storm, earthquake, war, rebellion, riot, civil disorder, acts of public enemies, blockade or embargo, strikes, industrial disputes, lockouts, lack of transportation facilities, fire, explosion, or acts or regulations of governmental authorities.

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Use of Proceeds

The Authority and the District agree that the proceeds of the Supplemental Contracts will be used by the District, as agent for the Authority, to pay the costs of financing or refinancing the acquisition and construction of the Projects and to pay the incidental costs and expenses related thereto as provided in the Master Contract.

Against Encumbrances

The District will pay or cause to be paid when due all sums of money that may become due for any labor, services, materials, supplies or equipment furnished, or alleged to have been furnished, to or for the District in, upon, about or relating to the Sanitation System and will keep the Sanitation System free of any and all liens against any portion of the Sanitation System. In the event any such lien attaches to or is filed against any portion of the Sanitation System, the District will cause each such lien to be fully discharged and released at the time the performance of any obligation secured by any such lien matures or becomes due, except that if the District desires to contest any such lien it may do so; provided, that if any such lien shall be reduced to final judgment and such judgment or any process as may be issued for the enforcement thereof is not promptly stayed, or if so stayed and such stay thereafter expires, the District will forthwith pay or cause to be paid and discharged such judgment. The District will, to the maximum extent permitted by law, indemnify and hold the Authority harmless from, and defend it against, any claim, demand, loss, damage, liability or expense (including attorneys’ fees) as a result of any such lien or claim of lien against any portion of the Sanitation System.

Sale or Other Disposition of Property

The District will only sell, transfer or otherwise dispose of any of the facilities of the Sanitation System or any real or personal property comprising a part of the Sanitation System consistent with one or more of the following limitations:

(1) The District in its discretion may carry out such a sale, transfer or other disposition (each, as used under this heading, a “transfer”) if the facilities or property of the Sanitation System transferred are not material to the operation of the Sanitation System, or shall have become unserviceable, inadequate, obsolete or unfit to be used in the operation of the Sanitation System, or are no longer necessary, material or useful to the operation of the Sanitation System; or

(2) The District in its discretion may carry out such a transfer if the aggregate depreciated cost value of the facilities or property of the Sanitation System transferred in any one Fiscal Year comprises no more than 10% of the total assets of the Sanitation System; or

(3) The District in its discretion may carry out such a transfer if the District receives from the transferee an amount equal to the fair market value of the facilities or property of the Sanitation System transferred (as used in this subparagraph, “fair market value” means the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, with a willing buyer and a willing seller each acting prudently and knowledgeably and assuming that the price is not affected by coercion or undue stimulus) and if the proceeds of such transfer are used (i) to promptly prepay, or irrevocably set aside for the prepayment of, first the Parity Payments and, thereafter, the Subordinate Payments, and/or (ii) to provide for the cost of additions, betterments or improvements to the Sanitation System; provided, that before any such transfer is made under this

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subparagraph, (A) the District shall obtain an Engineer’s Report that upon such transfer and the use of the proceeds thereof as proposed by the District, the remaining facilities or property of the Sanitation System will retain their operational integrity and the estimated Adjusted Annual Net Revenues during each of the five (5) Fiscal Years next following the Fiscal Year in which the transfer is to occur will be at least equal to the estimated Coverage Requirement in each of such Fiscal Years, taking into account (w) the estimated reduction in Net Revenues resulting from such transfer, (x) the use of the proceeds of such transfer for the prepayment of first, the Parity Payments and thereafter, the Subordinate Payments, (y) the estimated additional Revenues from customers anticipated to be served by any additions, betterments or improvements to the Sanitation System financed by the portion of the proceeds received from such transfer, and (z) any other adjustment permitted in the preparation of an Engineer’s Report under the Master Contract, or (B) the District shall obtain confirmation from the Rating Agencies to the effect that the ratings then in effect will not be reduced or withdrawn upon such transfer.

Prompt Acquisition and Construction of the Projects

The District will take all necessary and appropriate steps to acquire and construct the Projects, as agent of the Authority, with all practicable dispatch and in an expeditious manner and in conformity with law so as to complete the same as soon as possible.

Maintenance and Operation of the Sanitation System; Budgets

The District will maintain and preserve the Sanitation System in good repair and working order at all times and in accordance with sound engineering practices and will operate the Sanitation System in an efficient and economical manner and will pay all Maintenance and Operation Costs as they become due and payable. The District will adopt and file with the Authority and the Trustee, not later than October 1 of each year, a budget approved by the Board of Directors setting forth the estimated Revenues and Maintenance and Operation Costs for the then current Fiscal Year; provided, that any such budget may be amended at any time during any Fiscal Year and such amended budget shall be filed by the District with the Authority and the Trustee.

Compliance with Contracts for Use of the Sanitation System

The District will comply with, keep, observe and perform all agreements, conditions, covenants and terms, express or implied, required to be performed by it contained in all contracts for the use of the Sanitation System and all other contracts affecting or involving the Sanitation System to the extent that the District is a party thereto, including without limitation the Master Interagency Agreement, and the District will not agree or consent to any amendment or waiver of the Master Interagency Agreement that would materially adversely affect the Net Revenues or the security for the payment of the Payments. Upon the occurrence and continuance of an Event of Default under the Master Contract, the District will take all action necessary to enforce the obligations of the parties to the Master Interagency Agreement.

Payment of Claims

The District will pay and discharge any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien on the Revenues or any part thereof or which might impair the security of the Payments.

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Insurance

The District will procure and maintain such insurance relating to the Sanitation System which it shall deem advisable or necessary to protect its interests and the interests of the Authority and the Trustee, which insurance shall afford protection in such amounts and against such risks as are usually covered in the State in connection with sanitation systems comparable to the Sanitation System; provided, that any such insurance may be maintained under a self-insurance program so long as such self-insurance is maintained in the amounts and manner usually maintained in connection with sanitation systems in the State comparable to the Sanitation System and is, in the opinion of an accredited actuary, actuarially sound. All policies of insurance required to be maintained in the Master Contract shall provide that the Authority and the Trustee shall be given 30 days’ written notice of any intended cancellation thereof or reduction of coverage provided thereby.

Accounting Records; Financial Statements and Other Reports

The District will keep appropriate accounting records in which complete and correct entries shall be made of all transactions relating to the Sanitation System and the Revenues and the Maintenance and Operation Costs, which records shall be available for inspection by the Authority and the Trustee at reasonable hours and under reasonable conditions. The District will prepare and file with the Authority and the Trustee annually, within 210 days after the close of each Fiscal Year, financial statements of the District for the preceding Fiscal Year prepared in accordance with Generally Accepted Accounting Principles, together with an Accountant’s Report thereon and a special report prepared by the Independent Certified Public Accountant who examined such financial statements stating that nothing came to his attention in connection with such examination that caused him to believe that the District was not in compliance with any of the financial agreements or covenants contained in the Master Contract.

Protection of Security and Rights of the Authority

The District will preserve and protect the security of the Master Contract and the rights of the Authority to the Payments under the Master Contract and will warrant and defend such rights against all claims and demands of all persons.

Payment of Taxes and Compliance with Governmental Regulations

The District will pay and discharge all taxes, assessments and other governmental charges which may hereafter be lawfully imposed upon the Sanitation System or any part thereof when the same shall become due. The District will duly observe and conform with all valid regulations and requirements of any governmental authority relative to the operation of the Sanitation System or any part thereof, but the District shall not be required to comply with any regulations or requirements so long as the validity or application thereof shall be contested in good faith.

Amount of Rates, Fees and Charges

The District will at all times fix, prescribe and collect rates, fees and charges for the Sanitation Service during each Fiscal Year which are reasonably fair and nondiscriminatory and which are estimated to yield Adjusted Annual Net Revenues for such Fiscal Year equal to at least the Coverage Requirement for such Fiscal Year. The District may make adjustments from time to time in such fees and charges and may make such classification thereof as it deems necessary, but shall

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not reduce the rates, fees and charges then in effect unless the Adjusted Annual Net Revenues from such reduced rates, fees and charges are estimated to be sufficient to meet the requirements described under this heading.

Collection of Rates, Fees and Charges

The District will have in effect at all times rules and regulations requiring each consumer or customer located on any premises connected with the Sanitation System to pay the rates, fees and charges applicable to the Sanitation Service to such premises and providing for the billing thereof and for a due date and a delinquency date for each bill. The District will not permit any part of the Sanitation System or any facility thereof to be used or taken advantage of free of charge by any corporation, firm or person, or by any public agency (including the United States of America, the State and any city, county, district, political subdivision, public corporation or agency of any thereof); provided, that the District may without charge use the Sanitation System.

Eminent Domain and Insurance Proceeds

If all or any part of the Sanitation System shall be taken by eminent domain proceedings, or if the District receives any insurance proceeds resulting from a casualty loss to the Sanitation System, the Net Proceeds thereof, at the option of the District, shall be applied either to the prepayment of the Payments or to acquire and construct additions, betterments or improvements to the Sanitation System to replace the condemned or destroyed portion of the Sanitation System.

Separate Utility Systems

The District may create, acquire, construct, finance, own and operate one or more additional systems for sanitation service or other commodity or service, and the revenues of that separate utility system shall not be included in the Revenues and may be pledged to the payment of revenue obligations issued to purchase, construct, condemn or otherwise acquire or expand such separate utility system. Neither the Revenues nor the Net Revenues shall be pledged by the District to the payment of any obligations of a separate utility system except (1) as a Contract Resource Obligation upon compliance with the provisions of the Master Contract, or (2) with respect to the Net Revenues, on a basis subordinate to the lien of the Parity Obligations and Subordinate Obligations on the Net Revenues.

Contract Resource Obligations

The District may at any time enter into one or more Contract Resource Obligations for the acquisition, from facilities to be constructed, of sanitation services or other capacity or service relating to the Sanitation System. The District may determine that, and may agree under a Contract Resource Obligation to provide that, all payments under that Contract Resource Obligation (including payments prior to the time that sanitation services or other capacity or service is being provided, or during a suspension or after termination of supply or service) shall be Maintenance and Operation Costs if the following requirements are met at the time such a Contract Resource Obligation is entered into:

(a) No Event of Default under the Master Contract has occurred and is continuing.

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(b) There shall be on file with the District an Engineer’s Report stating that (i) the payments to be made by the District in connection with the Contract Resource Obligation are reasonable for the services or capacity rendered; (ii) the source of any new capacity, and any facilities to be constructed to provide the capacity, are sound from a sanitation or other service planning standpoint, are technically and economically feasible in accordance with prudent utility practice, and are likely to provide capacity or service no later than a date set forth in the Engineer’s Report; and (iii) the Adjusted Annual Net Revenues (further adjusted by the Independent Engineer’s estimate of the payments to be made in accordance with the Contract Resource Obligation) for the five Fiscal Years following the year in which the Contract Resource Obligation is incurred, as such Adjusted Annual Net Revenues are estimated by the Independent Engineer in accordance with the provisions of and adjustments permitted in the Master Contract, will be at least equal to the Coverage Requirement.

Payments required to be made under Contract Resource Obligations shall not be subject to acceleration.

Nothing contained in the Master Contract and described under this heading shall be deemed to prevent the District from entering into other agreements for the acquisition of sanitation or other commodity or service from existing facilities and from treating those payments as Maintenance and Operation Costs; and nothing described under this heading shall be deemed to prevent the District from entering into other agreements for the acquisition of sanitation or other commodity or service from facilities to be constructed and from agreeing to make payments with respect thereto, such payments constituting a lien and charge on Net Revenues subordinate to that of the Contracts.

Additional Covenants

The District may provide additional covenants pursuant to any Supplemental Contract, including covenants relating to any credit support and/or liquidity support obtained for Obligations; provided, however, that such additional covenants do not materially and adversely affect the right of holders of outstanding Obligations issued prior to any such Supplemental Contract.

Further Assurances

The District will adopt, deliver, execute and make any and all further assurances, instruments and resolutions as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Master Contract and for the better assuring and confirming unto the Authority of the rights and benefits provided to it in the Master Contract.

Events of Default

If one or more of the following Events of Default shall happen, that is to say –

(1) if default shall be made in the due and punctual payment of any Payment under any Supplemental Contract when and as the same shall become due and payable;

(2) if default shall be made by the District in the performance of any of the agreements or covenants contained in the Master Contract or in any Supplemental Contract required to be performed by it, and such default shall have continued for a period of sixty days after the District shall have been given notice in writing of such default by the Authority or the Trustee; or

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(3) if the District shall file a petition or answer seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if a court of competent jurisdiction shall approve a petition filed with or without the consent of the District seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if under the provisions of any other law for the relief or aid of debtors any court of competent jurisdiction shall assume custody or control of the District or of the whole or any substantial part of its property;

then and in each and every such case during the continuance of such Event of Default specified in clause (1) above, the Authority shall, and for any other such Event of Default the Authority may, by notice in writing to the District given not later than three Business Days after it receives notice of an Event of Default or direction to proceed under an Event of Default, declare an Event of Default under the Master Contract; provided, that if at any time after an Event of Default has been declared and before any judgment or decree for the payment of the money due shall have been obtained or entered the District shall deposit with the Authority a sum sufficient to pay the unpaid principal amount of the Payments due and payable prior to such declaration and the accrued interest thereon, with interest on such overdue installments at the rate or rates applicable to such unpaid principal amounts of the Payments if paid in accordance with their terms, and the reasonable expenses of the Authority, and any and all other defaults known to the Authority shall have been made good or cured to the satisfaction of the Authority or provision deemed by the Authority to be adequate shall have been made therefor, then and in every such case the Authority, by written notice to the District, may rescind and annul such declaration of an Event of Default and its consequences; but no such rescission and annulment shall extend to or shall affect any subsequent default or shall impair or exhaust any right or power consequent thereon.

The payment of principal and interest on the Payments shall not be accelerated upon the declaration of an Event of Default under the Master Contract.

Application of Net Revenues Upon Event of Default

All Net Revenues upon the date of the declaration of an Event of Default by the Authority and all Net Revenues thereafter received shall be applied in the following order–

First, to the payment of the costs and expenses of the Authority, if any, in carrying out the provisions of the Master Contract described under this heading, including reasonable compensation to its agents, accountants and counsel and including any indemnification expenses;

Second, to the payment of the interest then due and payable on the principal amount of the unpaid Parity Payments (except any Termination Payments), and, if the amount available shall not be sufficient to pay in full all such interest then due and payable, then to the payment thereof ratably, according to the amounts due thereon without any discrimination or preference;

Third, to the payment of the unpaid principal amount of the Parity Payments (except any Termination Payments) then due and payable with interest on the overdue principal and interest amounts of the unpaid Parity Payments at the rate or rates of interest then applicable to such Parity Payments if paid in accordance with their terms, and, if the amount available shall not be sufficient to pay in full all the amounts due with respect to the Parity Payments on any date, together with such interest, then to the payment thereof ratably, according to the principal amount due on such date, without any discrimination or preference;

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Fourth, to the payment of any other amounts becoming due and payable with respect to Parity Obligations (including any letter of credit and remarketing fees);

Fifth, to the payment of the Subordinate Payments (except any Termination Payments) then due and payable and any other amounts becoming due and payable with respect to Subordinate Obligations (including any letter of credit and remarketing fees) and any Termination Payments on all Parity Payment Agreements; and

Sixth, to the payment of all other amounts due and payable by the District, including, but not limited to the payment of any Termination Payments on all Subordinate Payment Agreements.

Other Remedies

The Authority shall have the right (a) by mandamus or other action or proceeding or suit at law or in equity to enforce its rights against the District or any director, officer or employee thereof, and to compel the District or any such director, officer or employee to perform and carry out its or his duties under the Law and the agreements and covenants required to be performed by it or him contained in the Master Contract; (b) by suit in equity to enjoin any acts or things which are unlawful or violate the rights of the Authority; or (c) by suit in equity upon the happening of an Event of Default to require the District and its directors, officers and employees to account as the trustee of an express trust.

Non-Waiver

Nothing in the Master Contract shall affect or impair the obligation of the District, which is absolute and unconditional, to pay from Net Revenues, first, the Parity Payments, and second, the Subordinate Payments to the Authority at the respective due dates or upon prepayment, or shall affect or impair the right of the Authority, which is also absolute and unconditional, to institute suit to enforce such payment by virtue of the contract embodied in the Master Contract.

A waiver of any default or breach of duty or contract by the Authority shall not affect any subsequent default or breach of duty or contract or impair any rights or remedies on any such subsequent default or breach of duty or contract. No delay or omission by the Authority to exercise any right or remedy accruing upon any default or breach of duty or contract shall impair any such right or remedy or shall be construed to be a waiver of any such default or breach of duty or contract or an acquiescence therein, and every right or remedy conferred upon the Authority by the Law or any other applicable law or by the Master Contract may be enforced and exercised from time to time and as often as shall be deemed expedient by the Authority.

If any action, proceeding or suit to enforce any right or exercise any remedy is abandoned or determined adversely to the Authority, the District and the Authority shall be restored to their former positions, rights and remedies as if such action, proceeding or suit had not been brought or taken.

Remedies Not Exclusive

No remedy in the Master Contract conferred upon or reserved to the Authority is intended to be exclusive of any other remedy, and each such remedy shall be cumulative and shall be in addition to every other remedy given under the Master Contract or now or hereafter existing in law or in

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equity or by statute or otherwise and may be exercised without exhausting and without regard to any other remedy conferred by the Law or any other law.

Discharge of Obligations

If the District shall pay or cause to be paid all the Payments at the times and in the manner provided in the Master Contract, the right, title and interest of the Authority in the Master Contract and the obligations of the District under the Master Contract and under all Supplemental Contracts shall cease, terminate, become void and be completely discharged and satisfied.

All or any portion of the Payments shall, prior to their payment dates or dates of prepayment, be deemed to have been paid within the meaning of and with the effect expressed in the Master Contract and described in the paragraph above if the District makes payment of such Payment and the prepayment premium, if applicable, in the manner provided in the applicable Issuing Document, or if not so provided therein, in the manner provided in the Master Contract.

All or any portion of the Payments shall, prior to their payment dates or dates of prepayment, be deemed to have been paid within the meaning of and with the effect expressed in the first paragraph under this heading if (i) notice is provided by the District to the Authority, (ii) there shall have been deposited with the Authority either money in an amount which shall be sufficient, or Permitted Investments of the type described in clause (1) of the definition of Permitted Investments which are not subject to redemption except by the holder thereof prior to maturity, the interest on and principal of which when paid will provide money which, together with money, if any, deposited with the Authority, shall be sufficient (as evidenced by a report of an Independent Certified Public Accountant or other party satisfactory to the Trustee regarding such sufficiency) to pay when due the principal installments of such Payments or such portions thereof on and prior to their payment dates or their dates of prepayment, as the case may be, and the prepayment premiums, if any, applicable thereto and (iii) all fees and expenses with respect to the Obligations shall have been paid.

After the payment of all Payments and prepayment premiums, if any, as provided under this heading, and the payment in full of all fees and expenses of the Authority, the Authority, upon receipt of a Request of the District, shall cause an accounting for such period or periods as may be requested by the District to be prepared and filed with the District and the Authority and shall execute and deliver to the District and the Authority all such instruments as may be necessary or desirable to evidence such total discharge and satisfaction of the Master Contract, and the Authority shall pay over and deliver to the District, as an overpayment of Payments, all such money or investments held by it pursuant to the Master Contract other than such money and such investments as are required for the payment or prepayment of the Payments, which money and investments shall continue to be held in trust for the payment of the Payments.

Liability of District Limited to Net Revenues

Notwithstanding anything contained in the Master Contract, the District shall not be required to advance any money derived from any source of income other than the Net Revenues for the payment of first, the Parity Payments and second, the Subordinate Payments or for the performance of any agreements or covenants required to be performed by it contained in the Master Contract; provided, that the District may advance money for any such purpose so long as such moneys are derived from a source legally available for such purpose and may be legally used by the District for such purpose. The obligation of the District to make first, the Parity Payments and second, the

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Subordinate Payments is a special obligation of the District payable solely from the Net Revenues as provided in the Master Contract, and such obligations do not constitute a debt of the District or of the State or of any political subdivision thereof within the meaning of any constitutional or statutory debt limitation or restriction.

Amendment to Master Contract

The District and the Authority shall not supplement, amend, modify or terminate any of the terms of the Master Contract, or consent to any such supplement, amendment, modification or termination, without the prior written consent of the Trustee, which such consent shall be given only if (a) such supplement, amendment, modification or termination will not materially adversely affect the interests of the holders of Obligations or result in any material impairment of the security given by the Master Contract for the payment of the Obligations, or (b) the Trustee first obtains the written consent of a majority in aggregate principal amount of the Parity Obligations then Outstanding to such supplement, amendment, modification or termination, and, if the supplement, amendment, modification or termination affects certain provisions of the Master Contract, the Trustee shall also first obtain the written consent of a majority in aggregate principal amount of Subordinate Obligations then Outstanding; provided, that any supplement that complies with the Master Contract with respect to the issuance of additional Obligations shall not be deemed to materially adversely affect the interests of the holders of Obligations or result in any material impairment of the security given by the Master Contract for the payment of the Obligations; and provided further, that no such supplement, amendment, modification or termination shall reduce the amount of Payments to be made to the Authority or the Trustee by the District pursuant to the Master Contract, or extend the time for making such Payments, or permit the creation of any lien prior to or on a parity with the lien created by the Master Contract on the Payments without the written consent of all of the holders of all Obligations then Outstanding.

Assignment

The Master Contract and/or any Supplemental Contracts and any rights thereunder may be assigned by the Authority, as a whole or in part, without the necessity of obtaining the prior consent of the District. The assignment of the Master Contract and/or any Supplemental Contracts or rights thereunder to the Trustee is solely in its capacity as Trustee and the duties, powers and liabilities of the Trustee in acting under the Master Contract or under a Supplemental Contract shall be subject to the provisions of the Issuing Document.

THIRD SUPPLEMENTAL CONTRACT

Certain provisions of the Third Supplemental Contract are summarized below. This summary does not purport to be complete or definitive and is qualified in its entirety by reference to the full terms of the Third Supplemental Contract.

Purpose

The District has agreed under the terms of the Master Contract and the First Supplemental Contract to acquire the Prior Projects from the Authority, and the Authority has agreed under the terms of the Master Contract and the First Supplemental Contract to sell the Prior Projects to the District, which agreements remain in full force and effect, and the Authority agrees to cause to be delivered to the Escrow Agent, so much of the proceeds of the sale of the Series 2015 Bonds as may

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be necessary, together with other available funds, for refunding the Refunded 2005 Payments by refunding the Refunded Series 2005 Bonds in accordance with the Escrow Agreement.

Payment of 2015 Payments

The District shall, subject to any rights of prepayment provided in the Third Supplemental Contract, pay the Authority the Refunding Price, without offset or deduction of any kind, by paying the principal and interest installments of the 2015 Payments as provided in the Third Supplemental Contract.

The obligation of the District under the Third Supplemental Contract shall constitute a “Parity Obligation” under the Master Contract.

The obligation of the District to pay the 2015 Payments to the Authority under the Third Supplemental Contract is, subject to the Master Contract, absolute and unconditional, and until such time as the 2015 Payments shall have been paid in full (or provision for the payment thereof shall have been made pursuant to the Master Contract), the District shall not discontinue or suspend any 2015 Payment required to be paid by it under the Third Supplemental Contract when due, whether or not the Sanitation System or any part thereof is operating or operable, or its use is suspended, interfered with, reduced, curtailed or terminated in whole or in part, and such 2015 Payments shall not be subject to reduction whether by offset, abatement or otherwise and shall not be conditional upon the performance or non-performance by any party to any agreement for any cause whatsoever.

Prepayment of 2015 Payments

The District may prepay from any source of available funds all or any part of the principal amount of the unpaid 2015 Payments on the same terms and conditions contained in Third Supplemental Indenture for the redemption or defeasance of a corresponding amount of Series 2015 Bonds.

Before making any prepayment pursuant to the Third Supplemental Contract, the District shall give written notice to the Authority describing such event and specifying the date on which the prepayment will be paid, which date shall be not less than 45 days following the date such notice is given; provided, that notwithstanding any such prepayment, the District shall not be relieved of its obligations under the Third Supplemental Contract, until all the 2015 Payments shall have been fully paid (or provision for payment thereof shall have been pursuant to the Master Contract).

Compliance with Master Contract, First Supplemental Contract and Escrow Agreement

The District shall pay the 2015 Payments and observe and perform all of the agreements, conditions, covenants and terms contained in the Master Contract and the First Supplemental Contract (except as otherwise amended and supplemented by the Third Supplemental Contract), in accordance with the provisions of the Master Contract, the First Supplemental Contract, the Third Supplemental Contract and the Escrow Agreement.

Tax Covenants

The District agrees and covenants that it will at all times do and perform all acts and things permitted by law and the Master Contract and the Indenture which are necessary in order to assure

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that interest paid on the Series 2015 Bonds (or any of them) will be excluded from gross income for federal income tax purposes, and that it will take no action that would result in such interest not being excluded from gross income for federal income tax purposes. Without limiting the generality of the foregoing, the District agrees and covenants to comply with the provisions of the Tax Certificate related to the Series 2015 Bonds. This covenant survives payment in full or defeasance of the Series 2015 Bonds.


The District agrees and covenants that it will comply with and carry out all of the provisions of the Continuing Disclosure Certificate. Notwithstanding any other provision of the Third Supplemental Contract, failure of the District to comply with the Continuing Disclosure Certificate shall not be considered an Event of Default under the Master Contract or the Indenture; provided, that the Trustee may (and, at the request of any Participating Underwriter (as defined in the Continuing Disclosure Certificate) or the registered owners of at least 25% in aggregate principal amount of Outstanding Series 2015 Bonds, shall) or any registered owner or Beneficial Owner (as defined in the Continuing Disclosure Certificate) may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its continuing disclosure obligations under the Third Supplemental Contract.

Third Supplemental Contract Subject to the Master Contract and the First Supplemental Contract

Except as otherwise expressly provided in the Third Supplemental Contract, every condition and term contained in the Master Contract and the First Supplemental Contract shall apply to the Third Supplemental Contract with the same force and effect as if the same were set forth at length in the Third Supplemental Contract, with such omissions, variations and modifications thereof as may be appropriate to make the same conform to the Third Supplemental Contract.

INDENTURE

The Indenture sets forth the terms of the Bonds, the nature and extent of the security therefor, various rights of the Holders, rights and duties and immunities of the trustee and the rights and obligations of the Authority. Certain provisions of the Indenture are summarized below. This summary does not purport to be complete or definitive and is qualified in its entirety by reference to the full terms of the Indenture.

Pledge of Revenues

All Revenues received by the Authority are assigned by the Authority to the Trustee for the benefit of the Holders of the Bonds, and are irrevocably pledged to the payment of the interest on and principal of and redemption premiums, if any, on the Bonds as provided in the Indenture, and the Revenues shall not be used for any other purpose while any of the Bonds remain Outstanding; provided, that the Revenues may be applied for such purposes as are permitted under the Indenture. This pledge constitutes a first pledge of and charge and lien upon the Revenues for the payment of the interest on and principal of and redemption premiums, if any, on the Bonds in accordance with the terms of the Indenture and the Bonds.

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Receipt and Deposit of Revenues in the Revenue Fund

In order to carry out and effectuate the pledge, charge and lien contained in the Indenture, the Trustee agrees and covenants that all Revenues as and when received by it shall be deposited as and when received in the “Sacramento County Sanitation Districts Financing Authority Revenue Bonds (Sacramento Area Sewer District) Revenue Fund,” which fund is created and which fund the Authority agrees and covenants to maintain with the Trustee so long as any Bonds shall be Outstanding under the Indenture. All Revenues shall be accounted for through and held in trust by the Trustee in the Revenue Fund, and the Authority shall have no beneficial right or interest in any of the money in the Revenue Fund. All money in the Revenue Fund shall be allocated, applied and disbursed solely to the purposes and uses set forth in the Indenture, and shall be accounted for separately and apart from all other accounts, funds, money or other resources of the Authority.

Establishment and Maintenance of Accounts for Use of Money in the Revenue Fund

All money in the Revenue Fund shall be set aside by the Trustee in the following respective special accounts within the Revenue Fund (each of which is created and each of which the Trustee covenants and agrees to cause to be maintained) in the following order of priority:

(a) Interest Account,

(b) Redemption Account (including the Principal Subaccount and the Sinking Fund Subaccount therein), and

(c) Reserve Account.

All money in each of such accounts shall be held in trust by the Trustee and shall be applied, used and withdrawn only for the purposes authorized under the Indenture as described below.

(a) Interest Account. On or before the third (3rd) Business Day prior to each Interest Payment Date, the Trustee shall set aside from the money in the Revenue Fund and shall deposit in the Interest Account an amount of money equal to the aggregate amount of interest becoming due and payable on all Outstanding Bonds on such Interest Payment Date; provided, that no deposit need be made in the Interest Account if the amount contained therein is at least equal to the aggregate amount of interest becoming due and payable on all Outstanding Bonds on such Interest Payment Date.

All money in the Interest Account shall be used and withdrawn by the Trustee solely for the purpose of paying the interest on the Bonds as it shall become due and payable (including accrued interest on any Bonds purchased or redeemed prior to maturity).

(b) Redemption Account. On or before the third (3rd) Business Day prior to each Principal Payment Date, the Trustee shall set aside from the remaining money in the Revenue Fund and shall deposit in the Principal Subaccount in the Redemption Account an amount of money equal to the aggregate amount of principal becoming due and payable on all Outstanding Serial Bonds on such Principal Payment Date, and on or before the third (3rd) Business Day prior to each Sinking Fund Payment Date, the Trustee shall set aside from the remaining money in the Revenue Fund and shall deposit in the Sinking Fund Subaccount in the Redemption Account an amount of money equal to the aggregate Sinking Fund Payments required to be made on such Sinking Fund Payment Date;

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provided, that the aforesaid payments into the Redemption Account shall be made without priority of any one payment over any other payment, and in the event that the remaining money in the Revenue Fund on any Principal Payment Date or Sinking Fund Payment Date is not equal to the aggregate amount of principal of the Bonds becoming due on such date plus the aggregate amount of the Sinking Fund Payments becoming due on such date, then such money shall be applied pro rata in the proportion that such principal and Sinking Fund Payments bear to each other; and provided further, that no deposit need be made in the Redemption Account if the amount contained in the Principal Subaccount therein is at least equal to the aggregate principal amount of all Outstanding Serial Bonds maturing by their terms on such Principal Payment Date and if the amount contained in the Sinking Fund Subaccount therein is at least equal to the aggregate Sinking Fund Payments required to be made on such Sinking Fund Payment Date for all Outstanding Term Bonds.

All money in the Principal Subaccount in the Redemption Account shall be used and withdrawn by the Trustee solely for the purpose of paying the principal of the Serial Bonds as they shall become due and payable, whether at maturity or on prior redemption, and all money in the Sinking Fund Subaccount in the Redemption Account shall be used and withdrawn by the Trustee solely for the purpose of purchasing or redeeming or paying the Term Bonds, and with respect to the Sinking Fund Subaccount, on each Sinking Fund Payment Date the Trustee shall apply the Sinking Fund Payment required to be made on that date to the redemption (or payment at maturity, as the case may be) of the Term Bonds upon the notice and in the manner provided in the Indenture; provided, that at any time prior to giving such notice of such redemption, the Trustee may upon the Written Request of the Authority apply any money in the Sinking Fund Subaccount to the purchase for cancellation of the Term Bonds at public or private sale as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Account) as may be directed in a Written Request of the Authority, except that the purchase price (excluding accrued interest) shall not exceed the redemption price that would be payable for such Term Bonds upon redemption by application of such Sinking Fund Payment, and if during the 12 month period immediately preceding any Sinking Fund Payment Date the Trustee has purchased any Term Bonds with money in the Sinking Fund Subaccount, such Bonds so purchased shall be applied to the extent of the full principal amount thereof to reduce such Sinking Fund Payment.

(c) Reserve Account. On or before the third (3rd) Business Day prior to each Interest Payment Date or Principal Payment Date, the Trustee shall set aside from the remaining money in the Revenue Fund and shall deposit in each separate subaccount in the Reserve Account (if any) established for any Series of Bonds by the Supplemental Indenture authorizing the issuance of such Series of Bonds an amount of money equal to the amount, if any, necessary to restore the amount on deposit in each separate subaccount in the Reserve Account to the amount required to be on deposit therein for such Series of Bonds by the Supplemental Indenture authorizing the issuance of such Series of Bonds; provided, that the aforesaid payments into the Reserve Account shall be made without priority of any one payment over any other payment, and in the event that the remaining money in the Revenue Fund on the third (3rd) Business Day prior to each Interest Payment Date or Principal Payment Date is not equal to the aggregate payments required to be made into the Reserve Account on such date, then such money shall be applied pro rata in the proportion that such payments bear to each other; and provided further, that no deposit need be made in the separate subaccount in the Reserve Account established for any Series of Bonds if the amount contained in such subaccount is at least equal to the amount required to be on deposit therein by any Supplemental Indenture authorizing the issuance of such Series of Bonds.

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If at any time the amount on deposit in any separate subaccount in the Reserve Account is in excess of the amount required to be on deposit therein by the Supplemental Indenture authorizing the issuance of the Series of Bonds for which subaccount was created, such excess shall be withdrawn from such subaccount and deposited in the Revenue Fund.

All money in each separate subaccount in the Reserve Account shall be used and withdrawn by the Trustee solely for the purpose of paying the interest on and principal of the Series of Bonds for which such subaccount was established as such interest and principal shall become due and payable in the event the money in the Interest Account and Redemption Account is at any time insufficient for such purpose, or for the retirement of all such Bonds then Outstanding.

Notwithstanding anything in the Indenture to the contrary, at the option of the Authority, amounts required to be held in any separate subaccount in the Reserve Account may be withdrawn, in whole or in part, upon the deposit of a Credit Facility with the Trustee, in a stated amount equal to the amounts so withdrawn; provided, that at the time of such deposit the unsecured obligations of the provider of the Credit Facility are rated not lower than Aa/AA by Moody’s and S&P and that prior to the deposit of such Credit Facility, each of the Rating Agencies shall be notified of such proposed withdrawal and the deposit of such Credit Facility shall not result in a withdrawal or downgrading of any rating of the Bonds then in effect by each of the Rating Agencies. Any such money withdrawn from the Reserve Account shall be transferred, at the option of the Authority, to any Project Account, to the Redemption Account, to a special account to be established for the payment of any fees in connection with obtaining such Credit Facility or to the Sacramento Area Sewer District Revenue Fund established under the Contract.

Conditions for the Issuance of a Series of Bonds

The Authority may at any time issue a Series of Bonds payable from the Revenues as provided in the Indenture on a parity with all other Series of Bonds theretofore issued or to be issued under the Indenture, but only subject to the following conditions, which are made conditions precedent to the issuance of such Series of Bonds:

The issuance of such Series of Bonds shall have been authorized pursuant to the Act or other applicable law and pursuant to the Indenture and shall have been provided for by a Supplemental Indenture which shall specify the following:

(1) The purpose for which such Series of Bonds is to be issued; provided, that the proceeds of sale of such Series of Bonds shall be applied solely for the purpose of providing funds to finance the acquisition and construction of the Projects, including payment of costs incidental to or connected with such acquisition and construction and interest during such acquisition and construction, to fund the Reserve Account (if applicable), to pay the Costs of Issuance and/or to refund any Bonds then Outstanding, including payment of costs incidental to or connected with such refunding;

(2) The principal amount and designation of such Series of Bonds and the denomination or denominations of the Bonds of such Series of Bonds;

(3) The date, the maturity date or dates, the Interest Payment Dates and the dates on which Sinking Fund Payments are due, if any, for such Series of Bonds;

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(4) The redemption premiums and redemption terms, if any, for such Series of Bonds;

(5) The form of the Bonds of such Series of Bonds;

(6) The amount, if any, to be deposited from the proceeds of sale of such Series of Bonds in the Interest Account;

(7) The amount, if any, to be deposited from the proceeds of sale of such Series of Bonds in a separate subaccount for such Series of Bonds to be established and maintained in the Reserve Account (or the delivery of a Credit Facility, if applicable);

(8) The amounts, if any, to be deposited from the proceeds of sale of such Series of Bonds in a Project Account for such Series of Bonds to be established and maintained in the Improvement Fund under a Supplemental Contract and in a separate account for such Series of Bonds to be established and maintained in the Costs of Issuance Fund; and

(9) Such other provisions that are appropriate or necessary and are not inconsistent with the provisions of the Indenture, including tax covenants if interest on such Series of Bonds is intended to be excluded from gross income for federal income tax purposes;

The Authority shall be in compliance with all agreements, conditions, covenants and terms contained in the Indenture and in all Supplemental Indentures required to be observed or performed by it, and no Event of Default shall have occurred and shall be then continuing (except that the Authority may at any time issue refunding bonds to cure any Event of Default which may then be existing); and

A Supplemental Contract shall have been executed and delivered which shall provide for Payments thereunder sufficient to amortize such Series of Bonds in accordance with the Supplemental Indenture authorizing the issuance of such Series of Bonds.

Punctual Payment and Performance

The Authority will punctually pay out of the Revenues the interest on and principal of and redemption premium, if any, to become due on every Bond issued under the Indenture in strict conformity with the terms of the Indenture and of the Bonds, and will faithfully observe and perform all the agreements, conditions, covenants and terms to be observed or performed by it contained in the Indenture and in the Bonds.

Against Encumbrances

The Authority will not make any pledge of or place any charge or lien upon the Revenues except as provided in the Indenture, and will not issue any bonds, notes or obligations payable on a parity from the Revenues or secured on a parity by a pledge of or charge or lien upon the Revenues except the Bonds; provided, that nothing contained in the Indenture shall be deemed to limit the right of the Authority to enter into one or more other indentures or trust agreements to issue obligations that are secured by Payments (as defined in the Contract) other than the Payments pledged under the Indenture.

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Accounting Records and Reports

The Trustee will keep or cause to be kept proper books of record and accounts in which complete and correct entries shall be made of all transactions relating to the receipts, disbursements, allocation and application of the Revenues, and such books shall be available for inspection by the Authority, at reasonable hours and under reasonable conditions. Not more than 180 days after the close of each Fiscal Year, the Trustee shall furnish or cause to be furnished to the Authority a complete financial statement covering receipts, disbursements, allocation and application of Revenues for such Fiscal Year.

Prosecution and Defense of Suits

The Authority will defend against every suit, action or proceeding at any time brought against the Trustee upon any claim to the extent arising out of the receipt, application or disbursement of the Revenues or to the extent involving the failure of the Authority to fulfill its obligations under the Indenture; provided, that the Trustee or any affected Holder at its election may appear in and defend any such suit, action or proceeding. The Authority will indemnify and hold harmless the Trustee against any and all liability claimed or asserted by any person to the extent arising out of such failure by the Authority, and will indemnify and hold harmless the Trustee against any attorney’s fees or other expenses which it may incur in connection with any litigation to which it may become a party by reason of its actions under the Indenture, except for any loss, cost, damage or expense resulting from the active or passive negligence, willful misconduct or breach of duty by the Trustee.


The District has undertaken all responsibility for compliance with continuing disclosure requirements, and accordingly the Authority shall have no liability to the Holders of the Bonds or any other person with respect to S.E.C. Rule 15c2-12, and the District shall comply with and carry out all of the provisions of the Continuing Disclosure Certificate, dated the date of the execution and delivery of each Series of Bonds, executed by the District (the “Continuing Disclosure Certificate”). Notwithstanding any other provision of the Indenture, failure of the District to comply with the Continuing Disclosure Certificate shall not be considered an Event of Default under the Indenture; provided, that the Trustee may and, at the request of the Holders of at least 25% in aggregate principal amount of the Outstanding Bonds of any Series, shall, or any Holder of any of the Bonds may, take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under the Indenture.

Further Assurances

Whenever and so often as reasonably requested to do so by the Trustee or any Holder, the Authority will promptly execute and deliver or cause to be executed and delivered all such other and further assurances, documents or instruments, and promptly do or cause to be done all such other and further things as may be necessary or reasonably required in order to further and more fully vest in the Holders all rights, interests, powers, benefits, privileges and advantages conferred or intended to be conferred upon them.

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The Trustee

The Trustee shall serve as the Trustee for the Bonds for the purpose of receiving all money which the Authority is required to deposit with the Trustee under the Indenture and for the purpose of allocating, applying and using such money as provided in the Indenture and for the purpose of paying the interest on and principal of and redemption premiums, if any, on the Bonds presented for payment at its Principal Corporate Trust Office and for the purpose of canceling all paid or redeemed Bonds and returning such cancelled Bonds to the Authority, with the rights and obligations provided in the Indenture. The Authority agrees that it will at all times maintain a Trustee having a Principal Corporate Trust Office in Los Angeles or San Francisco, California.

The Authority may at any time, unless there exists any Event of Default, remove the Trustee initially appointed and any successor thereto and may appoint a successor or successors thereto by an instrument in writing; provided, that any such successor shall be a banking corporation doing business and having a Principal Corporate Trust Office in Los Angeles or San Francisco, California, having a combined capital (exclusive of borrowed capital) and surplus of at least $100,000,000 and subject to supervision or examination by federal or state authority. If such bank or trust company publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purpose of this paragraph the combined capital and surplus of such bank or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. The Trustee may at any time resign by giving written notice of such resignation to the Authority and by mailing to the Holders notice of such resignation, and upon receiving such notice of resignation, the Authority shall promptly appoint a successor Trustee by an instrument in writing. Any removal or resignation of a Trustee and appointment of a successor Trustee shall become effective only upon the acceptance of appointment by the successor Trustee. If, within 30 days after notice of the removal or resignation of the Trustee no successor Trustee shall have been appointed and shall have accepted such appointment, the removed or resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee, which court may thereupon, after such notice, if any, as it may deem proper and prescribe and as may be required by law, appoint a successor Trustee having the qualifications required by the Indenture.

The Trustee shall, prior to an Event of Default, and after the curing of all Events of Default that may have occurred, perform such duties and only such duties as are specifically set forth in the Indenture, and no implied duties or obligations of the Trustee shall be read in the Indenture. The Trustee shall, during the existence of any Event of Default (that has not been cured), exercise such of the rights and powers vested in it, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.

Amendment of or Supplement to the Indenture

The Indenture and the rights and obligations of the Authority and of the Holders under the Indenture may be amended or supplemented at any time by the execution and delivery of a Supplemental Indenture by the Authority and the Trustee, which Supplemental Indenture shall become binding when the written consents of the Holders of at least a majority in aggregate principal amount of the Bonds then Outstanding, exclusive of Bonds disqualified as provided in the Indenture, shall have been filed with the Trustee; provided, that before executing any such Supplemental Indenture the Trustee shall first obtain at the Authority’s expense an Opinion of Counsel that such Supplemental Indenture complies with the provisions of the Indenture, on which opinion the Trustee

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may conclusively rely. No such amendment or supplement shall (1) extend the maturity of or reduce the interest rate on or the amount of interest on or principal of or Sinking Fund Payment for or redemption premium, if any, on any Bond without the express written consent of the Holder of such Bond, or (2) except as provided in the Indenture, permit the creation by the Authority of any pledge of or charge or lien upon the Revenues as provided in the Indenture superior to or on a parity with the pledge, charge and lien created for the benefit of the Bonds, or (3) reduce the percentage of Bonds required for the written consent to any such amendment, or (4) modify any rights or obligations of the Trustee or the Authority without their prior written assent thereto, respectively.

The Indenture and the rights and obligations of the Authority and of the Holders under the Indenture may also be amended or supplemented at any time by the execution and delivery of a Supplemental Indenture by the Authority and the Trustee, which Supplemental Indenture shall become binding upon execution without the prior written consent of any Holders, but only to the extent permitted by law, for any purpose that will not materially adversely affect the interests of the Holders, including (without limitation) for any one or more of the following purposes; provided, that before executing any such Supplemental Indenture the Trustee shall first obtain at the Authority’s expense an Opinion of Counsel that such Supplemental Indenture complies with the provisions of the Indenture, on which opinion the Trustee may conclusively rely --

(i) to add to the agreements and covenants required in the Indenture to be performed by the Authority other agreements and covenants thereafter to be performed by the Authority which shall not (in the opinion of the Authority) adversely affect the interests of the Holders, or to surrender any right or power reserved in the Indenture to or conferred in the Indenture on the Authority which shall not (in the opinion of the Authority) adversely affect the interests of the Holders;

(ii) to make such provisions for the purpose of curing any ambiguity or of correcting, curing or supplementing any defective provision contained in the Indenture or in regard to questions arising under the Indenture which the Authority may deem desirable or necessary and not inconsistent with the Indenture and which shall not (in the opinion of the Authority) adversely affect the interests of the Holders;

(iii) to authorize the issuance under the Indenture of a Series of Bonds and to provide the conditions and terms under which such Series of Bonds may be issued;

(iv) to add to the agreements and covenants required in the Indenture, such agreements and covenants as may be necessary to qualify the Indenture under the Trust Indenture Act of 1939;

(v) to make such additions, deletions or modifications as may be necessary or appropriate to insure compliance with Section 148(f) of the Internal Revenue Code of 1986, as amended, relating to the required rebate of excess investment earnings to the United States of America, or otherwise as may be necessary to insure the exclusion from gross income for purposes of federal income taxation of the interest on the Bonds or the exemption of such interest from State personal income taxes;

(vi) to make such additions, deletions or modifications as may be necessary or appropriate to maintain any then current ratings on the Bonds; or

(vii) to add to the rights of the Trustee.

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Disqualified Bonds

Bonds owned or held by or for the account of the Authority shall not be deemed Outstanding for the purpose of any consent or other action or any calculation of Outstanding Bonds, and shall not be entitled to consent to or take any other action.

Amendment by Mutual Consent

The provisions of the Indenture shall not prevent any Holder from accepting any amendment as to the particular Bonds held by him, provided that due notation thereof is made on such Bonds.

Events of Default

If one or more of the following events (in the Indenture called “Events of Default”) shall happen, that is to say:

(a) if default shall be made by the Authority in the due and punctual payment of the interest on any Bond when and as the same shall become due and payable;

(b) if default shall be made by the Authority in the due and punctual payment of the principal of or Sinking Fund Payment for or redemption premium, if any, on any Bond when and as the same shall become due and payable, whether at maturity as therein expressed or by proceedings for redemption;

(c) if default shall be made by the Authority in the performance of any of the agreements or covenants required in the Indenture to be performed by the Authority, and such default shall have continued for a period of 30 days after the Authority shall have been given notice in writing of such default by the Trustee;

(d) if the Authority shall file a petition or answer seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if a court of competent jurisdiction shall approve a petition filed with or without the consent of the Authority seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if under the provisions of any other law for the relief or aid of debtors any court of competent jurisdiction shall assume custody or control of the Authority or of the whole or any substantial part of its property; or

(e) if an Event of Default (as that term is defined in the Contract) has occurred under the Contract;

then and in each and every such case during the continuance of such Event of Default any Holder shall have the right for the equal benefit and protection of all Holders similarly situated --

(a) by mandamus or other suit or proceeding at law or in equity to enforce his rights against the Authority or any officer or employee of the Authority, and to compel the Authority or any such officer or employee to perform and carry out their duties under the Act and the agreements and covenants with the Holders contained in the Indenture;

(b) by suit in equity to enjoin any acts or things which are unlawful or violate the rights of the Holders; or

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(c) by suit in equity upon the nonpayment of the Bonds to require the Authority or any officer or employee of the Authority to account as the trustee of an express trust.

Institution of Legal Proceedings by Trustee

If an Event of Default shall happen and be continuing, the Trustee may, and upon the written request of the Holders of a majority in principal amount of the Bonds then Outstanding, and upon being indemnified to its satisfaction therefor, shall, proceed to protect or enforce its rights or the rights of the Holders of Bonds under the Indenture by a suit in equity or action at law, either for the specific performance of any agreement or covenant contained in the Indenture, or in aid of the execution of any power in the Indenture granted, or by mandamus or other appropriate proceeding for the enforcement of any other legal or equitable remedy as the Trustee shall deem most effectual in support of any of its rights and duties under the Indenture.

Non-Waiver

Nothing in the Indenture or in the Bonds shall affect or impair the obligation of the Authority, which is absolute and unconditional, to pay the interest on and principal of and redemption premiums, if any, on the Bonds to the respective Holders of the Bonds at the respective dates of maturity or upon prior redemption as provided in the Indenture from the Revenues as provided in the Indenture pledged for such payment, or shall affect or impair the right of such Holders, which is also absolute and unconditional, to institute suit to enforce such payment by virtue of the contract embodied in the Indenture and in the Bonds.

A waiver of any default or breach of duty or contract by the Trustee or any Holder shall not affect any subsequent default or breach of duty or contract or impair any rights or remedies on any such subsequent default or breach of duty or contract. No delay or omission by the Trustee or any Holder to exercise any right or remedy accruing upon any default or breach of duty or contract shall impair any such right or remedy or shall be construed to be a waiver of any such default or breach of duty or contract or an acquiescence therein, and every right or remedy conferred upon the Holders by the Act or by the Indenture may be enforced and exercised from time to time and as often as shall be deemed expedient by the Trustee or the Holders.

If any action, proceeding or suit to enforce any right or exercise any remedy is abandoned, the Authority, the Trustee and any Holder shall be restored to their former positions, rights and remedies as if such action, proceeding or suit had not been brought or taken.

Actions by Trustee as Attorney-in-Fact

Any action, proceeding or suit which any Holder shall have the right to bring to enforce any right or remedy under the Indenture may be brought by the Trustee for the equal benefit and protection of all Holders, whether or not the Trustee is a Holder, and the Trustee is appointed (and the successive Holders, by taking and holding the Bonds issued under the Indenture, shall be conclusively deemed to have so appointed it) the true and lawful attorney-in-fact of the Holders for the purpose of bringing any such action, proceeding or suit and for the purpose of doing and performing any and all acts and things for and on behalf of the Holders as a class or classes as may be advisable or necessary in the opinion of the Trustee as such attorney-in-fact.

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Remedies Not Exclusive

No remedy in the Indenture conferred upon or reserved to the Holders is intended to be exclusive of any other remedy, and each such remedy shall be cumulative and shall be in addition to every other remedy given under the Indenture or now or hereafter existing at law or in equity or by statute or otherwise and may be exercised without exhausting and without regard to any other remedy conferred by the Act or any other law.

Limitation on Bondholders’ Right to Sue

No Holder of any Bond issued under the Indenture shall have the right to institute any suit, action or proceeding at law or equity, for any remedy under the Indenture, unless (a) such Holder shall have previously given to the Trustee written notice of the occurrence of an Event of Default; (b) the Holders of at least a majority in aggregate principal amount of all the Bonds then Outstanding shall have made written request upon the Trustee to exercise the powers granted in the Indenture or to institute such suit, action or proceeding in its own name; (c) such Holders shall have tendered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; and (d) the Trustee shall have refused or omitted to comply with such request for a period of 60 days after such request shall have been received by, and such tender of indemnity shall have been made to, the Trustee.

Such notification, request, tender of indemnity and refusal or omission are declared, in every case, to be conditions precedent to the exercise by any owner of Bonds of any remedy under the Indenture; it being understood and intended that no one or more Holders shall have any right in any manner whatever by his or their action to enforce any right under the Indenture except in the manner provided in the Indenture, and that all proceedings at law or in equity to enforce any provision of the Indenture shall be instituted and maintained in the manner in the Indenture provided and for the equal benefit of all Holders of Outstanding Bonds.

Discharge of Bonds

If the Authority shall pay or cause to be paid or there shall otherwise be paid to the Holders of all Outstanding Bonds the interest thereon and the principal thereof and the redemption premiums, if any, thereon at the times and in the manner stipulated in the Indenture and therein, then the Holders of such Bonds shall cease to be entitled to the pledge of and charge and lien upon the Revenues as provided in the Indenture, and all agreements, covenants and other obligations of the Authority to the Holders of such Bonds under the Indenture shall thereupon cease, terminate and become void and be discharged and satisfied. In such event, the Trustee shall execute and deliver to the Authority all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, the Trustee shall pay over or deliver to the Authority all money or securities held by it pursuant to the Indenture which are not required for the payment of the interest on and principal of and redemption premiums, if any, on such Bonds and for the payment of any fees and expenses of the Trustee.

Any Outstanding Bonds shall prior to the maturity date or redemption date thereof be deemed to have been paid within the meaning of and with the effect expressed in the first paragraph under this heading if there shall be on deposit with the Trustee money which is sufficient to pay the interest due on such Bonds on such date and the principal and redemption premiums, if any, due on such Bonds on such date.

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Any Outstanding Bonds shall prior to the maturity date or redemption date thereof be deemed to have been paid within the meaning of and with the effect expressed in the first paragraph under this heading if (1) in case any of such Bonds are to be redeemed on any date prior to their maturity date, the Authority shall have given to the Trustee in form satisfactory to it irrevocable instructions to provide notice in accordance with the Indenture, (2) there shall have been deposited with the Trustee either (A) money in an amount which shall be sufficient or (B) Permitted Investments of the type described in clause (1) of the definition of Permitted Investments which are not subject to redemption prior to maturity, the interest on and principal of which when paid will provide money which, together with the money, if any, deposited with the Trustee at the same time, shall be sufficient to pay when due the interest to become due on such Bonds on and prior to the maturity date or redemption date thereof, as the case may be, and the principal of and redemption premiums, if any, due on such Bonds on and prior to the maturity date or redemption date thereof, as the case may be, as evidenced by a report of an Independent Certified Public Accountant or other party satisfactory to the Trustee on file with the Authority and the Trustee, and an Opinion of Counsel to the effect that the payment of such Bonds has been provided for in the manner set forth in the Indenture and that all obligations of the Authority with respect to the Bonds have been discharged and satisfied, shall have been filed with the Authority and the Trustee; and (3) in the event such Bonds are not by their terms subject to redemption within the next succeeding 60 days, the Authority shall have given the Trustee in form satisfactory to it irrevocable instructions to mail as soon as practicable, a notice to the Holders of such Bonds that the deposit required by clause (2) above has been made with the Trustee and that such Bonds are deemed to have been paid in accordance with the provisions of the Indenture described under this heading, and stating the maturity date or redemption date upon which money is to be available for the payment of the principal of and redemption premiums, if any, on such Bonds.

Liability of Authority Limited to Revenues

Notwithstanding anything contained in the Indenture, the Authority shall not be required to advance any money derived from any source other than the Revenues as provided in the Indenture for the payment of the interest on or principal of or redemption premiums, if any, on the Bonds or for the performance of any agreements or covenants in the Indenture contained; provided, that the Authority may, however, advance funds for any such purpose so long as such funds are derived from a source legally available for such purpose without incurring an indebtedness.

The Bonds are limited obligations of the Authority and are payable, as to interest thereon, principal thereof and any premiums upon the redemption of any thereof, solely from the Revenues as provided in the Indenture, and the Authority is not obligated to pay them except from the Revenues. All the Bonds are equally secured by a pledge of and charge and lien upon the Revenues, and the Revenues constitute a trust fund for the security and payment of the interest on and principal of and redemption premiums, if any, on the Bonds as provided in the Indenture. The Bonds are not a debt of the Authority, the District, the State or any of its political subdivisions, and neither the Authority, the District, the State nor any of its political subdivisions is liable thereon, nor in any event shall the Bonds be payable out of any funds or properties other than those of the Authority as provided in the Indenture. The Bonds do not constitute an indebtedness within the meaning of any constitutional or statutory limitation or restriction.

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THIRD SUPPLEMENTAL INDENTURE

Under the Third Supplemental Indenture, the Series 2015 Bonds are issued to refund, together with other available funds, all of the outstanding Series 2005 Bonds. The Third Supplemental Indenture sets forth the terms of the Series 2015 Bonds. Certain provisions of the Third Supplemental Indenture are summarized below. This summary does not purport to be complete or definitive and is qualified in its entirety by reference to the full terms of the Third Supplemental Indenture.

Use of Depository for Series 2015 Bonds

In accordance with the provisions of the Indenture, the Series 2015 Bonds shall be initially issued as book-entry bonds, registered in the name of “Cede & Co.,” as nominee of DTC, and each maturity of the Series 2015 Bonds of each series shall be in the form of a separate single fully registered bond in the principal amount set forth in the Third Supplemental Indenture; and all the provisions of the Indenture shall apply to the Series 2015 Bonds.

Tax Covenants; Series 2015 Bonds Rebate Fund

The Authority shall not use or permit the use of any proceeds of the Series 2015 Bonds or any funds of the Authority, directly or indirectly, to acquire any securities or obligations and shall not take or permit to be taken any other action or actions which would cause any Series 2015 Bonds to be “arbitrage bonds” within the meaning of Section 148 of the Code, “private activity bonds” within the meaning of Section 141(a) of the Code or “federally guaranteed” within the meaning of Section 149(b) of the Code and any applicable requirements promulgated from time to time thereunder and under Section 103(c) of the Code; and the Authority shall not use or permit the use of any proceeds of the Series 2015 Bonds or any funds of the Authority, directly or indirectly, in any manner and shall not take or omit to take any action that would cause any of the Series 2015 Bonds to be treated as an obligation not described in Section 103(a) of the Code; and the Authority shall comply with all requirements of Sections 148 and 149(b) of the Code to the extent applicable to the Series 2015 Bonds; provided, that notwithstanding any provisions of the Third Supplemental Indenture described in this paragraph, if the Authority shall provide to the Trustee an Opinion of Counsel that any specified action required under the section of the Third Supplemental Indenture relating to tax matters is no longer required, or that some further or different action is required, to maintain the exclusion from federal income tax of interest with respect to the Series 2015 Bonds, the Trustee and the Authority may conclusively rely on such opinion in complying with the requirements of the Third Supplemental Indenture, and the covenants under the Third Supplemental Indenture shall be deemed to be modified to that extent; and provided further, that in the event that at any time the Authority is of the opinion that for purposes of the section of the Third Supplemental Indenture relating to tax matters it is necessary to restrict or limit the yield on the investment of any money held by the Director of Finance or the Trustee under the Third Supplemental Indenture, the Authority shall so instruct the Director of Finance or the Trustee, as the case may be, in writing and the Director of Finance or the Trustee shall take such action as may be necessary in accordance with such instructions.

Without limiting the generality of the foregoing, the Authority will pay from time to time all amounts required to be rebated to the United States of America pursuant to Section 148(f) of the Code and all regulations of the United States Department of the Treasury issued thereunder to the extent that such regulations are, at the time, applicable and in effect, which obligation shall survive

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payment in full or defeasance of the Series 2015 Bonds; and to that end, the Authority agrees and covenants to establish and maintain with the Trustee when needed a fund separate from any other fund or account established and maintained under the Third Supplemental Indenture designated the “Sacramento County Sanitation Districts Financing Authority Revenue Bonds, Series 2015 (Sacramento Area Sewer District) Rebate Fund,”( the “Series 2015 Bonds Rebate Fund”) and there shall be deposited in the Series 2015 Bonds Rebate Fund such amounts as are required to be deposited therein pursuant to the Tax Certificate. The Authority covenants to comply with the provisions and procedures of the Tax Certificate with respect to making deposits in the Series 2015 Bonds Rebate Fund, and all money held in the Series 2015 Bonds Rebate Fund is pledged to provide payments to the United States of America as provided in the Third Supplemental Indenture and in the Tax Certificate, and no other person shall have claim to such money except as provided in the Tax Certificate; provided, that notwithstanding anything to the contrary contained in the Third Supplemental Indenture or in the Tax Certificate, the Trustee (i) shall be deemed conclusively to have complied with the provisions thereof if it follows all Written Requests of the Authority, and (ii) shall have no liability or responsibility to enforce compliance by the Authority with the terms of the Tax Certificate, and (iii) may rely conclusively on the Authority’s calculations and determinations and certifications relating to rebate matters, and (iv) shall have no responsibility to independently make any calculations or determinations or to review the Authority’s calculations or determinations thereunder.

Terms of Series 2015 Bonds Subject to the Indenture

Except as in the Third Supplemental Indenture expressly provided, every agreement, condition, covenant and term contained in the Indenture shall apply to the Third Supplemental Indenture and to the Series 2015 Bonds with the same force and effect as if the same were set forth at length in the Third Supplemental Indenture, with such omissions, variations and modifications thereof as may be appropriate to make the same conform to the Third Supplemental Indenture.

Assignment of Third Supplemental Contract

In order to secure the pledge of the 2015 Payments, which constitute Revenues under the Indenture, the Authority transfers, conveys and assigns to the Trustee, for the benefit of the Holders of the Series 2015 Bonds, all of the Authority’s rights under the Third Supplemental Contract (excepting its right to indemnification thereunder), including the right to receive the 2015 Payments from the District and the right to exercise any remedies provided in the Third Supplemental Contract in the event of a default by the District thereunder and the Trustee accepts said assignment for the benefit of the Holders of the Series 2015 Bonds subject to the provisions of the Indenture.

APPENDIX E

FORM OF CONTINUING DISCLOSURE CERTIFICATE

CONTINUING DISCLOSURE CERTIFICATE

This Continuing Disclosure Certificate (the “Disclosure Certificate”) is executed and delivered by the Sacramento Area Sewer District (“SASD”) in connection with the issuance by the Sacramento County Sanitation Districts Financing Authority (the “Authority”) of its $45,435,000 Revenue Bonds, Refunding Series 2015 (Sacramento Area Sewer District) (the “Series 2015 Bonds”). The Series 2015 Bonds are being issued pursuant to an Indenture dated as of June 1, 2005, between the Authority and MUFG Union Bank, N.A., as trustee (the “Trustee”), as supplemented and amended from time to time including as supplemented by a Third Supplemental Indenture, dated as of May 1, 2015 (the “Third Supplemental Indenture”) by and between the Authority and the Trustee (collectively, the “Indenture”). The Authority and SASD have entered into a Third Supplemental Installment Purchase Contract, dated as of May 1, 2015 (the “Third Supplemental Installment Purchase Contract”) supplementing a Master Installment Purchase Contract, dated as of June 1, 2005, as supplemented and amended from time to time (collectively, the “Installment Purchase Contract”) each between SASD and the Authority, and in connection therewith SASD covenants and agrees as follows:

SECTION 1. Purpose of the Disclosure Certificate. The Disclosure Certificate is being executed and delivered by SASD for the benefit of the Holders and Beneficial Owners of the Series 2015 Bonds and in order to assist the Participating Underwriters in complying with Securities and Exchange Commission Rule 15c2-12(b)(5).

SECTION 2. Definitions. In addition to the definitions set forth above and in the Indenture, which apply to any capitalized term used in the Disclosure Certificate unless otherwise defined in this section, the following capitalized terms shall have the following meanings:

“Annual Report” shall mean any Annual Report provided by SASD pursuant to, and as described in, Sections 3 and 4 of the Disclosure Certificate.

“Beneficial Owner” shall mean any person who has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries).

“EMMA System” shall mean the MSRB’s Electronic Municipal Market Access system, or such other electronic system designated by the MSRB.

“Listed Event” shall mean any of the events listed in Section 5(a) of the Disclosure Certificate.

“MSRB” means the Municipal Securities Rulemaking Board or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to the Rule.

“Participating Underwriter” shall mean the underwriter of the Series 2015 Bonds listed on the cover page of the Official Statement required to comply with the Rule in connection with offering of the Series 2015 Bonds.

“Rule” shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

“State” shall mean the State of California.

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SECTION 3. Provision of Annual Reports.

(a) SASD shall, not later than 210 days after the end of SASD’s Fiscal Year (presently June 30), commencing with the report for the 2014-15 Fiscal Year, provide to the MSRB through the EMMA System (in an electronic format and accompanied by identifying information all as prescribed by the MSRB) an Annual Report which is consistent with the requirements of Section 4 of the Disclosure Certificate. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of the Disclosure Certificate; provided that the audited financial statements of SASD may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. If SASD’s Fiscal Year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c).

(b) If SASD is unable to provide to the MSRB an Annual Report by the date required in subsection (a), SASD shall send to the MSRB a notice in substantially the form attached hereto as Exhibit A.

SECTION 4. Content of Annual Reports. SASD’s Annual Report shall contain the CUSIP numbers of the Series 2015 Bonds and include by reference the following:

(a) The audited financial statements of SASD for the prior Fiscal Year, prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board; provided, that if SASD’s audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available.

(b) An annual report updating, as of the end of the prior fiscal year, of information of the type presented in the following tables contained in the Official Statement for the Series 2015 Bonds, dated March 12, 2015:

Table 1 - Residential and Commercial Customers;

Table 5 - SASD Delinquencies Placed on Tax Roll; and

Table 7 - Historical Operating Results.

Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of SASD or related public entities, which have been submitted to the MSRB or the Securities and Exchange Commission; provided, that if any document included by reference is a final official statement, it must be available from the MSRB; and provided further, that SASD shall clearly identify each such other document so included by reference.

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SECTION 5. Reporting of Significant Events.

(a) Pursuant to the provisions of this Section 5, SASD shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Series 2015 Bonds in a timely manner not more than ten (10) business days after the event:

1. Principal and interest payment delinquencies;

2. Unscheduled draws on debt service reserves reflecting financial difficulties;

3. Unscheduled draws on credit enhancements reflecting financial difficulties;

4. Substitution of credit or liquidity providers, or their failure to perform;

5. Issuance by the Internal Revenue Service of proposed or final determination of taxability or of a Notice of Proposed Issue (IRS Form 5701 TEB);

6. Tender offers;

7. Defeasances;

8. Rating changes; or

9. Bankruptcy, insolvency, receivership or similar event of the obligated person.

Note: for the purposes of the event identified in subparagraph (9), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person.

(b) Pursuant to the provisions of this Section 5, SASD shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Series 2015 Bonds, if material:

1. Unless described in paragraph 5(a)(5), adverse tax opinions or other material notices or determinations by the Internal Revenue Service with respect to the tax status of the Series 2015 Bonds or other material events affecting the tax status of the Series 2015 Bonds;

2. Modifications to rights of holders of the Series 2015 Bonds;

3. Optional, unscheduled or contingent calls;

4. Release, substitution, or sale of property securing repayment of the Series 2015 Bonds;

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5. Non-payment related defaults;

6. The consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; or

7. Appointment of a successor or additional trustee or the change of name of a trustee.

(c) Whenever SASD obtains knowledge of the occurrence of a Listed Event described in subsection (b), SASD shall as soon as possible determine if such event would be material under applicable federal securities laws. If SASD determines that knowledge of the occurrence of a Listed Event under Section 5(b) would be material under applicable federal securities laws, SASD shall file a notice of such occurrence with EMMA in a timely manner not more than ten (10) business days after the event.

SECTION 6. Termination of Reporting Obligation. SASD’s obligations under the Disclosure Certificate shall terminate (a) upon the legal defeasance, prior redemption or payment in full of all of the Series 2015 Bonds, or (b) if, in the opinion of nationally recognized bond counsel, SASD ceases to be an “obligated person” (within the meaning of the Rule) with respect to the Series 2015 Bonds or the Series 2015 Bonds otherwise cease to be subject to the requirements of the Rule. If such termination occurs prior to the final maturity of the Series 2015 Bonds, SASD shall give notice of such termination in the same manner as for a Listed Event under Section 5(c).

SECTION 7. Amendment; Waiver. Notwithstanding any other provision of the Disclosure Certificate, SASD may amend the Disclosure Certificate, and any provision of the Disclosure Certificate may be waived; provided, that the following conditions are satisfied:

(a) If the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the Series 2015 Bonds, or the type of business conducted;

(b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Series 2015 Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

(c) The amendment or waiver either (i) is approved by the Holders of the Series 2015 Bonds in the same manner as provided in the Indenture for amendments to the Indenture with the consent of Holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the Series 2015 Bonds.

In the event of any amendment or waiver of a provision of the Disclosure Certificate, SASD shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating

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data being presented by SASD. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 5(c), and (ii) the Annual Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles.

SECTION 8. Additional Information. Nothing in the Disclosure Certificate shall be deemed to prevent SASD from disseminating any other information, using the means of dissemination set forth in the Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by the Disclosure Certificate. If SASD chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by the Disclosure Certificate, SASD shall have no obligation under the Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

SECTION 9. Default. In the event of a failure of SASD to comply with any provision of the Disclosure Certificate, any Participating Underwriter or any Holder or Beneficial Owner of the Series 2015 Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause SASD to comply with its obligations under the Disclosure Certificate. A default under the Disclosure Certificate shall not be deemed an Event of Default under the Indenture, and the sole remedy under the Disclosure Certificate in the event of any failure of SASD to comply with the Disclosure Certificate shall be an action to compel performance hereunder.

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SECTION 10. Beneficiaries. The Disclosure Certificate shall inure solely to the benefit of SASD, the Participating Underwriter and the Holders and Beneficial Owners from time to time of the Series 2015 Bonds, and shall create no rights in any other person or entity.

Dated: May 5, 2015


By: Chief Financial Officer

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EXHIBIT A

NOTICE OF FAILURE TO FILE ANNUAL REPORT

Name of District: Sacramento Area Sewer District

Name of Issue: $45,435,000 Revenue Bonds, Refunding Series 2015 (Sacramento Area Sewer District) (the “Series 2015 Bonds”)

Date of Issuance: May 5, 2015

NOTICE IS HEREBY GIVEN that SASD has not provided an Annual Report with respect to the above-named Bonds as required by the Indenture dated as of June 1, 2005, between the Authority and MUFG Union Bank, N.A., as trustee (the “Trustee”), as supplemented and amended from time to time including as supplemented by a Third Supplemental Indenture, dated as of May 1, 2015 (the “Third Supplemental Indenture”) by and between the Authority and the Trustee (collectively, the “Indenture”). SASD anticipates that the Annual Report will be filed by _____________.

Dated: ___________ __, _____


By: Chief Financial Officer

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APPENDIX F

PROPOSED FORM OF BOND COUNSEL OPINION

[Closing Date]

Sacramento County Sanitation Districts Financing Authority Sacramento, California

Sacramento County Sanitation Districts Financing Authority

Revenue Bonds, Refunding Series 2015 (Sacramento Area Sewer District)

(Final Opinion)

Ladies and Gentlemen:

We have acted as bond counsel to the Sacramento County Sanitation Districts Financing Authority (the “Authority”) in connection with the issuance of $45,435,000 aggregate principal amount of Sacramento County Sanitation Districts Financing Authority Revenue Bonds, Refunding Series 2015 (Sacramento Area Sewer District) (the “Bonds”) issued pursuant to an Indenture, dated as of June 1, 2005 (the “Original Indenture”), as supplemented by a Third Supplemental Indenture, dated as of May 1, 2015 (the “Third Supplemental Indenture,” and together with the Original Indenture, the “Indenture”), each between the Authority and MUFG Union Bank, N.A., as trustee (the “Trustee”). Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Indenture.

In such connection, we have reviewed the Indenture; the Master Installment Purchase Contract, dated as of June 1, 2005 (as previously supplemented and amended, the “Master Contract”), as supplemented and amended by the Third Supplemental Installment Purchase Contract, dated as of May 1, 2015 (the “Third Supplemental Contract” and together with the Master Contract, the “Contract”), each between the Sacramento Area Sewer District (formerly known as County Sanitation District No. 1) (the “District”) and the Authority; the Tax Certificate and Agreement, dated the date hereof (the “Tax Certificate”), between the Authority and the District relating to the Bonds; opinions of counsel to the Authority, the District and the Trustee; certificates of the Authority, the District, the Trustee and others; and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein.

The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after the date hereof. Accordingly, this letter speaks only as of its date and is not intended to, and may not, be relied upon in connection with any such actions, events or matters. Our engagement with respect to the Bonds has concluded with their issuance, and we disclaim any obligation to update this letter. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or as copies) and the due and legal execution and delivery thereof by, and validity against, any parties other than the Authority and the District. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents and of the legal conclusions contained in the opinions, referred to in the second paragraph

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hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Indenture, the Contract and the Tax Certificate, including (without limitation) covenants and agreements compliance with which is necessary to assure that future actions, omissions or events will not cause interest on the Bonds to be included in gross income for federal income tax purposes. We call attention to the fact that the rights and obligations under the Bonds, the Indenture, the Contract and the Tax Certificate and their enforceability may be subject to bankruptcy, insolvency, receivership, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against public entities in the State of California. We express no opinion with respect to any indemnification, contribution, liquidated damages, penalty (including any remedy deemed to constitute a penalty), right of set-off, arbitration, judicial reference, choice of law, choice of forum, choice of venue, non-exclusivity of remedies, waiver or severability provisions contained in the foregoing documents, nor do we express any opinion with respect to the state or quality of title to or interest in any of the assets described in or as subject to the lien of the Indenture or the Contract or the accuracy or sufficiency of the description contained therein of, or the remedies available to enforce liens on, any such assets. Our services did not include financial or other non-legal advice. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement, dated March 12, 2015, or other offering material relating to the Bonds and express no opinion with respect thereto.

Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions:

1. The Bonds constitute the valid and binding limited obligations of the Authority.

2. The Bonds are payable solely from the Revenues and the funds held in certain accounts and funds pursuant to the Indenture as provided therein. The obligation of the District to make payments pursuant to the Contract is limited to the Net Revenues of the Sanitation System (as such terms are defined in the Contract) of the District.

3. The Indenture has been duly executed and delivered by, and constitutes the valid and binding obligation of, the Authority.

4. The Contract has been duly executed and delivered by, and constitutes the valid and binding obligation of, the Authority and the District.

5. Interest on the Bonds is excluded from gross income for federal income tax purposes under section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. Interest on the Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although we observe that it is included in adjusted current earnings when calculating corporate alternative minimum taxable income. We express no opinion regarding other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Bonds.

Faithfully yours, ORRICK, HERRINGTON & SUTCLIFFE LLP per

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