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Risks Associated with OCWD and MWD The operation and physical conditions of the MWD and OCWD facilities are subject to a number of risk factors that could adversely affect the reliability of such water supply and corresponding water deliveries to the City, or increase the operating expenses of OCWD and MWD, which could increase the City's Maintenance and Operation Costs. See certain risks associated with OCWD and MWD described in "THE WATER SYSTEM" above. Additionally, MWD faces continuing litigation with respect to endangered species projected under federal and state law which is not enumerated in this Official Statement. OCWD and MWD face various challenges in the continued supply of imported water to Orange County. A description of these challenges as well as a variety of other operating information with respect to OCWD and MWD is included in certain disclosure documents prepared, respectively, by OCWD and MWD. Both OCWD and MWD have entered into certain continuing disclosure agreements pursuant to which they are contractually obligated, for the benefit of owners of certain of their respective outstanding obligations, to file certain annual reports, notices of certain material events as defined under Rule 15c2 -12 of the Exchange Act ( "Rule 15c2 -12 ") and annual audited financial statements with certain information repositories. Neither OCWD nor MWD have entered into any contractual commitment with the Authority, the City, the Trustee or the Owners of the Bonds to provide information to the Authority, the City, the Trustee or the Owners of the Bonds. Neither OCWD or MWD have reviewed this Official Statement and have made no representations or warranties with respect to the accuracy or completeness of the information contained or incorporated herein, including information with regard to OCWD or MWD. Impact of State Budget The State has experienced budgetary shortfalls in recent fiscal years, although it is currently expected to finish the current fiscal year with a budget surplus. The City cannot predict what actions will be taken in the future by the State Legislature and the Governor to deal with changing State revenues and expenditures, and it is possible that future legislation will impact revenues of local agencies. These developments at the State level will most likely adversely affect local governments. However, the City does not currently anticipate that the State budget problems will materially adversely impact the operation of the City's Water System. Secondary Market for Bonds There can be no guarantee that there will be a secondary market for the Bonds or, if a secondary market exists, that any Bonds can be sold for any particular price. Occasionally, because of general market conditions or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon then - prevailing circumstances. Such prices could be substantially different from the original purchase price. Federal Tax - Exempt Status of the Bonds The Internal Revenue Code of 1986, as amended (the "Code ") imposes a number of requirements that must be satisfied for interest on state and local obligations, such as the Bonds, to be excludable from gross income for federal income tax purposes. These requirements include limitations on the use of Bond proceeds, limitations on the investment earnings on Bonds proceeds prior to expenditure, a requirement that certain investment earnings on the Bond proceeds be paid periodically to the United States and a requirement that the issuers file an information report with the Internal Revenue Service (the "IRS "). The Authority and the City have covenanted in certain of the documents referred to herein that they will comply with such requirements. Failure to comply with the requirements stated in the Code and related regulations, rulings and policies may result in the treatment of interest on the Bonds as taxable, retroactively to the date of issuance of such Bonds. 40