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BACKGROUND In 2004, the Pleasanton Joint Powers Financing Authority (the "Authority") issued Reassessment Revenue Refunding Bonds, Series 2004A and 2004B (the "Bonds") in the total amount of $76,485,000. Bond proceeds were used to fund 50% of the reserve fund (the "Reserve Fund"), pay costs of issuance, and purchase the City's local obligations 1993-1, 1993-2, 1993-3, and 1993-4 (collectively the "Local Obligations"). Currently, on an annual basis the City receives assessment revenues from the Local Obligations paid by commercial property owners in north Pleasanton that are used to pay the annual debt service payments on the Bonds. The original assessment district bonds were sold dating back to the early 1980's and the bond proceeds were used then to pay for the public infrastructure needed to develop the business parks and retail centers throughout the City. These original bonds were first refinanced in 1993 in order to realize a lower interest cost for the property owners that are assessed annually for the debt service on the bonds, and then again in 2004. The Bonds will be paid off in their entirety on September 2, 2011. When the Bonds were issued in 2004 the Authority was required to establish a reserve fund (Reserve Fund) in the amount of $7.6 million. The Reserve Fund can be held in cash or a surety bond. The Authority purchased a surety bond for 50% of the Reserve Fund ($3.8 million) from the bond insurer, FSA and the other 50% of the Reserve Fund ($3.8 million) was held in cash. A surety bond is a debt service reserve insurance policy that replaces the cash reserve fund for a bond issue. The insurance company (FSA) providing the policy agrees to pay to the Bond trustee that portion of the principal of and interest on the Bonds (up to $3.8 million) that becomes delinquent and otherwise would have been cured by the cash reserve fund. By replacing the remaining cash reserve fund with a surety bond the insurance company will be responsible for the payment on the bonds in case of delinquency and the City is not responsible for any of those costs. The cash reserve of $3.8 million is invested in a guaranteed investment contract with Lehman Brothers Special Financing Inc. at an interest rate of 4.43%. The guaranteed investment contract (GIC) can be liquidated at any time with a 15 day notice to Lehman Brothers. If the Council agrees to purchase a surety bond and release the cash to the City for capital improvement purposes, staff will move forward to complete this transaction and notify Lehman Brothers that the City is liquidating the GIC. DISCUSSION At the time the Bonds were issued in 2004, Staff felt that there could be defaults in the payment of the assessments by the property owners and the cash would be needed to make the payments on the Bonds. However, since that time there have been no delinquencies in the payment of the assessments and therefore, the cash has not been called upon to make the Bond payments. The Bonds were issued under the Marks-Roos pooled bond authority (Articles 1 through 4 commencing with Section 6500 of Chapter 5 of Division 7 of Title 1 of the Government Page 2 of 3