City of Norco City Hall • 2870 Clark Avenue • Norco Ca 92860 • (951) 735-3900 • www.norco.ca.us • June 22, 2018 Sara*

Restriction issued on June 13, 2002, has never been legally modified, amended, or rescinded. Norco recognized that they were restricted from building this commercial venture and filed a motion in Federal Court for interpretation, modification and/or elimination of the restrictive covenant. The motion was unequivocally denied on November 2, 2004, in the following: ...The receiver in this action sold the property at issue on the condition that the deed contain a covenant running with the land restricting the use of the property to park in open space purposes, which was intended for the benefit of the public. The covenant clearly precludes the mixed-use project proposed by the City of Norco. Thus, the Court will not construe the covenant as permitting the mixed-use project. Given that the beneficiaries of the covenant include members of the public, the Court will not eliminate the covenant. [sic] City Response: The City agrees that the original Federal District Court Quit Claim Deed Restriction issued in 2002, has never been legally modified, amended, or rescinded. As previously stated, the 2004 modification sought by the City was for developing a mixed use commercial project on the SilverLakes Property. This was necessitated by the City's lack of financial resources to develop the 122-acre property as a public park. This requested modification, which was denied by the Court, has nothing to do with the subsequent development of the Property by Balboa Management, LLC. The City never pursued a mixed-use development following the Court ruling in 2004. Instead, in 2007, the City initiated a Request for Qualifications/Proposals process to seek developers that would undertake the development of the SilverLakes Property in accordance with the Deed Restriction. Following extensive public presentations, Balboa Management Group, LLC was selected to partner with the City for the development of the SilverLakes Property. The development of the SilverLakes Property by Balboa Management Group, LLC was based on the 2012 Validation Action, which was approved by the Superior Court of the State of California on February 28, 2012.

The Silverlakes Equestrian and Sports Complex is not a public park as presented in the 2002 Quit Claim Deed including the Covenant Restriction. The concept plans submitted in 2012 to Riverside County Superior Court for validation gave the impression that there would be limited commercial or money-making activities at this property. However, the plans were substantially different from what was constructed. The extent of commercial development in the plans submitted to Riverside Superior Court was minimized. For example, the exhibit plans had no reference to constructing a full service commercial restaurant and bar. City Response: As previously stated, the purpose of the 2012 Superior Court Validation Action was to confirm that the proposed uses of the SilverLakes Project were in compliance with the Deed Covenant Restriction. The purpose of the concept/exhibit plans provided as part of the Validation Action was to show the types and approximate location of facilities that could be constructed on the property to provide the amenities listed as permitted uses as outlined in the various agreements between the City and Balboa Management Group, LLC. The concept plans operate like a Site Plan subject to change within reasonable parameters. Food and alcohol service are permitted uses on the property. Having a restaurant and bar which are ancillary uses to support the large number of visitors that use the park are consistent with the Deed Restriction on the property. This 122-acre facility has hosted well over 2 million (2,000,000) children and families since opening, including 1.4 million (1,400,000) during calendar year

After reviewing official correspondence, sworn testimony and memos, the Grand Jury discovered that pursuant to the Council's prior authorization, approximately $1.8 million had been provided to the Developer for water and sewer improvements. However, no loan documentation or legal contracts to support this transfer of funds have been found or provided to the Grand Jury despite subpoenaed requests. The money for the loan was drawn from an existing $39 million Enterprise Revenue Refunding Bond. Although the Bond was not designated for this specific instance, there is a clause in its description which allows Norco to finance up to $6 million for improvements to the City's Water and Sewer Systems. City Response: On July 6, 2011, the Norco City Council approved Funding, Construction and Acquisition Agreement by and between the City of Norco and Balboa Management Group, LLC. The purpose of this agreement was to outline how the City's on-site improvements on the SilverLakes Property will be funded, constructed, and reimbursed. Under the Agreement, Balboa was responsible for building the on-site (on SilverLakes) City public infrastructure improvements including water and sewer improvements. The Agreement further provides that these improvements will be funded from existing bond proceeds from the 2009 Enterprise Revenue Refunding Bonds through City provided reimbursement to Balboa Management Group, LLC - up to $6 million. A total of $6 million was ultimately reimbursed to Balboa by the City. Section 5.06 of the Funding, Construction and Acquisition Agreement specifically outlined the terms of Balboa's obligation to repay the City at 5.9% annual interest rate. The Funding, Construction and Acquisition Agreement was provided to the Grand Jury including documents showing amounts that Balboa has repaid the City. Furthermore, as part of the Grand Jury Subpoena of records, tens of thousands of documents were provided to the Grand Jury including documents submitted to the City by Balboa to support their request for reimbursement of expenditures they paid towards the construction of City on-site improvements. The $1.8 million referenced in this Grand Jury report pertains to the initial amount reimbursed to Balboa prior to June 6, 2012, when the agreement was amended to clarify the terms of the "Letter of Credit" required from Balboa as a condition for City reimbursements. This initial reimbursement of $1.8 million to Balboa was made pursuant to the provisions of the Funding, Construction, and Acquisition Agreement that was approved by the City Council on July 6, 2011. Additional subsequent reimbursements were made and supporting documents, which are available for public inspection, were provided to the Grand Jury. Following substantial completion of on-site improvements and acceptance by the City, Balboa Management Group, LLC, and the City of Norco entered into a Memorandum of Understanding on January 20, 2016, adopting a monthly repayment schedule commencing on July 1, 2016. The repayment schedule agreed to and approved by the City Council on January 20, 2016, was based on total reimbursement of $5,575,884.17, up to that date plus accrued interest. On May 4, 2016, the City Council approved amendment No. 1 to the repayment schedule to include additional reimbursement of $424,115.83. This brought the total reimbursement to $6,000,000 with calculated accrued interest of $1,292,325.92 as of June 30, 2016. On July 1, 2016, Balboa began monthly repayment of $48,339.52 to the City. Since repayment of City reimbursements began, Balboa has made payments totaling $1,160,148.40 through June 7, 2018. Balboa has not missed any scheduled repayment obligation to the City. The following documents are attached regarding City reimbursement to Balboa and subsequent repayments to the City.

Memorandum of Understanding Regarding Reimbursement Repayment Schedule - Amendment No. 1 including Amortization Schedule. (Attachment S)