Moody's

Date: 25 May 2006

Issue Rating: Aa3

Comments (excerpt):

The ‘Aa3’ rating assigned to Sacramento City Financing Authority primarily reflects the strength of the city’s general fund lease pledge, security enhancements provided by the city’s master lease program and the city’s general credit characteristics. These notably include the city’s healthy financial and economic trends reflecting in part management’s continued adherence to sound, conservative budgeting principles; continued favorable tax base growth prospects; and well above average, though manageable debt and lease burdens.

SOUND BUDGETING PRACTICES AND CONTINUED ROBUST REAL ESTATE MARKET HELP MAINTAIN SACRAMENTO’S FISCAL HEALTH

Sacramento has successfully adhered to its “sustainable budget” policies and maintained a healthy balance sheet and sound trend of moderate, GAAP-basis operating surpluses in its general fund. As of year-end fiscal 2005, the city’s general fund liquidity and fund balance ratios were at or slightly better than the medians for all California cities, and Moody’s expects the city to maintain this relative position as it closes out fiscal 2006.

Standard & Poors

Date: 22 May 2006

Issue Rating: AA-

Comments (excerpt):

The ‘AA-' rating on the Sacramento City Financing Authority reflect:

• A strong financial position supported by formal policies;
• The stability of the underlying economy, which includes the state capital;
• The expansion of the city’s tax base; and
• Above-average debt levels.

Strong financial reserves have built up over years of conservative budgeting practices, resulting in annual surpluses that have supported the city’s strong credit quality. With a healthy revenue performance and manageable expenditure growth, fiscal stability should continue in 2006 and beyond, including compliance with minimum reserve policy.

The stable outlook reflects Standard & Poor’s expectation that city financial reserve levels will remain strong. If reserve levels are maintained, this mitigate concerns associated with rising pension costs and uncertainty related to other post retirement employment benefit (OPEB) liabilities.

Note: Moody’s & Standard & Poors have both reaffirmed the City’s Aa2 and AA ratings, respectively.

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