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The District has no legal debt limitation. As a practical matter, the District’s policy is to pay debt service on its bonds from revenue sources rather than property taxes. Accordingly, the District’s ability to issue and pay debt service is a function of its capital needs and revenues generated from District facilities.

Outstanding Indebtedness

The following table illustrates the District’s outstanding general obligation bonds as of June 1, 2010, including the issuance of the 2010 Bonds and after taking the Refunding Project into account.

District Outstanding Indebtedness* As of June 1, 2010

Issue

Date Original Amount Outstanding* Amount GENERAL OBLIGATION/DISTRICT REVENUE SUPPORTED BONDS (1)

Parity Lien Obligations

Water Improvement and Refunding Bonds, Series 2003A 01/01/03 $168,685,000 $125,950,000*

Refunding Bonds, Series 2005A 05/04/05 302,425,000 255,810,000

Water Improvement Bonds, Series 2006A 06/15/06 151,555,000 140,330,000* Water Improvement and Refunding Bonds, Series 2008A 02/19/08 190,760,000 178,685,000 Water Bonds (Taxable BABS), Series 2010A (this issue) 06/15/10 75,860,000* 75,860,000* Water and Refunding Bonds, Series 2010B (this issue) 06/15/10 32,515,000* 32,515,000*

Total Parity Lien Obligations 809,150,000*

Subordinate Lien Obligations

Adjustable Rate Water Improvement Bonds, Series 2006B (2) 07/20/06 75,000,000 69,465,000* Adjustable Rate Water Improvement Bonds, Series 2006C (2) 07/20/06 75,000,000 69,465,000*

Total Subordinate Lien Obligations 138,930,000*

Total District Revenue Supported Bonds 948,080,000*

GENERAL OBLIGATION/SNWA REVENUE SUPPORTED BONDS (3) Parity Obligations

Refunding Bonds, Series 2003B 01/01/03 250,000,000 188,880,000

Refunding Bonds, Series 2008B 02/19/08 171,720,000 168,265,000

Water Bonds, Series 2009A (Taxable BABS) 08/05/09 90,000,000 90,000,000

Water Bonds, Series 2009B 08/05/09 10,000,000 10,000,000

Water Bonds, Series 2009C (Taxable BABS) 12/23/09 348,115,000 348,115,000 Water and Refunding Bonds, Series 2009D 12/23/09 71,965,000 71,965,000

Total SNWA Parity Obligations 877,225,000

Subordinate Obligations

Water Commercial Paper Notes various 400,000,000 400,000,000

Total SNWA Revenue Supported Bonds 1,277,225,000

TOTAL OUTSTANDING GENERAL OBLIGATION BONDS 2,225,305,000*

SUBORDINATE DISTRICT REVENUE SUPPORTED BONDS (4) Subordinate Lien Revenue Bond (Clean Renewable

Energy), Series 2008 07/15/08 2,520,000 2,184,000

GRAND TOTAL $2,227,489,000*

(1) District general obligation bonds additionally secured by Net Pledged Revenues. If such revenues are not sufficient, the District may levy an ad valorem tax to pay the difference between such revenues and debt service requirements of the respective bonds. Takes the issuance of the 2010 Bonds and the effect of the Refunding Project into account.

(2) See “INTRODUCTION--Security - Subordinate Bonds” for a description of the standby bond purchase agreements in place with respect to the 2006B Bonds and the 2006C Bonds.

(3) District general obligation bonds additionally secured by SNWA Pledged Revenues. If such revenues are not sufficient, the District may levy an ad valorem tax to pay the difference between such revenues and debt service requirements of the respective bonds. The Notes are payable from the SNWA Pledged Revenues, but are payable after the other bonds in this category.

(4) In July 2008, the District issued its Subordinate Lien Revenue Bond (Clean Renewable Energy) Bond, Series 2008 (the “CREBS”), to finance the cost of constructing and equipping a solar energy project. The CREBS is payable from District revenues; the lien of the CREBS is subordinate to all of the obligations listed under “General Obligation/District Revenue Supported Bonds” in the table above.

Source: The District; compiled by the Financial Advisors. Other Outstanding Bonds and Obligations

The District is a party to various other agreements and has other obligations outstanding. Certain of those obligations are discussed in Notes 11 and 12 in the audited financial statements attached hereto as Appendix A.

Additional Contemplated Indebtedness

The District may issue general obligation bonds by means of authority granted to it by its electorate or the Legislature or, under certain circumstances, without an election as provided in existing statutes. State law currently provides that general obligation bonds secured by pledged revenues do not require an election if it is determined prior to issuance that the revenues pledged will be sufficient to pay all of the debt service on the proposed bonds unless a petition signed by 5% of the registered voters is filed within a 90-day petition period.

The District received authorization from the County Debt Management Commission to issue $300,000,000 in general obligation water improvement bonds (additionally secured by pledged revenues) for the purpose of acquiring and constructing improvements for water projects. Approximately $150,000,000 of that authorization remains. The District is issuing the 2010A Bonds and a portion of the 2010B Bonds ($________ aggregate principal amount) of the 2010B Bonds pursuant to that authorization. The remaining bonds will be issued as determined by the District.

The District reserves the privilege of issuing general obligation bonds or other securities, for itself or on behalf of the SNWA, at any time legal requirements are satisfied.

District Debt Service Requirements

The following table illustrates the annual debt service requirements for the District’s outstanding general obligation bonds, all of which are revenue supported. The table does not take the issuance of the 2010 Bonds or the effect of the Refunding Project into account. This table does not include debt service attributable to the Notes or the District’s CREBS.

District Annual Debt Service Requirements FY

Ending Revenue-Supported Bonds(2)(3) General Obligation - District Revenue-Supported Bonds(4) General Obligation - SNWA Total Debt Service on Grand June 30 Principal Interest Principal Interest 2010 Bonds(5) Total

2011 $ 27,370,000 $ 41,987,319 $ 9,275,000 $ 52,986,849 2012 26,905,000 40,634,760 9,725,000 52,523,099 2013 28,310,000 39,275,241 21,620,000 52,036,849 2014 26,370,000 37,876,019 23,430,000 50,934,287 2015 27,710,000 36,564,081 24,625,000 49,743,587 2016 28,215,000 35,194,737 24,105,000 48,492,099 2017 29,670,000 33,772,798 22,785,000 47,265,499 2018 31,175,000 32,305,881 23,935,000 46,103,737 2019 32,770,000 30,754,969 25,165,000 44,883,237 2020 34,450,000 29,132,852 26,450,000 43,599,924 2021 36,205,000 27,402,890 27,815,000 42,250,974 2022 38,065,000 25,609,494 29,210,000 40,864,824 2023 39,890,000 23,847,181 30,680,000 39,404,324 2024 41,800,000 21,999,419 32,145,000 37,955,299 2025 43,925,000 19,922,866 33,680,000 36,428,055 2026 46,170,000 17,761,100 35,380,000 34,775,018 2027 39,380,000 15,482,050 23,490,000 33,038,555 2028 27,525,000 13,549,109 4,455,000 31,864,055 2029 28,915,000 12,195,459 4,685,000 31,631,768 2030 30,335,000 10,805,775 4,935,000 31,387,480 2031 31,825,000 9,342,913 8,955,000 31,128,392 2032 33,405,000 7,811,305 25,865,000 30,492,887 2033 24,895,000 6,194,639 40,725,000 28,630,013 2034 26,130,000 5,014,650 42,650,000 25,674,797 2035 27,430,000 3,751,650 44,635,000 22,617,999 2036 28,800,000 2,426,491 46,670,000 19,486,202 2037 10,085,000 1,033,750 48,800,000 16,211,621 2038 10,590,000 529,500 75,515,000 12,787,589 2039 -- -- 105,820,000 7,468,650 2040 -- -- -- -- Total $858,315,000 $582,178,898 $877,225,000 $1,042,667,669

(1) Totals may not add due to rounding. Does not include debt service on the Notes or the CREBS.

(2) District general obligation bonds additionally secured by the Net Pledged Revenues. If such revenues are not sufficient, the District may levy an ad valorem tax to pay the difference between such revenues and debt service requirements of the respective bonds.

(3) Includes estimated debt service on the Subordinate Lien Obligations (Series 2006B and Series 2006C) in the aggregate principal amount of $150,000,000, with an assumed sinking fund schedule and interest estimated at a constant rate of 5.00%. However, the interest rate on the 2006B Bonds and the 2006C Bonds will vary and if the average annual rate of interest exceeds 5.00% in any one year, the interest paid will be higher than the amounts shown here. The average interest rate on the 2006B Bonds and the 2006C Bonds has been less than 5% since their issuance. The interest rate at June 30, 2009, for the 2006B Bonds and the 2006C Bonds was 0.70%. Pursuant to GAAP, these rates were used by the District to calculate future interest requirements for the 2006B and 2006C Bonds outstanding as of June 30, 2009, for purposes of the audited basic financial statements. See Note 4 in the audited basic financial statements attached hereto as Appendix A.

(4) District general obligation bonds additionally secured by SNWA Pledged Revenues. If such revenues are not sufficient, the District may levy an ad valorem tax to pay the difference between such revenues and debt service requirements of the respective bonds. Amounts shown here reflect total interest; the amounts are not net of any applicable BAB Credit amounts. (5) Total combined debt service on the 2010A Bonds and the 2010B Bonds. The amounts shown reflect total interest due on the 2010A Bonds; the amounts are not net of the BAB Credit. If the BAB Credit is received, the interest payable on the 2010A Bonds from the Net Pledged Revenues will be lower.