1030-00001 · Dralvecen Fenn & Co., Inc · Opinions & Certificates

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PRYOR CRESTFIELD LLP 999 Third Avenue, Suite 4800 Seattle, Washington 98104 Telephone: (206) 555-9400 Facsimile: (206) 555-9401

CALDERWOOD & HARKNESS LLP 1420 Fifth Avenue, Suite 3600 Seattle, Washington 98101 Telephone: (206) 555-7200 Facsimile: (206) 555-7201

Co-Bond Counsel

October 24, 2023

Cascadia State Infrastructure Authority 1100 Capitol Way South, Suite 400 Olympia, Washington 98501

Attention: Harold K. Nakamura, Executive Director

Denise R. Whitford, Chief Financial Officer Martin J. Espinoza, General Counsel

Pacific Northwest Trust Company, National Association, as Trustee 1201 Third Avenue, Suite 1600 Seattle, Washington 98101

Attention: Alan M. Greer, Vice President, Corporate Trust Services

Re: Cascadia State Infrastructure Authority Water Treatment Revenue Bonds, Series 2023A (Tax-Exempt) — $220,000,000 Aggregate Principal Amount

Federal Tax Opinion Under Section 103 of the Internal Revenue Code of 1986, as Amended

Ladies and Gentlemen:

1. Introduction and Role

Pryor Crestfield LLP and Calderwood & Harkness LLP (together, "Co-Bond Counsel," "we," "us," or "our") have acted as Co-Bond Counsel to the Cascadia State Infrastructure Authority ("CSIA" or the "Issuer"), a Washington State governmental instrumentality and public body corporate duly created, organized, and existing pursuant to Chapter 43.160A of the Revised Code of Washington ("RCW"), in connection with the issuance and delivery on this date of $220,000,000 aggregate principal amount of Cascadia State Infrastructure Authority Water Treatment Revenue Bonds, Series 2023A (Tax-Exempt) (the "Series 2023A Bonds" or the "Bonds").

This opinion constitutes a separate federal tax opinion and is delivered concurrently with, but is independent of, the Approving Legal Opinion of Bond Counsel of even date herewith (the "Approving Legal Opinion"), which addresses certain matters relating to the validity of the Bonds and the enforceability of the Bond Documents (as defined below). The Approving Legal Opinion should be read together with, but separately from, this opinion.

This opinion has been prepared under the principal direction and supervision of Leonard Cross, Specialist Partner, Tax, of Calderwood & Harkness LLP, who has served as the principal drafter of the federal tax analysis set forth herein, in coordination with the municipal securities practice of Pryor Crestfield LLP. This opinion is delivered at the request of the addressees identified above and for their benefit, subject to the limitations on reliance and distribution set forth in Section 10 below.

2. Documents Examined

In rendering the opinions expressed herein, we have examined originals or copies, certified or otherwise identified to our satisfaction, of the following documents, instruments, certificates, and records:

1. Bond Indenture (Trust Indenture) dated as of October 24, 2023, by and between CSIA and Pacific Northwest Trust Company, National Association ("PNTC"), as Trustee (the "Indenture");

2. First Supplemental Indenture (Series 2023A) dated as of October 24, 2023, by and between CSIA and PNTC, as Trustee (the "First Supplemental Indenture");

3. Revenue Pledge Agreement dated as of October 24, 2023, by and between CSIA and PNTC, as Trustee (the "Revenue Pledge Agreement");

4. Tax Regulatory Agreement and Certificate executed by CSIA on October 15, 2023 (the "Tax Certificate");

5. Bond Purchase Agreement dated as of August 30, 2023, by and between CSIA and Meridian Capital Partners LLC, as representative of the underwriters (including Dralvecen Fenn & Co., Inc.) (the "Bond Purchase Agreement");

6. CSIA Board Resolution No. 2023-014, adopted on May 9, 2023, authorizing the issuance of the Bonds (the "Resolution");

7. Continuing Disclosure Agreement dated as of October 24, 2023, by and between CSIA and PNTC, as Dissemination Agent (the "Continuing Disclosure Agreement");

8. Escrow Deposit Agreement dated as of October 24, 2023, by and between CSIA and PNTC, as Escrow Agent (the "Escrow Deposit Agreement");

9. Debt-Service Reserve Fund Surety Bond Agreement dated as of October 24, 2023, by and among CSIA, PNTC, and Olympia Guaranty Insurance Corp. (Surety Policy No. OG-2023-MUN-4718) (the "Surety Bond Agreement");

10. Certificate of Authorized Officer of CSIA executed by Harold K. Nakamura, Executive Director, dated October 24, 2023 (the "Certificate of Authorized Officer");

11. CFO's Certificate executed by Denise R. Whitford, Chief Financial Officer, dated October 24, 2023 (the "CFO's Certificate");

12. Preliminary Official Statement dated June 26, 2023, and Final Official Statement dated September 5, 2023 (collectively, the "Official Statements");

13. The form of the Series 2023A Bonds, including specimen bond forms attached as Exhibit A to the First Supplemental Indenture; and

14. Such other documents, certificates, records, opinions, and instruments as we have deemed necessary or appropriate for purposes of rendering the opinions set forth herein.

As used herein, the term "Bond Documents" refers collectively to the Indenture, the First Supplemental Indenture, the Revenue Pledge Agreement, the Tax Certificate, the Bond Purchase Agreement, the Escrow Deposit Agreement, the Surety Bond Agreement, and each of the related documents, certificates, and instruments executed and delivered in connection with the issuance and delivery of the Bonds.

3. Description of the Bonds

The Bonds are designated as the "Cascadia State Infrastructure Authority Water Treatment Revenue Bonds, Series 2023A (Tax-Exempt)." The Bonds are being issued in the aggregate principal amount of $220,000,000 and bear a Dated Date of October 24, 2023. The Bonds mature on October 1, 2053, reflecting a thirty (30)-year final maturity from the date of issuance.

The Bonds bear interest at the fixed coupon rate of 3.25% per annum, payable semiannually on April 1 and October 1 of each year, commencing April 1, 2024. Interest shall be computed on the basis of a 360-day year consisting of twelve 30-day months. The Bonds are issued in authorized denominations of $5,000 or any integral multiple thereof.

The Bonds are subject to optional redemption prior to maturity, in whole or in part, at the option of CSIA, at a redemption price equal to 100% of the principal amount thereof, plus accrued interest to the date of redemption, on or after October 1, 2033. Accordingly, the Bonds are subject to a ten (10)-year call protection period, during which the Bonds may not be optionally redeemed by CSIA. In the event of partial redemption, the particular maturities and the principal amounts thereof to be redeemed shall be selected by CSIA in its sole discretion, and the particular Bonds within a maturity to be redeemed shall be selected by the Trustee by lot or by such other method as the Trustee deems fair and reasonable.

The Bonds are being issued in book-entry only form through the facilities of The Depository Trust Company ("DTC"), New York, New York. Cede & Co., as nominee of DTC, is the sole registered owner of the Bonds for purposes of the Indenture. Beneficial interests in the Bonds will be recorded in the book-entry system maintained by DTC and its direct and indirect participants. The CUSIP base number assigned to the Bonds is 148392.

The Bonds are issued pursuant to the authority of the Indenture and the First Supplemental Indenture and are secured by a pledge of net water-treatment revenues of CSIA under the Revenue Pledge Agreement. The Bonds have been priced at an original issue discount of 0.75% from par, reflecting an initial offering price of 99.25% of the aggregate principal amount, resulting in an aggregate purchase price of $218,350,000.

4. Purpose of the Bonds — Use of Proceeds

The proceeds of the Bonds are being applied to finance the design, construction, equipping, and commissioning of the Puget Sound Regional Advanced Water Treatment Facility (the "PSRAWTF" or the "Project"), a capital infrastructure project of CSIA. The Project is located at 7250 Deschutes Parkway, Tumwater, Thurston County, Washington 98501.

The Project consists of a 60-million-gallon-per-day ("MGD") advanced membrane-filtration and ultraviolet ("UV")-disinfection water-treatment facility, together with the following integral components: influent and effluent transmission pipelines; a 5-million-gallon equalization basin; biosolids handling and processing improvements; and supervisory control and data acquisition ("SCADA") system upgrades. The total estimated cost of the Project is $237,400,000. The Project will be designed and constructed by Northtide Environmental Engineering, Inc. under Guaranteed Maximum Price Contract No. CSIA-DB-2023-001, which provides for a guaranteed maximum price of $193,500,000 for design-build services. Upon completion, the Project will serve fourteen (14) participating municipal water and sewer districts located across the Puget Sound region of Washington State, each of which has entered into long-term Wholesale Water Treatment Services Agreements with CSIA.

The sources and uses of funds in connection with the issuance of the Bonds are summarized as follows:

The Costs of Issuance amount of $1,870,000 is funded from Bond proceeds and includes underwriters' discount, Co-Bond Counsel fees, trustee fees, rating agency fees, printing costs, and other customary costs associated with the issuance and delivery of the Bonds. The Capitalized Interest Fund deposit of $4,510,000 represents the capitalized interest required to fund interest payments on the Bonds through and including the first interest payment date of April 1, 2024.

5. Assumptions and Reliance

In rendering the opinions expressed herein, we have assumed, without independent investigation or verification, the following:

(a) The accuracy and completeness of all representations, certifications, warranties, and covenants made by CSIA in the Tax Certificate dated October 15, 2023, including without limitation:

(i) representations as to the expected use of Bond proceeds and the application thereof exclusively to the design, construction, equipping, and commissioning of the Project and to the payment of related costs of issuance and capitalized interest;

(ii) representations as to the governmental ownership and operation of the Project, including the representation that the Project will at all times be owned by CSIA, a governmental instrumentality of the State of Washington, and operated for a governmental purpose;

(iii) certifications regarding the absence of private business use of Bond-financed facilities in excess of the applicable limits under Section 141 of the Code, including the representation that no more than 10% of the proceeds of the Bonds will be used directly or indirectly in the trade or business of any person other than a governmental unit;

(iv) representations regarding the absence of private security or private payments exceeding the applicable limits under Section 141(b)(2) of the Code;

(v) certifications as to the reasonably expected facts, estimates, and circumstances existing as of the date of issuance of the Bonds, including expectations regarding the expenditure of Bond proceeds and the investment thereof; and

(vi) all other representations, certifications, and covenants set forth in the Tax Certificate, including those relating to arbitrage yield restriction, rebate, and record-retention obligations.

(b) The accuracy and completeness of the Certificate of Authorized Officer executed by Harold K. Nakamura, Executive Director of CSIA, dated October 24, 2023, and the CFO's Certificate executed by Denise R. Whitford, Chief Financial Officer of CSIA, dated October 24, 2023. We have relied upon such certificates without independent investigation or verification of the factual matters stated therein.

(c) The genuineness of all signatures appearing on all documents examined by us, the authenticity of all documents submitted to us as originals, and the conformity to original documents of all documents submitted to us as copies, whether certified or otherwise.

(d) That CSIA is, and throughout the term of the Bonds will remain, a governmental instrumentality of the State of Washington and a public body corporate duly created, organized, and validly existing under Chapter 43.160A RCW. We have not independently verified the continuing existence or governmental status of CSIA, except to the extent addressed in the Approving Legal Opinion.

(e) That each party to the Bond Documents has the requisite power, authority, and legal capacity to execute, deliver, and perform its respective obligations thereunder, and that all necessary approvals, consents, and authorizations have been obtained.

We call attention to the fact that the opinions expressed herein are dependent upon the accuracy of the foregoing assumptions and the continuing validity of the representations, certifications, and covenants upon which we have relied. The inaccuracy of any such assumption, representation, certification, or covenant could materially affect the conclusions set forth herein.

6. Federal Tax Opinions

Based upon our examination of the documents identified in Section 2, and subject to the assumptions and qualifications set forth in Sections 5, 8, and 9 of this opinion, we are of the opinion that, under existing law, including applicable provisions of the Code, Treasury Regulations promulgated thereunder, published rulings and revenue procedures of the Internal Revenue Service ("IRS"), and existing judicial decisions, as of the date hereof:

6.1 Exclusion of Interest from Gross Income (IRC § 103)

Interest on the Series 2023A Bonds is excluded from gross income for federal income tax purposes pursuant to Section 103 of the Internal Revenue Code of 1986, as amended (the "Code"). The Bonds are obligations of a political subdivision (or an instrumentality thereof) of the State of Washington within the meaning of Section 103(c)(1) of the Code. CSIA, as a governmental instrumentality and public body corporate created under Chapter 43.160A RCW, constitutes an issuer whose obligations are eligible for the exclusion provided by Section 103 of the Code, and the Bonds satisfy the requirements of Section 103 for such exclusion.

Interest on the Bonds does not constitute an item of tax preference for purposes of the federal alternative minimum tax imposed on individual taxpayers under Section 55 of the Code. Accordingly, interest on the Bonds is not subject to the alternative minimum tax applicable to individuals.

We note, however, that for taxable years beginning after December 31, 2022, Section 55 of the Code, as amended by Section 10101 of the Inflation Reduction Act of 2022 (Pub. L. No. 117-169), imposes a corporate alternative minimum tax on "applicable corporations" (as defined in Section 59(k) of the Code) based upon "adjusted financial statement income." Interest on the Bonds may be included in the adjusted financial statement income of an applicable corporation for purposes of the corporate alternative minimum tax. We express no opinion regarding the application of the corporate alternative minimum tax to any particular holder of the Bonds. Holders that are applicable corporations should consult their own tax advisors regarding the potential impact of the corporate alternative minimum tax on their ownership of the Bonds.

6.2 Not Private Activity Bonds (IRC § 141)

The Bonds do not constitute "private activity bonds" within the meaning of Section 141 of the Code. This conclusion is based upon CSIA's representations and certifications in the Tax Certificate, including the following:

(a) Private Business Use Test (Section 141(b)(1)). The Project is owned by CSIA, a governmental instrumentality of the State of Washington. CSIA has represented and certified that no more than 10% of the proceeds of the Bonds will be used (directly or indirectly) in the trade or business of any person other than a governmental unit. The Project will be operated by CSIA for the governmental purpose of providing advanced water treatment services to fourteen (14) participating municipal water and sewer districts, all of which are governmental entities organized under the laws of the State of Washington.

(b) Private Security or Payment Test (Section 141(b)(2)). CSIA has represented and certified that no more than 10% of the payment of principal of or interest on the Bonds is (directly or indirectly) secured by an interest in, or derived from payments in respect of, property used or to be used in a private trade or business. The Bonds are secured solely by a pledge of net water-treatment revenues derived from the Wholesale Water Treatment Services Agreements with the participating governmental entities.

(c) Private Loan Financing Test (Section 141(c)). CSIA has represented and certified that no portion of the proceeds of the Bonds will be used (directly or indirectly) to make or finance loans to any person other than a governmental unit. The Bonds therefore do not meet the private loan financing test of Section 141(c) of the Code.

The Project will serve fourteen (14) participating municipal water and sewer districts across the Puget Sound region of Washington State, all of which are governmental entities. Each participating district has entered into a long-term Wholesale Water Treatment Services Agreement with CSIA providing for payments based on volumetric usage allocations. No portion of the Project will be used by, or available for use by, any non-governmental person in a manner that would constitute private business use under Section 141 of the Code, as represented by CSIA in the Tax Certificate.

6.3 Arbitrage and Rebate Compliance (IRC § 148)

CSIA has covenanted in the Tax Certificate to comply with the arbitrage and rebate requirements of Section 148 of the Code and the Treasury Regulations promulgated thereunder (the "Arbitrage Regulations"), including the following specific covenants:

(a) Yield Restriction. CSIA has covenanted that Bond proceeds deposited in the Project Fund, the Capitalized Interest Fund, the Costs of Issuance Fund, and any other fund or account established under the Indenture or the First Supplemental Indenture will not be invested at a yield materially higher than the yield on the Bonds, except to the extent permitted during applicable temporary periods under Treasury Regulation § 1.148-2 or otherwise permitted under the Arbitrage Regulations.

(b) Three-Year Temporary Period. Proceeds of the Bonds deposited in the Project Fund are eligible for the three-year temporary period for capital projects under Treasury Regulation § 1.148-2(e)(2), during which such proceeds may be invested at an unrestricted yield. This eligibility is based upon CSIA's certification in the Tax Certificate that (i) CSIA reasonably expects that at least 85% of the net sale proceeds of the Bonds to be used for the governmental purpose of the Bonds (i.e., the design, construction, equipping, and commissioning of the Project) will be allocated to expenditures on the Project within the three-year period beginning on the date of issuance of the Bonds, (ii) CSIA reasonably expects that the Project will proceed with due diligence to completion, and (iii) the three-year temporary period is consistent with CSIA's reasonable expectations as of the date of issuance. Upon expiration of the three-year temporary period, any unspent proceeds remaining in the Project Fund must be yield-restricted to the yield on the Bonds in accordance with the Arbitrage Regulations.

(c) Debt-Service Reserve Fund. The Surety Bond Agreement provides for the issuance by Olympia Guaranty Insurance Corp. of Surety Policy No. OG-2023-MUN-4718, with a surety amount of $11,610,000, in satisfaction of the debt-service reserve fund requirement under the Indenture. The surety policy constitutes a "qualified guarantee" within the meaning of Treasury Regulation § 1.148-4(f) rather than an investment for purposes of the yield-restriction analysis under Section 148 of the Code. To the extent that any cash amounts are on deposit in the Debt-Service Reserve Fund established under the Indenture (the "DSRF"), such amounts are subject to the yield-restriction rules applicable to "reasonably required reserve or replacement funds" under Section 148(d) of the Code and Treasury Regulation § 1.148-2(f).

(d) Rebate. CSIA has covenanted to calculate and pay to the United States the rebate amount, if any, required under Section 148(f) of the Code at the intervals and in the manner prescribed by applicable Treasury Regulations. CSIA has further covenanted to retain a qualified rebate analyst to perform the required rebate calculations and to maintain records of all investments of Bond proceeds for the period required under the Tax Certificate.

CSIA's continuing compliance with the arbitrage and rebate covenants set forth in the Tax Certificate and the Bond Documents is essential to the opinion expressed in Section 6.1 above regarding the exclusion of interest on the Bonds from gross income for federal income tax purposes. Failure to comply with such covenants could cause interest on the Bonds to become includable in gross income for federal income tax purposes retroactive to the date of issuance.

6.4 Registered Form Requirement (IRC § 149(a))

The Bonds are being issued in "registered form" within the meaning of Section 149(a) of the Code and Treasury Regulation § 5f.103-1. Under applicable Treasury Regulations, an obligation is in registered form if (i) the obligation is registered as to both principal and any stated interest with the issuer (or its agent) and transfer of the obligation may be effected only by surrender of the old instrument and either the reissuance by the issuer of the old instrument to the new holder or the issuance by the issuer of a new instrument to the new holder, or (ii) the right to the principal of, and stated interest on, the obligation may be transferred only through a book-entry system maintained by the issuer (or its agent).

The Bonds will be held in book-entry form through the facilities of DTC, with Cede & Co. as the sole registered owner of the Bonds. Pacific Northwest Trust Company, N.A. serves as Bond Registrar under the Indenture. Beneficial interests in the Bonds will be transferable only through the book-entry system maintained by DTC and its direct and indirect participants. The Bonds therefore satisfy the registered form requirement of Section 149(a) of the Code.

6.5 Information Reporting (IRC § 149(e))

CSIA has covenanted in the Tax Certificate to file or cause to be filed IRS Form 8038-G (Information Return for Tax-Exempt Governmental Obligations) with the Internal Revenue Service in accordance with Section 149(e) of the Code and the regulations promulgated thereunder. Pursuant to Section 149(e)(2) of the Code, interest on the Bonds would not be excluded from gross income under Section 103 if the issuer fails to meet the information reporting requirements of Section 149(e). CSIA has represented that IRS Form 8038-G will be filed within the time period required by applicable regulations, which is on or before the 15th day of the second calendar month after the close of the calendar quarter in which the Bonds are issued.

6.6 Federal Guarantee Prohibition (IRC § 149(b))

The Bonds are not "federally guaranteed" within the meaning of Section 149(b) of the Code. Under Section 149(b), tax-exempt bonds lose their tax-exempt status if the payment of principal or interest on the bonds is directly or indirectly guaranteed (in whole or in part) by the United States (or any agency or instrumentality thereof). The Bonds are secured solely by a pledge of net water-treatment revenues of CSIA and the Surety Bond Agreement with Olympia Guaranty Insurance Corp., a private insurance company. The Debt-Service Reserve Fund Surety Bond provided by Olympia Guaranty Insurance Corp. does not constitute a federal guarantee within the meaning of Section 149(b) of the Code.

6.7 Hedge Bond Rules (IRC § 149(g))

The Bonds do not constitute "hedge bonds" within the meaning of Section 149(g) of the Code. Under Section 149(g), an obligation is a hedge bond if the issuer reasonably expects that 50% or more of the proceeds of the issue will be invested in nonpurpose investments having a substantially guaranteed yield for four or more years. Based upon CSIA's reasonable expectations as certified in the Tax Certificate, at least 85% of the spendable proceeds of the Bonds will be used to carry out the governmental purpose of the Bonds (i.e., the design, construction, equipping, and commissioning of the Project) within the three-year period beginning on the date of issuance. Accordingly, the Bonds satisfy the requirements of Section 149(g)(3)(A)(ii) of the Code and do not constitute hedge bonds.

7. Original Issue discount

The Bonds are being sold at an original issue discount ("OID") of $1,650,000, representing 0.75% of the aggregate par amount of the Bonds. The initial offering price to the public (excluding accrued interest) is 99.25% of the aggregate principal amount, or $218,350,000.

For federal income tax purposes, original issue discount that accrues on a Bond is treated as interest that is excluded from gross income for federal income tax purposes to the same extent as stated interest on the Bonds, pursuant to Section 103 of the Code. The amount of OID that is treated as having accrued with respect to a Bond is added to the adjusted basis of such Bond in the hands of the holder for purposes of determining gain or loss on the sale, exchange, redemption, or other disposition of such Bond.

The amount of OID that accrues to a bondholder during any accrual period is determined using the constant-yield method prescribed under Section 1288 and Section 1272 of the Code. Under the constant-yield method, OID is allocated over the term of the Bond based on the compounding of interest at the yield to maturity of the Bond, taking into account the length of each accrual period selected by the bondholder. The yield to maturity of the Bond is computed on the basis of the initial offering price to the public (excluding accrued interest) at which a substantial amount of the Bonds of the same maturity were sold.

Bondholders should consult their own tax advisors regarding the computation of original issue discount and the tax treatment thereof, including the selection of an accrual period and the treatment of OID upon the sale, exchange, or other disposition of a Bond prior to maturity.

8. Continuing Compliance Condition

The opinions expressed in Section 6.1 above regarding the exclusion of interest on the Bonds from gross income for federal income tax purposes are expressly conditioned upon the continuing compliance by CSIA with the covenants, representations, certifications, and agreements set forth in the Tax Certificate dated October 15, 2023, and the Bond Documents, including without limitation the following:

(a) restrictions on private business use of Bond-financed facilities and private payments or security in respect thereof, as required by Section 141 of the Code;

(b) arbitrage yield-restriction and rebate obligations applicable to the investment of Bond proceeds and other amounts, as required by Section 148 of the Code and the Treasury Regulations promulgated thereunder;

(c) timely filing of IRS Form 8038-G (Information Return for Tax-Exempt Governmental Obligations) with the Internal Revenue Service in accordance with Section 149(e) of the Code;

(d) proper use of Bond proceeds for the governmental purpose described herein, including the restriction of Bond proceeds to the design, construction, equipping, and commissioning of the Project;

(e) maintenance of records relating to the investment and expenditure of Bond proceeds and the use of Bond-financed facilities, and the retention thereof for the period required by the Tax Certificate, which is not less than three (3) years after the later of (i) the final maturity date of the Bonds, (ii) the date on which the Bonds are retired, or (iii) the date on which the last rebate payment is made with respect to the Bonds; and

(f) such other covenants, representations, and agreements as are set forth in the Tax Certificate, the Indenture, and the other Bond Documents.

Failure of CSIA to comply with the foregoing covenants, or the inaccuracy of any representation or certification upon which we have relied, could cause interest on the Bonds to become includable in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds, and not merely from the date of any such failure or inaccuracy. The Code provides no "cure" provision for certain failures of compliance, and the consequences of noncompliance may be adverse and irremediable.

We express no opinion as to the effect on the tax-exempt status of interest on the Bonds of any actions taken or not taken, or of any events occurring or failing to occur, after the date hereof, except to the extent that such actions or events are described in and covered by the representations, certifications, and covenants set forth in the Tax Certificate and the Bond Documents. We have not undertaken, and are not obligated to undertake, any review or monitoring of CSIA's compliance with the Tax Certificate or the Bond Documents after the date hereof, and we expressly disclaim any responsibility for post-issuance compliance monitoring.

9. Scope Limitations and Disclaimers

This opinion is limited in scope to the federal income tax matters expressly addressed herein. Except as expressly stated in Sections 6 and 7 above, we express no opinion regarding:

(a) any state or local tax consequences of the ownership, receipt of interest on, or disposition of the Bonds, including but not limited to state income taxes, franchise taxes, or intangibles taxes. We note that the State of Washington does not currently impose a personal income tax;

(b) any federal tax consequences of the ownership or disposition of the Bonds other than as expressly stated above, including but not limited to federal estate taxes, gift taxes, excise taxes, generation-skipping transfer taxes, or any other federal taxes;

(c) the treatment of accrued interest, market discount, bond premium, or original issue discount, except as expressly stated in Section 7 above;

(d) the tax consequences to any particular bondholder in light of such bondholder's individual circumstances, including, without limitation, any bondholder that is a bank or other financial institution, an insurance company, a dealer or broker in tax-exempt securities, an S corporation, a partnership or other pass-through entity, a regulated investment company, a real estate investment trust, a tax-exempt organization, a person who is not a citizen or resident of the United States (or who is not a United States person as defined in the Code), or a person who holds the Bonds as part of a hedging, conversion, constructive sale, or straddle transaction;

(e) the accuracy, completeness, or fairness of the Preliminary Official Statement dated June 26, 2023, or the Final Official Statement dated September 5, 2023, such matters being addressed separately in a 10b-5 negative assurance letter of Co-Bond Counsel of even date herewith; and

(f) any other matter not expressly addressed in this opinion.

This opinion is based upon and limited to existing statutes, regulations (including proposed, temporary, and final Treasury Regulations), published rulings and revenue procedures of the Internal Revenue Service, and existing judicial decisions, in each case as in effect and as interpreted as of the date hereof. We undertake no obligation, and hereby expressly disclaim any obligation, to update, revise, supplement, or withdraw this opinion to reflect any changes in law, regulation, or judicial interpretation occurring after the date hereof, or any actions or events occurring after the date hereof.

This opinion represents our professional judgment based on our analysis of the authorities cited and the facts and circumstances presented. This opinion is not a guarantee of result, and there can be no assurance that the Internal Revenue Service will not take a position contrary to the opinions expressed herein or that a court would not sustain such a contrary position. No ruling has been sought from the Internal Revenue Service with respect to the matters addressed in this opinion, and this opinion has no binding effect on the Internal Revenue Service or any court.

10. Reliance and Distribution

This opinion is addressed solely to the addressees identified in the address block above — namely, the Cascadia State Infrastructure Authority and Pacific Northwest Trust Company, National Association, as Trustee — and may not be relied upon by any other person or entity without our prior written consent, except as follows:

(a) Meridian Capital Partners LLC and Dralvecen Fenn & Co., Inc., in their capacities as underwriters of the Bonds, may rely on this opinion as if it were addressed directly to them;

(b) Alderman & Locke LLP, in its capacity as underwriters' counsel, may rely on this opinion;

(c) Olympia Guaranty Insurance Corp., in its capacity as surety provider under the Surety Bond Agreement, may rely on this opinion;

(d) Clearfield Municipal Advisors LLC, in its capacity as municipal advisor to CSIA, may rely on this opinion; and

(e) this opinion may be included as an appendix to the Final Official Statement dated September 5, 2023, and distributed to prospective purchasers of the Bonds in connection therewith, solely for informational purposes and not as a basis for reliance by any such purchaser except to the extent provided by applicable law.

No portion of this opinion may be quoted, summarized, excerpted, or reproduced in any document, report, or communication without our prior written consent, except as required by applicable law, regulation, or regulatory requirement, or as permitted pursuant to subparagraph (e) above.

[Remainder of this page intentionally left blank. Signature page follows.]

Signature Page to Federal Tax Opinion Cascadia State Infrastructure Authority Water Treatment Revenue Bonds, Series 2023A (Tax-Exempt)

Very truly yours,

PRYOR CRESTFIELD LLP

By: ________

Name: Margaret S. Yoon

Title: Partner

Elliot R. Stanton, Associate, participated in the preparation of this opinion.

CALDERWOOD & HARKNESS LLP

By: ________

Name: George Trujillo

Title: Partner

By: ________

Name: Leonard Cross

Title: Partner (Tax)

Michelle Tsao, Associate, participated in the preparation of this opinion.

As Co-Bond Counsel

October 24, 2023

Sources of Funds	Amount
Series 2023A Bond Proceeds (par amount)	$220,000,000
Less: Original Issue discount (0.75%)	($1,650,000)
Net Bond Proceeds	$218,350,000
CSIA Equity Contribution from Capital Reserves	$17,400,000
Total Sources	$235,750,000
Uses of Funds	Amount
Deposit to Project Fund	$215,490,000
Deposit to Capitalized Interest Fund	$4,510,000
Costs of Issuance (funded from Bond proceeds)	$1,870,000
CSIA Equity — Applied to Project Costs	$13,880,000
Total Uses	$235,750,000

PRYOR CRESTFIELD LLP 999 Third Avenue, Suite 4800 Seattle, Washington 98104 Telephone: (206) 555-9400 Facsimile: (206) 555-9401
CALDERWOOD & HARKNESS LLP 1420 Fifth Avenue, Suite 3600 Seattle, Washington 98101 Telephone: (206) 555-7200 Facsimile: (206) 555-7201
Co-Bond Counsel
October 24, 2023
Cascadia State Infrastructure Authority 1100 Capitol Way South, Suite 400 Olympia, Washington 98501
Attention: Harold K. Nakamura, Executive Director
Denise R. Whitford, Chief Financial Officer Martin J. Espinoza, General Counsel
Pacific Northwest Trust Company, National Association, as Trustee 1201 Third Avenue, Suite 1600 Seattle, Washington 98101
Attention: Alan M. Greer, Vice President, Corporate Trust Services
Re: Cascadia State Infrastructure Authority Water Treatment Revenue Bonds, Series 2023A (Tax-Exempt) — $220,000,000 Aggregate Principal Amount
Federal Tax Opinion Under Section 103 of the Internal Revenue Code of 1986, as Amended
Ladies and Gentlemen:
1. Introduction and Role
Pryor Crestfield LLP and Calderwood & Harkness LLP (together, "Co-Bond Counsel," "we," "us," or "our") have acted as Co-Bond Counsel to the Cascadia State Infrastructure Authority ("CSIA" or the "Issuer"), a Washington State governmental instrumentality and public body corporate duly created, organized, and existing pursuant to Chapter 43.160A of the Revised Code of Washington ("RCW"), in connection with the issuance and delivery on this date of $220,000,000 aggregate principal amount of Cascadia State Infrastructure Authority Water Treatment Revenue Bonds, Series 2023A (Tax-Exempt) (the "Series 2023A Bonds" or the "Bonds").
This opinion constitutes a separate federal tax opinion and is delivered concurrently with, but is independent of, the Approving Legal Opinion of Bond Counsel of even date herewith (the "Approving Legal Opinion"), which addresses certain matters relating to the validity of the Bonds and the enforceability of the Bond Documents (as defined below). The Approving Legal Opinion should be read together with, but separately from, this opinion.
This opinion has been prepared under the principal direction and supervision of Leonard Cross, Specialist Partner, Tax, of Calderwood & Harkness LLP, who has served as the principal drafter of the federal tax analysis set forth herein, in coordination with the municipal securities practice of Pryor Crestfield LLP. This opinion is delivered at the request of the addressees identified above and for their benefit, subject to the limitations on reliance and distribution set forth in Section 10 below.
2. Documents Examined
In rendering the opinions expressed herein, we have examined originals or copies, certified or otherwise identified to our satisfaction, of the following documents, instruments, certificates, and records:
1.  Bond Indenture (Trust Indenture) dated as of October 24, 2023, by and between CSIA and Pacific Northwest Trust Company, National Association ("PNTC"), as Trustee (the "Indenture");
2.  First Supplemental Indenture (Series 2023A) dated as of October 24, 2023, by and between CSIA and PNTC, as Trustee (the "First Supplemental Indenture");
3.  Revenue Pledge Agreement dated as of October 24, 2023, by and between CSIA and PNTC, as Trustee (the "Revenue Pledge Agreement");
4.  Tax Regulatory Agreement and Certificate executed by CSIA on October 15, 2023 (the "Tax Certificate");
5.  Bond Purchase Agreement dated as of August 30, 2023, by and between CSIA and Meridian Capital Partners LLC, as representative of the underwriters (including Dralvecen Fenn & Co., Inc.) (the "Bond Purchase Agreement");
6.  CSIA Board Resolution No. 2023-014, adopted on May 9, 2023, authorizing the issuance of the Bonds (the "Resolution");
7.  Continuing Disclosure Agreement dated as of October 24, 2023, by and between CSIA and PNTC, as Dissemination Agent (the "Continuing Disclosure Agreement");
8.  Escrow Deposit Agreement dated as of October 24, 2023, by and between CSIA and PNTC, as Escrow Agent (the "Escrow Deposit Agreement");
9.  Debt-Service Reserve Fund Surety Bond Agreement dated as of October 24, 2023, by and among CSIA, PNTC, and Olympia Guaranty Insurance Corp. (Surety Policy No. OG-2023-MUN-4718) (the "Surety Bond Agreement");
10.  Certificate of Authorized Officer of CSIA executed by Harold K. Nakamura, Executive Director, dated October 24, 2023 (the "Certificate of Authorized Officer");
11.  CFO's Certificate executed by Denise R. Whitford, Chief Financial Officer, dated October 24, 2023 (the "CFO's Certificate");
12.  Preliminary Official Statement dated June 26, 2023, and Final Official Statement dated September 5, 2023 (collectively, the "Official Statements");
13.  The form of the Series 2023A Bonds, including specimen bond forms attached as Exhibit A to the First Supplemental Indenture; and
14.  Such other documents, certificates, records, opinions, and instruments as we have deemed necessary or appropriate for purposes of rendering the opinions set forth herein.
As used herein, the term "Bond Documents" refers collectively to the Indenture, the First Supplemental Indenture, the Revenue Pledge Agreement, the Tax Certificate, the Bond Purchase Agreement, the Escrow Deposit Agreement, the Surety Bond Agreement, and each of the related documents, certificates, and instruments executed and delivered in connection with the issuance and delivery of the Bonds.
3. Description of the Bonds
The Bonds are designated as the "Cascadia State Infrastructure Authority Water Treatment Revenue Bonds, Series 2023A (Tax-Exempt)." The Bonds are being issued in the aggregate principal amount of $220,000,000 and bear a Dated Date of October 24, 2023. The Bonds mature on October 1, 2053, reflecting a thirty (30)-year final maturity from the date of issuance.
The Bonds bear interest at the fixed coupon rate of 3.25% per annum, payable semiannually on April 1 and October 1 of each year, commencing April 1, 2024. Interest shall be computed on the basis of a 360-day year consisting of twelve 30-day months. The Bonds are issued in authorized denominations of $5,000 or any integral multiple thereof.
The Bonds are subject to optional redemption prior to maturity, in whole or in part, at the option of CSIA, at a redemption price equal to 100% of the principal amount thereof, plus accrued interest to the date of redemption, on or after October 1, 2033. Accordingly, the Bonds are subject to a ten (10)-year call protection period, during which the Bonds may not be optionally redeemed by CSIA. In the event of partial redemption, the particular maturities and the principal amounts thereof to be redeemed shall be selected by CSIA in its sole discretion, and the particular Bonds within a maturity to be redeemed shall be selected by the Trustee by lot or by such other method as the Trustee deems fair and reasonable.
The Bonds are being issued in book-entry only form through the facilities of The Depository Trust Company ("DTC"), New York, New York. Cede & Co., as nominee of DTC, is the sole registered owner of the Bonds for purposes of the Indenture. Beneficial interests in the Bonds will be recorded in the book-entry system maintained by DTC and its direct and indirect participants. The CUSIP base number assigned to the Bonds is 148392.
The Bonds are issued pursuant to the authority of the Indenture and the First Supplemental Indenture and are secured by a pledge of net water-treatment revenues of CSIA under the Revenue Pledge Agreement. The Bonds have been priced at an original issue discount of 0.75% from par, reflecting an initial offering price of 99.25% of the aggregate principal amount, resulting in an aggregate purchase price of $218,350,000.
4. Purpose of the Bonds — Use of Proceeds
The proceeds of the Bonds are being applied to finance the design, construction, equipping, and commissioning of the Puget Sound Regional Advanced Water Treatment Facility (the "PSRAWTF" or the "Project"), a capital infrastructure project of CSIA. The Project is located at 7250 Deschutes Parkway, Tumwater, Thurston County, Washington 98501.
The Project consists of a 60-million-gallon-per-day ("MGD") advanced membrane-filtration and ultraviolet ("UV")-disinfection water-treatment facility, together with the following integral components: influent and effluent transmission pipelines; a 5-million-gallon equalization basin; biosolids handling and processing improvements; and supervisory control and data acquisition ("SCADA") system upgrades. The total estimated cost of the Project is $237,400,000. The Project will be designed and constructed by Northtide Environmental Engineering, Inc. under Guaranteed Maximum Price Contract No. CSIA-DB-2023-001, which provides for a guaranteed maximum price of $193,500,000 for design-build services. Upon completion, the Project will serve fourteen (14) participating municipal water and sewer districts located across the Puget Sound region of Washington State, each of which has entered into long-term Wholesale Water Treatment Services Agreements with CSIA.
The sources and uses of funds in connection with the issuance of the Bonds are summarized as follows:
The Costs of Issuance amount of $1,870,000 is funded from Bond proceeds and includes underwriters' discount, Co-Bond Counsel fees, trustee fees, rating agency fees, printing costs, and other customary costs associated with the issuance and delivery of the Bonds. The Capitalized Interest Fund deposit of $4,510,000 represents the capitalized interest required to fund interest payments on the Bonds through and including the first interest payment date of April 1, 2024.
5. Assumptions and Reliance
In rendering the opinions expressed herein, we have assumed, without independent investigation or verification, the following:
(a) The accuracy and completeness of all representations, certifications, warranties, and covenants made by CSIA in the Tax Certificate dated October 15, 2023, including without limitation:
(i) representations as to the expected use of Bond proceeds and the application thereof exclusively to the design, construction, equipping, and commissioning of the Project and to the payment of related costs of issuance and capitalized interest;
(ii) representations as to the governmental ownership and operation of the Project, including the representation that the Project will at all times be owned by CSIA, a governmental instrumentality of the State of Washington, and operated for a governmental purpose;
(iii) certifications regarding the absence of private business use of Bond-financed facilities in excess of the applicable limits under Section 141 of the Code, including the representation that no more than 10% of the proceeds of the Bonds will be used directly or indirectly in the trade or business of any person other than a governmental unit;
(iv) representations regarding the absence of private security or private payments exceeding the applicable limits under Section 141(b)(2) of the Code;
(v) certifications as to the reasonably expected facts, estimates, and circumstances existing as of the date of issuance of the Bonds, including expectations regarding the expenditure of Bond proceeds and the investment thereof; and
(vi) all other representations, certifications, and covenants set forth in the Tax Certificate, including those relating to arbitrage yield restriction, rebate, and record-retention obligations.
(b) The accuracy and completeness of the Certificate of Authorized Officer executed by Harold K. Nakamura, Executive Director of CSIA, dated October 24, 2023, and the CFO's Certificate executed by Denise R. Whitford, Chief Financial Officer of CSIA, dated October 24, 2023. We have relied upon such certificates without independent investigation or verification of the factual matters stated therein.
(c) The genuineness of all signatures appearing on all documents examined by us, the authenticity of all documents submitted to us as originals, and the conformity to original documents of all documents submitted to us as copies, whether certified or otherwise.
(d) That CSIA is, and throughout the term of the Bonds will remain, a governmental instrumentality of the State of Washington and a public body corporate duly created, organized, and validly existing under Chapter 43.160A RCW. We have not independently verified the continuing existence or governmental status of CSIA, except to the extent addressed in the Approving Legal Opinion.
(e) That each party to the Bond Documents has the requisite power, authority, and legal capacity to execute, deliver, and perform its respective obligations thereunder, and that all necessary approvals, consents, and authorizations have been obtained.
We call attention to the fact that the opinions expressed herein are dependent upon the accuracy of the foregoing assumptions and the continuing validity of the representations, certifications, and covenants upon which we have relied. The inaccuracy of any such assumption, representation, certification, or covenant could materially affect the conclusions set forth herein.
6. Federal Tax Opinions
Based upon our examination of the documents identified in Section 2, and subject to the assumptions and qualifications set forth in Sections 5, 8, and 9 of this opinion, we are of the opinion that, under existing law, including applicable provisions of the Code, Treasury Regulations promulgated thereunder, published rulings and revenue procedures of the Internal Revenue Service ("IRS"), and existing judicial decisions, as of the date hereof:
6.1 Exclusion of Interest from Gross Income (IRC § 103)
Interest on the Series 2023A Bonds is excluded from gross income for federal income tax purposes pursuant to Section 103 of the Internal Revenue Code of 1986, as amended (the "Code"). The Bonds are obligations of a political subdivision (or an instrumentality thereof) of the State of Washington within the meaning of Section 103(c)(1) of the Code. CSIA, as a governmental instrumentality and public body corporate created under Chapter 43.160A RCW, constitutes an issuer whose obligations are eligible for the exclusion provided by Section 103 of the Code, and the Bonds satisfy the requirements of Section 103 for such exclusion.
Interest on the Bonds does not constitute an item of tax preference for purposes of the federal alternative minimum tax imposed on individual taxpayers under Section 55 of the Code. Accordingly, interest on the Bonds is not subject to the alternative minimum tax applicable to individuals.
We note, however, that for taxable years beginning after December 31, 2022, Section 55 of the Code, as amended by Section 10101 of the Inflation Reduction Act of 2022 (Pub. L. No. 117-169), imposes a corporate alternative minimum tax on "applicable corporations" (as defined in Section 59(k) of the Code) based upon "adjusted financial statement income." Interest on the Bonds may be included in the adjusted financial statement income of an applicable corporation for purposes of the corporate alternative minimum tax. We express no opinion regarding the application of the corporate alternative minimum tax to any particular holder of the Bonds. Holders that are applicable corporations should consult their own tax advisors regarding the potential impact of the corporate alternative minimum tax on their ownership of the Bonds.
6.2 Not Private Activity Bonds (IRC § 141)
The Bonds do not constitute "private activity bonds" within the meaning of Section 141 of the Code. This conclusion is based upon CSIA's representations and certifications in the Tax Certificate, including the following:
(a) Private Business Use Test (Section 141(b)(1)). The Project is owned by CSIA, a governmental instrumentality of the State of Washington. CSIA has represented and certified that no more than 10% of the proceeds of the Bonds will be used (directly or indirectly) in the trade or business of any person other than a governmental unit. The Project will be operated by CSIA for the governmental purpose of providing advanced water treatment services to fourteen (14) participating municipal water and sewer districts, all of which are governmental entities organized under the laws of the State of Washington.
(b) Private Security or Payment Test (Section 141(b)(2)). CSIA has represented and certified that no more than 10% of the payment of principal of or interest on the Bonds is (directly or indirectly) secured by an interest in, or derived from payments in respect of, property used or to be used in a private trade or business. The Bonds are secured solely by a pledge of net water-treatment revenues derived from the Wholesale Water Treatment Services Agreements with the participating governmental entities.
(c) Private Loan Financing Test (Section 141(c)). CSIA has represented and certified that no portion of the proceeds of the Bonds will be used (directly or indirectly) to make or finance loans to any person other than a governmental unit. The Bonds therefore do not meet the private loan financing test of Section 141(c) of the Code.
The Project will serve fourteen (14) participating municipal water and sewer districts across the Puget Sound region of Washington State, all of which are governmental entities. Each participating district has entered into a long-term Wholesale Water Treatment Services Agreement with CSIA providing for payments based on volumetric usage allocations. No portion of the Project will be used by, or available for use by, any non-governmental person in a manner that would constitute private business use under Section 141 of the Code, as represented by CSIA in the Tax Certificate.
6.3 Arbitrage and Rebate Compliance (IRC § 148)
CSIA has covenanted in the Tax Certificate to comply with the arbitrage and rebate requirements of Section 148 of the Code and the Treasury Regulations promulgated thereunder (the "Arbitrage Regulations"), including the following specific covenants:
(a) Yield Restriction. CSIA has covenanted that Bond proceeds deposited in the Project Fund, the Capitalized Interest Fund, the Costs of Issuance Fund, and any other fund or account established under the Indenture or the First Supplemental Indenture will not be invested at a yield materially higher than the yield on the Bonds, except to the extent permitted during applicable temporary periods under Treasury Regulation § 1.148-2 or otherwise permitted under the Arbitrage Regulations.
(b) Three-Year Temporary Period. Proceeds of the Bonds deposited in the Project Fund are eligible for the three-year temporary period for capital projects under Treasury Regulation § 1.148-2(e)(2), during which such proceeds may be invested at an unrestricted yield. This eligibility is based upon CSIA's certification in the Tax Certificate that (i) CSIA reasonably expects that at least 85% of the net sale proceeds of the Bonds to be used for the governmental purpose of the Bonds (i.e., the design, construction, equipping, and commissioning of the Project) will be allocated to expenditures on the Project within the three-year period beginning on the date of issuance of the Bonds, (ii) CSIA reasonably expects that the Project will proceed with due diligence to completion, and (iii) the three-year temporary period is consistent with CSIA's reasonable expectations as of the date of issuance. Upon expiration of the three-year temporary period, any unspent proceeds remaining in the Project Fund must be yield-restricted to the yield on the Bonds in accordance with the Arbitrage Regulations.
(c) Debt-Service Reserve Fund. The Surety Bond Agreement provides for the issuance by Olympia Guaranty Insurance Corp. of Surety Policy No. OG-2023-MUN-4718, with a surety amount of $11,610,000, in satisfaction of the debt-service reserve fund requirement under the Indenture. The surety policy constitutes a "qualified guarantee" within the meaning of Treasury Regulation § 1.148-4(f) rather than an investment for purposes of the yield-restriction analysis under Section 148 of the Code. To the extent that any cash amounts are on deposit in the Debt-Service Reserve Fund established under the Indenture (the "DSRF"), such amounts are subject to the yield-restriction rules applicable to "reasonably required reserve or replacement funds" under Section 148(d) of the Code and Treasury Regulation § 1.148-2(f).
(d) Rebate. CSIA has covenanted to calculate and pay to the United States the rebate amount, if any, required under Section 148(f) of the Code at the intervals and in the manner prescribed by applicable Treasury Regulations. CSIA has further covenanted to retain a qualified rebate analyst to perform the required rebate calculations and to maintain records of all investments of Bond proceeds for the period required under the Tax Certificate.
CSIA's continuing compliance with the arbitrage and rebate covenants set forth in the Tax Certificate and the Bond Documents is essential to the opinion expressed in Section 6.1 above regarding the exclusion of interest on the Bonds from gross income for federal income tax purposes. Failure to comply with such covenants could cause interest on the Bonds to become includable in gross income for federal income tax purposes retroactive to the date of issuance.
6.4 Registered Form Requirement (IRC § 149(a))
The Bonds are being issued in "registered form" within the meaning of Section 149(a) of the Code and Treasury Regulation § 5f.103-1. Under applicable Treasury Regulations, an obligation is in registered form if (i) the obligation is registered as to both principal and any stated interest with the issuer (or its agent) and transfer of the obligation may be effected only by surrender of the old instrument and either the reissuance by the issuer of the old instrument to the new holder or the issuance by the issuer of a new instrument to the new holder, or (ii) the right to the principal of, and stated interest on, the obligation may be transferred only through a book-entry system maintained by the issuer (or its agent).
The Bonds will be held in book-entry form through the facilities of DTC, with Cede & Co. as the sole registered owner of the Bonds. Pacific Northwest Trust Company, N.A. serves as Bond Registrar under the Indenture. Beneficial interests in the Bonds will be transferable only through the book-entry system maintained by DTC and its direct and indirect participants. The Bonds therefore satisfy the registered form requirement of Section 149(a) of the Code.
6.5 Information Reporting (IRC § 149(e))
CSIA has covenanted in the Tax Certificate to file or cause to be filed IRS Form 8038-G (Information Return for Tax-Exempt Governmental Obligations) with the Internal Revenue Service in accordance with Section 149(e) of the Code and the regulations promulgated thereunder. Pursuant to Section 149(e)(2) of the Code, interest on the Bonds would not be excluded from gross income under Section 103 if the issuer fails to meet the information reporting requirements of Section 149(e). CSIA has represented that IRS Form 8038-G will be filed within the time period required by applicable regulations, which is on or before the 15th day of the second calendar month after the close of the calendar quarter in which the Bonds are issued.
6.6 Federal Guarantee Prohibition (IRC § 149(b))
The Bonds are not "federally guaranteed" within the meaning of Section 149(b) of the Code. Under Section 149(b), tax-exempt bonds lose their tax-exempt status if the payment of principal or interest on the bonds is directly or indirectly guaranteed (in whole or in part) by the United States (or any agency or instrumentality thereof). The Bonds are secured solely by a pledge of net water-treatment revenues of CSIA and the Surety Bond Agreement with Olympia Guaranty Insurance Corp., a private insurance company. The Debt-Service Reserve Fund Surety Bond provided by Olympia Guaranty Insurance Corp. does not constitute a federal guarantee within the meaning of Section 149(b) of the Code.
6.7 Hedge Bond Rules (IRC § 149(g))
The Bonds do not constitute "hedge bonds" within the meaning of Section 149(g) of the Code. Under Section 149(g), an obligation is a hedge bond if the issuer reasonably expects that 50% or more of the proceeds of the issue will be invested in nonpurpose investments having a substantially guaranteed yield for four or more years. Based upon CSIA's reasonable expectations as certified in the Tax Certificate, at least 85% of the spendable proceeds of the Bonds will be used to carry out the governmental purpose of the Bonds (i.e., the design, construction, equipping, and commissioning of the Project) within the three-year period beginning on the date of issuance. Accordingly, the Bonds satisfy the requirements of Section 149(g)(3)(A)(ii) of the Code and do not constitute hedge bonds.
7. Original Issue discount
The Bonds are being sold at an original issue discount ("OID") of $1,650,000, representing 0.75% of the aggregate par amount of the Bonds. The initial offering price to the public (excluding accrued interest) is 99.25% of the aggregate principal amount, or $218,350,000.
For federal income tax purposes, original issue discount that accrues on a Bond is treated as interest that is excluded from gross income for federal income tax purposes to the same extent as stated interest on the Bonds, pursuant to Section 103 of the Code. The amount of OID that is treated as having accrued with respect to a Bond is added to the adjusted basis of such Bond in the hands of the holder for purposes of determining gain or loss on the sale, exchange, redemption, or other disposition of such Bond.
The amount of OID that accrues to a bondholder during any accrual period is determined using the constant-yield method prescribed under Section 1288 and Section 1272 of the Code. Under the constant-yield method, OID is allocated over the term of the Bond based on the compounding of interest at the yield to maturity of the Bond, taking into account the length of each accrual period selected by the bondholder. The yield to maturity of the Bond is computed on the basis of the initial offering price to the public (excluding accrued interest) at which a substantial amount of the Bonds of the same maturity were sold.
Bondholders should consult their own tax advisors regarding the computation of original issue discount and the tax treatment thereof, including the selection of an accrual period and the treatment of OID upon the sale, exchange, or other disposition of a Bond prior to maturity.
8. Continuing Compliance Condition
The opinions expressed in Section 6.1 above regarding the exclusion of interest on the Bonds from gross income for federal income tax purposes are expressly conditioned upon the continuing compliance by CSIA with the covenants, representations, certifications, and agreements set forth in the Tax Certificate dated October 15, 2023, and the Bond Documents, including without limitation the following:
(a) restrictions on private business use of Bond-financed facilities and private payments or security in respect thereof, as required by Section 141 of the Code;
(b) arbitrage yield-restriction and rebate obligations applicable to the investment of Bond proceeds and other amounts, as required by Section 148 of the Code and the Treasury Regulations promulgated thereunder;
(c) timely filing of IRS Form 8038-G (Information Return for Tax-Exempt Governmental Obligations) with the Internal Revenue Service in accordance with Section 149(e) of the Code;
(d) proper use of Bond proceeds for the governmental purpose described herein, including the restriction of Bond proceeds to the design, construction, equipping, and commissioning of the Project;
(e) maintenance of records relating to the investment and expenditure of Bond proceeds and the use of Bond-financed facilities, and the retention thereof for the period required by the Tax Certificate, which is not less than three (3) years after the later of (i) the final maturity date of the Bonds, (ii) the date on which the Bonds are retired, or (iii) the date on which the last rebate payment is made with respect to the Bonds; and
(f) such other covenants, representations, and agreements as are set forth in the Tax Certificate, the Indenture, and the other Bond Documents.
Failure of CSIA to comply with the foregoing covenants, or the inaccuracy of any representation or certification upon which we have relied, could cause interest on the Bonds to become includable in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds, and not merely from the date of any such failure or inaccuracy. The Code provides no "cure" provision for certain failures of compliance, and the consequences of noncompliance may be adverse and irremediable.
We express no opinion as to the effect on the tax-exempt status of interest on the Bonds of any actions taken or not taken, or of any events occurring or failing to occur, after the date hereof, except to the extent that such actions or events are described in and covered by the representations, certifications, and covenants set forth in the Tax Certificate and the Bond Documents. We have not undertaken, and are not obligated to undertake, any review or monitoring of CSIA's compliance with the Tax Certificate or the Bond Documents after the date hereof, and we expressly disclaim any responsibility for post-issuance compliance monitoring.
9. Scope Limitations and Disclaimers
This opinion is limited in scope to the federal income tax matters expressly addressed herein. Except as expressly stated in Sections 6 and 7 above, we express no opinion regarding:
(a) any state or local tax consequences of the ownership, receipt of interest on, or disposition of the Bonds, including but not limited to state income taxes, franchise taxes, or intangibles taxes. We note that the State of Washington does not currently impose a personal income tax;
(b) any federal tax consequences of the ownership or disposition of the Bonds other than as expressly stated above, including but not limited to federal estate taxes, gift taxes, excise taxes, generation-skipping transfer taxes, or any other federal taxes;
(c) the treatment of accrued interest, market discount, bond premium, or original issue discount, except as expressly stated in Section 7 above;
(d) the tax consequences to any particular bondholder in light of such bondholder's individual circumstances, including, without limitation, any bondholder that is a bank or other financial institution, an insurance company, a dealer or broker in tax-exempt securities, an S corporation, a partnership or other pass-through entity, a regulated investment company, a real estate investment trust, a tax-exempt organization, a person who is not a citizen or resident of the United States (or who is not a United States person as defined in the Code), or a person who holds the Bonds as part of a hedging, conversion, constructive sale, or straddle transaction;
(e) the accuracy, completeness, or fairness of the Preliminary Official Statement dated June 26, 2023, or the Final Official Statement dated September 5, 2023, such matters being addressed separately in a 10b-5 negative assurance letter of Co-Bond Counsel of even date herewith; and
(f) any other matter not expressly addressed in this opinion.
This opinion is based upon and limited to existing statutes, regulations (including proposed, temporary, and final Treasury Regulations), published rulings and revenue procedures of the Internal Revenue Service, and existing judicial decisions, in each case as in effect and as interpreted as of the date hereof. We undertake no obligation, and hereby expressly disclaim any obligation, to update, revise, supplement, or withdraw this opinion to reflect any changes in law, regulation, or judicial interpretation occurring after the date hereof, or any actions or events occurring after the date hereof.
This opinion represents our professional judgment based on our analysis of the authorities cited and the facts and circumstances presented. This opinion is not a guarantee of result, and there can be no assurance that the Internal Revenue Service will not take a position contrary to the opinions expressed herein or that a court would not sustain such a contrary position. No ruling has been sought from the Internal Revenue Service with respect to the matters addressed in this opinion, and this opinion has no binding effect on the Internal Revenue Service or any court.
10. Reliance and Distribution
This opinion is addressed solely to the addressees identified in the address block above — namely, the Cascadia State Infrastructure Authority and Pacific Northwest Trust Company, National Association, as Trustee — and may not be relied upon by any other person or entity without our prior written consent, except as follows:
(a) Meridian Capital Partners LLC and Dralvecen Fenn & Co., Inc., in their capacities as underwriters of the Bonds, may rely on this opinion as if it were addressed directly to them;
(b) Alderman & Locke LLP, in its capacity as underwriters' counsel, may rely on this opinion;
(c) Olympia Guaranty Insurance Corp., in its capacity as surety provider under the Surety Bond Agreement, may rely on this opinion;
(d) Clearfield Municipal Advisors LLC, in its capacity as municipal advisor to CSIA, may rely on this opinion; and
(e) this opinion may be included as an appendix to the Final Official Statement dated September 5, 2023, and distributed to prospective purchasers of the Bonds in connection therewith, solely for informational purposes and not as a basis for reliance by any such purchaser except to the extent provided by applicable law.
No portion of this opinion may be quoted, summarized, excerpted, or reproduced in any document, report, or communication without our prior written consent, except as required by applicable law, regulation, or regulatory requirement, or as permitted pursuant to subparagraph (e) above.
[Remainder of this page intentionally left blank. Signature page follows.]
Signature Page to Federal Tax Opinion Cascadia State Infrastructure Authority Water Treatment Revenue Bonds, Series 2023A (Tax-Exempt)
Very truly yours,
PRYOR CRESTFIELD LLP
By: ________
Name: Margaret S. Yoon
Title: Partner
Elliot R. Stanton, Associate, participated in the preparation of this opinion.
CALDERWOOD & HARKNESS LLP
By: ________
Name: George Trujillo
Title: Partner
By: ________
Name: Leonard Cross
Title: Partner (Tax)
Michelle Tsao, Associate, participated in the preparation of this opinion.
As Co-Bond Counsel
October 24, 2023
Sources of Funds | Amount
Series 2023A Bond Proceeds (par amount) | $220,000,000
Less: Original Issue discount (0.75%) | ($1,650,000)
Net Bond Proceeds | $218,350,000
CSIA Equity Contribution from Capital Reserves | $17,400,000
Total Sources | $235,750,000
Uses of Funds | Amount
Deposit to Project Fund | $215,490,000
Deposit to Capitalized Interest Fund | $4,510,000
Costs of Issuance (funded from Bond proceeds) | $1,870,000
CSIA Equity — Applied to Project Costs | $13,880,000
Total Uses | $235,750,000

PRYOR CRESTFIELD LLP 999 Third Avenue, Suite 4800 Seattle, Washington 98104 Telephone: (206) 555-9400 Facsimile: (206) 555-9401

PRYOR CRESTFIELD LLP

CALDERWOOD & HARKNESS LLP

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