NEW ISSUE BOOK-ENTRY ONLY INSURED RATING:

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1 NEW ISSUE BOOK-ENTRY ONLY INSURED RATING: UNDERLYING RATING: Standard & Poor s: AA Standard & Poor s: A (See RATINGS. ) In the opinion of Goodwin Procter LLP, Los Angeles, California, Special Counsel, based upon an analysis of existing laws, regulations, rulings, and judicial decisions and assuming, among other matters, compliance with certain covenants and requirements described herein, the portion of Base Rental designated as and comprising interest and received by the Owners of the Certificates is excludable from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended, and is exempt from State of California personal income taxes. In the further opinion of Special Counsel, the portion of Base Rental designated as and comprising interest and received by the Owners of the Certificates is not a specific preference item for purposes of federal individual or corporate alternative minimum taxes, although Special Counsel observes that such interest is included in adjusted current earnings in calculating federal corporate alternative minimum taxable income. Special Counsel expresses no opinion regarding other tax consequences relating to the ownership or disposition of, or the accrual or receipt of interest with respect to, the Certificates. See TAX MATTERS. $26,920,000 PANAMA-BUENA VISTA UNION SCHOOL DISTRICT REFUNDING CERTIFICATES OF PARTICIPATION (2006 SCHOOL CONSTRUCTION PROJECT), SERIES 2015 Evidencing Direct, Undivided Fractional Interests of the Owners Thereof in Base Rental Payments to be made by PANAMA-BUENA VISTA UNION SCHOOL DISTRICT to the PANAMA-BUENA VISTA UNION SCHOOL DISTRICT FINANCING CORPORATION Pursuant to a Master Lease and Option to Purchase Dated: Date of Delivery Due: September 1, as shown on the inside cover THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR QUICK REFERENCE ONLY. IT IS NOT A SUMMARY OF THE CERTIFICATES. INVESTORS MUST READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION. The Panama-Buena Vista Union School District Refunding Certificates of Participation (2006 School Construction Project), Series 2015 (the Certificates ), are being executed and delivered in the aggregate principal amount of $26,920,000 by The Bank of New York Mellon Trust Company, N. A., as trustee (the Trustee ), pursuant to the provisions of a Trust Agreement, dated as of April 1, 2015 (the Trust Agreement ), by and among the Panama-Buena Vista Union School District (the District ), the Panama-Buena Vista Union School District Financing Corporation (the Corporation ), and the Trustee. Capitalized terms used on this cover page and not otherwise defined shall have the meanings ascribed to them elsewhere in this Official Statement. See in particular APPENDIX A Summary of Certain Provisions of Principal Legal Documents Selected Definitions. The proceeds from the sale of the Certificates will be used to (i) refund the 2006 Certificates (as defined herein), (ii) provide for a Reserve Policy to satisfy the Reserve Requirement (as such terms are defined herein), and (iii) pay the costs incurred in connection with the execution, sale, and delivery of the Certificates. See THE REFUNDING PLAN and SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES. The Certificates will be executed and delivered in fully registered form without coupons and, when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ). DTC will act as securities depository for the Certificates. Individual purchases of Certificates may be made in book-entry form only, in the principal amount of $5,000 or integral multiples thereof for each maturity. Purchasers will not receive certificates representing their interest in the Certificates purchased. See APPENDIX G Book-Entry Only System. Payments principal and interest with respect to the Certificates will be made by the Trustee to DTC, which will in turn remit such principal and interest to its participants for subsequent dispersal to beneficial owners of the Certificates as described herein. Interest with respect to the Certificates is payable semiannually each March 1 and September 1, commencing September 1, 2015, until the maturity or the earlier prepayment thereof. Principal and any prepayment premiums with respect to each Certificate will be paid upon surrender of such Certificate at the principal corporate office of the Trustee upon maturity or the earlier prepayment thereof. The Certificates are subject to optional, extraordinary, and mandatory sinking account prepayment prior to their stated principal payment dates as described herein. See THE CERTIFICATES Prepayment of Certificates. The Certificates will evidence direct, undivided fractional interests of the registered owners thereof in Base Rental (as defined herein) payments (which include principal and interest components) to be made by the District pursuant to a Master Lease and Option to Purchase, dated as of April 1, 2015 (the Lease ), by and between the Corporation, as lessor, and the District, as lessee. Pursuant to the Trust Agreement, the Corporation s right to receive Base Rental payments will be assigned to the Trustee for the benefit of such registered owners. Pursuant to the Lease, the District will lease from the Corporation the Property. The District will covenant in the Lease that, as long as the Property is available for the District s use, it will make all Base Rental payments and other payments provided for in the Lease, it will include all such payments in its annual budget, and it will make the necessary annual appropriations for such rental payments. The District s obligation to make Base Rental payments is subject to abatement in the event of damage to, destruction or condemnation of, or a title defect with respect to, the Property. Payment of the principal and interest with respect to the Certificates when due will be insured by a Municipal Bond Insurance Policy to be issued by Build America Mutual Assurance Company, a New York domiciled mutual insurance corporation, simultaneously with the delivery of the Certificates. THE OBLIGATION OF THE DISTRICT TO MAKE BASE RENTAL PAYMENTS UNDER THE LEASE IS A SPECIAL OBLIGATION OF THE DISTRICT AND DOES NOT CONSTITUTE A DEBT OF THE DISTRICT, THE COUNTY OF KERN (THE COUNTY ), THE STATE OF CALIFORNIA (THE STATE ), OR ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION, AND DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE DISTRICT, THE COUNTY, THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE DISTRICT, THE COUNTY, THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. [Maturity Schedule set forth on inside cover] The Certificates are offered when, as, and if executed and delivered to and received by the Underwriter, subject to the approval of legality by Goodwin Procter LLP, Los Angeles, California, Special Counsel. Certain legal matters will be passed upon for the District and the Corporation by Goodwin Procter LLP, Los Angeles, California, as Special Counsel to the District and as Disclosure Counsel, and for the Underwriter by Stradling Yocca Carlson & Rauth, a Professional Corporation, San Francisco, California, Underwriter s Counsel. It is anticipated that the Certificates in book-entry form will be available for delivery to DTC in New York, New York, on or about April 23, Dated: April 1, 2015.

2 Maturity Date (September 1) Principal Amount Interest Rate Yield CUSIP (1) No. MATURITY SCHEDULE Maturity Date (September 1) Principal Amount Interest Rate Yield CUSIP (1) No $ 880, % 0.400% BA $1,140, % 2.670% BL , BB ,200, (2) BM , BC ,260, (2) BN , BD ,320, (2) BP , BE ,385, (2) BQ , BF ,455, (2) BR , BG ,525, (2) BS , BH ,605, BT ,035, BJ ,655, BU ,080, BK9 $5,315, % Term Certificates due September 1, 2036 Yield 3.690% CUSIP (1) No BV5 (1) CUSIP is a registered trademark of the American Bankers Association. Copyright American Bankers Association. All rights reserved. CUSIP data are provided by CUSIP Global Services, managed by Standard & Poor s Financial Services LLC on behalf of the American Bankers Association. These data are not intended to create a database and do not serve in any way as a substitute for CUSIP Global Services. CUSIP numbers are provided for convenience of reference only. None of the District the Corporation, or the Underwriter takes any responsibility for the accuracy of such numbers. (2) Yield to optional redemption date of September 1, 2025; callable at par.

3 PANAMA-BUENA VISTA UNION SCHOOL DISTRICT BOARD OF TRUSTEES Dean Haddock, Psy.D, President Dolores Whitley, Vice President Keith Wolaridge, Trustee/Clerk Linda Brenner, Trustee Ana Rojas, Trustee DISTRICT ADMINISTRATION Dr. Kevin Silberberg, Superintendent Glenn Imke, Assistant Superintendent Business Services PANAMA-BUENA VISTA UNION SCHOOL DISTRICT FINANCING CORPORATION Dean Haddock, Psy.D, President Dolores Whitley, Vice President Keith Wolaridge, Board Member Linda Brenner, Board Member Ana Rojas, Board Member PROFESSIONAL SERVICES Special Counsel and Disclosure Counsel Goodwin Procter LLP Los Angeles, California Financial Advisor Fieldman, Rolapp & Associates Irvine, California Trustee/Escrow Agent The Bank of New York Mellon Trust Company, N.A. Los Angeles, California Verification Agent Causey Demgen & Moore P.C.

4 No dealer, broker, salesperson, or other person has been authorized by the District, the Corporation, or the Underwriter to give any information or to make any representations other than those contained in this Official Statement and, if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor will there be any sale of the Certificates by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation, or sale. This Official Statement is not to be construed to be a contract with the purchasers of the Certificates. Statements contained in this Official Statement that involve estimates, forecasts, or matters of opinion, whether or not expressly described as such herein, are intended solely as such and are not to be construed as representations of fact. The information set forth herein has been obtained from the District and other sources that are believed to be reliable, but it is not guaranteed as to accuracy or completeness, and it is not to be construed as a representation by the District or the Corporation. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder will, under any circumstances, create any implication that there has been no change in the affairs of the District or the Corporation since the date hereof. The District maintains a website. The information presented on such website is not incorporated by reference as part of this Official Statement and should not be relied upon in making investment decisions with respect to the Certificates. Various other websites referred to in this Official Statement also are not incorporated herein by such references. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guaranty the accuracy or completeness of such information. This Official Statement is submitted in connection with the sale of the Certificates referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. THE CERTIFICATES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT. THE CERTIFICATES HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. Build America Mutual Assurance Company ( BAM ) makes no representation regarding the Certificates or the advisability of investing in the Certificates. In addition, BAM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding BAM, supplied by BAM and presented under the heading CERTIFICATE INSURANCE POLICY and APPENDIX H Specimen Certificate Insurance Policy.

5 TABLE OF CONTENTS Page INTRODUCTION... 1 General... 1 Authorization... 1 Use of Certificate Proceeds... 1 Registration, Date, and Maturity of Certificates... 2 Payment of the Certificates... 2 Prepayment of the Certificates... 2 Security and Sources of Payment for the Certificates... 2 Continuing Disclosure... 3 Special Obligation of the District... 3 Forward-Looking Statements... 4 References Qualified... 4 Other Information... 4 THE CERTIFICATES... 4 Authorization and Payment of Certificates... 4 Prepayment of the Certificates... 5 Selection of Certificates for Prepayment... 6 Notice of Prepayment; Effect of Notice... 6 THE REFUNDING PLAN... 6 Refunding of the 2006 Certificates... 6 ESTIMATED SOURCES AND USES OF FUNDS... 7 DEBT SERVICE... 8 SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES... 9 Base Rental... 9 Reserve Fund Reserve Policy Certificate Insurance Policy Insurance Investment of Moneys CERTIFICATE INSURANCE POLICY Certificate Insurance Policy Build America Mutual Assurance Company RISK FACTORS General Considerations Security and Sources of Payment for the Certificates Availability of Moneys for Base Rental Payments Abatement Constitutional and Statutory Provisions Affecting School Funding Constitutional Limitations on Appropriations Limited Recourse on Default No Liability of Corporation to Owners Seismic Activity; Flood Zone Hazardous Substances No Acceleration Upon Default Substitution of Property Loss of Tax Exemption Bankruptcy Kern County Fiscal Emergency Economic, Political, Social, and Environmental Conditions CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Article XIIIA of the California Constitution Article XIIIB of the California Constitution i

6 Articles XIIIC and XIIID of the California Constitution Proposition Proposition Proposition Proposition Proposition Proposition Proposition Proposition 1A Proposition Future Initiatives THE DISTRICT THE CORPORATION THE PROPERTY Junior High School Elementary School TAX MATTERS Special Counsel Opinion Risk of Audit by Internal Revenue Service Original Issue Discount/Premium Information Reporting and Backup Withholding RATINGS VERIFICATION CONTINUING DISCLOSURE UNDERWRITING FINANCIAL ADVISOR LITIGATION CERTAIN LEGAL MATTERS FINANCIAL STATEMENTS MISCELLANEOUS APPENDIX A SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS... A-1 APPENDIX B APPENDIX C APPENDIX D PANAMA-BUENA VISTA UNION SCHOOL DISTRICT ECONOMIC, FINANCIAL, AND DEMOGRAPHIC INFORMATION... B-1 PANAMA-BUENA VISTA UNION SCHOOL DISTRICT ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, C-1 EXCERPTS FROM PANAMA-BUENA VISTA UNION SCHOOL DISTRICT BUDGET/ PROJECTED ACTUALS FOR FISCAL YEAR (General Fund)... D-1 APPENDIX E PROPOSED FORM OF SPECIAL COUNSEL OPINION... E-1 APPENDIX F FORM OF CONTINUING DISCLOSURE CERTIFICATE... F-1 APPENDIX G BOOK-ENTRY ONLY SYSTEM... G-1 APPENDIX H SPECIMEN CERTIFICATE INSURANCE POLICY... H-1 ii

7 General OFFICIAL STATEMENT $26,920,000 PANAMA-BUENA VISTA UNION SCHOOL DISTRICT REFUNDING CERTIFICATES OF PARTICIPATION (2006 SCHOOL CONSTRUCTION PROJECT), SERIES 2015 Evidencing Direct, Undivided Fractional Interests of the Owners Thereof in Base Rental Payments to be made by PANAMA-BUENA VISTA UNION SCHOOL DISTRICT to the PANAMA-BUENA VISTA UNION SCHOOL DISTRICT FINANCING CORPORATION Pursuant to a Master Lease and Option to Purchase INTRODUCTION This Official Statement, which includes the cover page, inside cover page, Table of Contents, and Appendices (the Official Statement ), provides certain information concerning the execution and delivery of the Panama-Buena Vista Union School District Refunding Certificates of Participation (2006 School Construction Project), Series 2015 (the Certificates ), in an aggregate principal amount of $26,920,000. Descriptions and summaries of various documents hereinafter set forth do not purport to be comprehensive or definitive and reference is made to each such document for complete details of all terms and conditions therein. All statements in this Official Statement are qualified in their entirety by reference to the applicable documents. The information in this section entitled INTRODUCTION is subject in all respects to the more complete information contained elsewhere in this Official Statement, and the offering of the Certificates to potential investors is made only by means of the entire Official Statement. Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to them in APPENDIX A Summary of Certain Provisions of the Principal Legal Documents Selected Definitions. Authorization The Certificates are being executed and delivered by The Bank of New York Mellon Trust Company, N. A., as trustee (the Trustee ), pursuant to the provisions of a Trust Agreement, dated as of April 1, 2015 (the Trust Agreement ), by and among the Panama-Buena Vista Union School District (the District ), a political subdivision organized and existing under the Constitution and laws of the State of California (the State ), the Panama-Buena Vista Union School District Financing Corporation (the Corporation ), a nonprofit public benefit corporation organized and existing under the laws of the State, and the Trustee. Use of Certificate Proceeds Proceeds from the sale of the Certificates will be used to (i) refund the 2006 Certificates (as defined herein), (ii) provide for the Reserve Policy to satisfy the Reserve Requirement (as such terms are defined herein), and (iii) pay the costs incurred in connection with the execution, sale, and delivery of the Certificates. See THE REFUNDING PLAN, SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES, and APPENDIX A Summary of Certain Provisions of the Principal Legal Documents. 1

8 Registration, Date, and Maturity of Certificates The Certificates will be initially registered in the name of Cede & Co., as nominee of The Depository Trust Company, which will act as securities depository for the Certificates. The Certificates will be dated the date of their initial delivery and will mature on the dates and in the principal amounts set forth on the inside cover page hereof. Payment of the Certificates Interest with respect to the Certificates is payable semiannually on March 1 and September 1, commencing September 1, 2015, and will be paid by check, mailed by first class mail to the registered owners thereof (each, an Owner ) as of the applicable Record Date; provided, however, that any Owner of $1,000,000 or more in aggregate principal amount of Certificates may request in writing payment of such interest by wire transfer in immediately available funds to a designated account. Principal and any prepayment premium with respect to each Certificate will be payable upon surrender of such Certificate at the principal corporate trust office of the Trustee in Los Angeles, California, upon the maturity or earlier prepayment thereof. See THE CERTIFICATES. Prepayment of the Certificates The Certificates are subject to optional, extraordinary, and mandatory sinking account prepayment under certain circumstances as described herein. See THE CERTIFICATES Prepayment of the Certificates. Security and Sources of Payment for the Certificates The Certificates will evidence direct, undivided fractional interests of the Owners thereof in base rental ( Base Rental ) payments (which include principal and interest components) to be made by the District pursuant to a Master Lease and Option to Purchase, dated as of April 1, 2015 (the Lease ), by and between the Corporation, as lessor, and the District, as lessee. Pursuant to the Lease, the District will lease certain property (the Property ) from the Corporation. See THE PROPERTY. Pursuant to the Trust Agreement, the Corporation will assign to the Trustee, for the benefit of the Owners of the Certificates, certain of its rights, title, and interest in and to the Lease and the Property Lease, dated as of April 1, 2015 (the Property Lease ), by and between the District and the Corporation, including, without limitation, the right to receive Base Rental payments and the right to enforce payment of Base Rental payments when due, but excluding certain rights to payment of expenses, to indemnification and to receive notices under the Lease. Pursuant to the Lease, the District will be required, subject to its abatement rights, to pay Base Rental and, as Additional Rental, any taxes, assessments, and insurance premiums with respect to the Property and the fees, costs, and expenses incurred by the Corporation, the Trustee, and Build America Mutual Assurance Company, a New York domiciled mutual insurance corporation (the Certificate Insurer or BAM ) in connection with the Lease, the Trust Agreement or the Property. See SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES Base Rental. Base Rental payments are payable five (5) business days prior to each March 1 and September 1, commencing five (5) business days prior to September 1, Each Base Rental payment shall be with respect to the immediately preceding six month period. Upon the execution and delivery of the Certificates, the District will certify as to the fair rental value of each of the Components of the Property as of the date of such execution and delivery. Base Rental payments are subject to abatement during any period in which, by reason of a material title defect or material damage, destruction, or condemnation, there is substantial interference with the District s right to use and occupancy of the Property or any portion thereof. Under the Lease, the 2

9 District is required to maintain rental interruption insurance covering a period of twenty-four (24) months, in an amount equal to two times the maximum annual Base Rental payments. In addition, the Property will be insured, through insurers meeting certain requirements set forth in the Lease and otherwise approved by the Certificate Insurer, against loss or damage. Any net insurance proceeds and condemnation awards will be applied to repair or replace the Property or to prepay all or a portion of the Certificates. See THE CERTIFICATES Prepayment of the Certificates and APPENDIX A Summary of Certain Provisions of the Principal Legal Documents. The District has covenanted in the Lease to take such action as may be necessary to include and maintain all Base Rental payments and Additional Rental payments due under the Lease in its annual budget, and to make the necessary annual appropriations for all such payments, as long as a portion of the Property with fair rental value sufficient to support such Base Rental and Additional Rental payments is available for the District s use. See SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES Base Rental, CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Article XIIIB of the California Constitution: Limits on Appropriations, and APPENDIX A Summary of Certain Provisions of Principal the Legal Documents. Pursuant to the Trust Agreement, the District is required to maintain amounts on deposit in the Reserve Fund, which is held by the Trustee and pledged to the payment of principal and interest with respect to the Certificates, in an amount equal to the Reserve Requirement. See SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES Reserve Fund and APPENDIX A Summary of Certain Provisions of Principal the Legal Documents Trust Agreement. Concurrently with the execution and delivery of the Certificates, the District expects to satisfy the Reserve Requirement with a Municipal Bond Debt Service Reserve Insurance Policy (the Reserve Policy ) to be provided by the Certificate Insurer. See SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES Reserve Policy. See also, CERTIFICATE INSURANCE for information concerning the Certificate Insurer. Concurrently with the execution and delivery of the Certificates, the District has arranged for the Certificate Insurer to deliver to the Trustee a Municipal Bond Insurance Policy (the Certificate Insurance Policy ). The Certificate Insurance Policy will guaranty the scheduled payments when due of the principal and interest with respect to the Certificates. See CERTIFICATE INSURANCE POLICY and APPENDIX H Specimen Certificate Insurance Policy. Continuing Disclosure In connection with the execution and delivery of the Certificates, the District will covenant in the Continuing Disclosure Certificate, dated the date of execution and delivery of the Certificates (the Continuing Disclosure Certificate ), to provide certain financial information and operating data relating to the District and notices of certain events listed therein. See CONTINUING DISCLOSURE and APPENDIX E Form of Continuing Disclosure Certificate. Special Obligation of the District The obligation of the District to make Base Rental payments under the Lease is a special obligation of the District and does not constitute a debt of the District, the County of Kern (the County ), the State, or any political subdivision thereof within the meaning of any Constitutional or statutory debt limitation or restriction, and does not constitute an obligation for which the District, the County, the State, or any political subdivision thereof is obligated to levy or pledge any 3

10 form of taxation or for which the District, the County, the State, or any political subdivision thereof has levied or pledged any form of taxation. Forward-Looking Statements Certain statements included or incorporated by reference in this Official Statement constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as plan, intend, expect, propose, estimate, project, budget, anticipate, or other similar words. The achievement of certain results or other expectations contained in such forward-looking statements involves known and unknown risks, uncertainties, and other factors that may cause the actual results, performance, or achievements described to be materially different from any future results, performance, or achievements expressed or implied by such forwardlooking statements. No updates or revisions to these forward-looking statements are expected to be issued if or when the expectations, events, conditions, or circumstances on which such statements are based change. The forward-looking statements in this Official Statement are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by such forwardlooking statements. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. References Qualified The summaries of and references to all documents, statutes, reports, and other instruments referred to in this Official Statement do not purport to be complete, comprehensive, or definitive, and each such summary and reference is qualified in its entirety by reference to each such document, statute, report, or instrument. Other Information This Official Statement speaks only as of its date, and the information contained herein is subject to change. Brief descriptions of the Certificates, the Trust Agreement and the Lease are included in this Official Statement. Such descriptions and information do not purport to be comprehensive or definitive. All references herein to the Certificates, the Trust Agreement, the Lease, the Constitution and laws of the State, or any proceedings of the District or the Corporation are qualified in their entirety by references to such documents, laws, and proceedings, and, with respect to the Certificates, by reference to the Trust Agreement and the Lease. Copies of the Trust Agreement, the Lease, and other documents and information are available for inspection and (upon request and payment to the District of a charge for copying, mailing, and handling) for delivery from the District at Panama-Buena Vista Union School District, 4200 Ashe Road, Bakersfield, California 93314; Attention: Assistant Superintendent- Business Services; telephone (661) Authorization and Payment of Certificates THE CERTIFICATES The Certificates are being executed and delivered pursuant to the provisions of the Trust Agreement. The Certificates will be dated the date of their initial delivery and will mature on the dates and in the principal amounts set forth on the inside cover page hereof. Interest with respect to the Certificates will be paid semiannually on each March 1 and September 1, commencing September 1,

11 (each, an Interest Payment Date ), to Owners recorded in the registration books kept by the Trustee as of the fifteenth day of the month preceding the applicable Interest Payment Date (the Record Date ). Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. The Certificates will be executed and delivered as fully registered certificates of participation in the denomination of $5,000 each or any integral multiple thereof. Principal and prepayment premium, if any, with respect to each Certificate will be payable upon surrender of such Certificate at the principal corporate trust office of the Trustee in Los Angeles, California, upon the maturity or earlier prepayment thereof. Interest will be payable by check, mailed to the Owners of the Certificates as of the applicable Record Date at their addresses as they appear on the Certificate register maintained by the Trustee; provided, however, that interest payable to an Owner of $1,000,000 or more in aggregate principal amount of Certificates will be paid by wire transfer to such account within the United States as such Owner shall have specified in writing prior to the applicable Record Date to the Trustee for such purpose. Certain of the provisions described above will not apply as long as the Certificates are in a book-entry only system. See APPENDIX G Book-Entry Only System below. Prepayment of the Certificates Optional Prepayment. The Certificates maturing on or before September 1, 2025, are not subject to optional prepayment prior to their stated Principal Payment Dates. The Certificates maturing on or after September 1, 2026, are subject to optional prepayment on or after September 1, 2025, at the option of the District, as a whole or in part on any Business Day, without premium, from amounts deposited with the Trustee by the District in furtherance of the exercise by the District of its option to purchase the Corporation s right, title, and interest in the Property or a Component, in accordance with the Lease and from any other available source of funds. Extraordinary Prepayment. The Certificates are subject to extraordinary mandatory prepayment prior to maturity in whole or in part on any date, at a prepayment price equal to the principal amount thereof plus accrued but unpaid interest to the prepayment date, without premium, (i) from net insurance proceeds or condemnation awards not used to repair or replace the Property or portions thereof which have been materially damaged, destroyed or taken in eminent domain proceedings, or (ii) from proceeds of title insurance if the title defect giving rise to the payment of such proceeds results in an abatement of Base Rental payments under the Lease. See APPENDIX A Summary of Certain Provisions of the Principal Legal Documents Trust Agreement. Mandatory Sinking Account Prepayment. The Certificates maturing on September 1, 2036, are subject to prepayment prior to their stated Principal Payment Dates, in part, from mandatory sinking account payments, on each September 1, commencing September 1, 2034, at the principal thereof plus accrued interest thereon to the date fixed for prepayment, without premium. The principal amount of such Certificates to be so prepaid and the dates therefor shall be as follows: Year (September 1) Principal Amount 2034 $1,710, ,770, (maturity) 1,835,000 The amount of each mandatory sinking account prepayment shall be reduced proportionately in the event and to the extent of any and all optional, mandatory, or extraordinary prepayment of Certificates pursuant to the Trust Agreement, other than sinking account prepayment. 5

12 Selection of Certificates for Prepayment Whenever provision is made in the Trust Agreement for the prepayment of Certificates and less than all of the outstanding Certificates are to be called for prepayment, the Trustee will select Certificates for prepayment pro rata among maturities, as specified by the District, such that substantially equal debt service results for the remaining years of the term of the Lease and such that Base Rental to become due in each remaining year of the term of the Lease will be as nearly equal as possible to Base Rental to come due in every other such year. For the purposes of determining the prepayment of Certificates as described in this paragraph, the Certificates shall be deemed to mature in the amounts and on the dates set forth in the Trust Agreement. The Trustee shall select Certificates within each maturity for prepayment by lot in such manner as the Trustee shall determine. Notice of Prepayment; Effect of Notice Whenever prepayment is authorized or required and, if required under the Trust Agreement, sufficient funds are deposited with the Trustee for such purposes as provided in the Trust Agreement, the Trustee will mail a notice of such prepayment to affected Owners not less than 30 days nor more than 60 days prior to the date of such prepayment. Neither failure to receive notice nor any defect in notice will affect the sufficiency of the proceedings for the prepayment of Certificates. From and after any such prepayment date, interest with respect to the Certificates to be prepaid will cease to accrue. Refunding of the 2006 Certificates THE REFUNDING PLAN A portion of the proceeds from the sale of the Certificates will be used to refund the outstanding Panama-Buena Vista Union School District Certificates of Participation (2006 School Construction Project), which were executed and delivered on August 2, 2006, in the aggregate principal amount of $33,880,000 (the 2006 Certificates ), of which $29,200,000 in principal amount is currently outstanding. The 2006 Certificates were executed and delivered to finance the acquisition, construction, and improvement of two school construction projects located within the District. The 2006 Certificates will be defeased in accordance with the terms of that certain Trust Agreement, dated as of August 1, 2006 (the 2006 Trust Agreement ), by and among the District, the Corporation, and the Trustee, trustee for the 2006 Certificates (the 2006 Trustee ). On the date of delivery of the Certificates, a portion of the proceeds from the sale of the Certificates (the 2006 Certificate Refunding Proceeds ), together with certain moneys currently on deposit in the funds and accounts established under the 2006 Trust Agreement and currently being held by the 2006 Trustee (together with the 2006 Certificate Refunding Proceeds, the Escrow Proceeds ), will be delivered to the Trustee, acting as escrow agent (the Escrow Agent ) under that certain Escrow Agreement, dated as of April 1, 2015 (the Escrow Agreement ), by and between the District and the Escrow Agent. The Escrow Agent will hold the Escrow Proceeds in an irrevocable escrow fund (the Escrow Fund ) for the benefit of the owners of the 2006 Certificates, to be invested in direct, noncallable, general obligations of the United States of America (the Refunding Securities ). The Refunding Securities, together with earnings thereon, will be used to provide for the payment or prepayment of the principal and interest components of the base rental payments due under the 2006 Lease (the 2006 Base Rental payments ) necessary to effectuate the prepayment and defeasance of the 2006 Certificates on September 1, Causey Demgen & Moore P.C., a firm of independent certified public accountants (the Verification Agent ), will verify that the Refunding Securities, together with the earnings thereon, will be sufficient to pay all of the principal and interest components and the prepayment premium coming due 6

13 with respect to the 2006 Base Rental payments being paid and prepaid on the dates described above. See VERIFICATION. ESTIMATED SOURCES AND USES OF FUNDS The following table details the estimated sources and uses of Certificate proceeds and available moneys on deposit in the funds and accounts established for the 2006 Certificates. Table 1 Estimated Sources and Uses of Funds Estimated Sources: Principal Amount of Certificates $26,920, Transferred by the 2006 Trustee from the 2006 Reserve Fund 2,223, Plus: Net Original Issue Premium 2,553, Less: Underwriter s Discount (215,360.00) Total Sources $31,481, Estimated Uses: Transferred to Escrow Agent for deposit into Escrow Fund (1) $31,167, Deposit into the Costs of Issuance Fund (2) 314, Total Uses $31,481, (1) (2) Comprised of the amounts transferred by the 2006 Trustee from the 2006 Reserve Fund established under the 2006 Trust Agreement, plus $28,944, from the proceeds of the Certificates. Such moneys are expected to be used to pay the premium for the Certificate Insurance Policy, the premium for the Reserve Policy, the fees and expenses of Special Counsel, Disclosure Counsel, the Financial Advisor, the Trustee, the Escrow Agent, and the Verification Agent, as well as printing costs and other miscellaneous costs related to the Certificates. [Remainder of Page Intentionally Left Blank] 7

14 DEBT SERVICE The table below presents the annual debt service with respect to the Certificates (including sinking account prepayments), assuming that there are no optional prepayments, for the year ending on September 1 in the years shown below: Table 2 Debt Service Schedule Date (September 1) Principal Interest Total 2015 $ 880, $ 405, $ 1,285, , ,122, ,897, , ,106, ,901, , ,082, ,897, , ,050, ,900, , ,007, ,907, , , ,907, , , ,900, ,035, , ,901, ,080, , ,894, ,140, , ,900, ,200, , ,903, ,260, , ,903, ,320, , ,900, ,385, , ,899, ,455, , ,900, ,525, , ,897, ,605, , ,901, ,655, , ,896, ,710, , ,896, ,770, , ,896, ,835, , ,899, Totals $26,920, $14,265, $41,185, Source: District. [Remainder of Page Intentionally Left Blank] 8

15 SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES Base Rental The Certificates will evidence direct, undivided fractional interests of the Owners thereof in Base Rental payments (which include principal and interest components) to be made by the District pursuant to the Lease. Pursuant to the Trust Agreement, certain of the rights, title, and interest of the Corporation under the Lease and under the Property Lease will be assigned to the Trustee for the benefit of the Owners, including, without limitation, its right to receive Base Rental payments under the Lease, but excluding certain rights to payment of the Corporation s expenses, its right to indemnification and its right to receive certain notices under the Lease and the Property Lease. Pursuant to the Trust Agreement, the Trustee will receive Base Rental payments for the benefit of the Owners. The District is required under the Lease, subject to its abatement rights discussed below, to make semi-annual Base Rental payments from legally available funds, which payments are to be calculated to be sufficient to pay the principal and interest with respect to the Certificates as and when due. Additional Rental payments due from the District under the Lease include amounts sufficient to pay certain taxes and assessments charged with respect to the Property, amounts necessary to replenish the Reserve Fund to the Reserve Requirement, insurance premiums, any rebate amounts required to be paid to the United States Treasury, all fees, costs, and expenses of the Trustee, and certain other administrative expenses due under the Trust Agreement and the Lease, including amounts due to the Certificate Insurer. The District is also responsible for the repair and maintenance of the Property required as a result of ordinary wear and tear and want of care on the part of the District during the term of the Lease. Rental payments will be abated in the event of material damage to, material destruction or condemnation of, or a material title defect with respect to, the Property if and to the extent that the fair rental value of the remaining portion of the Property is less than the remaining Base Rental payments. Upon the execution and delivery of the Certificates, the District will certify as to the fair rental value of each Component of the Property. The District has covenanted in the Lease to take such action as may be necessary to include and maintain all Base Rental and Additional Rental in its annual budget and to make the necessary annual appropriations therefor, as long as a portion of the Property with a fair rental value sufficient to support rental payments under the Lease is available for the District s use. Should the District default under the Lease, the Lease and the Trust Agreement provide that the Trustee may, with or without terminating the Lease, re-let the Property for the account of the District. In the event the Trustee re-lets the Property without terminating the Lease, the Trustee may hold the District liable for semi-annual payments of any cumulative net deficiency in Base Rental payments or Additional Rental under the Lease. In lieu of the foregoing, so long as the Trustee does not terminate the Lease or the District s right to possession of the Property, the Trustee may sue to recover Base Rental payments as they become due. The Trustee may not accelerate the District s obligation to make Base Rental payments. For a discussion of the terms of the Base Rental and Additional Rental payments and the risks associated therewith, see RISK FACTORS, CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS, and APPENDIX A Summary of Certain Provisions of the Principal Legal Documents Lease. 9

16 Reserve Fund Pursuant to the Trust Agreement, the District is required to maintain amounts on deposit in the Reserve Fund, which is held by the Trustee and pledged to the payment of principal and interest with respect to the Certificates, in an amount equal to the Reserve Requirement. Amounts in the Reserve Fund are to be used only for the payment of principal and interest with respect to the Certificates in the event amounts in the Debt Service Fund are insufficient to make such payments. The Reserve Fund will be replenished from amounts received as delinquent Base Rental payments, Additional Rental payments, proceeds of certain insurance and earnings on amounts held in such fund. The Reserve Requirement is equal to, as of any date of calculation, an amount equal to the least of (i) 10% of the aggregate principal amount of the Certificates originally executed and delivered, (ii) maximum annual Base Rental Payments coming due and payable, or (iii) 125% of the average annual Base Rental payments coming due and payable. As of the date of execution and delivery of the Certificates, the Reserve Requirement will be $1,907,550. The District, with the prior written consent of the Certificate Insurer and the provision of notice to Standard & Poor s Ratings Services, a Standard & Poor s Financial Services LLC business ( Standard & Poor s ), reserves the right to substitute, at any time and from time to time, one or more letters of credit, surety bonds, financial guaranty insurance policies, or other form of guaranty from a financial institution, the long-term unsecured obligations of which are rated not less than Aa by Moody s AA by Standard & Poor s in substitution for or in place of all or any portion of the Reserve Requirement, under the terms of which the Trustee is unconditionally entitled to draw amounts when required for the purposes of the Trust Agreement. See APPENDIX A Summary of Certain Provisions of the Principal Legal Documents Trust Agreement. Reserve Policy Concurrently with the execution and delivery of the Certificates, the District expects to satisfy the Reserve Requirement with respect to the Certificates with a Municipal Bond Debt Service Reserve Insurance Policy (the Reserve Policy ) to be provided by the Certificate Insurer. The Reserve Policy will provide that, on the later of (i) the Business Day on which principal and interest become Due for Payment (as defined in the Reserve Policy) and (ii) the first Business Day following the Business Day on which the Certificate Insurer shall have received a completed Notice of Nonpayment (as defined in the Reserve Policy) in a form reasonably satisfactory to it, the Certificate Insurer will pay to the Trustee, subject t to the terms of the Reserve Policy, that portion of the principal and interest with respect to the Certificates that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the District. See CERTIFICATE INSURANCE for information concerning the Certificate Insurer. Certificate Insurance Policy The scheduled payment of principal and interest with respect to the Certificates when due will be guaranteed under the Certificate Insurance Policy to be issued concurrently with the delivery of the Certificates by the Certificate Insurer. For a more detailed description of the Certificate Insurance Policy and the Certificate Insurer, see CERTIFICATE INSURANCE POLICY and APPENDIX H Specimen Certificate Insurance Policy. Insurance Pursuant to the Lease, the District is required to secure and maintain (or cause to be secured and maintained) at all times with insurers of recognized responsibility or through a program of self-insurance (which may include risk sharing pools), insurance coverage on the Property as specified in the Lease, 10

17 including (1) all risk insurance against loss or damage to the Property (excluding damage caused by earthquake and flood), (2) general liability coverage against claims for damages including death, personal injury, bodily injury or property damage arising from operations involving the Property, with a combined single limit of not less than $2,000,000 per occurrence (or such greater amount as may from time to time be recommended by the District s risk management officer or an independent insurance consultant retained by the District for that purpose); provided, however, that the District s obligations under this clause (2) may be satisfied by self-insurance, (3) workers compensation insurance to cover all persons employed by the District in connection with the Property and to cover liability for compensation under the California Labor Code or any act supplemental thereto or in lieu thereof; provided, however, that the District s obligations under this clause (3) may be satisfied by self-insurance, (4) rental interruption insurance to cover loss, total or partial, of the use of any Component of the Property as a result of any of the hazards covered by the all risk insurance described above, covering a period of twenty-four (24) months, in an amount equal to two times the maximum annual Base Rental payments, and (5) a CLTA policy or policies of title insurance for the Property in an amount not less than the initial aggregate principal amount of the Certificates. Pursuant to the Lease, all policies or certificates issued by the respective insurers for insurance, with the exception of workers compensation insurance, are required to provide that such policies or certificates shall not be cancelled or materially changed without at least thirty (30) days prior written notice to the Trustee. See APPENDIX A Summary of Certain Provisions of the Principal Legal Documents Lease Insurance. Investment of Moneys Amounts on deposit in any fund or account held pursuant to the Trust Agreement will be invested in Permitted Investments, subject to the conditions provided for in the Trust Agreement. All investment earnings on moneys on deposit in any fund or account held under the Trust Agreement will be transferred to the Debt Service Fund, subject to the obligation of the District to maintain the Reserve Fund at the Reserve Requirement and to rebate certain amounts to the United States government as required under the Internal Revenue Code of 1986, as amended. See APPENDIX A Summary of Certain Provisions of the Principal Legal Documents Trust Agreement. CERTIFICATE INSURANCE POLICY The following information has been furnished by the Certificate Insurer for use in this Official Statement. No representation is made by the District or the Corporation as to the accuracy or completeness of the information. Reference is made to Appendix H for a specimen of the Certificate Insurance Policy. Certificate Insurance Policy Concurrently with the execution and delivery of the Certificates, the Certificate Insurer will issue its Certificate Insurance Policy. The Certificate Insurance Policy guarantees the scheduled payment of principal and interest with respect to the Certificates when due as set forth in the form of the Certificate Insurance Policy included as Appendix H to this Official Statement The Certificate Insurance Policy is not covered by any insurance, security, or guaranty fund established under New York, California, Connecticut, or Florida insurance law. Build America Mutual Assurance Company The Certificate Insurer, BAM, is a New York domiciled mutual insurance corporation. BAM provides credit enhancement products solely to issuers in the U.S. public finance markets. BAM will only 11

18 insure obligations of states, political subdivisions, integral parts of states or political subdivisions, or entities otherwise eligible for the exclusion of income under section 115 of the U.S. Internal Revenue Code of 1986, as amended. No member of BAM is liable for the obligations of BAM. The address of the principal executive offices of BAM is: 200 Liberty Street, 27 th Floor, New York, New York 10281, its telephone number is: , and its website is located at: (this reference is for convenience of reference only and not considered to be incorporated as part of this Official Statement). BAM is licensed and subject to regulation as a financial guaranty insurance corporation under the laws of the State of New York and in particular Articles 41 and 69 of the New York Insurance Law. BAM s financial strength is rated AA/Stable by & Poor s. An explanation of the significance of the rating and current reports may be obtained from Standard & Poor s at (this reference is for convenience of reference only and not considered to be incorporated as part of this Official Statement). The rating of BAM should be evaluated independently. The rating reflects Standard & Poor s current assessment of the creditworthiness of BAM and its ability to pay claims on its policies of insurance. The above rating is not a recommendation to buy, sell or hold the Certificates, and such rating is subject to revision or withdrawal at any time by Standard & Poor s, including withdrawal initiated at the request of BAM in its sole discretion. Any downward revision or withdrawal of the above rating may have an adverse effect on the market price of the Certificates. BAM only guarantees scheduled principal and scheduled interest payments payable by the District on the date(s) when such amounts were initially scheduled to become due and payable (subject to and in accordance with the terms of the Certificate Insurance Policy), and BAM does not guarantee the market price or liquidity of the Certificates, nor does it guarantee that the rating on the Certificates will not be revised or withdrawn. Capitalization of BAM BAM s total admitted assets, total liabilities, and total capital and surplus, as of December 31, 2014, and as prepared in accordance with statutory accounting practices prescribed or permitted by the New York State Department of Financial Services were $475.7 million, $26.9 million, and $448.8 million, respectively. BAM is party to a first loss reinsurance treaty that provides first loss protection up to a maximum of 15% of the par amount outstanding for each policy issued by BAM, subject to certain limitations and restrictions. BAM s most recent Statutory Annual Statement, which has been filed with the New York State Insurance Department and posted on BAM s website at (this reference is for convenience of reference only and not considered to be incorporated as part of this Official Statement), is incorporated herein by reference and may be obtained, without charge, upon request to BAM at its address provided above (Attention: Finance Department). Future financial statements will similarly be made available when published. BAM makes no representation regarding the Certificates or the advisability of investing in the Certificates. In addition, BAM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding BAM, supplied by BAM and presented under the heading CERTIFICATE INSURANCE POLICY. 12

19 Additional Information Available from BAM Credit Insights Videos. For certain BAM-insured issues, BAM produces and posts a brief Credit Insights video that provides a discussion of the obligor and some of the key factors BAM s analysts and credit committee considered when approving the credit for insurance. The Credit Insights videos are easily accessible on BAM s website at (this reference is for convenience of reference only and not considered to be incorporated as part of this Official Statement). Obligor Disclosure Briefs. Subsequent to closing, BAM posts an Obligor Disclosure Brief on every issue insured by BAM, including the Certificates. BAM Obligor Disclosure Briefs provide information about the gross par insured by CUSIP, maturity and coupon, sector designation (e.g. general obligation, sales tax), a summary of financial information and key ratios, and demographic and economic data relevant to the obligor, if available. The Obligor Disclosure Briefs are also easily accessible on BAM s website at (this reference is for convenience of reference only and not considered to be incorporated as part of this Official Statement). Disclaimers. The Obligor Disclosure Briefs and the Credit Insights videos and the information contained therein are not recommendations to purchase, hold, or sell securities or to make any investment decisions. Credit related and other analyses and statements in the Obligor Disclosure Briefs and the Credit Insights videos are statements of opinion as of the date expressed, and BAM assumes no responsibility to update the content of such material. The Obligor Disclosure Briefs and Credit Insight videos are prepared by BAM; they have not been reviewed or approved by the District or the Underwriter, and neither the District nor the Underwriter assumes any responsibility for their content. BAM receives compensation (an insurance premium) for the insurance that it is providing with respect to the Certificates. Neither BAM nor any affiliate of BAM has purchased, or committed to purchase, any of the Certificates, whether at the initial offering or otherwise. RISK FACTORS Investment in the Certificates involves risks that may not be appropriate for certain investors. The following is a discussion of certain risk factors that should be considered, in addition to other matters set forth herein, in evaluating the Certificates for investment. The information set forth below does not purport to be an exhaustive listing of the risks and other considerations that may be relevant to an investment in the Certificates. In addition, the order in which the following information is presented is not intended to reflect the relative importance of any such risks. General Considerations Security and Sources of Payment for the Certificates The obligation of the District to make Base Rental payments under the Lease is a special obligation of the District and does not constitute a debt of the District, the County, the State, or any political subdivision thereof within the meaning of any Constitutional or statutory debt limitation or restriction, and does not constitute an obligation for which the District, the County, the State, or any political subdivision thereof is obligated to levy or pledge any form of taxation or for which the District, the County, the State, or any political subdivision thereof has levied or pledged any form of taxation. The obligation of the District to make Base Rental payments is in consideration of the right of the District to continued use and occupancy of the Property. In the event of substantial interference with the District s use and occupancy of the Property, the obligation of the District to make Base Rental payments may be abated in whole or in part as described herein. See RISK FACTORS Abatement below. 13

20 Availability of Moneys for Base Rental Payments The District s Base Rental payments and other payments due under the Lease (including insurance, payment of costs of improvements, repair, and maintenance of the Property, and taxes and other governmental charges and assessments levied against the Property) are not secured by any pledge of any form of taxation or revenues of the District but are payable from any funds lawfully available to the District. Additionally, the District may pledge such revenues to other obligations or purposes in the future, thus making them unavailable as a source of payment of the Base Rental. In the event the District s revenue sources are less than its total obligations, the District could choose to fund other District services or obligations prior to making Base Rental payments. The same result could occur if, because of California Constitutional limits on expenditures, the District is not permitted to appropriate and spend all of its available revenues. See CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Article XIIIB of the California Constitution: Limits on Appropriations and APPENDIX C Panama-Buena Vista Union School District Annual Financial Report for the Fiscal Year Ended June 30, Abatement Except to the extent of amounts held in the Reserve Fund or otherwise available to the Trustee for payments with respect to the Certificates, the obligation of the District to make Base Rental payments will be abated proportionately during any period which by reason of any damage or destruction or taking by eminent domain or by condemnation there is substantial interference with the District s right to use and occupy the Property, such that the resulting payments of Base Rental represent fair rental value for the right of use and possession of the item or portion of the Property not damaged, destroyed, or taken. Such abatement would continue for the period commencing with such damage, destruction, or taking and ending with the substantial completion of the replacement, repair, or reconstruction permitting use and occupancy by the District. In the event of any such damage, destruction, or taking, the Lease will continue in full force and effect and the District has waived any right to terminate the Lease by virtue of any such damage or destruction or taking. The Trustee cannot terminate the Lease in the event of such damage, destruction, or taking. In the event the Property is not repaired or replaced during the period that proceeds of the District s rental interruption insurance are available in lieu of related Base Rental payments (the District has covenanted to maintain rental interruption insurance covering a period of twenty-four (24) months in an amount equal to two times the maximum annual Base Rental payments, except no such insurance must be maintained for damage or destruction due to or caused by flood or earthquake) plus the period for which funds are available from the Reserve Fund, or in the event that casualty insurance proceeds or condemnation award proceeds are insufficient to provide for complete repair of the Property, as the case may be, there could be insufficient funds to cover payments to Owners in full. See APPENDIX A Summary of Certain Provisions of the Principal Legal Documents Lease. Constitutional and Statutory Provisions Affecting School Funding A substantial portion of the District s general fund revenues is comprised of moneys apportioned to the District by the State. While the California Constitution contains certain minimum funding requirements for public education pursuant to Proposition 98 (as defined herein), State funding can be affected by a number of factors, including poor performance of the State economy and State budget shortfalls. Moreover, the school funding guaranty for kindergarten through twelfth grade ( K-12 ) provided under Proposition 98 may be temporarily suspended by the State Legislature, with the Governor s concurrence, for a one-year period, and any corresponding reduction for that year will not be paid in subsequent years. In addition, under the third test of Proposition 111 (as defined herein), 14

21 amending Proposition 98, cost of living adjustments may be limited in times of economic downturn. See CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Proposition 98 and Proposition 111. The application of Proposition 98 and other statutory regulations may depend upon general economic conditions within the State in any particular year. While Proposition 98 provides substantial protection to the District, in a year when State general fund revenues are low, the State has the power to treat certain allocations to K-12 districts as loans, deducting the value of such loans from the next year s estimated Proposition 98 minimums. In recent years, there have been a number of adverse effects on the budgets of school districts caused by the general economic downturns in the State and the State s own budget difficulties. The District does not expect the recent or any future economic downturns or budget difficulties in the State to adversely affect its ability to make timely payments of Base Rental. However, the District is unable to predict the effect of any such downturns or budget difficulties on the willingness or ability of the State to continue to fund K-12 education at recent levels. See CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS and APPENDIX B Panama-Buena Vista Union School District Economic, Financial, and Demographic Information. Constitutional Limitations on Appropriations Article XIIIB of the California Constitution limits the amount that local governments can appropriate annually. However, by statute, State school districts have priority to use the State s appropriations limit, if needed to be able to spend district revenues. See CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS herein for a discussion of these limitations. Limited Recourse on Default If the District defaults on its obligations to make Base Rental payments with respect to the Property, the Trustee has the right to re-enter and re-let the Property. In the event such re-letting occurs, the District would be liable for any deficiency in Base Rental payments that results therefrom. See APPENDIX A Summary of Certain Provisions of the Principal Legal Documents Lease. No assurance can be given, however, that the Trustee will be able to re-let the Property so as to provide rental income sufficient to pay principal and interest with respect to the Certificates in a timely manner. In addition, the Lease provides that in no event shall the Trustee re-let the Property or any Component thereof to any lessee that is not itself a governmental entity without first obtaining an opinion of Independent Counsel that such re-letting will not adversely affect the exclusion from gross income of the portion of Base Rental designated as and comprising interest and received by the Owners of the Certificates for federal income tax purposes. Thus, the number of permissible lessees may be limited. The Trustee is not empowered to sell a fee simple interest in the Property for the benefit of the Owners of the Certificates. It is not certain whether a court would permit the exercise of the remedies of repossession and re-letting with respect thereto. Any suit for money damages would be subject to limitations on legal remedies against cities in the State, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest. No Liability of Corporation to Owners Subject to any provisions in the Trust Agreement to the contrary, the Corporation has no obligation or liability to the Owners of the Certificates with respect to the payment when due of the Base 15

22 Rental by the District, or with respect to the performance by the District of other agreements and covenants required to be performed by the District under the Lease or the Trust Agreement, or with respect to the performance by the Trustee of any of the Trustee s rights or obligations under the Trust Agreement. Seismic Activity; Flood Zone The Lease does not require the District to maintain earthquake insurance on the Property. The District area, however, along with much of the State, shares a history of seismic activity and is thus listed as a Zone 4 earthquake area in the Uniform Building Code. A Zone 4 designation has the most restrictive design requirements for new construction. The District standards for development, to which the Components of the Property are subject, have been designed to reduce the risk to the public and adequately mitigate seismic hazards. There are no known major earthquake faults within the boundaries of the District; however, there are several faults, including the San Andreas Fault and the White Wolf Fault, that are considered active faults and that are located within a radius of approximately 40 miles from the District. Activity along these faults could potentially result in damage to the buildings, roads, bridges, and property within the District in the event of a major earthquake. The Kern County earthquake of 1952, which occurred on the White Wolf Fault, caused considerable and widespread damage within the District and surrounding areas. No structural damage occurred in the District, however, as a result of the 1989 Loma Prieta earthquake, the Landers and Big Bear earthquakes of June 1992, or the Northridge earthquake of January If a major earthquake were to occur, it may substantially damage or destroy all or a portion of the Property, which could result in abatement of the Base Rental payments and, in turn, a default in the payment of principal and interest with respect to the Certificates. The chance that the occurrence of severe seismic activity in the area of the Property could result in substantial damage and interference with the District s right to use all or a portion of the Property, and thereby result in an abatement of the Base Rental payments and a default in the payment of the Certificates, is mitigated by the development standards discussed above. The Property is located in a flood insurance rate zone designated by the Federal Emergency Management Agency ( FEMA ) as Zone C. According to FEMA, Zones B, C, and X refer to flood insurance rate zones that are not within the 100-year floodplain and are therefore not considered to pose a flood hazard. Consequently, no flood insurance has been or will be obtained by the District with respect to the Property. The term 100-year flood refers to the flood elevation that has a one percent chance of being equaled or exceeded in any given year. A base flood may also be referred to as a 100-year storm and the area inundated during the base flood is sometimes called the 100-year floodplain. The 100-year flood, which is the standard used by most federal and state agencies, is used by the National Flood Insurance Program as the standard for floodplain management and to determine the need for flood insurance. Hazardous Substances An owner or operator of a property may be required by law to remedy conditions of the Property relating to releases or threatened releases of hazardous substances. Moreover, such owner or operator may be required to remedy a hazardous substance condition of property whether or not the owner or operator has anything to do with creating or handling the hazardous substance. The discovery of hazardous substances on the Property could limit could prevent or delay development of the Project, which could, in turn, cause the abatement of Base Rental payments or the prepayment of all or a portion of the Certificates prior to their respective maturity dates. See RISK FACTORS Abatement. 16

23 The District has conducted all investigations required under the California Environmental Quality Act ( CEQA ), and has determined that no hazardous substances exist on the Property that require any mitigation. No Acceleration Upon Default In the event of a default in the payment of the Base Rental or the Certificates, there is no available remedy of acceleration of the Certificates or of the total Base Rental payments due over the term of the Lease. The District will only be liable for Base Rental payments on an annual basis and the Trustee would be required to seek a separate judgment in each fiscal year for that fiscal year s Base Rental payments. Substitution of Property The Lease provides that, upon satisfaction of certain conditions and with the consent of the Certificate Insurer, the District may substitute other real property for one or more of the Components. See THE PROPERTY and APPENDIX A Summary of Certain Provisions of the Principal Legal Documents Lease. Although the Lease requires that the substitute property have an annual fair rental value at least equal to the annual fair rental value of the Component being substituted, the Lease does not require that the substituted property be of any particular type. Consequently, upon the occurrence of an event of default under the Lease, a substituted Component could be more difficult to re-let than the original Component. Loss of Tax Exemption As discussed herein under TAX MATTERS, the portion of Base Rental designated as and comprising interest and received by the Owners of the Certificates could become includable in gross income for purposes of federal income taxation retroactive to the date such Certificates were executed and delivered as a result of acts or omissions of the District in violation of its covenants in the Trust Agreement and the Tax Certificate. Should such a violation occur and result in a loss of tax exemption with respect to the portion of Base Rental designated as and comprising such interest, the Certificates are not subject to a special prepayment and will remain outstanding until maturity or until prepaid under the provisions contained in the Trust Agreement. Bankruptcy In addition to the limitation on remedies contained in the Trust Agreement, the rights and remedies provided in the Trust Agreement and Lease may be limited by and are subject to the provisions of federal bankruptcy laws, as now or hereafter enacted, and to other laws or equitable principles that may affect the enforcement of creditors rights. Under Chapter 9 of the Bankruptcy Code (Title 11, United States Code), which governs the bankruptcy proceedings for public agencies such as the District, there are no involuntary petitions in bankruptcy. If the District were to file a petition under Chapter 9 of the Bankruptcy Code, the Owners, the Trustee, and the Corporation could be prohibited from taking any steps to enforce their rights under the Lease, and from taking any steps to collect amounts due from the District under the Lease. Kern County Fiscal Emergency On January 27, 2015, the Board of Supervisors of the County adopted a resolution declaring a fiscal emergency to better enable the County to meet the fiscal challenges posed by a projected decline in property tax revenues, especially in the County s Fire Fund. The fiscal emergency declaration is a proactive budgetary measure to allow the Board of Supervisors legal access to the County's General 17

24 Reserve, if necessary, and to enable the County to negotiate potential Fire Department staffing reductions governed by a collective bargaining agreement as the County begins planning for the fiscal budget cycle. On the same date, the Board of Supervisors also approved other fiscal strategic actions that are estimated to narrow the projected $27 million General Fund budget deficit to $6.6 million. The District does not presently expect that the County s declaration of a fiscal emergency or its related actions will have a materially adverse impact on the District s finances or the District s ability to meet its financial obligations; however, the District cannot predict, nor does the District make any representations regarding, the possible future impact of such declaration and related actions on the District s ability to make Base Rental Payments under the Lease. Economic, Political, Social, and Environmental Conditions Prospective investors are encouraged to evaluate current and prospective economic, political, social, and environmental conditions as part of an informed investment decision. Changes in economic, political, social, or environmental conditions on a local, state, federal, or international level may adversely affect investment risk generally. Such conditional changes may include (but are not limited to) the reduction or elimination of previously available State of federal revenues, fluctuations in business production, consumer prices, or financial markets, unemployment rates, technological advancements, shortages or surpluses in natural resources or energy supplies, changes in law, social unrest, fluctuations in the crime rate, political conflict, acts of war or terrorism, environmental damage, and natural disasters. CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Article XIIIA of the California Constitution Section 1(a) of Article XIIIA of the California Constitution ( Article XIIIA ) limits the maximum ad valorem tax on real property to 1% of full cash value (as defined below), to be collected by each county and apportioned among the county and other public agencies and funds according to law. Section 1(b) of Article XIIIA provides that the 1% limitation does not apply to ad valorem taxes to pay interest or prepayment charges on (a) indebtedness approved by the voters prior to July 1, 1978, (b) any bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978, by two-thirds of the votes cast by the voters voting on the proposition, or (c) bonded indebtedness incurred by a school district or a community college district for the construction, reconstruction, rehabilitation, or replacement of school facilities or the acquisition or lease of real property for school facilities, approved by 55% of the voters of the district, but only if certain accountability measures are included in the proposition. Section 2 of Article XIIIA defines full cash value to mean the County Assessor s valuation of real property as shown on the 1975/76 tax bill under full cash value or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment. The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year or to reflect a reduction in the consumer price index or comparable data for the area under the taxing jurisdiction, or reduced in the event of declining property values caused by substantial damage, destruction, or other factors. Legislation enacted by the State Legislature to implement Article XIIIA provides that notwithstanding any other law, local agencies may not levy any ad valorem property tax that exceeds the 1% limitation imposed by Article XIIIA except to pay debt service on indebtedness approved by the voters as described above. In addition, legislation enacted by the State Legislature to implement Article XIIIA provides that all taxable property is shown at full assessed value as described above. Prior to fiscal year , assessed valuations were reported at 25% of the full value of the property. In conformity with this procedure, all taxable property value included in this Official Statement (except as 18

25 noted) is shown at 100% of assessed value and all general tax rates reflect the $1 per $100 of taxable value. Tax rates for voter-approved bonded indebtedness and pension liability are also applied to 100% of assessed value. In the June 1990 election, the voters of the State approved amendments to Article XIIIA permitting the State Legislature to extend the replacement dwelling provisions applicable to persons over 55 to severely disabled homeowners for a replacement dwelling purchased or newly constructed on or after June 5, 1990, and to exclude from the definition of new construction triggering reassessment improvements to certain dwellings for the purpose of making the dwelling more accessible to severely disabled persons. In the November 1990 election, the voters of the State approved an amendment of Article XIIIA to permit the State Legislature to exclude from the definition of new construction seismic retrofitting improvements or improvements utilizing earthquake hazard mitigation technologies constructed or installed in existing buildings after November 6, Since 1990, the voters have approved several other minor exemptions from the reassessment provisions of Article XIIIA. Future assessed valuation growth allowed under Article XIIIA (new construction, change of ownership, 2% annual value growth) will be allocated among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and school districts will share the growth of revenue from the tax rate area. Each year s growth allocation becomes part of each agency s allocation the following year. Article XIIIA effectively prohibits the levying of any other ad valorem property tax above the 1% limit except for taxes to support indebtedness approved by the voters as described above. Article XIIIB of the California Constitution On November 6, 1979, State voters approved Proposition 4, the so-called Gann Initiative, which added Article XIIIB to the California Constitution ( Article XIIIB ). In June 1990, Article XIIIB was amended by the voters through their approval of Proposition 111, which is described below under the caption Proposition 111. Article XIIIB limits the annual appropriations of the State and of any city, county, school district, authority, or other political subdivision of the State to the level of appropriations for the prior fiscal year, as adjusted annually for changes in the cost of living, population, and cost of services rendered by the governmental entity. The base year for establishing such appropriation limit is fiscal year Increases in appropriations by a governmental entity are also permitted (i) if financial responsibility for providing services is transferred to the governmental entity, or (ii) for emergencies, so long as the appropriations limits for the three years following the emergency are reduced to prevent any aggregate increase above the Constitutional limit. Decreases are required where responsibility for providing services is transferred from the government entity. Appropriations of an entity of local government subject to Article XIIIB include generally any authorization to expend during the fiscal year the proceeds of taxes levied by the State or other entity of local government, exclusive of certain State subventions, refunds of taxes, benefit payments from retirement, unemployment insurance, and disability insurance funds. Appropriations subject to limitation pursuant to Article XIIIB do not include debt service on indebtedness existing or legally authorized as of January 1, 1979, on bonded indebtedness thereafter approved according to law by a vote of the electors of the issuing entity voting in an election for such purpose, appropriations required to comply with mandates of courts or the federal government, appropriations for qualified capital outlay projects, and appropriations by the State of revenues derived from any increase in gasoline taxes and motor vehicle weight fees above January 1, 1990 levels. Proceeds of taxes include, but are not limited to, all tax revenues and the proceeds to any entity of government from (i) regulatory licenses, user charges, and user fees to the extent such proceeds exceed the cost of providing the service or regulation, (ii) the investment of tax revenues, and (iii) certain State subventions received by local governments. Article XIIIB includes 19

26 a requirement that if an entity s revenues in any year exceed the amount permitted to be spent, the excess must be returned by revising tax rates or fee schedules over the subsequent two fiscal years. Article XIIIB allows voters to approve a temporary waiver of a government s Article XIIIB limit. Such a waiver is often referred to as a Gann limit waiver. The length of any such waiver is limited to four years. The Gann limit waiver does not provide any additional revenues to the District or allow the District to finance additional services. Base Rental and Additional Rental payments are subject to the Article XIIIB appropriations limitations. For fiscal year , the District calculated its appropriations limit at $104,478,605. For fiscal year , the District has calculated its appropriations limit at $105,791,455. The District s appropriations have never exceeded the limitation on appropriations under Article XIIIB. The impact of the appropriations limit on the District s financial needs in the future is unknown. Articles XIIIC and XIIID of the California Constitution On November 5, 1996, State voters approved Proposition 218, entitled the Right to Vote on Taxes Act ( Proposition 218 ). Proposition 218 added Article XIIIC ( Article XIIIC ) and Article XIIID ( Article XIIID ) to the California Constitution, which contain a number of provisions affecting the ability of local agencies, including school districts, to levy and collect both existing and future taxes, assessments, fees, and charges. The interpretation and application of certain provisions of Proposition 218 will ultimately be determined by the courts with respect to some of the matters discussed below. It is not possible at this time to predict with certainty the future impact of such interpretations. The provisions of Proposition 218, as so interpreted and applied, may affect the District s ability to meet certain obligations. Article XIIIC requires that all new local taxes be submitted to the electorate before they become effective. Taxes for general governmental purposes require a majority vote and taxes for specific purposes, even if deposited in a general fund such as the District s general fund, require a two-thirds vote. Article XIIIC further provides that any general purpose tax imposed, extended, or increased, without voter approval, after December 31, 1994, may continue to be imposed only if approved by a majority vote in an election which must be held within two years of November 5, The District has not so imposed, extended, or increased any such taxes which are currently in effect. Article XIIIC also expressly extends the initiative power to give voters the power to reduce or repeal local taxes, assessments, fees, and charges, regardless of the date such taxes, assessments, fees, and charges were imposed. Article XIIIC expands the initiative power to include reducing or repealing assessments, fees, and charges, which had previously been considered administrative rather than legislative matters and therefore beyond the initiative power. This extension of the initiative power is not limited by the terms of Article XIIIC to fees imposed after November 6, 1996, and absent other legal authority could result in the retroactive reduction in any existing taxes, assessments, fees, or charges. No assurance can be given that the voters of the District will not, in the future, approve initiatives which reduce or repeal, or prohibit the future imposition or increase of, local taxes, assessments, fees or charges currently comprising a substantial part of the District s general fund. Assessments, fees, and charges are not defined in Article XIIIC, and it is unclear whether these terms are intended to have the same meanings for purposes of Article XIIIC as for Article XIIID described below. If not, the scope of the initiative power under Article XIIIC potentially could include any general fund local tax, assessment, or fee not received from or imposed by the federal or State government or derived from investment income. The District does not levy any property related fees or charges that it considers subject to challenge under Article XIIIC. 20

27 The voter approval requirements of Proposition 218 reduce the flexibility of the District to raise revenues for the general fund, and no assurance can be given that the District will be able to impose, extend, or increase such taxes in the future to meet increased expenditure needs. Article XIIID also added several new provisions relating to how local agencies may levy and maintain assessments for municipal services and programs. These provisions include, among other things, (i) a prohibition against assessments which exceed the reasonable cost of the proportional special benefit conferred on a parcel, (ii) a requirement that the assessment must confer a special benefit, as defined in Article XIIID, over and above any general benefits conferred, and (iii) a majority protest procedure which involves the mailing of a notice and a ballot to the record owner of each affected parcel, a public hearing, and the tabulation of ballots weighted according to the proportional financial obligation of the affected party. Assessment in Article XIIID is defined to mean any levy or charge upon real property for a special benefit conferred upon the real property and applies to landscape and maintenance assessments for open space areas, street medians, street lights, and parks. In addition, Article XIIID added several provisions affecting fees and charges, defined for purposes of Article XIIID to mean any levy other than an ad valorem tax, a special tax, or an assessment, imposed by [a local government] upon a parcel or upon a person as an incident of property ownership, including a user fee or charge for a property related service. All new and existing property related fees and charges must conform to requirements prohibiting, among other things, fees and charges that (i) generate revenues exceeding the funds required to provide the property related service, (ii) are used for any purpose other than those for which the fees and charges are imposed, (iii) are for a service not actually used by, or immediately available to, the owner of the property in question, or (iv) are used for general governmental services, including police, fire, ambulance, or library services, where the service is available to the public at large in substantially the same manner as it is to property owners. Depending on the interpretation of what constitutes a property related fee under Article XIIID, there could be future restrictions on the ability of the District s general fund to charge its enterprise funds for various services provided. Further, before any property related fee or charge may be imposed or increased, written notice must be given to the record owner of each parcel of land affected by such fee or charge. The District must then hold a hearing upon the proposed imposition or increase, and if written protests against the proposal are presented by a majority of the owners of the identified parcels, the District may not impose or increase the fee or charge. Moreover, except for fees or charges for wastewater, water, and refuse collection services, or fees for electrical and gas service, which are not treated as property related for purposes of Article XIIID, no property related fee or charge may be imposed or increased without majority approval by the property owners subject to the fee or charge or, at the option of the local agency, two-thirds voter approval by the electorate residing in the affected area. Proposition 26 On November 2, 2010, voters in the State approved Proposition 26. Proposition 26 amends Article XIIIC to expand the definition of tax to include any levy, charge, or exaction of any kind imposed by a local government except the following: (1) a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege; (2) a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product; (3) a charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof; (4) a charge imposed for entrance to or use of local government property, or the purchase, rental, or lease of local government property; (5) A fine, penalty, or other monetary charge imposed by the 21

28 judicial branch of government or a local government, as a result of a violation of law; (6) a charge imposed as a condition of property development; and (7) assessments and property-related fees imposed in accordance with the provisions of Article XIIID. Proposition 26 provides that the local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor s burdens on, or benefits received from, the governmental activity. Proposition 62 On November 4, 1986, State voters adopted Proposition 62 ( Proposition 62 ), a statutory initiative that added Sections through to the California Government Code. Among other things, Proposition 62 (a) requires that any tax for general governmental purposes imposed by local governmental entities be approved by resolution or ordinance adopted by two-thirds vote of the governmental agency s legislative body and by a majority of the electorate of the governmental entity, (b) requires that any special tax (defined as taxes levied for other than general governmental purposes) imposed by a local governmental entity be approved by a two-thirds vote of the voters within the jurisdiction, (c) restricts the use of revenues from a special tax to the purposes or for the service for which the special tax is imposed, (d) prohibits the imposition of ad valorem taxes on real property by local governmental entities except as permitted by Article XIIIA, (e) prohibits the imposition of transaction taxes and sales taxes on the sale of real property by local governmental entities, and (f) requires that any tax imposed by a local governmental entity on or after August 1, 1985, be ratified by a majority vote of the electorate within two years of the adoption of the initiative or be terminated by November 15, Proposition 62 applies to the imposition of any taxes or the effecting of any tax increases after its enactment in 1986, but the requirements of Proposition 62 are subsumed by the requirements of Proposition 218 for the imposition of any taxes or the effecting of any tax increases after November 5, See Articles XIIIC and XIIID of the California Constitution above. The provisions of Proposition 62 were generally upheld in 1995 by the California Supreme Court in the case entitled Santa Clara County Local Transportation Authority v. Guardino (the Guardino Case ). Subsequent to the Guardino Case, several actions were filed in State courts challenging taxes imposed by public agencies since the adoption of Proposition 62. On June 4, 2001, the California Supreme Court released its decision in one of these cases, Howard Jarvis Taxpayers Association v. City of La Habra, et al. (the La Habra Case ). In the La Habra Case, the Court held that a public agency s continued imposition and collection of a tax is an ongoing violation, upon which the statute of limitations period begins anew with each collection. The court also held that, unless another statute or constitutional rule provided differently, the statute of limitations for challenges to taxes subject to Proposition 62 is three years. Accordingly, a challenge to a tax subject to Proposition 62 may only be made for those taxes received within three years of the dates the action is brought. The District has not imposed any taxes or effected any tax increases after the enactment of Proposition 62 in 1986 and prior to the effective date of Proposition 218 on November 5, 1996, other than special taxes that were approved by a vote of two-thirds of the applicable electorate. Moreover, the District has not experienced any substantive adverse financial impact as a result of the passage of Proposition 62 or the rulings in the Guardino Case or the La Habra Case, and believes that any impact experienced by the District as a result of such passage and rulings will not adversely affect the ability of the District to make Base Rental payments or otherwise meet its obligations with respect to the Certificates. 22

29 Proposition 98 On November 8, 1988, State voters approved Proposition 98 ( Proposition 98 ), a combined initiative, constitutional amendment, and statute called the Classroom Instructional Improvement and Accountability Act. Proposition 98 changed State funding of public education below the university level, and the operation of the State s appropriations limit, primarily by guaranteeing State funding for K-12 school districts and community college districts (collectively, K-14 districts ). Under Proposition 98 (as modified on June 5, 1990, by Proposition 111, as described below), K- 14 districts are guaranteed the greater of (a) in general, a fixed percentage of the State s general fund revenues ( Test 1 ), (b) the amount appropriated to K-14 districts in the prior year, adjusted for changes in the cost-of-living (measured as in Article XIIIB by reference to State per capita personal income) and enrollment ( Test 2 ), or (c) a third test, which would replace Test 2 in any year when the percentage growth in per capita State general fund revenues from the prior year plus one-half of 1% is less than the percentage growth in State per capita personal income ( Test 3 ). Under Test 3, schools would receive the amount appropriated in the prior year adjusted for changes in enrollment and per capita State general fund revenues, plus an additional small adjustment factor. If Test 3 is used in any year, the difference between Test 3 and Test 2 would become a credit to schools which would be the basis of payments in future years when per capita State general fund revenue growth exceeds per capita personal income growth. Legislation adopted prior to the end of fiscal year , implementing Proposition 98, determined the K-14 districts funding guarantee under Test 1 to be 40.3% of the State general fund tax revenues, based on appropriations. However, that percentage has been adjusted to % to account for a subsequent redirection of local property taxes whereby a greater proportion of education funding now comes from local property taxes. Proposition 98 permits the State Legislature by a two-thirds vote of both houses, with the Governor s concurrence, to suspend the K-14 districts minimum funding formula for a one-year period. In the fall of 1989, the State Legislature and the Governor utilized this provision to avoid having 40.3% of revenues generated by a special supplemental sales tax enacted for earthquake relief go to K-14 districts. Proposition 98 also contains provisions transferring certain State tax revenues in excess of the Article XIIIB limit to K-14 districts. On March 18, 2003, State Senate Bill X1 18 ( SBX1 18 ) was signed into law. SBX1 18 reduced certain Proposition 98 appropriations by shifting apportionments made by the State to schools, which were to be made each June, until July, so that the June 2003 apportionment would not count toward the fiscal year Proposition 98 allocations. The State did not anticipate a reduction in total funding under Proposition 98 as a result of SBX1 18, but merely a deferment of its obligations. School and college districts may have experienced accounting and cash flow complications as a result of SBX1 18 s deferred payment, but SBX1 18 did not significantly affect the financial operations of the District and is not expected to impact the District s ability to make Base Rental payments or to otherwise meet its obligations with respect to the Certificates. Proposition 111 On June 5, 1990, the voters of the State approved Proposition 111, called the Traffic Congestion Relief and Spending Limit Act of 1990 ( Proposition 111 ), which further amended Article XIIIB and Sections 8 and 8.5 of Article XVI of the California Constitution with respect to appropriations limitations and school funding priority and allocation. A summary of some of the significant provisions of Proposition 111 follows: 23

30 Annual Adjustment to Spending Limit. The annual adjustments to the Article XIIIB spending limit were liberalized to be more closely linked to the rate of economic growth. Instead of being tied to the Consumer Price Index, the change in the cost of living is now measured by the change in State per capita personal income. The definition of change in population specifies that a portion of the State s spending limit is to be adjusted to reflect changes in school attendance. Treatment of Excess Tax Revenues. Excess tax revenues with respect to Article XIIIB are now determined based on a two-year cycle, so that the State can avoid having to return to taxpayers excess tax revenues in one fiscal year if its appropriations in the next fiscal year are projected to be under the applicable limit. In addition, the Proposition 98 provision regarding excess tax revenues was modified as follows: after any two-year period, if there are excess State tax revenues, 50% of the excess is to be transferred to K-14 districts, with the balance returned to taxpayers; under prior law, 100% of excess State tax revenues went to K-14 districts, but only up to a maximum of 4% of the school district s minimum funding level. Also, reversing prior law, any excess State tax revenues transferred to K-14 districts is not built into the school districts base expenditures for calculating their entitlement for State aid in the next year, and the State s appropriations limit is not increased by such amount. School Funding Guaranty. Proposition 111 enacted a complex adjustment in the Proposition 98 formula that guaranties K-14 districts an amount of State general fund revenues. Under prior law, K-14 districts were guaranteed the greater of (1) 40.9% of State general fund revenues (the first test ) or (2) the amount appropriated in the prior year adjusted for changes in the cost of living (measured as in Article XIIIB by reference to per capita personal income) and enrollment (the second test ). Under Proposition 111, schools receive the greater of the first test, the second test, or a third test (the third test ), which will replace the second test in any year when growth in per capita State general fund revenues from the prior year is less than the annual growth in State per capita personal income. Under the third test, school districts will receive the amount appropriated in the prior year, adjusted for change in enrollment and per capita State general fund revenues, plus an additional small adjustment factor. If the third test is used in any year, the difference between the third test and the second test will become a credit to schools that will be paid in future years when State general fund revenue growth exceeds person income growth. Proposition 39 On November 7, 2000, State voters approved Proposition 39 ( Proposition 39 ), called the Smaller Classes, Safer Schools and Financial Accountability Act, which amended Section 1 of Article XIIIA and Section 18 of Article XVI of the California Constitution and Section of the California Education Code. Proposition 39 provides for an alternative means of obtaining voter approval for bonded indebtedness by requiring 55% of the vote, rather than the two-thirds majority required under Section 18 of Article XVI of the California Constitution. The 55% voter requirement applies only if the bond measure submitted to the voters includes, among other items: (1) a restriction that the proceeds of the bonds may be used for the construction, reconstruction, rehabilitation, or replacement of school facilities, including the furnishing and equipping of school facilities, or the acquisition or lease of real property for school facilities, (2) a list of projects to be funded and a certification that the school district board has evaluated safety, class size reduction, and information technology needs in developing that list, and (3) a requirement that annual, independent performance and financial audits will be conducted regarding the expenditure and use of the bond proceeds. Pursuant to Proposition 39, Section 1(b)(3) has been added to Article XIIIA to except from the 1% ad valorem tax limitation under Section 1(a) of Article XIIIA levies to pay bonds approved by 55% of the voters, subject to the restrictions described above. In the general election held on November 6, 2012, voters in the District approved the Bond Measure pursuant to Proposition 39 authorizing the issuance by the District of up to $147 million in general obligation bonds in order to raise money to finance school facilities and equipment of the District. 24

31 The District issued $18,405,000 in principal amount of general obligation bonds in May 2013 pursuant to the Bond Measure (the 2013 GO Bonds ). The District intends to issue an additional approximately $31,300,000 in principal amount of general obligation bonds concurrently with the execution and delivery of the Certificates. The State Legislature has also enacted Assembly Bill 1908 (Chapter 44, Statutes of 2000) ( AB 1908 ), which became effective upon the passage of Proposition 39 and which amended various sections of the California Education Code. AB 1908 added the following limits on ad valorem taxes in any single election to Sections and of the California Education Code: (1) for a school district, indebtedness shall not exceed $30 per $100,000 of taxable property, (2) for a unified school district, indebtedness shall not exceed $60 per $100,000 of taxable property, and (3) for a community college district, indebtedness shall not exceed $25 per $100,000 of taxable property. AB 1908 also requires that a citizens oversight committee be appointed in connection with any approved bonds, which will review the use of the bond funds and inform the public regarding the same. Proposition 47 Proposition 47, called The Class Size Reduction Kindergarten University Public Education Facilities Bond Act of 2002 ( Proposition 47 ), was approved by State voters in November Proposition 47 authorized the sale and issuance of $13.05 billion in general obligation bonds for construction and renovation of K-12 school facilities ($11.4 billion) and higher education facilities ($1.65 billion). Proposition 47 included $6.35 billion for acquisition of land and new construction of K-12 school facilities. Of this amount, $2.9 billion was set aside to fund backlog projects for which school districts submitted applications to the State on or prior to February 1, The balance of $3.45 billion as used to fund projects for which school districts submitted applications to the State after February 1, K-12 school districts are required to pay 50% of the costs for acquisition of land and new construction with local revenues. In addition, $100 million of the $3.45 billion was available for charter school faculties. Proposition 47 made available $3.3 billion for reconstruction or modernization of existing K-12 school facilities. Of this amount, $1.9 billion was set aside to fund backlog projects for which school districts submitted applications to the State on or prior to February 1, 2002, and the balance of $1.4 billion was used to fund projects for which school districts submitted applications to the State after February 1, K-12 school districts were required to pay 40% of the costs for reconstruction or modernization with local revenues. Proposition 47 provided a total of $1.7 billion to K-12 school districts, which are considered critically overcrowded, specifically to schools that have a large number of pupils relative to the size of the school site. In addition, $50 million was available to fund joint-use project. Proposition 47 also included $1.65 billion to construct new buildings and related infrastructure, alter existing buildings and purchase equipment for use in the State s public higher education system. Proposition 55 Proposition 55, called The Kindergarten University Public Education Facilities Bond Act of 2004 ( Proposition 55 ), was approved by State voters in March 2004 and authorized the issuance and sale of $12.3 billion in general obligation bonds for the construction and renovation of K-12 school facilities ($10 billion) and higher education facilities ($2.3 billion). Proposition 55 included $5.26 billion for the acquisition of land and construction of new school buildings. A district is required to pay for 50% of costs with local resources unless it qualifies for state hardship funding. The measure also provided that up to $300 million of these new construction funds are to be available for charter school facilities. Proposition 55 made $2.25 billion available for the reconstruction or modernization of existing school facilities. Districts are required to pay 40% of project costs from local resources. Proposition 55 directed a total of $2.44 billion to districts with schools that are considered critically overcrowded. These 25

32 funds are intended to go to schools that have a large number of pupils relative to the size of the school site. Proposition 55 also made a total of $50 million available to fund joint-use projects. Proposition 55 included $2.3 billion to construct new buildings and related infrastructure, alter existing buildings, and purchase equipment for use in these buildings for the State s public higher education systems. The measure allocated $690 million to each University of California and California State University campus and $920 million to State community colleges. The Governor and the State Legislature selected specific projects to be funded by bond proceeds. The District has received a total of $42,173,583 in bond proceeds from bonds issued under Proposition 47 and Proposition 55, as follows: (a) in fiscal year , the District received $4,912,298 in such bond proceeds, which moneys were used by the District in connection with the modernization of four schools (Stine Elementary School, Seibert Elementary School, Van Horn Elementary School, and Thompson Junior High School), (b) in fiscal year , the District received $8,012,395 in such bond proceeds, which moneys were used by the District to finance the purchase and/or construction of new portable classrooms and the construction of Berkshire Elementary School, (c) in fiscal year , the District received $10,377,123 in such bond proceeds, which moneys were used by the District to finance the purchase and/or construction of new portable classrooms and the construction of Stonecreek Junior High School, (d) in fiscal year , the District received $7,982,006 in such bond proceeds, which moneys were used by the District to finance the purchase and/or construction of new portable classrooms and the construction of Old River Elementary School, (e) in fiscal year , the District received $638,085 in such bond proceeds, which moneys were used to finance the purchase and/or construction of new portable classrooms and the construction of Old River Elementary School, (f) in fiscal year , the District received $1,728,731 in such bond proceeds, which moneys were also used to finance the purchase and/or construction of new portable classrooms and the construction of Old River Elementary School, and (g) in fiscal year , the District received $8,522,945 in such bond proceeds, which moneys were used to finance the construction of the Douglas J. Miller Elementary School. The District did not receive any bond proceeds in fiscal years , , or Proposition 1A Proposition 1A, proposed by the State Legislature in connection with the Budget Act and approved by the State voters in November 2004, provides that the State may not reduce any local sales tax rate, limit existing local government authority to levy a sales tax rate, or change the allocation of local sales tax revenues, subject to certain exceptions. By adding Section 25.5 to Article XIII of the California Constitution, Proposition 1A generally prohibits the State from shifting to schools or community colleges any share of property tax revenues allocated to local governments for any fiscal year, as set forth under the laws in effect as of November 3, Any change in the allocation of property tax revenues among local governments within a county must be approved by two-thirds of both houses of the State Legislature. Proposition 1A provides, however, that beginning in fiscal year , the State may shift to schools and community colleges up to 8% of local government property tax revenues, which amount must be repaid, with interest, within three years, if the Governor proclaims that the shift is needed due to a severe State financial hardship, the shift is approved by two-thirds of both houses of the State Legislature, and certain other conditions are met. The State may also approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. By amending Section 15 of Article XI of the California Constitution, Proposition 1A also provides that if the State reduces the vehicle license fee rate currently in effect, which is 0.65% of vehicle value, the State must provide local governments with equal replacement revenues. Further, by amending Section 6 of Article XIIIB of the California Constitution, Proposition 1A requires the State, beginning July 1, 2005, to suspend State mandates affecting cities, counties, and special districts, schools or community colleges, excepting mandates relating to employee rights, in any year that the State does not fully reimburse local governments for their costs of compliance with such mandates. 26

33 Proposition 30 Proposition 30, called the Temporary Taxes to Fund Education Guaranteed Local Public Safety Funding Initiative Constitutional Amendment ( Proposition 30 ), which was approved by the voters on November 6, 2012, and which became effective January 1, 2013, added Section 36 to Article XIII of the California Constitution. Pursuant to Proposition 30, personal income tax rates will be increased for seven years on State residents with an annual income over $250,000 and the State sales tax will be increased for four years by 0.25%. These tax increases are projected by the Legislative Analyst s Office ( LAO ) to generate an additional $6.8 billion in revenues. Proposition 30 provides that 89% of the temporary tax revenues are to be allocated to K-12 schools and 11% of such revenues are to be allocated to community colleges. In addition, Proposition 30 bars the use of such funds for administrative costs, but provides local school governing boards discretion to decide, in open meetings and subject to annual audit, how such funds are to be spent. Proposition 30 also guarantees funding for certain public safety services realigned from State to local governments. Future Initiatives Article XIIIA, Article XIIIB, Article XIIIC, and Article XIIID, and Propositions 30, 39, 62, 98, and 218 were each adopted as measures that qualified for the ballot pursuant to the State s Constitutional initiative process. From time to time other initiative measures could be adopted, affecting the ability of the District to increase revenues and to increase appropriations. THE DISTRICT On July 1, 1988, the Panama Union School District was annexed by the Buena Vista School District to form the District. An agreement between the two prior districts provides that bonded indebtedness of the Panama Union School District would be borne solely by the area comprising such prior district. The District and its predecessor district have each operated as an elementary school district under the laws of the State continuously since September The District, covering an area of approximately 87 square miles, is located in, and southwest of, the City of Bakersfield, California, which is the county seat of the County. The District provides public education in kindergarten through eighth grade, operating 18 elementary and five junior high schools. California State University, Bakersfield, which has a current enrollment of approximately 8,232 students, is also located within the District. The District is governed by an independent Board of Trustees consisting of five members who are elected at large to overlapping four-year terms at elections held every two years. The District s affairs are administered by a superintendent, who is appointed by the Board of Trustees. See APPENDIX B Panama-Buena Vista Union School District Economic, Financial, and Demographic Information for more information concerning the District and its finances. THE CORPORATION The Corporation is a nonprofit public benefit corporation duly organized under the Nonprofit Public Benefit Corporation Law (California Corporations Code Section 5110, et seq.). The articles of incorporation for the Corporation were filed with the California Secretary of State on April 11, The Corporation was formed to, among other things, provide financial assistance to the District by financing, refinancing, acquiring, constructing, improving, leasing, or selling buildings, building or other public 27

34 improvements, equipment, lands, or other real or personal property for the benefit of the District and persons residing therein. Neither the Corporation nor its officers have any obligations or liability to the Owners of the Certificates with respect to the payment of Base Rental by the District under the Lease, or with respect to the performance of the District of other covenants made by it in the Lease. THE PROPERTY The Property, which the District is leasing pursuant to the Lease, consists of (1) Stonecreek Junior High School (the Junior High School ), located on approximately 20 acres owned by the District at the corner of Hosking Road and Akers Road in the City, and (2) Old River Elementary School (the Elementary School ), located on approximately 12 acres owned by the District at the corner of Campus Park Drive and Jameson Drive in the City. The Junior High School and the Elementary School are each defined herein as a Component. The Lease provides that, if no default or event of default has occurred and is continuing under the Lease, and upon compliance with the conditions specified therein, the District may, with the prior written consent of the Certificate Insurer, acquire any Component from the Corporation, free and clear of the Corporation s rights under the Lease, upon substituting another component therefor; provided, however, that such substitute component must have an annual fair rental value at least equal to 100% of the maximum amount of Base Rental payments attributable to the Component being replaced becoming due in the then-current Lease Year or in any subsequent Lease Year. See APPENDIX A Summary of Certain Provisions of the Principal Legal Documents Lease. A brief description of each Component is set forth below. Junior High School Proceeds from the sale of the 2006 Certificates were used to finance the acquisition, construction, and improvement of the Junior High School. The Junior High School includes classrooms, administrative offices, a gymnasium, an athletic field, a multi-purpose cafeteria room with kitchen, and a classroom building for performing arts, life skills, and innovative technologies. Construction was completed and the Junior High School opened in August, As of March, 2015, enrollment at the Junior High School totaled 884 students in grades 7 and 8. Construction costs for the Junior High School totaled approximately $26,628,000, of which approximately $15,775,000 were paid from proceeds of the 2006 Certificates. Elementary School Proceeds from the sale of the 2006 Certificates were used to finance the acquisition, construction, and improvement of the Elementary School. The Elementary School includes classrooms, administrative offices, ball courts, a playground, and a multi-purpose cafeteria room with kitchen. Construction was completed and the Elementary School opened in August, As of March, 2015, enrollment at the Elementary School totaled 938 students in grades K through 6. Construction costs for the Elementary School totaled approximately $18,105,000, all of which were paid from proceeds of the 2006 Certificates. 28

35 TAX MATTERS Special Counsel Opinion In the opinion of Goodwin Procter LLP, Los Angeles, California, Special Counsel, based upon an analysis of existing laws, regulations, rulings, and judicial decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants and requirements, the portion of Base Rental designated as and comprising interest and received by the Owners of the Certificates is excludable from gross income for United States federal income tax purposes under the Internal Revenue Code of 1986, as amended (the Code ), and is exempt from State of California personal income taxes. Special Counsel is further of the opinion the portion of Base Rental designated as and comprising such interest is not a specific preference item for purposes of the United States federal individual or corporate alternative minimum taxes. However, Special Counsel observes that such portion of Base Rental designated as and comprising such interest is included in adjusted current earnings in calculating corporate alternative minimum taxable income. A copy of the proposed form of opinion of Special Counsel is set forth in Appendix E hereto and will accompany the Certificates. The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for United States federal income tax purposes of the portion of Base Rental designated as and comprising interest and received by the Owners of the Certificates. The District and the Corporation have made certain representations and have covenanted to comply with certain restrictions, conditions, and requirements designed to ensure that the portion of the Base Rental designated as and comprising interest and received by the Owners of the Certificates will not be included in gross income for United States federal income tax purposes. Inaccuracy of these representations or failure to comply with those covenants may result in the portion of Base Rental designated as and comprising such interest being included in gross income for United States federal income tax purposes, possibly from the date of execution and delivery of the Certificates. The opinion of Special Counsel assumes the accuracy of those representations and compliance with those covenants. Special Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring) after the date of execution and delivery of the Certificates may affect the tax status of the portion of the Base Rental designated as and comprising such interest. Certain requirements and procedures contained or referred to in the Trust Agreement, the Lease, the Property Lease, and other relevant documents may be changed and certain actions (including, without limitation, defeasance of the Certificates) may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents, upon the advice or with the approving opinion of nationally recognized bond counsel. Special Counsel expresses no opinion as to any Certificate or the interest thereon if any such change occurs or action is taken upon the advice or approval of a bond counsel other than Special Counsel. Special Counsel has not undertaken to advise in the future whether any events after the date of execution and delivery of the Certificates may affect the United States federal or State tax status of interest with respect to the Certificates or the tax consequences of ownership of the Certificates. No assurance can be given that future legislation, including amendments to the Code or interpretations thereof, if enacted into law, will not contain provisions that could directly or indirectly reduce the benefit of the excludability of the portion of the Base Rental designated as and comprising interest and received by the Owners of the Certificates from gross income for United States federal income tax purposes. Although Special Counsel has rendered an opinion that the portion of the Base Rental designated as and comprising interest and received by the Owners of the Certificates is excluded from gross income for United States federal and State of California personal income tax purposes, a Certificate Owner s 29

36 United States federal and State tax liability may otherwise be affected by the ownership or disposition of the Certificates. The nature and extent of such other tax consequences will depend upon the Certificate Owner s circumstances, including other items of income or deduction. Without limiting the generality of the foregoing, prospective purchasers of the Certificates should be aware that: (i) Section 265 of the Code denies a deduction for interest on indebtedness incurred or continued to purchase or carry the Certificates, or in the case of a financial institution, that portion of a holder s interest expense allocated to interest with respect to the Certificates; (ii) with respect to insurance companies subject to the tax imposed by Section 831 of the Code, Section 832(b)(5)(B)(i) reduces the deduction for loss reserves by 15% of the sum of certain items, including interest with respect to the Certificates; (iii) with respect to life insurance companies, life insurance company taxable income subject to the tax imposed by Section 801 of the Code is determined by permitting deductions for certain dividends received but not to the extent such dividend is from a non-insurance corporation and is out of tax-exempt interest, including interest with respect to the Certificates; (iv) interest with respect to the Certificates earned by certain foreign corporations doing business in the United States could be subject to a branch profits tax imposed by Section 884 of the Code; (v) passive investment income, including interest with respect to the Certificates, may be subject to federal income taxation under Section 1375 of the Code for Subchapter S corporations that have Subchapter C earnings and profits at the close of the taxable year if greater than 25% of the gross receipts of such Subchapter S corporation is passive investment income; (vi) Section 86 of the Code requires recipients of certain Social Security and certain Railroad Retirement benefits to take into account, in determining the taxability of such benefits, receipts or accruals of interest with respect to the Certificates; and (vii) under Section 32(i) of the Code, receipt of investment income, including interest with respect to the Certificates, may disqualify the recipient thereof from obtaining the earned income credit. Special Counsel has expressed no opinion regarding any such other tax consequences. Accordingly, before purchasing any of the Certificates, all potential purchasers should consult their tax advisors concerning collateral tax consequences with respect to the Certificates. Subsequent to the execution and delivery of the Certificates, there might be federal, state, or local statutory changes (or judicial or regulatory interpretations of federal, state, or local law) that affect the federal, state, or local tax treatment of the portion of Base Rental designated as and comprising interest with respect to the Certificates or the market value of the Certificates. Legislative changes have been proposed in Congress, which changes, if enacted, would result in additional federal income tax being imposed on certain owners of tax-exempt state or local obligations, such as the Certificates. The introduction or enactment of any of such changes could adversely affect the market value or liquidity of the Certificates. No assurance can be given that, subsequent to the execution and delivery of the Certificates, such changes (or other changes) will not be introduced or enacted or interpretations will not occur. Before purchasing any of the Certificates, potential purchasers should consult their tax advisors regarding possible statutory changes or judicial or regulatory changes or interpretations, and their collateral tax consequences relating to the Certificates, as to all of which Special Counsel expresses no opinion. Risk of Audit by Internal Revenue Service The Internal Revenue Service (the IRS ) has an ongoing program of auditing tax-exempt obligations to determine whether, in the view of the IRS, interest on such tax-exempt obligations is includable in the gross income of the owners thereof for United States federal income tax purposes. No assurances can be given as to whether or not the IRS will commence an audit of the Certificates. If an audit is commenced, under current procedures the IRS is likely to treat the District as the taxpayer and the Owners of the Certificates may have no right to participate in such procedure. Special Counsel s opinion represents its legal judgment based upon its review of existing law, regulations, rulings, judicial decisions, and other authorities, and upon the covenants and representations 30

37 of the parties and such other facts as it has deemed relevant to render such opinion, and is not a guarantee of a result. None of the District, the Underwriter, or Special Counsel is obligated to defend the tax-exempt status of the Certificates. Neither the District nor Special Counsel is responsible to pay or reimburse the costs of any Owner with respect to any audit or litigation relating to the Certificates. Original Issue Discount/Premium To the extent the issue price of any maturity of the Certificates is less than the amount to be paid at maturity of such Certificates (excluding amounts stated to be interest and payable at least annually over the term of such Certificates), the difference constitutes original issue discount, the accrual of which, to the extent properly allocable to each Owner thereof, is treated as interest with respect to the Certificates that is excluded from gross income for federal income tax purposes and State of California personal income taxes to the same extent as interest with respect to the Certificates. For this purpose, the issue price of a particular maturity of the Certificates is the first price at which a substantial amount of such maturity of the Certificates is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue discount with respect to any maturity of the Certificates accrues daily over the term to maturity of such Certificates on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Certificates to determine taxable gain or loss upon disposition (including sale, prepayment, or payment on maturity) of such Certificates. Owners of the Certificates should consult their own tax advisors with respect to the tax consequences of ownership of Certificates with original issue discount, including the treatment of purchasers who do not purchase such Certificates in the original offering to the public at the first price at which a substantial amount of such Certificates is sold to the public. Certificates purchased, whether at original execution and delivery or otherwise, for an amount higher than their principal amount payable at maturity (or, in some cases, at their earlier call date) ( Premium Certificates ) will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of bonds, like Premium Certificates, the interest with respect to which is excluded from gross income for federal income tax purposes. However, the amount of tax-exempt interest received, and a purchaser s basis in a Premium Certificate, will be reduced by the amount of amortizable bond premium properly allocable to such purchaser. Owners of Premium Certificates should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances. Information Reporting and Backup Withholding Information reporting requirements apply to interest on tax-exempt obligations, including the Certificates. In general, such requirements are satisfied if the interest recipient completes, and provides the payor, with a Form W-9 Request for Taxpayer Identification Number and Certification, or unless the recipient is one of a limited class of exempt recipients, including corporations. A recipient not otherwise exempt from information reporting who fails to satisfy the information reporting requirements will be subject to backup withholding, which means that the payor is required to deduct and withhold a tax from the interest payment, calculated in the manner set forth in the Code. For the foregoing purpose, a payor generally refers to the person or entity from whom a recipient receives its payments of interest or who collects such payments on behalf of the recipient. If an Owner purchasing a Certificate through a brokerage account has executed a Form W-9 in connection with the establishment of such account, as generally can be expected, no backup withholding should occur. In any event, backup withholding does not affect excludability of the interest with respect to the Certificates from gross income for federal income tax purposes. Any amounts withheld pursuant to 31

38 backup withholding would be allowed as a refund or a credit against the Owner s federal income tax once the required information is furnished to the IRS. RATINGS It is anticipated that Standard & Poor s will assign its municipal bond rating of AA to the Certificates. Such rating is based on the issuance of the Certificate Insurance Policy by the Certificate Insurer. In addition, Standard & Poor s has assigned an underlying municipal bond rating of A to the Certificates. There is no assurance that any such rating will be in effect for any given period of time or that any such rating will not be revised downward or withdrawn entirely by the applicable rating agency if, in the judgment of such agency, circumstances so warrant. Any such downward revision or withdrawal may have an adverse effect on the market price of the Certificates. Such ratings reflect only the views of the applicable rating agency and an explanation of the significance of a rating may be obtained only from the rating agency furnishing the same. VERIFICATION Causey Demgen & Moore P.C., a firm of independent certified public accountants (the Verification Agent ), upon delivery of the Certificates, will deliver to the District its report (the Verification Report ) indicating that it has verified the mathematical accuracy of computations prepared for the District relating to the sufficiency of the anticipated receipts from the Refunding Securities, together with the initial cash deposit, if any, to pay, when due, the principal and interest components and the prepayment premium coming due with respect to the Base Rental payments pertaining to the 2006 Certificates being paid and prepaid as described under the heading THE REFUNDING PLAN. The Verification Report will include the statement that the scope of the Verification Agent s engagement was limited to verifying the mathematical accuracy of the computations contained in such schedules provided to them and that they have no obligation to update their reports because of events occurring, or data or information coming to their attention, subsequent to the date of their report. CONTINUING DISCLOSURE The District will covenant in the Continuing Disclosure Certificate, for the benefit of the Owners, to provide certain financial information and operating data relating to the District and notices of certain events listed therein. Such information and notices will be filed by the District with the Municipal Securities Rulemaking Board. The specific nature of the information to be provided by the District and certain other terms of its continuing disclosure obligations are contained in APPENDIX F Form of Continuing Disclosure Certificate. This covenant has been made in order to assist the Underwriter in complying with Security and Exchange Commission Rule 15c2-12(b)(5), as amended (the Rule ). The District has certified that it has no instances of material failure to comply within the past five years on any previous continuing disclosure report or notice of material events pursuant to the provisions of the Rule. See APPENDIX F Form of Continuing Disclosure Certificate. UNDERWRITING The Certificates are being purchased by Stifel, Nicolaus & Company, Incorporated (the Underwriter ). The Underwriter has agreed to purchase the Certificates at a price of $29,258, (which represents the aggregate principal amount of the Certificates, less an Underwriter s discount of $215,360.00, plus a net original issue premium of $2,553,821.35). 32

39 The contract of purchase pursuant to which the Certificates are being purchased by the Underwriter provides that the Underwriter will purchase all of the Certificates if any are purchased. The obligation of the Underwriter to make such purchase is subject to certain terms and conditions set forth in the contract of purchase. The Underwriter may offer and sell the Certificates to certain dealers and others at prices or yields different from the prices or yields stated on the cover page of this Official Statement. In addition, the offering prices or yields may be changed from time to time by the Underwriters. Although the Underwriter expects to maintain a secondary market in the Certificates after the initial offering, no guaranty can be made that such a market will develop or be maintained by the Underwriter or others. FINANCIAL ADVISOR Fieldman, Rolapp & Associates is employed as Financial Advisor to the District in connection with the execution and delivery of the Certificates. The Financial Advisor s fee for services rendered with respect to the sale of the Certificates is contingent upon the execution and delivery of the Certificates. Fieldman, Rolapp & Associates, in its capacity as Financial Advisor, does not assume any responsibility for the information, covenants and representations contained in any of the legal documents with respect to the federal income tax status of the Certificates, or the possible impact of any present, pending, or future actions taken by any legislative or judicial bodies. The Financial Advisor to the District has provided the following sentence for inclusion in this Official Statement. The Financial Advisor has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to the District and, as applicable, to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Financial Advisor does not guarantee the accuracy or completeness of such information. LITIGATION The District will certify that there is no action, suit, or proceeding known to the District to be pending or, to the best knowledge of the District, threatened, restraining or enjoining the execution and delivery of the Certificates or in any way contesting or affecting the validity of the Certificates or any proceeding of the District taken with respect thereto or that will materially affect the District s ability to make Base Rental payments when due. CERTAIN LEGAL MATTERS Goodwin Procter LLP, Los Angeles, California, Special Counsel, will render an opinion with respect to the Certificates in substantially the form set forth in Appendix E hereto. Copies of such opinion will be furnished to the Underwriter at the time of delivery of the Certificates. Certain legal matters will be passed upon for the District by Goodwin Procter LLP, Los Angeles, California, as Special Counsel and as Disclosure Counsel, and for the Underwriter by Stradling Yocca Carlson & Rauth, a Professional Corporation, San Francisco, California, as Underwriter s Counsel. 33

40 FINANCIAL STATEMENTS A copy of the most recent audited financial statements (the Financial Statements ) of the District, prepared by the District s Finance Department and audited by a certified public accountant firm (the Auditor ) is included as Appendix C hereto. The Auditor s letter concludes that the Financial Statements present fairly, in all material respects, the financial position of the District as of June 30, 2014, and the results of its operations and the cash flows of its proprietary fund types for the year then ended in conformity with generally accepted accounting principles. The Financial Statements should be read in their entirety. The Auditor has not reviewed this Official Statement. The District has not requested nor did the District obtain permission from the Auditor to include the Financial Statements as an appendix to this Official Statement. Accordingly, the Auditor has not performed any post-audit review of the financial condition or operations of the District or any procedures relating to any of the information in this Official Statement. MISCELLANEOUS The purpose of this Official Statement is to supply information to prospective buyers of the Certificates. Quotations from and summaries and explanations of the Certificates and of statutes and documents contained in this Official Statement do not purport to be complete, and reference is made to such statutes and documents for full and complete statements of their provisions. The preparation and distribution of this Official Statement have been duly authorized and approved by the District and the Corporation. PANAMA-BUENA VISTA UNION SCHOOL DISTRICT By: /s/ Dr. Kevin Silberberg Superintendent PANAMA-BUENA VISTA UNION SCHOOL DISTRICT FINANCING CORPORATION By: /s/ Dr. Dean Haddock President 34

41 APPENDIX A SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS The following is a brief summary of certain provisions of the Trust Agreement, the Lease, and the Property Lease. This summary does not purport to be complete and is qualified in its entirety by reference to said documents. SELECTED DEFINITIONS Additional Rental means the amounts specified as such in the Lease. Base Rental means the amounts specified as such in the Lease, as such amounts may be adjusted from time to time in accordance with the terms of the Lease, but does not include Additional Rental. Beneficial Owner has the meaning given to such term in the Trust Agreement. Business Day means any day other than (1) a Saturday, a Sunday, or a day on which banking institutions in the State are authorized or obligated by law or executive order to be closed, (2) a day on which the New York Stock Exchange is authorized or obligated by law or executive order to be closed, or (3) a day on which commercial banks are authorized or obligated by law or executive order to be closed in the city in which the Principal Office of the Trustee or the principal office of the Certificate Insurer is located. Certificate Insurance Policy means the Municipal Bond Insurance Policy issued by the Certificate Insurer insuring the payment when due of the principal and interest with respect to the Certificates as provided therein. Certificate Insurer means Build America Mutual Assurance Company, a mutual insurance corporation organized under the laws of, and domiciled in, the State of New York, or any successor thereto. Certificate of the District means an instrument in writing signed by a District Representative. Certificate Register means the registration books referred to in the Trust Agreement. Closing Date means the date of delivery of the Certificates to the initial purchasers thereof. Code means the Internal Revenue Code of 1986, as amended. Component means each Component of the Property, the legal description of which Component is described in the Lease, or any property substituted therefor pursuant to the Lease. Continuing Disclosure Certificate means that certain Continuing Disclosure Certificate, dated the date of execution and delivery of the Certificates, executed and delivered by the District, as originally executed and as it may be amended from time to time in accordance with the terms thereof. Corporation means the Panama-Buena Vista Union School District Financing Corporation, a nonprofit public benefit corporation organized and existing under the laws of the State. A-1

42 Corporation Representative means the President, Vice President, or Executive Director of the Corporation or any other person authorized by resolution of the Board of Directors of the Corporation to act on behalf of the Corporation under or with respect to the Trust Agreement, the Lease, the Property Lease, and all other agreements related thereto. Costs of Issuance mean all the costs of executing and delivering the Certificates, including, but not limited to, all printing and document preparation expenses in connection with the Trust Agreement, the Lease, the Property Lease, the Certificates, and the preliminary and final official statements pertaining to the Certificates; rating agency fees; the Certificate Insurance Policy premium; CUSIP Service Bureau charges; consultant fees; market study fees; any computer and other expenses incurred in connection with the execution and delivery of the Certificates; the initial fees and expenses of the Trustee and any paying agent (including, without limitation, origination fees and first annual fees payable in advance); fees of an escrow agent and a verification agent; and other fees and expenses incurred in connection with the execution and delivery of the Certificates, including the initial rental interruption insurance premium, to the extent such fees and expenses are approved by the District. Costs of Issuance Fund means the fund of that name established pursuant to the Trust Agreement. Debt Service Fund means the fund of that name established pursuant to the Trust Agreement. Depository means DTC and its successors and assigns or, if (a) the then Depository resigns from its functions as securities depository of the Certificates, or (b) the District discontinues use of the Depository pursuant to the Trust Agreement, any other securities depository that agrees to follow procedures required to be followed by a securities depository in connection with the Certificates and that is selected by the District with the consent of the Trustee. District means the Panama-Buena Vista Union School District, a political subdivision organized and existing under the Constitution and laws of the State. District Representative means the President or Vice President of the Board of Trustees, the Superintendent or Controller of the District, or any other person authorized by resolution of the Board of Trustees of the District to act on behalf of the District under or with respect to the Trust Agreement, the Lease, the Property Lease, and all other agreements related thereto. DTC means The Depository Trust Company, New York, New York, and its successors and assigns. Fiscal Year means the fiscal year of the District, which at the date of the Official Statement is the period from July 1 to and including the following June 30. Independent Counsel means an attorney or firm of attorneys of recognized national standing in the field of municipal finance selected by the District. Insurance Proceeds Fund means the fund of that name established pursuant to the Trust Agreement. Interest Payment Date means March 1 and September 1 in each year, commencing September 1, 2015, so long as any Certificates remain Outstanding hereunder. Investment Earnings means interest received in respect of the investment of money on deposit in any fund or account maintained under the Trust Agreement. A-2

43 Lease means that certain Master Lease and Option to Purchase, dated as of April 1, 2015, by and between the Corporation and the District, including any amendments or supplements thereto made or entered into in accordance with the terms of the Trust Agreement and of the Lease. Lease Term means the term of the Lease as provided therein. Lease Year means the period from the Closing Date through September 1, 2015, and thereafter the period from each September 2 to and including the following September 1, during the Lease Term. Moody s means Moody s Investors Service, Inc., and its successors and assigns. Nominee means, initially, Cede & Co., as nominee of the Depository, as determined from time to time pursuant hereto. Outstanding, when used as of any particular time with respect to any Certificate, means (subject to the provisions of the Trust Agreement) any Certificate executed and delivered under the Trust Agreement except: (a) any Certificate previously cancelled by the Trustee or surrendered to the Trustee for cancellation; (b) any Certificate no longer entitled to the benefits of the Trust Agreement; (c) any Certificate that has been paid or is deemed to have been paid within the meaning of the Trust Agreement; (d) any Certificate described in the Trust Agreement; and (e) any Certificate in lieu of or in exchange or in substitution for which another Certificate or other Certificates shall have been executed and delivered by the Trustee pursuant to the Trust Agreement. Notwithstanding anything herein to the contrary, in the event that the principal and/or interest due with respect to the Certificates shall be paid by the Certificate Insurer pursuant to the Certificate Insurance Policy, the Certificates shall remain Outstanding for all purposes, not be defeased or otherwise satisfied, and not be considered paid. Owner means the registered owner, as indicated in the Certificate Register, of any Certificate. Participating Underwriter has the meaning ascribed thereto in the Continuing Disclosure Certificate. Permitted Encumbrances means as of any particular time: (1) liens for general ad valorem taxes and assessments, if any, not then delinquent, or that the District may, pursuant to the Lease, permit to remain unpaid; (2) the Lease, as it may be amended from time to time; (3) the Property Lease, as it may be amended from time to time; (4) any right or claim of any mechanic, laborer, materialman, supplier, or vendor not filed or perfected in the manner prescribed by law; (5) easements, rights of way, mineral rights, drilling rights, and other rights, reservations, covenants, conditions, or restrictions that exist of record as of the Closing Date and that the District certifies in writing on the Closing Date will not materially impair the use of the Sites; (6) easements, rights of way, mineral rights, drilling rights, and other rights, reservations, covenants, conditions, or restrictions established following the Closing Date or existing on any real property substituted for the Sites, to which the Corporation, the District, and the A-3

44 Certificate Insurer, so long as the Certificate Insurer is not in default in its payment obligations under the Certificate Insurance Policy consent in writing and that the District certifies will not materially impair the use of the Sites or real property substituted for the Sites, as the case may be. Permitted Investments means any of the following investments, provided at the time of investment the investment is a legal investment under the laws of the State for the moneys proposed to be invested therein, and provided further that the Trustee may rely upon any investment direction from the District as a certification to it that such investment constitutes a Permitted Investment: (1) Direct obligations of the United States of America and securities fully and unconditionally guaranteed as to the timely payment of principal and interest by the United States of America ( U.S. Government Securities ). (2) Direct obligations 1 of the following federal agencies that are fully guaranteed by the full faith and credit of the United States of America: (a) Export-Import Bank of the United States - Direct obligations and fully guaranteed certificates of beneficial interest (b) (c) Federal Housing Administration - debentures General Services Administration - participation certificates (d) Government National Mortgage Association ( GNMAs ) - guaranteed mortgagebacked securities and guaranteed participation certificates (e) Small Business Administration - guaranteed participation certificates and guaranteed pool certificates (f) (g) (h) U.S. Department of Housing & Urban Development - local authority bonds U.S. Maritime Administration - guaranteed Title XI financings Washington Metropolitan Area Transit Authority - guaranteed transit bonds (3) Direct obligations 1 of the following federal agencies that are not fully guaranteed by the faith and credit of the United States of America: (a) Federal National Mortgage Association ( FNMAs ) - senior debt obligations rated Aaa by Moody s and AAA by S&P 1 The following are explicitly excluded from the securities enumerated in clauses (2) and (3): (a) (b) (c) (d) All derivative obligations, including without limitation inverse floaters, residuals, interest-only, principalonly and range notes; Obligations that have a possibility of returning a zero or negative yield if held to maturity; Obligations that do not have a fixed par value or those whose terms do not promise a fixed dollar amount at maturity or call date; and Collateralized Mortgage-Backed Obligations ( CMOs ). A-4

45 (b) Federal Home Loan Mortgage Corporation ( FHLMCs ) - participation certificates and senior debt obligations rated Aaa by Moody s and AAA by S&P (c) (d) (e) Federal Home Loan Banks - consolidated debt obligations Student Loan Marketing Association - debt obligations Resolution Funding Corporation - debt obligations (4) Direct, general obligations of any state of the United States of America or any subdivision or agency thereof whose uninsured and unguaranteed general obligation debt is rated, at the time of purchase, A2 or better by Moody s and A or better by S&P, or any obligation fully and unconditionally guaranteed by any state, subdivision, or agency whose uninsured and unguaranteed general obligation debt is rated, at the time of purchase, A2 or better by Moody s and A or better by S&P. (5) Commercial paper (having original maturities of not more than 270 days) rated, at the time of purchase, P-1 by Moody s and A-1 or better by S&P. (6) Certificates of deposit, savings accounts, deposit accounts, or money market deposits in amounts that are continuously and fully insured by the Federal Deposit Insurance Corporation ( FDIC ), including the Bank Insurance Fund and the Savings Association Insurance Fund. (7) Certificates of deposit, deposit accounts, federal funds, or bankers acceptances (in each case having maturities of not more than 365 days following the date of purchase) of any domestic commercial bank, which may include the Trustee or its affiliates, or United States branch office of a foreign bank, provided that such bank s short-term certificates of deposit are rated P-1 by Moody s and A-1 or better by S&P (not considering holding company ratings). (8) Investments in money-market funds rated AAAm or AAAm-G by S&P. Such money market funds may include funds for which the Trustee, its affiliates or subsidiaries provide investment advisory or other management services or for which the Trustee or an affiliate of the Trustee serves as investment administrator, shareholder servicing agent, and/or custodian or subcustodian, notwithstanding that (i) the Trustee or an affiliate of the Trustee receives fees from funds for services rendered, (ii) the Trustee collects fees for services rendered pursuant to the Trust Agreement, which fees are separate from the fees received from such funds, and (iii) services performed for such funds and pursuant to the Trust Agreement may at times duplicate those provided to such funds by the Trustee or an affiliate of the Trustee. (9) State-sponsored investment pools rated AA- or better by S&P. (10) Repurchase agreements that meet the following criteria: (a) A master repurchase agreement or specific written repurchase agreement, substantially similar in form and substance to the Public Securities Association or Bond Market Association master repurchase agreement, governs the transaction. (b) Acceptable providers shall consist of (i) registered broker/dealers subject to Securities Investors Protection Corporation ( SIPC ) jurisdiction or commercial banks insured by the FDIC, if such broker/dealer or bank has an uninsured, unsecured, and unguaranteed rating of A3/P-1 or better by Moody s and A-/A-1 or better by S&P, or (ii) domestic structured investment companies approved by the Certificate Insurer and rated, A-5

46 or domestic structured investment companies with a guarantor rated, Aaa by Moody's and AAA by S&P. (c) The repurchase agreement shall require termination thereof if the counterparty s ratings are suspended, withdrawn, or fall below A3 or P-1 from Moody s, or A- or A-1 from S&P. Within ten (10) days, the counterparty shall repay the principal amount plus any accrued and unpaid interest on the investments. (d) The repurchase agreement shall limit acceptable securities to U.S. Government Securities and to the obligations of GNMA, FNMA or FHLMC described in clauses 2(d), 3(a) and 3(b) above. The fair market value of the securities in relation to the amount of the repurchase obligation, including principal and accrued interest, is equal to a collateral level of at least 104% for U.S. Government Securities and 105% for GNMAs, FNMAs, or FHLMCs. The repurchase agreement shall require (i) the Trustee or an independent third party acting solely as agent for the Trustee (the Agent ) to value the collateral securities no less frequently than weekly, (ii) the delivery of additional securities if the fair market value of the securities is below the required level on any valuation date, and (iii) liquidation of the repurchase securities if any deficiency in the required percentage is not restored within two (2) Business Days of such valuation. (e) The repurchase securities shall be delivered free and clear of any lien to the Trustee or the Agent, and such Agent is (i) a Federal Reserve Bank or (ii) a bank that is a member of the FDIC and that has combined capital, surplus, and undivided profits or, if appropriate, a net worth, of not less than $50 million, and the Trustee shall have received written confirmation from such third party that such third party holds such securities, free and clear of any lien, as agent for the Trustee. (f) A perfected first security interest in the repurchase securities shall be created for the benefit of the Trustee, and the District and the Trustee shall receive an opinion of counsel as to the perfection of the security interest in such repurchase securities and any proceeds thereof. (g) The repurchase agreement shall have a term of one year or less, or shall be due on demand. (h) The repurchase agreement shall establish the following as events of default, the occurrence of any of which shall require the immediate liquidation of the repurchase securities, unless the Certificate Insurer directs otherwise: i. insolvency of the broker/dealer or commercial bank serving as the counterparty under the repurchase agreement; ii. failure by the counterparty to remedy any deficiency in the required collateral level or to satisfy the margin maintenance call under clause 10(d) above; or iii. failure by the counterparty to repurchase the repurchase securities on the specified date for repurchase. (11) Investment agreements (also referred to as guaranteed investment contracts) that meet the following criteria: A-6

47 (a) A master agreement or specific written investment agreement governs the transaction. (b) Acceptable providers of uncollateralized investment agreements shall consist of (i) domestic FDIC-insured commercial banks, or U.S. branches of foreign banks, rated at least Aa2 by Moody s and AA by S&P; (ii) domestic insurance companies rated Aaa by Moody s and AAA by S&P; and (iii) domestic structured investment companies approved by the Certificate Insurer and rated, or domestic structured investment companies with a guarantor rated, Aaa by Moody's and AAA by S&P. (c) Acceptable providers of collateralized investment agreements shall consist of (i) registered broker/dealers subject to SIPC jurisdiction, if such broker/dealer has an uninsured, unsecured, and unguaranteed rating of Al or better by Moody s and A+ or better by S&P; (ii) domestic FDIC-insured commercial banks, or U.S. branches of foreign banks, rated at least Al by Moody s and A+ by S&P; (iii) domestic insurance companies rated at least Al by Moody s and A+ by S&P; and (iv) domestic structured investment companies approved by the Certificate Insurer and rated, or domestic structured investment companies with a guarantor rated, Aaa by Moody's and AAA by S&P. Required collateral levels shall be as set forth in clause 11(f) below. (d) The investment agreement shall provide that, if the provider s ratings fall below Aa3 by Moody s or AA- by S&P, the provider shall within ten (10) days either (i) repay the principal amount plus any accrued and interest on the investment; or (ii) deliver Permitted Collateral as provided below. (e) The investment agreement must provide for termination thereof if the provider s ratings are suspended, withdrawn, or fall below A3 from Moody s or A- from S&P. Within ten (10) days, the provider shall repay the principal amount plus any accrued interest on the agreement, without penalty. (f) The investment agreement shall provide for the delivery of collateral described in clause i or ii below ( Permitted Collateral ), which shall be maintained at the following collateralization levels at each valuation date: i. U.S. Government Securities at 104% of principal plus accrued interest; or ii. Obligations of GNMA, FNMA, or FHLMC (described in clauses 2(d), 3(a), and 3(b) above) at 105% of principal and accrued interest. (g) The investment agreement shall require the Trustee or the Agent to determine the market value of the Permitted Collateral not less than weekly and notify the investment agreement provider on the valuation day of any deficiency. Permitted Collateral may be released by the Trustee to the provider only to the extent that there are excess amounts over the required levels. Market value, with respect to collateral, may be determined by any of the following methods: i. the last quoted bid price as shown in Bloomberg, Interactive Data Systems, Inc., The Wall Street Journal, or Reuters; A-7

48 ii. valuation as performed by a nationally recognized pricing service, whereby the valuation method is based on a composite average of various bid prices; or iii. the lower of two (2) bid prices by nationally recognized dealers. Such dealers or their parent holding companies shall be rated investment grade and shall be market makers in the securities being valued. (h) Securities held as Permitted Collateral shall be free and clear of all liens and claims of third parties, held in a separate custodial account, and registered in the name of the Trustee or the Agent. (i) The provider shall grant the Trustee or the Agent a perfected first security interest in any collateral delivered under an investment agreement. For investment agreements collateralized initially and in connection with the delivery of Permitted Collateral under clause 11(f) above, the Trustee and the Certificate Insurer shall receive an opinion of counsel as to the perfection of the security interest in the collateral. (j) The investment agreement shall provide that moneys invested under the agreement must be payable and putable at par to the Trustee without condition, breakage fee, or other penalty, upon not more than two (2) Business Days notice, or immediately on demand for any reason for which the funds invested may be withdrawn from the applicable fund or account established under the authorizing document, as well as the following: i. In the event of a deficiency in the debt service account; ii. iii. iv. Upon acceleration after an event of default; Upon refunding of the Certificates in whole or in part; Reduction of the Reserve Requirement for the Certificates; or v. If a determination is later made by a nationally recognized bond counsel that investments must be yield-restricted. Notwithstanding the foregoing, the agreement may provide for a breakage fee or other penalty that is payable in arrears and not as a condition of a draw by the Trustee if the District s obligation to pay such fee or penalty is subordinate to its obligation to pay debt service on the Certificates and to make deposits to the Reserve Fund. (k) The investment agreement shall establish the following as events of default, the occurrence of any of which shall require the immediate liquidation of the investment securities, unless: i. Failure of the provider or the guarantor (if any) to make a payment when due or to deliver Permitted Collateral of the character, at the times, or in the amounts described above; ii. Insolvency of the provider or the guarantor (if any) under the investment agreement; A-8

49 iii. Failure by the provider to remedy any deficiency with respect to required Permitted Collateral; iv. Failure by the provider to make a payment or observe any covenant under the agreement; v. The guaranty (if any) is terminated, repudiated, or challenged; or vi. Any representation of warranty furnished to the Trustee or the District in connection with the agreement is false or misleading. (l) The investment agreement must incorporate the following general criteria: i. Cure periods for payment default shall not exceed two (2) Business Days; ii. The agreement shall provide that the provider shall remain liable for any deficiency after application of the proceeds of the sale of any collateral, including costs and expenses incurred by the Trustee or the Certificate Insurer; iii. Neither the agreement or guaranty agreement, if applicable, may be assigned (except to a provider that would otherwise be acceptable under these guidelines) or amended without the prior consent of the Certificate Insurer; iv. If the investment agreement is for the Reserve Fund, reinvestments of funds shall be required to bear interest at a rate at least equal to the original contract rate; v. The provider shall be required to immediately notify the Certificate Insurer and the Trustee of any event of default or any suspension, withdrawal, or downgrade of the provider s ratings; vi. The agreement shall be unconditional and shall expressly disclaim any right of set-off or counterclaim; and vii. The agreement shall require the provider to submit information reasonably requested by the Certificate Insurer, including balance invested with the provider, type and market value of collateral, and other pertinent information. (12) Forward delivery agreements in which the securities delivered mature on or before each interest payment date (for debt service or debt service reserve funds) or draw down date (construction funds) that meet the following criteria: (a) A specific written investment agreement governs the transaction. (b) Acceptable providers shall be limited to (i) any registered broker/dealer subject to the SIPC jurisdiction, if such broker/dealer or bank has an uninsured, unsecured, and unguaranteed obligation rated A3/P-1 or better by Moody s and A-/A-1 or better by S&P; (ii) any commercial bank insured by the FDIC, if such bank has an uninsured, unsecured, and unguaranteed obligation rated A3/P-1 or better by Moody s and A-/A-1 or better by S&P; and (iii) domestic structured investment companies approved by the Certificate A-9

50 Insurer and rated, or domestic structured investment companies with a guarantor rated, Aaa by Moody's and AAA by S&P. (c) The forward delivery agreement shall provide for termination or assignment (to a qualified provider hereunder) of the agreement if the provider s ratings are suspended, withdrawn, or fall below A3 or P-1 from Moody s or A- or A-1 from S&P. Within ten (10) days, the provider shall fulfill any obligations it may have with respect to shortfalls in market value. There shall be no breakage fee payable to the provider in such event. (d) Permitted securities shall include the investments listed in clauses 1, 2, and 3 above. (e) The forward delivery agreement shall include the following provisions: i. The permitted securities must mature at least one (1) Business Day before a debt service payment date or scheduled draw. The maturity amount of the permitted securities must equal or exceed the amount required to be in the applicable fund on the applicable valuation date. ii. The agreement shall include market standard termination provisions, including the right to terminate for the provider s failure to deliver qualifying securities or otherwise to perform under the agreement. There shall be no breakage fee or penalty payable to the provider in such event. iii. Any breakage fees shall be payable only on Interest Payment Dates and shall be subordinated to the payment of debt service fund and Reserve Fund replenishments. iv. The provider must submit at closing a bankruptcy opinion to the effect that upon any bankruptcy, insolvency, or receivership of the provider, the securities will not be considered to be a part of the provider s estate, and shall otherwise be acceptable to the Certificate Insurer. v. The agreement may not be assigned (except to a provider that would otherwise be acceptable under these guidelines) or amended without the prior written consent of the Certificate Insurer. (13) Forward delivery agreements in which the securities delivered mature after the funds may be required but provide for the right of the issuer or the Trustee to put the securities back to the provider under a put, guaranty, or other hedging arrangement, only with the prior written consent of the Certificate Insurer. (14) Pre-refunded Municipal Obligations defined as follows: Any bonds or other obligations of the State of California or of any agency, instrumentality, or local governmental unit of the State of California that are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice and which are rated, based on an irrevocable escrow account or fund, in the highest rating category of S&P and Moody s, or as otherwise permitted by the Certificate Insurer. (15) Shares in any money market mutual fund registered under the Investment Company Act of 1940 whose investment portfolio consists solely of direct obligations of the United States Government, provided that any such fund has been rated in the highest category by a nationally recognized rating A-10

51 agency and, provided further, that such mutual funds may include funds for which the Trustee or its affiliates or subsidiaries provide investment advisory or other management services. (16) The Local Agency Investment Fund ( LAIF ). (17) Other forms of investments approved in writing by the Certificate Insurer with notice by the District to S&P. (18) Maturity of investments shall be governed by the following: (a) Investments of monies (other than reserve funds) shall be in securities and obligations maturing not later than the dates on which such monies will be needed to make payments. (b) Investments shall be considered as maturing on the first date on which they are redeemable without penalty at the option of the holder or the date on which the Trustee may require their repurchase pursuant to repurchase agreements. (c) Investments of monies in reserve funds not payable upon demand shall be restricted to maturities of five (5) years or less. Pledged Assets has the meaning given to such term in the Trust Agreement. Prepayment Notice shall have the meaning assigned to such term in the Trust Agreement. Principal Office of the Trustee means the principal corporate trust office of the Trustee located in Los Angeles, California, or such other office as the Trustee may designate, except that, with respect to presentation of Certificates for payment or for registration of transfer or exchange, such term shall mean the office or agency of the Trustee at which, at any particular time, its corporate trust agency business shall be conducted. Principal Payment Date means each of the September 1 maturity dates set forth in the Trust Agreement, with a final maturity date of September 1, Property means, collectively, all Components, including all buildings and improvements thereon and equipment; the legal descriptions of which Components are described in the Lease, or any property substituted therefor pursuant to the Lease, but excluding such Component of the Property for which a new Component has been substituted in accordance with the Lease. Property Lease means that certain Property Lease, dated as of April 1, 2015, by and between the District and the Corporation, including any amendments or supplements thereto made or entered into in accordance with the terms of the Trust Agreement and of the Property Lease. Rebate Fund means the fund of that name established pursuant to the Trust Agreement. Record Date means the fifteenth day of the month preceding an Interest Payment Date, whether or not such day is a Business Day. Reserve Fund means the fund of that name established pursuant to the Trust Agreement. Reserve Policy means the Municipal Bond Debt Service Reserve Insurance Policy issued by the Certificate Insurer, as permitted under the Trust Agreement to satisfy the Reserve Requirement. A-11

52 Reserve Requirement means, as of any date of calculation, an amount equal to the least of (i) 10% of the aggregate principal amount of the Certificates originally executed and delivered, (ii) maximum annual Base Rental payments coming due and payable, or (iii) 125% of the average annual Base Rental payments coming due and payable. As of the Closing Date, the Reserve Requirement will be $1,907,550. Standard & Poor s means Standard & Poor s Ratings Services, a Standard & Poor s Financial Services LLC business, and its successors and assigns. Site means the real property underlying each of the Components. Special Fund means the fund of that name established pursuant to the Trust Agreement. State means the State of California. Tax Certificate means the Tax Certificate delivered by the District and the Corporation on the Closing Date, as the same may be amended or supplemented in accordance with its terms. Trust Agreement means the Trust Agreement by and among the District, the Corporation, and the Trustee, including any amendments or supplements thereto made or entered into in accordance with the terms thereof. Written Request of the District means an instrument in writing signed by a District Representative. TRUST AGREEMENT Assignment. Pursuant to the Trust Agreement, the Corporation does sell, assign, and transfer to the Trustee, for the benefit of the Owners, all of the Corporation s rights, title, and interest in and to the Lease and the Property Lease (excluding the Corporation s right to payment of its expenses under the Lease, its right to indemnification pursuant to the Lease, and its right to receive certain notices under the Lease and the Property Lease), including, without limitation, the Corporation s right to receive Base Rental, as well as its rights to enforce payment of such Base Rental when due or otherwise to protect its interest in the event of a default by the District under the Lease, in accordance with the terms thereof. The Base Rental and other rights of the Corporation assigned under the Trust Agreement shall be applied and the rights so assigned shall be exercised by the Trustee as provided in the Trust Agreement. Funds and Accounts. Under the Trust Agreement, the Trustee will establish and hold the Costs of Issuance Fund, the Debt Service Fund, the Reserve Fund, and the Rebate Fund and will invest, transfer, and disburse moneys on deposit therein. Subject to the terms of the Trust Agreement, the District has pledged all amounts deposited from time to time in the funds established pursuant to the Trust Agreement (except for amounts on deposit in the Rebate Fund) to be held in trust for the benefit of the owners of the Certificates. Costs of Issuance Fund. Pursuant to the Trust Agreement, there is established in trust a special fund designated the Costs of Issuance Fund, which shall be held by the Trustee and which shall be kept separate and apart from all other funds and moneys held by the Trustee. There shall be deposited in the Costs of Issuance Fund that portion of the proceeds of the Certificates required to be deposited therein pursuant to the Trust Agreement and such other amounts as specified by the District. The Trustee shall disburse money from the Costs of Issuance Fund on such dates and in such amounts as are necessary to pay Costs of Issuance, in each case, promptly after receipt of, and in accordance with, a Written Request of the District in the form attached to the Trust Agreement, together with invoices therefor. Each A-12

53 such Written Request of the District shall be sufficient evidence to the Trustee of the facts stated therein and the Trustee shall have no duty to confirm the accuracy of such facts. Any amounts remaining in the Costs of Issuance Fund on the earlier of (i) six (6) months after the Closing Date (unless such date is extended pursuant to an opinion of Independent Counsel delivered to the Trustee), or (ii) the date on which the District has notified the Trustee in writing that all Costs of Issuance have been paid, shall be transferred to the Debt Service Fund for the payment of interest with respect to the Certificates. Debt Service Fund. Pursuant to the Trust Agreement, there is established in trust a special fund designated as the Debt Service Fund, which shall be held by the Trustee and which shall be kept separate and apart from all other funds, accounts, and money held by the Trustee. The Debt Service Fund shall be maintained by the Trustee until all required Base Rental is paid in full pursuant to the terms of the Lease and the Certificates are no longer Outstanding, or until such earlier date as there are no Certificates Outstanding. Except as otherwise provided in this paragraph, Base Rental and proceeds of rental interruption insurance with respect to the Property, if any, received by the Trustee shall be deposited in the Debt Service Fund. Any delinquent Base Rental payments and any proceeds of rental interruption insurance with respect to the Property deposited in the Debt Service Fund shall be applied first to the immediate payment of interest payments past due and then to the immediate payment of principal payments past due according to the tenor of any Certificate, and then to the Reserve Fund to the extent necessary to make the amount on deposit therein equal to the Reserve Requirement. Any remaining money representing delinquent Base Rental payments and any proceeds of insurance shall remain on deposit in the Debt Service Fund to be applied in the manner provided in the Trust Agreement. Amounts, if any, transferred from the Costs of Issuance Fund or the Reserve Fund to the Debt Service Fund shall constitute a credit against the portion of the Base Rental payments otherwise due and owing on the next applicable Interest Payment Date. The Trustee shall pay from the Debt Service Fund on each Interest Payment Date an amount that, together with monies on deposit therein, equals the interest then due and the principal then due or required to be prepaid on such Interest Payment Date with respect to the Certificates, for payment of the Certificates in accordance with the terms of the Trust Agreement. Any amounts remaining in the Debt Service Fund on the day following an Interest Payment Date if the payments of interest or interest and principal have been paid shall be deposited into the Reserve Fund to the extent that the amount therein is less than the Reserve Requirement and the balance shall be retained in the Debt Service Fund. Any proceeds of insurance (other than rental interruption or workers compensation insurance) or awards in respect of a taking under the power of eminent domain not required pursuant to the Lease to be used for repair, reconstruction, or replacement, and any other amounts provided for the prepayment of Certificates in accordance with the Trust Agreement, shall be deposited by the Trustee in the Debt Service Fund. The Trustee shall, on the scheduled prepayment date, withdraw from the Debt Service Fund and pay to the Owners entitled thereto an amount equal to the prepayment price of the Certificates to be prepaid on such date for the payment of such prepayment price in accordance with the terms of the Trust Agreement. Reserve Fund. Pursuant to the Trust Agreement, there is established in trust a special fund designated as the Reserve Fund, which shall be held by the Trustee and which shall be kept separate and apart from all other funds and money held by the Trustee. The Reserve Fund shall be maintained by the Trustee until the Base Rental is paid in full pursuant to the Lease and the Certificates are no longer Outstanding or until there are no longer any Certificates Outstanding. There shall be deposited in the Reserve Fund all amounts required to be deposited therein pursuant to the Trust A-13

54 Agreement. So long as the amount deposited in the Reserve Fund satisfies the Reserve Requirement, no deposit need be made in the Reserve Fund. All Investment Earnings received by the Trustee on investment of moneys in the Reserve Fund shall be retained therein to the extent necessary to increase the amount on deposit in the Reserve Fund to the Reserve Requirement. Any balance shall be transferred as to the Debt Service Fund for the payment of principal and/or interest with respect to the Certificates on the next Interest Payment Date. Subject to the foregoing, all Investment Earnings on amounts in the Reserve Fund shall be transferred as provided in the Trust Agreement. The Trustee shall promptly notify the District and the Corporation if the amount on deposit in the Reserve Fund is less than the Reserve Requirement. In such event, the District is required, pursuant to the Lease, to deposit with the Trustee amounts sufficient to maintain the Reserve Fund at the Reserve Requirement. Any amount deposited in the Reserve Fund in excess of the Reserve Requirement shall be transferred and deposited in the Debt Service Fund and be applied from time to time on behalf of the District as a credit against the next Base Rental payments due. If, on any Interest Payment Date, the amounts in the Debt Service Fund are less than the principal and interest payments due with respect to the Certificates on such date, respectively, the Trustee shall transfer from the Reserve Fund for credit to the Debt Service Fund amounts sufficient to make up such deficiencies. In the event of any such transfer, the Trustee shall, within five (5) days thereafter, provide written notice to the District, the Corporation, and the Certificate Insurer of the amount and the date of such transfer. The District, upon prior written consent of the Certificate Insurer, and upon notice to Standard & Poor s and Moody s, reserves the right to substitute, at any time and from time to time, one or more letters of credit, surety bonds, insurance policies, or other form of guaranty from a financial institution, the long-term unsecured obligations of which are rated not less than Aa by Moody s or AA by Standard & Poor s in substitution for or in place of all or any portion of the Reserve Requirement, under the terms of which the Trustee is unconditionally entitled to draw amounts when required for the purposes of the Trust Agreement. Upon deposit by the District, with the prior consent of the Certificate Insurer, with the Trustee of any such letter of credit, surety bond, insurance policy, or other form of guaranty, the Trustee shall transfer to the District from the Reserve Fund an amount equal to the principal amount of such letter of credit, surety bond, insurance policy, or other form of guaranty for deposit in a special fund to be established by the District (the Special Fund ). The District shall use amounts on deposit in the Special Fund, (i) to purchase Certificates in the secondary market or (ii) for other capital projects of the District that Independent Counsel has determined will not adversely affect the exclusion from gross income for federal income tax purposes of the portion of the Base Rental designated as and comprising interest and received by the Owners of the Certificates. Rebate Fund. Pursuant to the Trust Agreement, there is created and designated the Rebate Fund to be held by the Trustee. The District shall comply with the requirements in the Trust Agreement and in the Tax Certificate. All money at any time deposited in the Rebate Fund shall be held by the Trustee in trust, for payment to the United States Treasury. All amounts on deposit in the Rebate Fund shall be governed by the Trust Agreement and the Tax Certificate, unless the District obtains an opinion of Independent Counsel that the exclusion from gross income of the portion of the Base Rental designated as and comprising interest and received by the Owners of the Certificates will not be adversely affected for federal income tax purposes if such requirements are not satisfied. Surplus. After (a) payment or prepayment or provision for payment or prepayment of all amounts due with respect to the Certificates as provided in the Trust Agreement, and payment of all fees, reimbursement amounts, and expenses of the Trustee and the Certificate Insurer, and (b) the transfer of any additional amounts required to be deposited into the Rebate Fund pursuant to the written instructions from a District Representative or a Corporation Representative in accordance with the Trust Agreement A-14

55 and the Tax Certificate, any amounts remaining in any of the funds or accounts established under the Trust Agreement (other than in the Rebate Fund) and not required for such purposes shall after payment of any amounts due to the Trustee and the Certificate Insurer be remitted to the District and used for any lawful purpose; provided, however, in the event of defeasance, amounts shall not be remitted to the District until the District has delivered or caused to be delivered to the Trustee an opinion of Independent Counsel to the effect that remission of such amounts to the District shall not affect the exclusion from gross income for federal income tax purposes the interest with respect to the Certificates. Repair or Replacement; Application of Insurance Proceeds and Condemnation Awards. If any portion of the Property shall be damaged or destroyed, or shall be taken by eminent domain proceedings, the District shall, as expeditiously as possible, continuously and diligently prosecute or cause to be prosecuted the repair or replacement thereof, unless the District, with the prior written consent or at the direction of the Certificate Insurer, elects not to repair or replace the Property in accordance with the provisions of the Trust Agreement. The proceeds of any insurance (other than any rental interruption or workers compensation insurance), including the proceeds of any self-insurance fund and of any condemnation award, received on account of any damage, destruction, or taking of the Property or portion thereof shall as soon as possible be deposited with the Trustee and be held by the Trustee in an Insurance Proceeds Fund (the Insurance Proceeds Fund ) to be then established for and, to the extent necessary, shall be applied to the cost of repair or replacement of the Property or affected portion thereof upon receipt of a Written Request of the District. Pending such application, such proceeds shall be invested by the Trustee solely at the written direction of a District Representative, in Permitted Investments that mature not later than such times moneys are expected to be needed to pay such costs of repair or replacement. Notwithstanding the foregoing, a District Representative shall, within ninety (90) days of the occurrence of the event of damage, destruction, or taking, notify the Trustee in writing of whether the District, with the prior written consent or at the direction of the Certificate Insurer, intends to replace or repair the Property or the portions of the Property that were damaged or destroyed. If the District, with the prior written consent or at the direction of the Certificate Insurer, elects to replace or repair the Property or portions thereof, the District shall deposit with the Trustee the full amount of any insurance deductible to be credited to the Insurance Proceeds Fund. If the damage, destruction, or taking was such that there resulted a substantial interference with the District s right to the use or possession of the Property or any portion thereof and an abatement of rental payments will result from such damage or destruction pursuant to the Lease, then the District, with the prior written consent or at the direction of the Certificate Insurer, shall be required either to (i) apply sufficient funds from the insurance proceeds, condemnation award, and other legally available funds to the replacement or repair of the Property or portions thereof that have been damaged, destroyed, or taken so that such Property or any portion thereof will be restored to its former condition and fair rental value, or (ii) transfer to the Debt Service Fund and apply sufficient funds from the insurance proceeds, condemnation award, and other legally available funds to the prepayment, as set forth in the Trust Agreement, in full of all the Outstanding Certificates or all of those Outstanding Certificates that would have been payable from that portion of the Base Rental payments that are abated as a result of the damage, destruction, or taking, such that the Base Rental payable on the remaining portions of the Property is sufficient to pay all principal and interest due with respect to the Certificates to remain Outstanding after such prepayment. Any amounts received by the Trustee under the Trust Agreement in excess of the amount needed to either repair or replace a damaged, destroyed, or taken portion of the Property or to prepay Certificates shall be transferred to the Reserve Fund to the extent necessary to make the amount on deposit therein equal to the Reserve Requirement and thereafter any excess shall be deposited in the Debt Service Fund. A-15

56 Title Insurance. Proceeds of any policy of title insurance received by the Trustee in respect of the Property shall be applied and disbursed by the Trustee as follows: (a) If the District and the Corporation, with the prior written consent or at the direction of the Certificate Insurer, (i) determine that the title defect giving rise to such proceeds has not materially affected the use and possession of the Property and will not result in an abatement of Base Rental payable by the District under the Lease, and (ii) has provided the Trustee with written evidence of such determination, such proceeds shall be deposited into the Reserve Fund to the extent necessary to make the amount on deposit therein equal to the Reserve Requirement. Amounts not required to be so deposited, with the prior written consent or at the direction of the Certificate Insurer, shall be remitted to the District. (b) If the District and the Corporation, with the prior written consent or at the direction of the Certificate Insurer, determine that such title defect will result in an abatement of Base Rental payable by the District under the Lease, then the Trustee shall immediately deposit such proceeds in the Debt Service Fund and such proceeds and any other legally available funds, if any, shall be applied to the prepayment of Certificates in the manner specified in the Trust Agreement. Application of Amounts after Default by District. All damages or other payments received by the Trustee from the enforcement of any rights and powers of the Trustee under the Lease, after a default by the District thereunder or under the Trust Agreement, shall be applied promptly to the payment of reasonable fees and expenses of the Trustee (including fees and expenses of counsel) pertaining to the performance of its powers and duties under the Trust Agreement and the remainder shall be deposited into the Debt Service Fund and applied in the manner specified in the Trust Agreement. Investments Authorized. Money held by the Trustee in any fund or account under the Trust Agreement shall be invested by the Trustee in Permitted Investments pending application as provided in the Trust Agreement, solely at the written direction of a District Representative, shall be registered in the name of the Trustee, as Trustee, and shall be held by the Trustee. The District shall direct the Trustee prior to 12:00 p.m. Los Angeles time on the last Business Day before the date on which a Permitted Investment matures or is redeemed as to the reinvestment of the proceeds thereof. In the absence of such direction, the Trustee shall invest in Permitted Investments described in clause (8) of the definition thereof; provided, however, that any such investment shall be made by the Trustee only if, prior to the date on which such investment is to be made, the Trustee shall have received a written direction of the District specifying a specific money market fund and, if no such written direction of the District is so received, the Trustee shall hold such moneys uninvested. Money held in any fund or account under the Trust Agreement may be commingled for purposes of investment only. The obligations in which moneys in the said funds are invested shall mature on or prior to the date on which such moneys are estimated to be required to be paid out under the Trust Agreement. The obligations in which moneys in the Reserve Fund are so invested shall be invested in obligations maturing no later than five (5) years after the date of investment; provided no such investment shall mature later than the final maturity date of the Certificates; provided further, if such investments may be redeemed at par so as to be available on each Interest Payment Date, any amount of the Reserve Fund may be invested in such redeemable investments of any maturity on or prior to the final maturity date of the Certificates. Cash amounts in the Reserve Fund shall be valued at fair market value and marked to market twice per year. All Investment Earnings with respect to amounts in the Rebate Fund shall be retained therein. The Trustee shall transfer all Investment Earnings on deposit in all other funds and accounts established under the Trust Agreement (except, to the extent required by the Trust Agreement, in the Reserve Fund) to the Debt Service Fund. For purposes of determining the amount of deposit in any fund held under the Trust Agreement, all Permitted Investments credited to such fund shall be valued at the cost thereof. A-16

57 The Trustee may purchase or sell to itself or any affiliate, as principal or agent, investments authorized by the Trust Agreement, provided that the Trustee has given prior notice to the District of its intent to do so. The Trustee may act as principal or agent in the making or disposing of any investment. The Trustee may commingle moneys in funds and accounts for purposes of investment. For the purpose of determining the amount in any fund or account under the Trust Agreement all Permitted Investments shall be valued at the end of each month calculated in the manner as provided in the definition of Permitted Investments. The Trustee may sell, or present for redemption, any Permitted Investment purchased by the Trustee whenever it shall be necessary in order to provide money to meet any required payment, transfer, withdrawal, or disbursement from any fund or account under the Trust Agreement, and the Trustee shall not be liable or responsible for any loss resulting from such investment or sale, except any loss resulting from its own negligence or willful misconduct. The District and the Corporation have acknowledged in the Trust Agreement that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grants the District and the Corporation the right to receive brokerage confirmations of security transactions as they occur, the District and the Corporation specifically waive receipt of such confirmations to the extent permitted by law. The Trustee will furnish the District and the Corporation periodic cash transaction statements that include detail for all investment transactions made by the Trustee under the Trust Agreement. Reports. The Trustee shall furnish monthly to the District a report, which may be its customary account statements, of all investments made by the Trustee and of all amounts on deposit in each fund and account maintained under the Trust Agreement. The Trustee. The District shall, from time to time, on demand, pay to the Trustee reasonable compensation for its services and shall reimburse the Trustee for all its reasonable advances and expenditures, including but not limited to advances to and fees and expenses of independent appraisers, accountants, consultants, counsel, agents, and attorneys-at-law or other experts employed by it in the exercise and performance of its powers and duties under the Trust Agreement. To the extent permitted by law, compensation and reimbursement to the Trustee shall not be limited by any statutory provisions that limit compensation to trustees of express trusts. The District, with the prior written consent of the Certificate Insurer, so long as the Certificate Insurer is not in default in its payment obligations under the Certificate Insurance Policy, may at any time, provided no event of default has occurred and is continuing, or the Owners of a majority in aggregate principal amount of all Certificates then Outstanding, at any time, may by Written Request of the District, for any reason, remove the Trustee and any successor thereto, and shall thereupon appoint a successor or successors thereto, but any such successor shall be a bank, national banking association, or trust company in good standing located in or incorporated under the laws of the State, duly authorized to exercise trust powers, having (or be a member of a bank holding company system with a bank holding company that has) a combined capital (exclusive of borrowed capital) and surplus of at least $75,000,000, shall be subject to supervision or examination by federal or state banking authority, and shall otherwise be acceptable to the Certificate Insurer; provided that the Certificate Insurer, in its sole discretion, so long as the Certificate Insurer is not in default in its payment obligations under the Certificate Insurance Policy, may remove the Trustee. If such bank, national banking association, or trust company publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then, for the purposes of the Trust Agreement, the combined capital and surplus of such bank, national banking association, or trust company shall be deemed to be its combined capital and surplus set forth in its most recent report of condition so published. Any removal of the Trustee shall become effective upon acceptance of appointment by the successor Trustee. A-17

58 The Trustee or any successor may at any time resign by giving not less than sixty (60) days prior written notice to the District, the Corporation, and the Certificate Insurer and by giving mailed notice to the Owners of its intention to resign and of the proposed date of resignation. Upon receiving such notice of resignation, the District, with the prior written approval of the Certificate Insurer, so long as the Certificate Insurer is not in default in its payment obligations under the Certificate Insurance Policy, shall promptly appoint a successor Trustee by an instrument in writing; provided, however, that in the event the District fails to appoint a successor Trustee within sixty (60) days following receipt of such written notice of resignation, the resigning Trustee may petition the appropriate court having jurisdiction to appoint a successor. Any resignation of the Trustee shall become effective upon acceptance of appointment by the successor Trustee. Any successor Trustee approved by the District, the Certificate Insurer, or any court shall satisfy the qualifications set forth in the Trust Agreement. Any company into which the Trustee may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion, or consolidation to which it shall be a party or any company to which the Trustee may sell or transfer all or substantially all of its corporate trust business (provided such company is eligible under the Trust Agreement), shall be the successor to the Trustee without the execution or filing of any paper or further act, anything in the Trust Agreement to the contrary notwithstanding. Paying Agents. Pursuant to the Trust Agreement, the Trustee is appointed as paying agent for the Certificates. The Trustee, upon written consent of the District, may appoint such other paying agents with respect to the Certificates as it may deem advisable. Any paying agent appointed shall be a bank, national banking association, or trust company, having a combined capital (exclusive of borrowed capital) and surplus of at least $75,000,000 and shall be subject to supervision by federal or state banking authorities. Appointment of Co-Trustee or Agent. It is the purpose of the Trust Agreement that there shall be no violation of any law of any jurisdiction (including particularly the law of the State) denying or restricting the right of banking corporations or associations to transact business as Trustee in such jurisdiction. It is recognized that in the case of litigation under the Trust Agreement, and in particular in case of the enforcement of the rights of the Trustee on default, or in the case the Trustee deems that by reason of any present or future law of any jurisdiction it may not exercise any of the powers, rights, or remedies granted in the Trust Agreement to the Trustee or hold title to the properties, in trust, as granted in the Trust Agreement, or take any other action that may be desirable or necessary in connection therewith, it may be necessary that the Trustee appoint an additional individual or institution as a separate co-trustee. Amendments to Trust Agreement. (a) Except as set forth in clause (b) below, the Trust Agreement may be amended only in writing by agreement among the District, the Corporation, and the Trustee, with the prior written consent of the Certificate Insurer, so long as the Certificate Insurer is not in default in its payment obligations under the Certificate Insurance Policy, and the approval in writing by the Owners of a majority in aggregate principal amount of Certificates then Outstanding. In addition, no such modification or amendment shall (i) extend the maturity of or reduce the interest rate on any Certificate or otherwise alter or impair the obligation of the District to pay the principal, interest, or prepayment premium (if any) at the time and place and at the rate and in the currency provided therein of any Certificate without the express written consent of the Owner of such Certificate, (ii) reduce the percentage of Certificates required for the written consent to any such amendment or modification, or (iii) without its written consent thereto, modify any of the rights or obligations of the Trustee. A-18

59 (b) Notwithstanding the provisions described in clause (a) above, the Trust Agreement and the rights and obligations provided thereby may also be modified or amended at any time without the consent of any Owners upon the written agreement of the District, the Corporation, and the Trustee, with written notice to the Certificate Insurer, but only (i) for the purpose of curing any ambiguity or omission relating thereto, or of curing, correcting, or supplementing any defective provision contained in the Trust Agreement, (2) in regard to questions arising under the Trust Agreement that the District, the Corporation, and the Trustee may deem necessary or desirable and not inconsistent with the Trust Agreement and that shall not adversely affect the interests of the Owners of the Certificates then Outstanding, (3) to qualify the Trust Agreement under the Trust Indenture Act of 1939, as amended, or corresponding provisions of Federal laws from time to time in effect, or (4) for any other reason, provided such modification or amendment does not adversely affect the interests of the Owners of the Certificates then Outstanding; provided that the District, the Corporation, and the Trustee may rely in entering into any such amendment or modification of the Trust Agreement upon the opinion of Independent Counsel stating that the requirements of this sentence have been met with respect to such amendment or modification. No amendment shall impair the right of any Owner to receive principal and interest in accordance with the terms of such Owner s Certificate. (c) The Certificate Insurer reserves the right to charge the District a fee for any consent or amendment to the Trust Agreement while the Certificate Insurance Policy is outstanding, so long as the Certificate Insurer is not in default in its payment obligations under the Certificate Insurance Policy. (d) The Trustee may in its discretion, but shall not be obligated to, enter into any such amendment authorized by subsections (a) or (b) above which adversely affects the Trustee s own rights, duties, or immunities under the Trust Agreement or otherwise. In executing, or accepting the additional trusts created by, any Supplemental Trust Agreement permitted by the Trust Agreement or the modification thereby of the trusts created by the Trust Agreement, the Trustee shall be entitled to receive, and shall be fully protected in relying upon, an opinion of counsel stating that the execution of such supplemental Trust Agreement is authorized or permitted by this Trust Agreement and complies with the terms hereof. Amendments to Lease or Property Lease. The Lease or the Property Lease may be amended in writing by agreement between the District and the Corporation, with the prior written consent of the Certificate Insurer, so long as the Certificate Insurer is not in default in its payment obligations under the Certificate Insurance Policy, and the consent of the Trustee, but no such amendment shall become effective as to the Owners unless and until approved in writing by the Owners of a majority in aggregate principal amount of Certificates then Outstanding. Notwithstanding the foregoing, the Lease or the Property Lease and the rights and obligations provided thereby may also be modified or amended at any time with the consent of the Certificate Insurer, so long as the Certificate Insurer is not in default in its payment obligations under the Certificate Insurance Policy, but without the consent of any Owners, upon the written agreement of the District and the Corporation, but only (1) for the purpose of curing any ambiguity or omission relating thereto, or of curing, correcting, or supplementing any defective provision contained in the Lease or the Property Lease, (2) in regard to questions arising under the Lease or the Property Lease that the District and the Corporation may deem necessary or desirable and not inconsistent with the Lease or the Property Lease, as applicable, and that shall not adversely affect the interests of the Owners of the Certificates then Outstanding, (3) to effect any substitution of the Property or any portion thereof in accordance with the Lease or the Property Lease, or (4) for any other reason, provided such modification or amendment does not adversely affect the interests of the Owners of the Certificates then Outstanding; provided that the District and the Corporation may rely in entering into any such amendment or modification thereof, upon the opinion of Independent Counsel stating that the requirements of this sentence have been met with respect to such amendment or modification. No such amendment shall (i) reduce the percentage of Certificates required for the written consent to any such amendment or A-19

60 modification, (ii) without its written consent thereto, modify any of the rights or obligations of the Trustee, or (iii) impair the right of any Owner to receive principal and interest in accordance with the terms of such Owner s Certificate. below: Covenants. The District and the Corporation have covenanted in the Trust Agreement as set forth District and Corporation to Perform Pursuant to Property Lease and Lease. The District and the Corporation covenant and agree with the Owners to perform all obligations and duties imposed under the Lease and the Property Lease. Extension of Payment of Certificates. Neither the District nor the Corporation shall directly or indirectly extend the dates upon which the Base Rental payments are required to be paid or prepaid, or the time of payment of interest with respect thereto. Nothing in the Trust Agreement shall be deemed to limit the right of the District or the Corporation to issue any securities for the purpose of providing funds for the prepayment of Base Rental or the Certificates and such issuance shall not be deemed to constitute an extension of the maturity of the Certificates. Offices for Servicing Certificates. The Trustee (itself or via one or more agents) shall at all times maintain one or more offices or agencies in Los Angeles, California, where Certificates may be presented for payment, where Certificates may be presented for registration of transfer or exchange, and where notices, demands, and other documents may be served upon the Trustee in respect of the Certificates. Access to Books and Records. The Trustee shall, at all reasonable times and upon reasonable notice, have access to those books and records of the District and the Corporation that may be reasonably required by the Trustee to fulfill its duties and obligations under the Trust Agreement. General. The District and the Corporation shall do and perform or cause to be done and performed all respective acts and things required to be done or performed by or on behalf of the District or the Corporation, respectively, under the provisions of the Trust Agreement. The District and the Corporation certify that upon the date of execution and delivery of any of the Certificates, all things, conditions, and acts required by the Constitution and laws of the State and the Trust Agreement to exist, to have happened, and to have been performed precedent to and in the execution and the delivery of such Certificates do exist, have happened, and have been performed in due time, form, and manner, as required by law. Tax Matters. The District and the Corporation shall contest by court action or otherwise any assertion by the United States of America or any department or agency thereof that the portion of the Base Rental designated as and comprising interest and received by the Owners of the Certificates Owners is includable in gross income of such recipients under federal income tax laws. Notwithstanding any other provision of the Trust Agreement, absent an opinion of Independent Counsel that the exclusion from gross income of the portion of the Base Rental designated as and comprising interest and received by the Owners of the Certificates will not be adversely affected for federal income tax purposes, each of the District and the Corporation covenants to comply with all applicable requirements of the Code necessary to preserve such exclusion from gross income and specifically covenants, without limiting the generality of the foregoing, as follows: (a) Private Activity. Neither the District nor the Corporation shall take any action or refrain from taking any action or make any use of the proceeds of the Certificates or of A-20

61 any other moneys or property that would cause any of the Certificates or the Lease to be a private activity bond within the meaning of Section 141 of the Code. (b) Arbitrage. Neither the District nor the Corporation shall make any use of the proceeds of the Certificates or of any other amounts or property, regardless of the source, or take any action or refrain from taking any action that will cause any of the Certificates or the Lease to be an arbitrage bond within the meaning of Section 148 of the Code. (c) Federal Guaranty. Neither the District nor the Corporation shall make any use of the proceeds of the Certificates or take or omit to take any action that would cause any of the Certificates or the Lease to be federally guaranteed within the meaning of Section 149(b) of the Code. (d) Information Reporting. The District and the Corporation shall take or cause to be taken all necessary action to comply with the informational reporting requirement of Section 149(e) of the Code. (e) No Hedge Bonds. Neither the District nor the Corporation shall make any use of the proceeds of the Certificates or any other amounts or property, regardless of the source, or take any action or refrain from taking any action that would cause any of the Certificates or the Lease to be considered a hedge bond within the meaning of Section 149(g) of the Code unless the District or the Corporation, as applicable, takes all necessary action to assure compliance with the requirements of Section 149(g) of the Code to maintain the exclusion from gross income of the portion of the Base Rental designated as and comprising interest and received by the Owners of the Certificates for federal income tax purposes. (f) Miscellaneous. Neither the District nor the Corporation shall take any action or refrain from taking any action inconsistent with its expectations stated in the Tax Certificate executed by the District and the Corporation in connection with the execution and delivery of the Certificates and each shall comply with the covenants and requirements stated therein and incorporated by reference in the Trust Agreement. (g) Taxable Obligations. The covenants set forth above shall not be applicable to, and nothing contained in the Trust Agreement shall be deemed to prevent the District or the Corporation from issuing other obligations, the interest on which has been determined by the District or the Corporation, as applicable, to be subject to federal income taxation. Performance. Each of the District and the Corporation shall faithfully observe all covenants and other provisions contained in the Trust Agreement, the Lease, and the Property Lease. Except as provided in the Trust Agreement, and in the Lease, neither the District nor the Corporation shall agree to any amendment to the Lease that would either lengthen the term thereof or reduce the amount of Base Rental or Additional Rental payable thereunder, or change the time or times of payment of such Base Rental or Additional Rental, or agree to any other amendment detrimental to the rights of the Owners or the Certificate Insurer. Prosecution and Defense of Suits. Each of the District and the Corporation shall promptly take such action as may be necessary to cure any defect in the title to the Property or any part thereof, whether now existing or hereafter occurring, and shall prosecute and defend all such suits, actions, and all other proceedings as may be appropriate for such purpose. A-21

62 Further Assurances. Each of the District and the Corporation will make, execute, and deliver any and all such further resolutions, instruments, and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Trust Agreement, and for the better assuring and confirming to the Owners the rights and benefits provided in the Trust Agreement. Street Access. So long as Certificates are Outstanding, the District shall take or cause to be taken all necessary action to assure adequate street access to and from all Components of the Property. Continuing Disclosure. The District has covenanted and agreed that it shall comply with and carry out its obligations under the Continuing Disclosure Certificate. Notwithstanding any other provision of the Trust Agreement, failure of the District to comply with the Continuing Disclosure Certificate shall not be considered an event of default under the Trust Agreement; however, the Trustee may (and, at the request of any Participating Underwriter or the Owners of at least 25% aggregate principal amount of Outstanding Certificates, but only to the extent funds in an amount satisfactory to the Trustee have been provided to it or it has been otherwise indemnified to its satisfaction from any cost, liability, expense, or additional charges of the Trustee whatsoever, including, without limitation, fees and expenses of its attorneys, shall) or any Owner or Beneficial Owner may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under the Trust Agreement. For purposes of paragraph, Beneficial Owner means any person that (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Certificates (including persons holding Certificates through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Certificates for federal income tax purposes. Events of Default. The following shall be an event of default under the Trust Agreement and the terms events of default and default shall mean, whenever they are used in the Trust Agreement, any one or more of the following events: (a) An event of default shall have occurred under the Lease; provided, however, no effect shall be given to payments made under the Certificate Insurance Policy in determining whether an event of default exists under this provision. (b) Failure by the District or the Corporation to observe and perform any covenant, condition, or agreement on its part to be observed or performed under the Trust Agreement or the Lease, other than such failure as may constitute an event of default under clause (a) above, for a period of thirty (30) days after written notice specifying such failure and requesting that it be remedied has been given to the District by the Trustee or the Certificate Insurer or to the District and the Trustee by the Certificate Insurer, so long as the Certificate Insurer is not in default in its payment obligations under the Certificate Insurance Policy, or the Owners of not less than a majority in aggregate principal amount of Certificates then Outstanding, or if the failure stated in the notice cannot be corrected within such 30-day period, then the grace period shall not extend for more than sixty (60) days without the prior written consent of the Certificate Insurer, so long as the Certificate Insurer is not in default in its payment obligations under the Certificate Insurance Policy. In the event that an event of default has occurred and is continuing under the Trust Agreement, the Trustee shall give notice of such default to the Owners. Such notice shall state that an event of default has occurred and is continuing under the Trust Agreement and shall provide a brief description of such default. The Trustee in its discretion may withhold notice if it deems it in the best interests of the Owners. The notice shall be given by first-class mail, postage prepaid, to the Owners within thirty (30) days of such occurrence of default. A-22

63 Remedies on Default. (a) Upon the occurrence and continuance of any event of default specified under the Trust Agreement, the Trustee may, upon the written consent of the Certificate Insurer, so long as the Certificate Insurer is not in default in its payment obligations under the Certificate Insurance Policy, and shall, at the direction of the Certificate Insurer, so long as the Certificate Insurer is not in default in its payment obligations under the Certificate Insurance Policy, proceed to exercise the remedies set forth in the Lease or available to the Trustee under the Trust Agreement. Upon the occurrence and continuance of an event of default under the Trust Agreement that would require the Certificate Insurer to make payments under the Certificate Insurance Policy, the Certificate Insurer and its designated agent shall be provided with access to inspect and copy the Certificate Register held by the Trustee. (b) In addition to the remedies set forth in the Trust Agreement and upon the occurrence and continuance of any event of default specified in the Trust Agreement, the Trustee may, upon the written consent of the Certificate Insurer, so long as the Certificate Insurer is not in default in its payment obligations under the Certificate Insurance Policy, and, after receiving indemnification satisfactory to it, shall, at the direction of the Certificate Insurer, so long as the Certificate Insurer is not in default in its payment obligations under the Certificate Insurance Policy, proceed to protect and enforce the rights vested in Owners by the Trust Agreement by appropriate judicial proceedings or proceedings as the Trustee, with the consent or at the direction of the Certificate Insurer, so long as the Certificate Insurer is not in default in its payment obligations under the Certificate Insurance Policy, deems most effectual. The provisions of the Trust Agreement and all resolutions or orders in the proceedings for the execution and delivery of the Certificates shall constitute a contract with the Owners of the Certificates, and such contract, with the consent of the Certificate Insurer, so long as the Certificate Insurer is not in default in its payment obligations under the Certificate Insurance Policy, may be enforced by any Owner by mandamus, injunction, or other applicable legal action, suit, proceeding, or other remedy. (c) Upon an event of default and prior to the curing thereof, the Trustee shall exercise the rights and remedies vested in it by the Trust Agreement with the same degree of care and skill as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (d) Owners directions or institution of remedies upon default under the Trust Agreement shall be subject to the prior written consent of the Certificate Insurer, so long as the Certificate Insurer is not in default in its payment obligations under the Certificate Insurance Policy. The Certificate Insurer, so long as the Certificate Insurer is not in default in its payment obligations under the Certificate Insurance Policy, acting alone, shall have the right to direct all remedies upon an event of default. Further, no waiver of an event of default shall be granted without obtaining the prior written consent of the Certificate Insurer, so long as the Certificate Insurer is not in default in its payment obligations under the Certificate Insurance Policy. Application of Moneys. Any moneys received by the Trustee pursuant to the Trust Agreement, together with any moneys that upon the occurrence of an event of default under the Trust Agreement are held by the Trustee in any of the funds under the Trust Agreement (other than the Rebate Fund and other than moneys held for Certificates not presented for payment) shall, after payment of reasonable fees and expenses of the Trustee, and the reasonable fees and expenses of its counsel pertaining to the performance of its powers and duties under the Trust Agreement, be applied to the payment of the whole amount then owing and unpaid with respect to the Outstanding Certificates for principal, premium, if any, and interest, and in case such moneys shall be insufficient to pay in full the whole amount so owing and unpaid with respect to the Certificates, to the payment of the principal, premium, if any, and interest then due and unpaid with respect to the Outstanding Certificates without preference or priority of any of principal, premium, or interest over the others or of any installment of interest, or of any Outstanding Certificate over any other Outstanding Certificate, ratably, according to the amounts due respectively for principal, A-23

64 premium, and interest, to the persons entitled thereto without any discrimination or preference except as to any difference in the respective amounts of interest specified in the Outstanding Certificates. Whenever moneys are to be applied pursuant to the provisions of the Trust Agreement, such moneys shall be applied at such times, and from time to time, as the Trustee, with the consent or at the direction of the Certificate Insurer, so long as the Certificate Insurer is not in default in its payment obligations under the Certificate Insurance Policy, shall determine, having due regard to the amount of such moneys available for application and the likelihood of additional moneys becoming available for such application in the future. The Trustee shall give, by mailing by first-class mail as it may deem appropriate, such notice of the deposit with it of any such moneys. Defeasance. If the District shall pay or cause to be paid or there shall otherwise be paid to the Owners of any Outstanding Certificates the interest, principal, and prepayment premiums, if any, payable with respect thereto at the times and in the manner stipulated in the Trust Agreement and in the Certificates, then the Owners of such Certificates shall cease to be entitled to the pledge of the Pledged Assets as provided in the Trust Agreement, and all agreements, covenants, and other obligations of the District and the Corporation to the Owners of such Certificates under the Trust Agreement shall thereupon cease, terminate, and become void and be discharged and satisfied. In such event, the Trustee shall execute and deliver to the District and the Corporation all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee shall pay over or deliver to the District all money or securities held by it pursuant to the Trust Agreement that are not required for the payment of the interest, principal, and prepayment premiums, if any, with respect to such Certificates. Subject to the provisions of the above paragraph, when any of the Certificates shall have been paid and if, at the time of such payment, the District and the Corporation shall have kept, performed, and observed all the covenants and promises in such Certificates and in the Trust Agreement required or contemplated to be kept, performed, and observed by the District or the Corporation or on its part on or prior to that time, then the Trust Agreement shall be considered to have been discharged in respect of such Certificates and such Certificates shall cease to be entitled to the lien of the Trust Agreement and such lien and all covenants, agreements, and other obligations of the District and the Corporation under the Trust Agreement shall cease, terminate, become void, and be completely discharged as to such Certificates. Notwithstanding the satisfaction and discharge of the Trust Agreement or the discharge of the Trust Agreement in respect of any Certificates, those provisions of the Trust Agreement relating to the maturity of the Certificates, interest payments and dates thereof, exchange and transfer of Certificates, replacement of mutilated, destroyed, lost, or stolen Certificates, the safekeeping and cancellation of Certificates, nonpresentment of Certificates, and the duties of the Trustee in connection with all of the foregoing, remain in effect and shall be binding upon the Trustee and the Owners of the Certificates and the Trustee shall continue to be obligated to hold in trust any moneys or investments then held by the Trustee for the payment of the principal, prepayment premium, if any, and interest with respect to the Certificates, to pay to the Owners of Certificates the funds so held by the Trustee as and when such payment becomes due. Notwithstanding the satisfaction and discharge of the Trust Agreement or the discharge of the Trust Agreement in respect of any Certificates, those provisions of the Trust Agreement relating to the compensation of the Trustee shall remain in effect and shall be binding upon the Trustee, the District, and the Corporation. Notwithstanding anything in the Trust Agreement to the contrary, in the event that the principal or interest due with respect to the Certificates shall be paid by the Certificate Insurer pursuant to the Certificate Insurance Policy, the Certificates shall remain Outstanding for all purposes, not be defeased or otherwise satisfied, and not be considered paid, and the assignment and pledge of the Pledged Assets and A-24

65 all covenants, agreements, and other obligations of the District and the Corporation to the Owners shall continue to exist and shall run to the benefit of the Certificate Insurer, and the Certificate Insurer shall be subrogated to the rights of such Owners. Any Outstanding Certificates shall prior to the maturity date or prepayment date thereof be deemed to have been paid within the meaning of and with the effect expressed in the Trust Agreement if (1) in case any of such Certificates are to be prepaid on any date prior to their maturity date, the District shall have given to the Trustee in form satisfactory to it irrevocable instructions to mail, on a date in accordance with the provisions of the Trust Agreement, a Prepayment Notice for such Certificates on said prepayment date, such Prepayment Notice to be given in accordance with the Trust Agreement, (2) there shall have been deposited with the Trustee either (A) money in an amount that shall be sufficient or (B) direct non-callable direct obligations of the United States of America ( Treasuries ), (ii) evidences of ownership of proportionate interests in future interest and principal payments on Treasuries held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying Treasuries are not available to any person claiming through the custodian or to whom the custodian may be obligated, (iii) subject to the prior written consent of the Certificate Insurer, pre-refunded municipal obligations rated AAA by Standard & Poor s and Aaa by Moody s, or (iv) subject to the prior written consent of the Certificate Insurer, securities eligible for AAA defeasance under the existing criteria of Standard & Poor s (or any combination thereof), or (iv) any such other obligations or securities as shall be approved in writing by the Certificate Insurer) the interest on and principal of which when paid will provide money that, together with the money, if any, deposited with the Trustee at the same time, shall, as verified by an independent certified public accountant, be sufficient to pay when due the interest to become due with respect to such Certificates on and prior to the maturity date or prepayment date thereof, as the case may be, and the principal and prepayment premiums, if any, payable with respect to such Certificates, (3) in the event such Certificates are not by their terms subject to prepayment within the next succeeding sixty (60) days, the District shall have given the Trustee in form satisfactory to it irrevocable instructions to mail as soon as practicable, a notice to the Owners of such Certificates and the Certificate Insurer that the deposit required by clause (2) above has been made with the Trustee and that such Certificates are deemed to have been paid in accordance with this provision and stating the maturity date or prepayment date upon which money is to be available for the payment of the principal and prepayment premiums, if any, with respect to such Certificates, and (4) in the case of Certificates subject to the book-entry system, the Trustee shall give notice to the Depository of the prepayment of all or part of such Certificates on the date proceeds or other funds are deposited in escrow with respect to Certificates. Nothing in this paragraph shall preclude prepayments pursuant to the Trust Agreement. After the payment of all the interest and principal with respect to all Outstanding Certificates as provided above, the Trustee shall execute and deliver to the District and the Corporation all such instruments as may be necessary or desirable to evidence the discharge and satisfaction of the Trust Agreement, and the Trustee shall pay over or deliver to the District all moneys or securities held by it pursuant to the Trust Agreement that are not required for the payment of the interest and principal represented by such Certificates. Notwithstanding the discharge and satisfaction of the Trust Agreement, Owners of Certificates shall thereafter be entitled to payments due under the Certificates pursuant to the Lease, but only from amounts deposited pursuant to the Trust Agreement and from no other source. Notwithstanding anything in the Trust Agreement to the contrary, in the event that the principal and/or interest due with respect to the Certificates shall be paid by the Certificate Insurer pursuant to the Certificate Insurance Policy, the Certificates shall remain Outstanding for all purposes, not be defeased or otherwise satisfied, and not be considered paid, and the assignment and pledge of the Pledged Assets and all covenants, agreements, and other obligations of the District and the Corporation to the Owners shall A-25

66 continue to exist and shall run to the benefit of the Certificate Insurer, and the Certificate Insurer shall be subrogated to the rights of such Owners. As a precondition to the defeasance of the Certificates pursuant to the Trust Agreement, the Certificate Insurer shall be provided with: (i) fifteen Business Days notice of any advance refunding of the Certificates; (ii) a report of an Independent Certified Public Accountant acceptable to the Certificate Insurer verifying the sufficiency of the escrow established to pay the Certificates in full on the maturity or prepayment date; and (iii) an opinion of Independent Counsel to the effect that the Certificates are no longer Outstanding under the Trust Agreement and that the escrow agreement establishing such defeasance operates to legally defease the Certificates within the meaning of the Trust Agreement. Policy. Provisions Relating to the Certificate Insurance Provider and the Certificate Insurance Payment Procedure Pursuant to the Certificate Insurance Policy. As long as the Certificate Insurance Policy shall be in full force and effect, the District, the Corporation, and the Trustee, as applicable, shall comply with the following provisions: (a) In the event that on the second Business Day prior to any payment date on the Certificates, the Trustee has not received sufficient moneys to pay all principal and interest with respect to the Certificates due on such payment date, the Trustee shall immediately notify the Certificate Insurer or its designee on the same business day by telephone or electronic mail, of the amount of the deficiency. (b) If any deficiency is made up in whole or in part prior to or on the payment date, the Trustee shall so notify the Certificate Insurer or its designee. (c) In addition, if the Trustee has notice that any Owner has been required to disgorge payments of principal or interest with respect to the Certificates pursuant to a final, nonappealable order by a court of competent jurisdiction that such payment constitutes an avoidable preference to such Owner within the meaning of any applicable bankruptcy law, then the Trustee shall notify the Certificate Insurer or its designee of such fact by telephone or electronic mail, or by overnight or other delivery service as to which a delivery receipt is signed by a person authorized to accept delivery on behalf of the Certificate Insurer. (d) The Trustee is irrevocably designated, appointed, directed, and authorized to act as attorney-in-fact for Owners as follows: (i) If there is a deficiency in amounts required to pay interest with respect to the Certificates, the Trustee shall (i) execute and deliver to the Certificate Insurer, in form satisfactory to the Certificate Insurer, an instrument appointing the Certificate Insurer as agent and attorney-in-fact for such Owners in any legal proceeding related to the payment and assignment to the Certificate Insurer of the claims for interest on the Certificates, (ii) receive as designee of the respective Owners (and not as paying agent) in accordance with the tenor of the Certificate Insurance Policy payment from the Certificate Insurer with respect to the claims for interest so assigned, and (iii) disburse the same to such respective Owners; and (ii) If there is a deficiency in amounts required to pay principal of the Certificates, the Trustee shall (i) execute and deliver to the Certificate Insurer, in form satisfactory to the Certificate Insurer, an instrument appointing the Certificate Insurer as agent and attorney-in-fact for such Owner in any legal proceeding related to the payment of such principal and an assignment to the Certificate Insurer of the Certificates surrendered to the Certificate Insurer, (ii) receive as designee of the respective Owners (and not as Paying Agent) in A-26

67 accordance with the tenor of the Certificate Insurance Policy payment therefore from the Certificate Insurer, and (iii) disburse the same to such Owners. (e) Payments with respect to claims for interest and principal with respect to the Certificates disbursed by the Trustee from proceeds of the Certificate Insurance Policy shall not be considered to discharge the obligation of the District with respect to such Certificates, and the Certificate Insurer shall become the Owner of such unpaid Certificates and claims for the interest in accordance with the tenor of the assignment made to it under the provisions of the preceding paragraphs or otherwise. (f) Irrespective of whether any such assignment is executed and delivered, the District and the Trustee agree for the benefit of the Certificate Insurer that: (i) They recognize that to the extent the Certificate Insurer makes payments, directly or indirectly (e.g., by paying through the Trustee), on account of principal or interest with respect to the Certificates, the Certificate Insurer will be subrogated to the rights of such Owners to receive the amount of such principal and interest from the District, with interest thereon as provided and solely from the sources stated in the Trust Agreement and the Certificates; and (ii) They will accordingly pay to the Certificate Insurer the amount of such principal and interest, with interest thereon as provided in the Trust Agreement and the Certificates, but only from the sources and in the manner provided therein for the payment of principal of and interest on the Certificates to Owners, and will otherwise treat the Certificate Insurer as the owner of such rights to the amount of such principal and interest. Certificate Insurer As Third Party Beneficiary. To the extent that the Trust Agreement confers upon or gives or grants to the Certificate Insurer any right, remedy, or claim under or by reason of the Trust Agreement, the Certificate Insurer is explicitly recognized as being a third-party beneficiary under the Trust Agreement and may enforce any such right remedy or claim conferred, given, or granted under the Trust Agreement. Consent of Certificate Insurer in the Event of Insolvency. Any reorganization or liquidation plan with respect to the District or the Corporation must be acceptable to the Certificate Insurer. In the event of any reorganization or liquidation of the District or the Corporation, the Certificate Insurer shall have the right to vote on behalf of all holders of the Certificates absent a continuing failure by the Certificate Insurer to make a payment under the Certificate Insurance Policy. Notices/Information to be Given to Certificate Insurer. (a) While the Certificate Insurance Policy is in effect, the District, the Corporation, or the Trustee, as appropriate, shall furnish to the Certificate Insurer at the address set forth in the Trust Agreement: (i) In connection with the issuance of additional bonds or other obligations payable from the District s general fund, the District shall deliver to the Certificate Insurer a copy of the disclosure document, if any, circulated with respect to such additional bonds or obligations. (ii) Copies of any amendments made to the documents executed in connection with the execution and delivery of the Certificates that are consented to by the Certificate Insurer shall be sent to Standard & Poor s. (iii) The Certificate Insurer shall receive notice of the resignation or removal of the Trustee and the appointment of a successor thereto. A-27

68 (iv) The Certificate Insurer shall receive copies of all notices required to be delivered to the Owners and, on an annual basis, copies of the District s audited financial statements and annual budget. (b) The District agrees unconditionally that it will pay or reimburse the Certificate Insurer on demand any and all reasonable charges, fees, costs, losses, liabilities and expenses that the Certificate Insurer may pay or incur, including, but not limited to, fees and expenses of the Certificate Insurer s agents, attorneys, accountants, consultants, appraisers and auditors and reasonable costs of investigations, in connection with the administration (including waivers and consents, if any), enforcement, defense, exercise or preservation of any rights and remedies in respect of the Security Documents ( Administrative Costs ). For purposes of the foregoing, costs and expenses shall include a reasonable allocation of compensation and overhead attributable to the time of employees of the Certificate Insurer spent in connection with the actions described in the preceding sentence. The District agrees that failure to pay any Administrative Costs on a timely basis will result in the accrual of interest on the unpaid amount at the Late Payment Rate, compounded semi-annually, from the date that payment is first due to the Certificate Insurer until the date the Certificate Insurer is paid in full. (c) The District agrees not to use the Certificate Insurer's name in any public document including, without limitation, a press release or presentation, announcement, or forum without the Certificate Insurer's prior consent; provided, however, such prohibition on the use of the Certificate Insurer's name shall not relate to the use of the Certificate Insurer s standard approved form of disclosure in public documents issued in connection with the Certificates to be executed and delivered in accordance with the terms of the Certificate Insurer s commitment letter dated March 25, 2015; and provided further, such prohibition shall not apply to the use of the Certificate Insurer's name in order to comply with public notice, public meeting, or public reporting requirements. (d) The District shall not enter into any agreement nor shall it consent to or participate in any arrangement pursuant to which Certificates are tendered or purchased for any purpose other than the prepayment and cancellation or legal defeasance of such Certificates without the prior written consent of the Certificate Insurer, so long as the Certificate Insurer is not in default in its payment obligations under the Certificate Insurance Policy. LEASE Lease Term; Transfer of Title to District. Pursuant to the Lease, the Corporation subleases all Components of the Property to the District, and the District subleases all Components of the Property from the Corporation, and the District agrees to pay the Base Rental and the Additional Rental as provided in the Lease for the right to the use and possession of the Property, all on the terms and conditions set forth in the Lease. The term of the Lease shall begin on the Closing Date and end on the earliest of (a) September 1, 2036 provided that in the event the principal and interest payable with respect to the Certificates and all other amounts payable under the Lease and under the Trust Agreement shall not be fully paid, or if the Base Rental or Additional Rental due under the Lease shall have been abated at any time as permitted by the terms of the Lease, then the term of the Lease shall be extended, except that the term shall in no event be extended beyond September 1, 2046, or (b) at such date as the Certificates shall have been paid or provision for their payment shall have been made in accordance with the Trust Agreement, or (c) the date of termination of the Lease due to condemnation in accordance with the terms of the Lease, or (d) the date on which (i) the District has exercised its right to purchase all the Components of the Property pursuant to the Lease and (ii) no Certificates are Outstanding under the Trust Agreement. A-28

69 Pursuant to the exercise of the option to purchase the Property, or a Component thereof pursuant to the Lease, and upon defeasance of the allocable portion of the Certificates related to such Component or Components of the Property in accordance with the Trust Agreement; title to the Component or Components of the Property that is purchased, and any improvements thereon or additions thereto, shall be transferred directly to the District or, at the option of the District, to any assignee or nominee of the District, in accordance with the provisions of the Lease, free and clear of any interest of the Corporation. The District covenants that, on the Closing Date, the District shall be in possession of the Property. Rental Payments. Pursuant to the Lease, the District agrees, subject to the terms of the Lease, to pay to the Corporation the Base Rental and Additional Rental in an amount no greater than the aggregate fair rental value of all the Components of the Property in each Lease Year. For purposes of the Lease, the term fair rental value shall refer to the maximum amount of rental payments payable with respect to each Component that may be supported by the fair market value of such Component, as estimated by the District, initially, and thereafter as provided in the Lease. On the Closing Date, the District shall deliver a certificate to the Corporation and the Trustee that shall set forth the fair rental value of each Component of the Property. In satisfaction of its obligations under the Lease, the District shall pay the Base Rental and Additional Rental in the amounts, at the times, and in the manner set forth in the Lease, such amounts constituting in the aggregate the rent payable under the Lease. Base Rental. The District agrees to pay, from legally available funds, aggregate Base Rental in the amounts set forth in the Lease, a portion of which Base Rental constitutes principal payable with respect to the Certificates and a portion of which constitutes interest payable with respect to the Certificates, as determined in accordance with the terms of the Lease. The Base Rental payable by the District shall be due five (5) Business Days prior to each Interest Payment Date during the Lease Term. Each Base Rental payment shall be with respect to the immediately preceding six month period. To secure the performance of its obligation to pay Base Rental, the District shall deposit the Base Rental with the Trustee on or before the date on which such Base Rental is due, for application by the Trustee in accordance with the terms of the Trust Agreement. In the event any such date of deposit is not a Business Day, such deposit shall be made on the next succeeding Business Day. In no event shall the amount of Base Rental payable on any date exceed the aggregate amount of principal and interest required to be paid or prepaid on such date with respect to the Outstanding Certificates, according to their tenor. The obligation of the District to pay Base Rental shall commence on the Closing Date, subject to any reductions or credits described in the Lease. Additional Rental. In addition to the Base Rental set forth in the Lease, the District agrees to pay as Additional Rental all of the following: (i) All taxes and assessments of any nature whatsoever, including but not limited to excise taxes, ad valorem taxes, ad valorem and specific lien special assessments, and gross receipts taxes, if any, levied upon the Property or upon any interest of the Corporation, the Trustee, or the Owners therein or in the Lease; (ii) On or before each Interest Payment Date, the District shall deposit or cause to be deposited, from its legally available funds, such amounts as are necessary to increase the amount on deposit in the Reserve Fund to an amount equal to the Reserve Requirement. Furthermore, in the event that the Trustee notifies the Corporation or the District that the amount on deposit in the Reserve Fund is A-29

70 less than the Reserve Requirement, the District shall deposit or cause to be deposited, from its legally available funds, in the Reserve Fund such amounts as are necessary to increase the amount on deposit therein to the Reserve Requirement. Lease; (iii) (iv) Insurance premiums, if any, on all insurance required under the provisions of the Any rebate amounts required to be paid to the United States Treasury; (v) All fees, costs, and expenses (not otherwise paid or provided for out of the proceeds of the sale of the Certificates) of the Trustee and any paying agent in connection with the Trust Agreement; (vi) All fees, costs, expenses, and other amounts due to the Certificate Insurer under the Lease and under the Trust Agreement; (vii) All amounts required to be paid by the District, other than from Pledged Assets, under the Trust Agreement; and (viii) Any other fees, costs, or expenses incurred by the Corporation, the Certificate Insurer, or the Trustee in connection with the execution, performance, or enforcement of the Lease or any assignment thereof or of the Trust Agreement or any of the transactions contemplated by the Lease or the Trust Agreement or related to the Property. Amounts constituting Additional Rental payable under the Lease shall be paid by the District directly to the person or persons to whom such amounts shall be payable. The District shall pay all such amounts when due or, in any other case, within thirty (30) days after notice in writing from the Trustee, the Certificate Insurer, or the Corporation to the District stating the amount of Additional Rental then due and payable and the purpose thereof. Consideration. The payments of Base Rental and Additional Rental under the Lease for each Fiscal Year or portion thereof during the Lease Term shall constitute the total rental for such Fiscal Year or portion thereof and shall be paid by the District for and in consideration of the right to the use and possession of the Property by the District for and during such Fiscal Year or portion thereof; provided that, the Base Rental and Additional Rental payments shall be subject to abatement as provided in the Lease during any period in which by reason of damage, destruction, or taking by eminent domain or condemnation of, or defects in the title with respect to, the Property or any portion thereof, there is substantial interference with the use and possession by the District of all or a portion of the Components comprising the Property. The parties to the Lease have agreed and determined that such total rental is not in excess of the total fair rental value of the Property. In making such determination, consideration has been given to the uses and purposes served by the Property and the benefits therefrom that will accrue to the parties by reason of the Lease and to the general public by reason of the District s right to the use of the Property. Budget. The District has covenanted to take such action as may be necessary to include all Base Rental and Additional Rental due under the Lease as a separate line item in its annual budget and to make the necessary annual appropriations for all such Base Rental and Additional Rental, subject to the Lease. The covenants on the part of the District contained in the Lease shall be deemed to be and shall be construed to be ministerial duties imposed by law and it shall be the ministerial duty of each and every public official of the District to take such action and do such things as are required by law in the performance of such official duty of such officials to enable the District to carry out and perform the covenants and agreements on the part of the District contained in the Lease. The obligation of the District A-30

71 to make Base Rental or Additional Rental payments does not constitute an obligation of the District for which the District is obligated to levy or pledge any form of taxation or for which the District has levied or pledged any form of taxation. Neither the Certificates nor the obligation of the District to make Base Rental or Additional Rental payments constitutes an indebtedness of the District, the State, or any of its political subdivisions within the meaning of any constitutional or statutory debt limitation or restriction. Payment; Credit. Amounts necessary to pay Base Rental shall be deposited by the District on the dates set forth in the Lease in lawful money of the United States of America, at the Principal Office of the Trustee, or at such other place or places as may be established in accordance with the Trust Agreement. Any amount necessary to pay any Base Rental or portion thereof that is not so deposited shall remain due and payable until received by the Trustee and shall continue to bear interest at the rate or rates applicable thereto from the date when the same is due under the Lease until the same shall be paid. Notwithstanding any dispute between the District and the Corporation under the Lease, the District shall make all Base Rental and Additional Rental payments when due without deduction or offset of any kind and shall not withhold any rental payments pending the final resolution of such dispute or for any other reason whatsoever. The District s obligation to make Base Rental and Additional Rental payments in the amount and on the terms and conditions specified under the Lease shall be absolute and unconditional without any right of set-off or counterclaim, and without abatement, subject only to the provisions of the Lease. Amounts required to be deposited with the Trustee pursuant to the Lease on any date shall be reduced to the extent of amounts on deposit on such date in the Debt Service Fund held by the Trustee under the Trust Agreement and that are available to pay Base Rental on the applicable Interest Payment Date, except for amounts being held therein for the payment of Certificates that have matured or been called but have not been surrendered for payment. Rental Abatement. Except to the extent of amounts available to the District for payments under the Lease (including amounts on deposit in the Reserve Fund and the proceeds of condemnation awards, casualty, title, or rental interruption insurance), during any period in which, by reason of material damage or destruction, there is substantial interference with the right to the use and occupancy by the District of any Component of the Property, Base Rental and Additional Rental payments due under the Lease shall be abated proportionately, and the District waives the benefits of Civil Code Sections 1932(1), 1932(2), and 1933(4) and any and all other rights to terminate the Lease by virtue of any such interference and the Lease shall continue in full force and effect. The amount of such abatement shall be agreed upon by the District and the Trustee, subject to the Lease. The District and the Corporation shall calculate such abatement and shall provide the Trustee and the Certificate Insurer with a certificate setting forth such calculation and the basis therefor. Such abatement shall continue for the period commencing with the date of such damage or destruction and ending with the substantial completion of the work of repair or replacement of the Component of the Property so damaged or destroyed; and the term of the Lease shall be extended as provided in the Lease, except that the term shall in no event be extended beyond the maximum term provided in the Lease. Notwithstanding the foregoing, to the extent that moneys are available for the payment of Base Rental or Additional Rental in any of the funds and accounts established under the Trust Agreement, such rental payments shall not be abated as provided above but, rather, shall be payable by the District as a special obligation payable solely from said funds and account. If an event of abatement shall occur during the term of the Lease, upon cessation of the event of abatement, the Property, or any portion thereof, subject to abatement shall be appraised to determine its current fair rental value. If such value has increased since the Closing Date, Base Rental and Additional Rental payments shall be increased for the remaining term to reflect such increase so that the abated Base Rental and Additional Rental payments are fully paid. A-31

72 The Lease is intended to be a triple net lease. The District has agreed in the Lease that the Base Rental and Additional Rental provided for therein shall be an absolute net return to the Corporation free and clear of any expenses, charges, or setoffs whatsoever, except as provided in the Lease. Affirmative Covenants of the Corporation and the District. The Corporation and the District are entering into the Lease in consideration of, among other things, the following covenants: Maintenance and Ordinary Repairs. The District shall, at its own expense, during the Lease Term, maintain the Property, or cause the same to be maintained, in good order, condition, and repair and shall repair or replace any portion of the Property resulting from ordinary wear and tear and want of care on the part of the District or any sublessee thereof. The District shall provide or cause to be provided all security service, custodial service, janitorial service, and other services necessary for the proper upkeep and maintenance of the Property. It is understood and agreed that in consideration of the payment by the District of the rental payments provided for in the Lease, the District is entitled to the right of possession of the Property and the Corporation shall have no obligation to incur any expense of any kind or character in connection with the management, operation, or maintenance of the Property during the Lease Term. The Corporation shall not be required at any time to make any improvements, alterations, changes, additions, repairs, or replacements of any nature whatsoever in or to the Property. The District expressly waives the right to make repairs or to perform maintenance of the Property at the expense of the Corporation and (to the extent permitted by law) waives the benefit of Sections 1932, 1941, and 1942 of the California Civil Code relating thereto. The District shall keep the Property free and clear of all liens, charges, and encumbrances other than Permitted Encumbrances and those encumbrances existing on or prior to the Closing Date or on or prior to the date any property is substituted for any of the Property pursuant to the Lease and covered by the exceptions and exclusions set forth in the title policies delivered pursuant to the Lease, and any liens of mechanics, materialmen, suppliers, vendors, or other persons or entities for work or services performed or materials furnished in connection with the Property that are not due and payable or the amount, validity, or application of which is being contested in accordance with the Lease as expressly approved by the District, the Certificate Insurer, and the Corporation prior to the Closing Date, subject only to the provisions of the Lease. Taxes, Other Governmental Charges and Utility Charges. The Corporation and the District contemplate that the Property will be used for a governmental or proprietary purpose of the District and, therefore, that the Property will be exempt from all taxes presently assessed and levied with respect to the Property. Nevertheless, the District agrees to pay during the Lease Term, as the same respectively become due, all taxes (except for income or franchise taxes of the Corporation), utility charges, and governmental charges of any kind whatsoever that may at any time be lawfully assessed or levied against or with respect to the Property; provided, however, that, with respect to any governmental charges that may lawfully be made in installments over a period of years, the District shall be obliged to pay only such installments as are accrued during such time as the Lease is in effect; and, provided further, that the District may contest in good faith the validity or application of any tax, utility charge, or governmental charge in any reasonable manner that does not adversely affect the right, title, and interest of the Corporation in and to any portion of the Property or its rights or interests under the Lease or subject any portion of the Property to loss or forfeiture. Any such taxes or charges shall constitute Additional Rental under the Lease and shall be payable directly to the entity assessing such taxes or charges. Insurance. The District shall secure and maintain or cause to be secured and maintained at all times with insurers of recognized responsibility or through a program of self-insurance (which shall be deemed for purposes of the Lease to include risk sharing pools) to the extent specifically permitted in the Lease, all insurance coverage on the Property required by the Lease. Such insurance or self-insurance shall consist of: A-32

73 (1) A policy or policies of insurance (excluding earthquake and flood insurance) against loss or damage to the Property known as all risk. Such insurance shall be provided by an insurer rated no less than A by A. M. Best or as otherwise approved by the Certificate Insurer and shall be maintained at all times in an amount not less than the greater of the full replacement value of the Property or the aggregate principal amount of Certificates at such time Outstanding; (2) General liability coverage against claims for damages including death, personal injury, bodily injury, or property damage arising from operations involving the Property. Such insurance shall afford protection with a combined single limit of not less than $2,000,000 per occurrence with respect to bodily injury, death, or property damage liability, or such greater amount as may from time to time be recommended by the District s risk management officer or an independent insurance consultant retained by the District for that purpose; provided, however, that the District s obligations under this clause (2) may be satisfied by self-insurance; (3) Workers compensation insurance issued by a responsible carrier authorized under the laws of the State to insure employers against liability for compensation under the Labor Code of the State, or any act hereafter enacted as an amendment or supplement thereto or in lieu thereof, such workers compensation insurance to cover all persons employed by the District in connection with the Property and to cover liability for compensation under any such act; provided, however, that the District s obligations under this clause (3) may be satisfied by self-insurance; (4) Rental interruption insurance to cover loss, total or partial, of the use of any Component of the Property as a result of any of the hazards covered by the insurance required pursuant to clause (1) above, covering a period of twenty-four (24) months, in an amount equal to the product obtained by multiplying the maximum annual Base Rental payments coming due and payable by 2.0. (5) A CLTA policy or policies of title insurance for the Property in an amount not less than the initial aggregate principal amount of the Certificates. Such policy or policies of title insurance shall show fee simple title to the Property in the name of the District and a leasehold estate in the name of the Corporation, subject to Permitted Encumbrances as will not, in the opinion of the Corporation and the Certificate Insurer, materially adversely affect the use and possession of the Property and will not result in the abatement of Base Rental payable by the District under the Lease. All policies or certificates issued by the respective insurers for insurance, with the exception of workers compensation insurance, shall provide that such policies or certificates shall not be cancelled or materially changed without at least thirty (30) days prior written notice to the Trustee. The District shall deliver to the Trustee and the Certificate Insurer on the Closing Date and on or prior to July 1 of each year thereafter a certificate signed by a duly authorized District Representative stating whether the District is in compliance with the requirements of the Lease, and, in the event it is not in compliance, specifying the nature of the noncompliance, and what action the District is taking to remedy such noncompliance. The District shall further provide the Certificate Insurer with copies of such insurance policies upon request. All policies or certificates of insurance held by the District provided for in the Lease shall name the District as a named insured, and the policies and certificates described in clauses (1) and (4) above shall name (in addition to the District) the Corporation and the Trustee as additional insureds. All proceeds of insurance maintained under clauses (1), (4), and (5) above shall be deposited with the Trustee for application pursuant to the Trust Agreement. All proceeds of insurance maintained under clauses (2) and (3) shall be deposited with the District. None of the District, the Corporation, or the Trustee shall settle claims under any of the insurance policies required under the Lease without the consent of the A-33

74 Certificate Insurer, so long as the Certificate Insurer is not in default in its payment obligations under the Certificate Insurance Policy. Notwithstanding the generality of the foregoing, the District shall not be required to maintain or cause to be maintained more insurance than is specifically referred to above or any policies of insurance other than standard policies of insurance with standard deductibles offered by reputable insurers on the open market. All permitted self-insurance shall be biannually reviewed by the District Representative, who shall provide the Trustee a report as to the sufficiency thereof. Liens. The District shall promptly pay or cause to be paid all sums of money that may become due for any labor, services, materials, supplies, or equipment alleged to have been furnished or to be furnished to, for, in, upon, or about the Property and that may be secured by any mechanic s, materialman s, or other lien against the Property, or the interest of the Corporation therein, and shall cause each such lien to be fully discharged and released; provided, however, that the District or the Corporation, in good faith, (i) may contest any such claim or lien without payment thereof so long as such non-payment and contest stays execution or enforcement of the lien, but if such lien is reduced to final judgment and such judgment or such process as may be issued for the enforcement thereof is not stayed, or if stayed and the stay thereafter expires, then and in any such event the District shall forthwith pay and discharge such judgment or lien, or (ii) may delay payment without contest so long as and to the extent that such delay will not result in the imposition of any penalty or forfeiture. Laws and Ordinances. The District shall observe and comply with all rules, regulations, and laws applicable to the District with respect to the Property and the operation thereof. The cost, if any, of such observance and compliance shall be borne by the District, and the Corporation shall not be liable therefor. The District shall place, keep, use, maintain, and operate the Property in such a manner and condition as will provide for the safety of its agents, employees, invitees, subtenants, licensees, and the public. Flood Plain. The District covenants that no Component of the Property is located in a 100 year flood plain. Application of Insurance Proceeds. General. Proceeds of insurance received in respect of destruction of or damage to any portion of the Property by fire or other casualty or event (excluding earthquake or flood) shall be paid to the Trustee for application in accordance with the provisions of the Trust Agreement. If there is an abatement of rental payments pursuant to the Lease as a result of such casualty or event, and the District, with the consent or at the direction of the Certificate Insurer, elects pursuant to the Trust Agreement to apply such insurance to the prepayment of Certificates rather than to the replacement or repair of the destroyed or damaged portion of the Property, then the Base Rental, with respect to the applicable Component or Components, shall be adjusted in accordance with such prepayment of Certificates. If the District, with the consent or at the direction of the Certificate Insurer, elects pursuant to the Trust Agreement to apply such proceeds to the repair or replacement of the portion of the Property that has been damaged or destroyed, in the event there has been an abatement of rental payments pursuant to the Lease, then rental payments shall again begin to accrue with respect thereto upon restoration of the District to its right to the use and possession of such portion of the Property. Title Insurance. Proceeds of title insurance received with respect to the Property shall be paid to the Trustee for application in accordance with the provisions of the Trust Agreement. A-34

75 Eminent Domain. If the Property, or so much thereof as to render the remainder of the Property unusable for the District s purposes under the Lease, shall be taken under the power of eminent domain, then the Lease shall terminate as of the day possession shall be so taken. If less than a substantial portion of the Property shall be taken under the power of eminent domain, and the remainder is useable for the District s purposes, then the Lease shall continue in full force and effect as to the remaining portions of the Property, subject only to such rental abatement as is required by the Lease. The District and the Corporation waive the benefit of any law to the contrary. Any award made in eminent domain proceedings for the taking shall be paid to the Trustee for application in accordance with the provisions of the Trust Agreement. If the District, with the consent or at the direction of the Certificate Insurer, elects pursuant to Trust Agreement, to apply such proceeds to the replacement of the condemned portion of the Property (in the event there has been an abatement of rental payments pursuant to the Lease), then rental payments shall again begin to accrue with respect the replacement portion of the Property upon restoration of the District to its right to use and possess such replacement portion of the Property. Condemnation Covenant. The District has covenanted and agreed in the Lease, to the extent it may lawfully do so, that so long as any of the Certificates remain outstanding and unpaid, the District will not exercise the power of condemnation with respect to the Property. The District has further covenanted and agreed in the Lease, to the extent it may lawfully do so, that if for any reason the foregoing covenant is determined to be unenforceable or if the District should fail or refuse to abide by such covenant and condemns the Property, the appraised value of the Property shall not be less that the greater of (i) if the Certificates are then subject to prepayment, the principal and interest portions of the Certificates outstanding through the date of their prepayment, or (ii) if the Certificates are not then subject to prepayment, the amount necessary to defease such Certificates to the first available prepayment date in accordance with the Trust Agreement. Assignment and Lease. The District shall not sell, mortgage, pledge, assign, or transfer any interest of the District in the Lease by voluntary act or by operation of law, or otherwise; provided, however, that the District may, with the prior written consent of the Certificate Insurer, so long as the Certificate Insurer is not in default in its payment obligation under the Certificate Insurance Policy, sublease all or any portion of the Property and may grant concessions to others involving the use of any portion of the Property, whether such concessions purport to convey a subleasehold interest or a license to use a portion of the Property; provided, however, that such sublease or grant shall be subject to the terms of the Lease. The District shall at all times remain primarily liable for the performance of the covenants and conditions on its part to be performed under the Lease, notwithstanding any subletting or granting of concessions that may be made. Nothing contained in the Lease shall be construed to relieve the District of its obligation to pay Base Rental and Additional Rental as provided in the Lease or to relieve the District from any other obligations contained in the Lease. In no event shall the District sublease to or permit the use of all or any part of the Property by any person so as to cause the portion of the Base Rental designated as and comprising interest and received by the Owners of the Certificates to be includable in gross income for federal income tax purposes or to be subject to State personal income tax. The Corporation shall, concurrently with the execution of the Lease, assign all of its right, title, and interest in and to the Lease (except for its right to payment of its expenses under the Lease, its right to indemnification pursuant to the Lease, and its right to receive certain notices under the Lease), including without limitation its right to receive Base Rental payable under the Lease, to the Trustee pursuant to the Trust Agreement, and the District consents to and approves such assignment. The parties to the Lease further agree to execute any and all documents necessary and, proper in connection therewith. A-35

76 Notwithstanding the foregoing, if no default or event of default has occurred and is continuing under the Lease, the District, upon the receipt of the prior written consent of the Certificate Insurer, in its sole discretion, may acquire from the Corporation, free and clear of the Corporation s rights under the Lease, any Component upon substituting therefor, and subject to the terms of the Lease, another Component that has an annual fair rental value at least equal to 100% of the maximum amount of Base Rental payments with respect to the Component being replaced becoming due in the then current Lease Year or in any subsequent Lease Year. As soon as practicable after the Corporation has received from the District (i) the prior written consent of the Certificate Insurer to such substitution, (ii) a written notice of the District s intention to substitute for any Component and subject to the terms of the Lease a new Component, (iii) a Certificate of the District that the total annual fair rental value of the new Component is at least equal to 100% of the maximum amount of Base Rental payments with respect to the Component being replaced becoming due in the then current Lease Year or in any subsequent Lease Year, and the remaining useful life is at least equal to the remaining term of the Lease, (iv) evidence that an amendment to the Lease reflecting a new Component description has been recorded in the Office of the Recorder of the County of Kern, (v) a CLTA policy or policies of title insurance for the new Component in an amount not less than the aggregate principal amount of Outstanding Certificates to be secured by Base Rental payments made with respect to the new Component (such policy or policies of title insurance shall show fee simple title to the new Component in the name of the District and a leasehold estate in the name of the Corporation, subject to Permitted Encumbrances that will not, in the opinion of the Corporation and the Certificate Insurer, materially adversely affect the use and possession of the new Component and will not result in the abatement of Base Rental payable by the District under the Lease), and (vi) an opinion of Independent Counsel that such substitution will not cause the portion of the Base Rental designated as and comprising interest and received by the Owners of the Certificates to be includable in gross income for federal income tax purposes or to be subject to State personal income tax, the Corporation shall execute and deliver to the District a quitclaim deed conveying to the District or its nominee the Corporation s right, title, and interest in the Component for which substitution was sought. In no event shall the Corporation transfer title to the Component to the District if any amounts are then due to the Corporation, the Trustee, or the Certificate Insurer pursuant to the terms of the Lease or the Trust Agreement. Additions and Improvements; Removal. The District shall have the right during the Lease Term to make any additions or improvements to any Component, to attach fixtures, structures, or signs, and to affix any personal property to any Component, so long as the fair rental value of the Component is not thereby reduced. Title to all equipment or personal property placed by the District on any Component shall remain in the District; provided, however title to additions, improvements, and fixtures shall be subject to the provisions of the Lease and the Property Lease. Title to any personal property or equipment placed on any Component by any sublessee or licensee of the District shall be controlled by the sublease or license agreement between such sublessee or licensee and the District, which sublease or license agreement shall not be inconsistent with the Lease. The District shall not remove or cause to be removed any equipment or personal property that may cause damage to the applicable Component or Components. Events of Default. If (i) the District shall fail to deposit with the Trustee any Base Rental payment required to be so deposited pursuant to the Lease by the close of business on the day such deposit is due and payable; (ii) the District shall fail to pay any item of Additional Rental as and when the same shall become due and payable pursuant to the Lease; (iii) the District shall breach any other terms, covenants, or conditions contained in the Lease or in the Trust Agreement, and shall fail to remedy any such breach with all reasonable dispatch within a period of thirty (30) days after written notice thereof shall have been given to the District from the Corporation, the Trustee, or the Certificate Insurer, or, if such breach cannot be remedied within such 30 day period, the District shall fail to institute corrective action within such 30-day period and diligently pursue the same to completion (provided that in the event such breach as provided in clause (iii) of this paragraph is not cured within sixty (60) days, the District A-36

77 shall obtain the prior written consent of the Certificate Insurer to pursue the same to completion beyond the grace period provided in the Lease); or (iv) the District shall file a case in bankruptcy, or any right or interest of the District under the Lease shall be subjected to any execution, garnishment, or attachment, or the District shall be adjudicated as bankrupt, or any assignment shall be made by the District for the benefit of creditors, or the District shall enter into an agreement of composition with creditors, or a court of competent jurisdiction shall approve of a petition applicable to the District in any proceedings instituted under the provisions of the federal bankruptcy code, as amended, or under any similar act that may hereafter be enacted, then and in any such event the District shall be deemed to be in default under the Lease. Remedies on Default. Upon any such default, the Corporation, and the Trustee, as its assignee, in addition to all other rights and remedies either may have at law, may, with the prior written consent of the Certificate Insurer, so long as the Certificate Insurer is not in default in its payment obligation under the Certificate Insurance Policy, and shall, at the direction of the Certificate Insurer, so long as the Certificate Insurer is not in default in its payment obligation under the Certificate Insurance Policy: (a) Terminate the Lease in the manner provided in the Lease on account of default by the District, notwithstanding any re-entry or re-letting of the Property as provided for in subparagraph (b) below, and to re-enter the Property and remove all persons in possession thereof and all personal property whatsoever situated upon the Property and place such personal property in storage in any warehouse or other suitable place located within the geographical boundaries of the District, for the account of and at the expense of the District. In the event of such termination, the District shall surrender immediately possession of the Property, without let or hindrance, and shall pay the Corporation all damages recoverable at law that the Corporation may incur by reason of default by the District, including, without limitation, any costs, loss, or damage whatsoever arising out of, in connection with, or incident to any such re-entry upon the Property and removal and storage of such property by the Corporation or its duly authorized agents in accordance with the provisions of the Lease. Neither notice to pay rent or to deliver up possession of the Property given pursuant to law nor any entry or re-entry by the Corporation nor any proceeding in unlawful detainer, or otherwise, brought by the Corporation for the purpose of effecting such re-entry or obtaining possession of the Property nor the appointment of a receiver upon initiative of the Corporation to protect the Corporation s interest under the Lease shall of itself operate to terminate the Lease, and no termination of the Lease on account of default by the District shall be or become effective by operation of law or acts of the parties to the Lease, or otherwise, unless and until the Corporation shall have given written notice to the District of the election on the part of the Corporation to terminate the Lease. The District covenants and agrees that no surrender of the Property or of the remainder of the Lease Term or any termination of the Lease shall be valid in any manner or for any purpose whatsoever unless stated or accepted by the Corporation by such written notice. (b) Without terminating the Lease, (A) collect each installment of Base Rental and Additional Rental as it becomes due and enforce any other terms or provisions of the Lease to be kept or performed by the District, regardless of whether or not the District has abandoned the Property or (B) exercise any and all rights of entry and re-entry upon the Property. In the event the Corporation does not elect to terminate the Lease in the manner provided for in subparagraph (i) above, the District shall remain liable and shall keep or perform all covenants and conditions contained in the Lease to be kept or performed by the District and, if the Property is not re-let, to pay the full amount of the rent to the end of the Lease Term or, in the event that the Property is re-let, to pay any deficiency in rent that results therefrom; and the District shall pay said rent or rent deficiency punctually at the same time and in the same manner as provided for in the Lease the payment of rent under the Lease, notwithstanding that the Corporation may have received in previous years or may receive thereafter in subsequent years rental in excess of the rental specified in the Lease, and notwithstanding any entry or re-entry by the Corporation or suit in unlawful detainer, or otherwise, brought by the Corporation for the purpose of effecting such re- A-37

78 entry or obtaining possession of the Property. Should the Corporation elect to re-enter as provided in the Lease, the District irrevocably appoints the Corporation as the agent and attorney-in-fact of the District to re-let the Property, or any part thereof, from time to time, either in the Corporation s name or otherwise, upon such terms and conditions and for such use and period as the Corporation may deem advisable and to remove all persons in possession thereof and all personal property whatsoever situated upon the Property and to place such personal property in storage in any warehouse or other suitable place located within the geographical boundaries of the District, for the account of and at the expense of the District, and the District indemnifies and agrees to save harmless the Corporation from any costs, loss, or damage whatsoever arising out of, in connection with, or incident to any such re-entry upon and re-letting of the Property and removal and storage of such property by the Corporation or its duly authorized agents in accordance with the provisions of the Lease. The District agrees that the terms of the Lease constitute full and sufficient notice of the right of the Corporation to re-let the Property in the event of such re-entry without effecting a surrender of the Lease, and further agrees that no acts of the Corporation in effecting such re-letting shall constitute a surrender or termination of the Lease, irrespective of the use or the term for which such re-letting is made or the terms and conditions of such re-letting, or otherwise, but that, on the contrary, in the event of such default by the District, the right to terminate the Lease shall vest in the Corporation, to be effected in the sole and exclusive manner provided for in subparagraph (a) above. The District further waives the right to any rental obtained by the Corporation in excess of the rental specified in the Lease and conveys and releases such excess to the Corporation as compensation to the Corporation for its services in re-letting the Property. The District further agrees to pay the Corporation the cost of any alterations or additions to the Property necessary to place the Property in condition for re-letting immediately upon notice to the District of the completion and installation of such additions or alterations. The District waives any and all claims for damages caused or which may be caused by the Corporation in reentering and taking possession of the Property as provided in the Lease and all claims for damages that may result from the destruction of or injury to the Property and all claims for damages to or loss of any property belonging to the District, or any other person, that may be in or upon the Property. In addition to the other remedies set forth in the Lease, upon the occurrence of an event of default as described in the Lease, the Corporation and the Trustee, as its assignee, shall be entitled, with the prior written consent of the Certificate Insurer, so long as the Certificate Insurer is not in default in its payment obligation under the Certificate Insurance Policy, to proceed to protect and enforce the rights vested in the Corporation and its assignee by the Lease or by law. The provisions of the Lease and the duties of the District and of its board members, officers, or employees shall be enforceable by the Corporation or its assignee by mandamus or other appropriate suit, action, or proceeding in any court of competent jurisdiction. Without limiting the generality of the foregoing, the Corporation and its assignee may, with the prior written consent of the Certificate Insurer, so long as the Certificate Insurer is not in default in its payment obligation under the Certificate Insurance Policy, and shall, at the direction of the Certificate Insurer, so long as the Certificate Insurer is not in default in its payment obligation under the Certificate Insurance Policy, bring the following actions: Accounting. By action or suit in equity to require the District and its board members, officers, and employees and its assigns to account as the trustee of an express trust. Injunction. By action or suit in equity to enjoin any acts or things that may be unlawful or in violation of the rights of the Corporation or its assignee. Mandamus. By mandamus or other suit, action, or proceeding at law or in equity to enforce the Corporation s or its assignee s rights against the District (and its board members, officers, and employees) and to compel the District to perform and carry out its duties and A-38

79 obligations under the law and its covenants and agreements with the Corporation as provided in the Lease. Notwithstanding anything to the contrary contained in the Lease, so long as the Certificate Insurer is not in default in its payment obligations under the Certificate Insurance Policy, no remedy shall be exercised under the Lease without the prior written consent of the Certificate Insurer and the Certificate Insurer shall have the right to direct the exercise of any remedy under the Lease. The termination of the Lease by the Corporation and its assignees on account of a default by the District under the Lease shall not affect or result in a termination of the lease of the Property by the District to the Corporation pursuant to the Property Lease. Each and every remedy of the Corporation or any assignee of the rights of the Corporation under the Lease is cumulative and the exercise of one remedy shall not impair the right of the Corporation or its assignee to any or all other remedies. If any statute or rule validly shall limit the remedies given to the Corporation or any assignee of the rights of the Corporation under the Lease, the Corporation or its assignee nevertheless shall be entitled to whatever remedies are allowable under any statute or rule of law. All damages and other payments received by the Corporation pursuant to the Lease shall be applied in the manner set forth in the Trust Agreement. Notwithstanding anything to the contrary contained in the Lease, in no event shall the Corporation re-let the Property or any Component thereof to any lessee that is not itself a governmental entity without first obtaining an opinion of Independent Counsel that such re-letting shall not adversely affect the exclusion from gross income of the portion of the Base Rental designated as and comprising interest and received by the Owners of the Certificates for federal income tax purposes. Option to Purchase. The District shall have the exclusive right and option, which shall be irrevocable during the Lease Term, to purchase all of the Corporation s right, title, and interest in the Property or any Component thereof on any Business Day, upon payment of the respective option price for the Property or such Component thereof, as further described below, but only if the District is not in default under the Lease or the Trust Agreement and only in the manner provided in the Lease. The option price for each Component in any Lease Year shall be an amount equal to the prepayment price of Outstanding Certificates, including prepayment premium, if any, as set forth in the Trust Agreement, in the principal amount equal to the principal components of the Base Rental payments remaining, as of the date such option will be exercised, with respect to such Component, plus the applicable prepayment premium, if any, as set forth in the Trust Agreement, plus accrued interest to the date of prepayment of the Certificates to be prepaid. Such option price is intended to represent the then fair value of such Component. If the Business Day on which the District intends to exercise its option under the Lease is, in accordance with the terms of the Trust Agreement, a date on which the Certificates are subject to optional prepayment, then the District shall exercise its option to purchase by giving notice to the Trustee of its intention to exercise its option under the Lease not less than forty-five (45) days prior to the Business Day on which it intends to exercise its option under the Lease and shall arrange for the deposit with the Trustee by the date on which it intends to exercise its option to purchase under the Lease an amount equal to the option price. If the Business Day on which the District intends to exercise its option under the Lease is not a date on which the Certificates are subject to optional prepayment pursuant to the terms of the Trust Agreement, the District shall exercise its option to purchase by giving notice thereof to the Trustee not A-39

80 later than ten (10) days prior to the Business Day on which it desires to purchase the Corporation s right, title, and interest in a Component and the option price shall be payable in installments. Each such installment (a) shall be payable at each time at which a payment of Base Rental would have been payable had such option not been exercised until the due date of the final installment referred to in the proviso set forth below in this paragraph, and (b) shall equal the principal component and the interest component of each Base Rental payment referred to in clause (a) above; provided, however, that the final installment shall be payable on the first date on which Certificates are subject to optional prepayment pursuant to the terms of the Trust Agreement and shall be in an amount equal to the option price on such date for that Component. Each such installment shall bear interest until paid at a rate equal to the rate that would have been payable with respect to the payments of Base Rental referred to in clause (a) above. In order to secure its obligations to pay the installments referred to above, and to cause the defeasance of the allocable portion of the Certificates relating to such Component, the District, concurrently with the exercise of its option under the Lease, shall satisfy the provisions in the Trust Agreement, including the deposit of amounts that will, together with the interest to accrue thereon without the need for further investment, be fully sufficient to pay the installments (including all principal and interest) and the option price referred to above at the times at which such installments and the option price are required to be paid. Such deposit shall be in addition to the Base Rental due on such date. On any Business Day as to which the District shall properly have exercised the option granted it pursuant to the Lease with respect to a Component and shall have paid or made provision (as set forth in the preceding paragraphs) for the payment of the required option price and provided for the defeasance of the allocable portion of the Certificates relating to such Component or Components in accordance with the terms and provisions of the Trust Agreement or shall have caused the prepayment of the allocable portion of the Certificates relating to such Component or Components in accordance with the terms and provisions of the Trust Agreement, as applicable, the Corporation shall execute and deliver to the District a quitclaim deed conveying to the District or its nominee the Corporation s right, title, and interest in that Component. If (A) the District shall (i) properly exercise the option provided in the Lease prior to the expiration of the Lease Term and (ii) provide for the defeasance of the allocable portion of the Certificates relating to such Component or Components in accordance with the terms and provisions of the Trust Agreement or shall have caused the prepayment of the allocable portion of the Certificates relating to such Component or Components in accordance with the terms and provisions of the Trust Agreement, as applicable, and (B) the Corporation shall execute and deliver the quitclaim deed to the Component as aforesaid, then the Lease shall terminate with respect to that Component, but such termination shall not affect the District s obligation to pay the option price on the terms set forth in the Lease and shall not affect the District s obligation to pay Base Rental and Additional Rental with respect to any other Component. PROPERTY LEASE The Property Lease is entered into between the District and the Corporation, and pursuant to its terms, the Corporation agrees to lease the Components of the Property, including all buildings and improvements thereon (collectively, the Property ), from the District. The Property Lease shall commence on the Closing Date and end on the earlier to occur of one week after (i) September 1, 2036 (which is the final maturity of the Certificates); provided that in the event the principal and interest payable with respect to the Certificates and all other amounts payable under the Lease and the Trust Agreement shall not be fully paid, or if the Base Rental or Additional Rental due under the Lease shall have been abated at any time as permitted by the terms of the Lease, then the term of the Property Lease shall be extended, except that the term shall in no event be extended beyond September 1, 2046, or (ii) the first date upon which the Certificates are no longer Outstanding under the Trust Agreement. A-40

81 The District reserves the right at any time to substitute real property and/or improvements thereon owned by the District for all or any Component of the Property, provided that: (a) the District obtains the prior written consent of the Corporation, the Certificate Insurer, and any municipal bond rating agency that has, at the request of the District, rated the Certificates executed and delivered pursuant to the Trust Agreement; and (b) the District finds (and delivers a certificate to the Corporation and Trustee setting forth its findings) that the substituted Component or Components of the Property and improvements thereon has the same or greater fair rental value than that Component or Components of the Property for which it is being substituted and that the Base Rental payments being made by the District for the then current Lease Year and subsequent Lease Year thereafter pursuant to the Lease will not be reduced. Upon the substitution of any Component or Components of the Property for the Component or Components constituting the Property, the District, the Corporation, and the Trustee shall execute and record with the Office of the County Recorder, County of Kern, California, any document necessary to release any Component or Components of the Property substituted pursuant to the provisions of the Property Lease and the Lease and to include the substituted Component or Components to constitute the released Component or Components of the Property under the Property Lease and the Lease. A-41

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83 General Information APPENDIX B PANAMA-BUENA VISTA UNION SCHOOL DISTRICT ECONOMIC, FINANCIAL, AND DEMOGRAPHIC INFORMATION The name Buena Vista is one of the oldest Spanish place names in the San Joaquin Valley, dating back to early explorers in The name Panama dates back to 1866 and is associated with the early settlers of the area who were reminded of the mosquitoes and swamps of the Isthmus of Panama. The Panama-Buena Vista Union School District (the District ) is located in the City of Bakersfield, California (the City ), and also extends outside the City to the south and west. Water supply to the residents within the District is provided by the City and the California Water Service Company. The City has also developed sewage treatment facilities for the area. The District area is largely farmland. In the 1980s, the City acquired water rights and water facilities in the northern area of the District from the Tenneco Company. Planned developments by Tenneco Company, Castle & Cooke, Inc., and others have resulted in the development of commercial and business centers in the northern portion of the District, approximately three miles from the central portion of the City. Residential growth has followed, together with new manufacturing and distribution facilities. The City s major commercial center is located in and adjacent to the northern portion of the District and includes Occidental of Elk Hills, Inc., Chevron USA, Berry Petroleum Company, Pyramid Oil Company, Halliburton Energy Services, Inc., Key Energy Services, Inc., and Aera Energy LLC. State Farm Insurance Company built a 500,000 square foot regional office in the District. Nestle Dairy Systems, one of Nestle S.A. s primary facilities for the production of ice cream, has a western regional distribution facility in the District. Castle & Cooke, Inc., is a major developer within the District. The economy of the District is diversified. The District includes over 20 square miles of residential, commercial, and industrial development, and over 60 square miles devoted primarily to agriculture. State Funding of Education Prior Revenue Limit Funding. Prior to fiscal year , California school districts operated under general purpose revenue limits established by the California Department of Education. Revenue limits generally were calculated for each school district by multiplying the A.D.A. for such district by a base revenue limit per unit of A.D.A. Revenue limit calculations were subject to adjustment in accordance with a number of factors designed to provide cost of living adjustments ( COLAs ) and to equalize revenues among school districts of the same type. Funding of a school district s revenue limit was provided by a mix of local property taxes and State apportionments of basic and equalization aid. The table below describes the average daily attendance from fiscal year to fiscal year In the 10 fiscal years shown, attendance has increased from 14,150 to 16,713, an average yearly increase of 2563 students. B-1

84 Table 2 PANAMA-BUENA VISTA UNION SCHOOL DISTRICT Average Daily Attendance Fiscal Year A.D.A. Increase , , , , , , , , , , Source: The District. Local Control Funding Formula. Assembly Bill 97, enacted as part of the fiscal year State budget and amended and clarified by Senate Bill 91 (as amended, AB 97 ), established a new system for funding school districts, charter schools, and county offices of education in California effective in fiscal year The primary component of AB 97 is the implementation of the Local Control Funding Formula ( LCFF ), which replaces the revenue limit funding system for determining State apportionments, as well as the majority of categorical program funding. State allocations will be provided on the basis of target base funding grants per unit of A.D.A. (a Base Grant ) assigned to each of four grade spans. Each Base Grant is subject to certain adjustments and add-ons, including COLAs. Full implementation of the LCFF is expected to occur over a period of eight fiscal years, concluding in fiscal year Beginning in fiscal year , an annual transition adjustment will be calculated for each school district, equal to such district s proportionate share of appropriations included in the State budget to close the gap between the prior-year funding level and the target allocation following full implementation of the LCFF. In each year, school districts will have the same proportion of their respective funding gaps closed, with dollar amounts varying depending on the size of a district s funding gap. For fiscal year , the Base Grants per unit of A.D.A. for each grade span are as follows: (i) $7,011 for grades K-3; (ii) $7,116 for grades 4-6; (iii) $7,328 for grades 7-8; and (iv) $8,491 for grades In each subsequent year, the Base Grants are to be adjusted for cost-of-living increases by applying the implicit price deflator for government goods and services. Following full implementation of the LCFF, the provision of COLAs will be subject to appropriation for such adjustment in the annual State budget. The differences among Base Grants are linked to differentials in statewide average revenue limit rates by district type, and are intended to recognize the generally higher costs of education at higher grade levels. The Base Grants for grades K-3 and 9-12 are subject to adjustments of 10.4% and 2.6%, respectively, to cover the costs of class size reduction in early grades and the provision of career technical education in high schools. Following full implementation of the LCFF, and unless otherwise collectively bargained for, school districts serving students in grades K-3 must maintain an average class enrollment of 24 or fewer students in grades K-3 at each school site in order to continue receiving the adjustment to the K-3 Base Grant. Such school districts must also make progress towards this class size reduction goal in proportion to the growth in their funding over the implementation period. Additional add-ons are also provided to school districts that received categorical block grant funding pursuant to the Targeted Instructional Improvement and Home-to-School Transportation programs during fiscal year B-2

85 School districts that serve students of limited English proficiency ( EL students), students from low income families that are eligible for free or reduced priced meals ( LI students) and foster youth are eligible to receive additional funding grants. Enrollment counts are unduplicated, such that students may not be counted as both EL and LI. Foster youth automatically meet the eligibility requirements for free or reduced priced meals. A supplemental grant add-on (each, a Supplemental Grant ) is authorized for school districts that serve EL/LI students, equal to 20% of the applicable Base Grant multiplied by such districts percentage of unduplicated EL/LI student enrollment. School districts whose EL/LI populations exceed 55% of their total enrollment are eligible for a concentration grant add-on (each, a Concentration Grant ) equal to 50% of the applicable Base Grant multiplied by the percentage of such district s unduplicated EL/LI student enrollment in excess of the 55% threshold. For certain school districts that would have received greater funding levels under the prior revenue limit system, the LCFF provides for a permanent economic recovery target ( ERT ) add-on, equal to the difference between the revenue limit allocations such districts would have received under the prior system in fiscal year , and the target LCFF allocations owed to such districts in the same year. To derive the projected funding levels, the LCFF assumes the discontinuance of deficit revenue limit funding, implementation of a 1.94% COLA in fiscal years through , and restoration of categorical funding to pre-recession levels. The ERT add-on will be paid incrementally over the eightyear implementing period of the LCFF. The District does not qualify for the ERT add-on. The sum of a school district s adjusted Base Grants, Supplemental Grants, and Concentration Grants will be multiplied by such district s A.D.A. from its second principal reporting period for the current or prior year, whichever is greater (with certain adjustments applicable to small school districts). This funding amount, together with any applicable ERT or categorical block grant add-ons, will yield a district s total LCFF allocation. Generally, the amount of annual State apportionments received by a school district will amount to the difference between such total LCFF allocation and such district s share of applicable local property taxes. Most school districts receive a significant portion of their funding from such State apportionments. As a result, decreases in State revenues may significantly affect appropriations made by the State Legislature to school districts. Certain schools districts, known as basic aid districts, have allocable local property tax collections that equal or exceed such districts total LCFF allocation, and result in the receipt of no State apportionment aid. Basic aid school districts receive only special categorical funding, which is deemed to satisfy the basic aid requirement of $120 per student per year guaranteed by Article IX, Section 6 of the State Constitution. The implication for basic aid districts is that the legislatively determined allocations to school districts, and other politically determined factors, are less significant in determining their primary funding sources. Rather, property tax growth and the local economy are the primary determinants. The District does not currently qualify as a basic aid district. The following table shows a breakdown of the District s estimated A.D.A. and LCFF funding for fiscal year B-3

86 Table 3 PANAMA-BUENA VISTA UNION SCHOOL DISTRICT A.D.A. and LCFF Funding Estimated Fiscal Year A.D.A. 16,810 LCFF Funding Per A.D.A. $7,264 Total LCFF Funding $122,103,662 (1) (1) Total may not add due to rounding. Source: The District. Accountability. The State Board of Education has promulgated regulations regarding the expenditure of supplemental and concentration funding. These regulations include a requirement that school districts increase or improve services for EL/LI students in proportion to the increase in funds apportioned to such districts on the basis of the number and concentration of such EL/LI students, as well as the conditions under which school districts can use supplemental or concentration funding on a schoolwide or district-wide basis. School districts are also required to adopt local control and accountability plans ( LCAPs ) disclosing annual goals for all students, as well as certain numerically significant student subgroups, to be achieved in eight areas of State priority identified by the LCFF. LCAPs may also specify additional local priorities. LCAPs must specify the actions to be taken to achieve each goal, including actions to correct identified deficiencies with regard to areas of State priority. LCAPs are required to be adopted every three years, beginning in fiscal year , and updated annually thereafter. The State Board of Education has developed and adopted a template LCAP for use by school districts. Support and Intervention. AB 97 establishes a new system of support and intervention to assist school districts to meet the performance expectations outlined in their respective LCAPs. School districts must adopt their LCAPs (or annual updates thereto) in tandem with their annual operating budgets, and not later than five days thereafter submit such LCAPs or updates to their respective county superintendents of schools. On or before August 15 of each year, a county superintendent may seek clarification regarding the contents of a district s LCAP (or annual update thereto), and the district is required to respond to such a request within 15 days. Within 15 days of receiving such a response, the county superintendent can submit non-binding recommendations for amending the LCAP or annual update, and such recommendations must be considered by the respective school district at a public hearing within 15 days. A district s LCAP or annual update must be approved by the county superintendent by October 8 of each year if the superintendent determines that (i) the LCAP or annual update adheres to the State template, and (ii) the district s budgeted expenditures are sufficient to implement the actions and strategies outlined in the LCAP. A school district is required to receive additional support if its respective LCAP or annual update thereto is not approved, if the district requests technical assistance from its respective county superintendent, or if the district does not improve student achievement across more than one State priority for one or more student subgroups. Such support can include a review of a district s strengths and weaknesses in the eight State priority areas, or the assignment of an academic expert to assist the district to identify and implement programs designed to improve outcomes. Assistance may be provided by the California Collaborative for Educational Excellence, a state agency created by the LCFF and charged with assisting school districts to achieve the goals set forth in their LCAPs. On or before October 1, 2015, the State Board of Education is required to develop rubrics to assess school district performance and the need for support and intervention. B-4

87 The State Superintendent of Public Instruction (the State Superintendent ) is further authorized, with the approval of the State Board of Education, to intervene in the management of persistently underperforming school districts. The State Superintendent may intervene directly or assign an academic trustee to act on his or her behalf. In so doing, the State Superintendent is authorized (i) to modify a district s LCAP, (ii) impose budget revisions designed to improve student outcomes, and (iii) stay or rescind actions of the local governing board that would prevent such district from improving student outcomes; provided, however, that the State Superintendent is not authorized to rescind an action required by a local collective bargaining agreement. Other State Sources. In addition to State allocations determined pursuant to the LCFF, the District receives other State revenues consisting primarily of restricted revenues designed to implement State mandated programs. Beginning in fiscal year , categorical spending restrictions associated with a majority of State mandated programs were eliminated, and funding for these programs was incorporated into the LCFF. Categorical funding for 14 programs was excluded from the LCFF, including, among others, child nutrition, after school education and safety, special education, and State preschool, and school districts will continue to receive restricted State revenues to fund these programs. District Budget Process The District is required by provisions of the California Education Code to maintain a balanced budget each year (the District Budget ), in which the sum of expenditures and the ending fund balance cannot exceed the sum of revenues and the carry-over fund balance from the previous year. The District adopted its District Budget on June 24, 2014, and subsequently adopted three revisions to its District Budget on August 12, 2014, December 12, 2014, and March 10, See APPENDIX D Excerpts from Panama-Buena Vista Union School District Budget/Projected Actuals for Fiscal Year (General Fund). The California Department of Education imposes a uniform budgeting and accounting format for school districts. A preliminary District Budget for the coming fiscal year is prepared following the January release of the Governor s proposed State budget (the State Budget ). The preliminary District Budget is presented to the Board of Trustees each year in late February or early March. After the release of the Governor s May revision to the State Budget (the May Revision ), a final District Budget is prepared. The District holds a hearing, at which the proposed District Budget is made available for public comment, if any. Following the hearing, the Board of Trustees takes action to adopt the District Budget. Such procedure confirms to State law, which requires the adoption of a District Budget each year before July 1. School districts in the State must also conduct a review of their budgets according to certain Criteria and Standards established by the California Department of Education. A written explanation must be provided for any element in the budget that does not meet the established Criteria and Standards. The Superintendent of the District, as Secretary of the Board of Trustees, must certify that such a review has been conducted and the certification, together with the budget review checklist and any written narrative, must accompany the budget when it is submitted to the County Superintendent of Schools for approval. Within 45 days after the Governor signs the State Budget, the District publishes any necessary revisions to the District Budget that result from the differences between the final State Budget and the May Revision. In addition, the District may make periodic revisions to the District Budget to incorporate the financial effects of a material change in circumstances, such as collective bargaining agreements, unexpected enrollment fluctuations, or significant utility rate changes. B-5

88 District Finances District Accounting Practices. The accounting policies of the District conform to generally accepted accounting principles, promulgated by the Financial Accounting Standards Board and the Governmental Accounting Standards Board and comply with policies and procedures of the California School Accounting Manual. Such manual, according to Section of the California Education Code, is to be followed by all school districts in the State. Revenue is recorded on an accrual basis except for District taxes which are considered revenue in the year collections are made. Expenditures are recorded according to receipt of goods and services on an accrual basis. The outside auditors for the District currently are Daniells Phillips Vaughan & Bock CPAs & Advisors. The audited financial statements for fiscal year are attached to this Official Statement as Appendix C. District s General Fund. The District s general fund finances the legally authorized activities of the District not provided for by other restricted funds. General fund revenues are derived from such sources as taxes, use of money, aid from other governmental agencies, charges for current services, and other revenue. See Comparative Financial Statements below for a summary of the District s general fund revenues, expenditures, and fund balances for fiscal years through (actual) and fiscal year (budgeted). District s Special Reserve Funds. Special reserve funds are provided under the State accounting structure as a repository for excess operating funds transferred in from the District s general fund. Excess is a matter of local interpretation, with all transfers in or out and all expenditures requiring Board of Trustees approval. There are two kinds of special reserve funds. One is a reserve for operating expenditures and the other is a reserve for capital outlay. The District maintains only a reserve for capital outlay, although there have been occasions when funds were transferred back to the general fund so they could be used for operating expenditures. The ability of any California district to make transfers to special reserve funds is limited to its ability to generate excess fund balance in its general fund. For a period of time after the annexation of the Panama district by the Buena Vista district, the significant revenue increase that resulted allowed the new District to generate such excess. From the fiscal year through the fiscal year, $68,620,940 was set aside in special reserve funds and $14,073,386 in interest was earned. The Board of Trustees authorized significant capital expenditures from these special reserve funds as well. Over the 25 years ending June 30, 2014, $71,369,075 was expended on a broad range of projects. These improvement projects included contributions to the construction costs of new schools, the modernization of older schools, development of networking infrastructure, the creation of computer labs, major maintenance projects, the purchase of numerous portable classrooms, the purchase of school sites, and a host of other endeavors. The State Budget The following information concerning the State s budget has been obtained from publicly available information that the District believes to be reliable. However, neither the District nor the Underwriter assumes any responsibility for the accuracy of such information as set forth or incorporated by reference herein. The availability of State funds for public education is a function of constitutional provisions affecting school district revenues and expenditures, the condition of the State economy (which affects B-6

89 total revenue available to the State general fund), and the annual State budget process. As a result of the sluggish State and national economies, the State in recent years experienced serious budgetary shortfalls. The District cannot predict the effect of the State revenue shortfalls on the local or State economy or on the demand for, or value of, the property within the District in the future. Information about the State budgeting process, the State Budget and State spending for education is available at various State-maintained websites, including (i) the State s website at (this reference is for convenience of reference only and not considered to be incorporated as part of this Official Statement), where recent official statements for State bonds are posted, (ii) the California State Treasurer s Internet home page at (this reference is for convenience of reference only and not considered to be incorporated as part of this Official Statement) which includes the State s audited financial statements, various State of California Official Statements, many of which contain a summary of the current State Budget, past State Budgets, and the impact of those budgets on school districts in the State, the State s Rule 15c2-12 filings for State bond issues, financial information (which includes an overview of the State economy and government), State finances, State indebtedness, State litigation, and a discussion of the State budget and its impact on school districts, (iii) the California Department of Finance s internet home page (this reference is for convenience of reference only and not considered to be incorporated as part of this Official Statement) which includes the text of the budget and information regarding the State budget, and (iv) the State Legislative Analyst s Office ( LAO ) at (this reference is for convenience of reference only and not considered to be incorporated as part of this Official Statement), which prepares analyses and reports regarding the proposed and adopted State budgets State Budget. On June 20, 2014, the Governor signed the State Budget approved by the State Legislature on June 15, 2014 (the State Budget ). The State Budget assumes, for Fiscal Year , total general fund revenues of $102.2 billion, and total expenditures of $100.7 billion. The State was projected to end fiscal year with a general fund surplus of $2.9 billion. For fiscal year , the State Budget assumes total general fund revenues of $105.5 billion and authorizes expenditures of $108 billion. The State Budget also authorizes a deposit of $1.6 billion to the State s Budget Stabilization Account/Rainy Day Fund (the Rainy Day Fund ). The State is projected to end the fiscal year with a $1.4 billion general fund surplus. The State Budget reduces more than $10 billion of the State s debt by paying down the deferral of payments to schools by $5 billion, paying off the State s Economic Recovery Bonds, repaying various special fund loans, and funding $100 million in mandate claims owed to local governments. The State Budget also includes a plan of shared responsibility among the State, school districts, and teachers to shore up the State s teacher pension system with contributions increasing to reach more than $5 billion annually, projected to eliminate the system s unfunded liability by In addition, a constitutional amendment placed on the November 4, 2014, ballot to establish the Rainy Day Fund was approved by the voters and requires deposits into the Rainy Day Fund whenever capital gains revenues rise to more than 8% of General Fund tax revenues. In addition, 1.5% of annual General Fund revenues is to be set aside each year with a maximum fund size set at 10% of General Fund revenues. The Rainy Day Fund also include a Proposition 98 reserve, whereby spikes in funding would be saved for future years to even out school spending and thereby minimize future cuts. This Proposition 98 reserve makes no changes to the Proposition 98 calculations Proposed State Budget. On January 9, 2015, the Governor released his proposed State budget for fiscal year (the Proposed Budget ). The Proposed Budget proposed $65.7 billion with respect to the Proposition 98 minimum funding guarantee for Fiscal Year For fiscal year , the Proposition 98 minimum funding guarantee was proposed to be revised to $63.2 billion, an increase of $18.4 billion in four years from the low of $47.3 billion in fiscal year and an increase of $2.3 billion over the fiscal year Budget Act amount of $60.9 for Proposition 98 B-7

90 guarantee levels. The Proposed Budget allocates an increase of more than $2,600 per student in fiscal year over levels for K-12 education. The Proposed Budget utilizes the funding to implement the LCFF in advance of earlier estimates. The Proposed Budget sets the minimum funding guarantee for Fiscal Year , at $65.7 billion. Ongoing Proposition 98 per-pupil expenditures are projected to be $9,667, and total per-pupil expenditures from all sources are projected to be $13,462. The Proposed Budget notes that the historical statewide general obligation bond program for construction and renovation of public school classrooms (the current School Facilities Program ) has no bond authority remaining in the State s core school facilities new construction and modernization programs and that there are a number of shortcomings with the current School Facilities Program. Rather than support a bond measure for the current School Facilities Program, the Proposed Budget proposes a number of recommendations for the design of a new program in place of the current School Facilities Program, including (i) increasing tools for local control by expanding assessed value caps for specific local bond measures conducted under Proposition 39, restructuring developer fees for school facilities, and expanding allowable uses of routine restricted maintenance funding, (ii) targeting state funding of school facilities in a way that (a) limits eligibility to school districts with low per-student assessed values, (b) prioritizes funding for health and safety and severe overcrowding projects, and (c) establishes a sliding scale to determine the State share of project costs based on local capacity to finance projects, and (iii) augmenting charter school facility grant program to fund charter schools either serving or located in attendance areas where at least 55% of the students qualify for free or reduced-price meals. The LAO, a nonpartisan State office which provides fiscal and policy information and advice to the State Legislature, released its report on the Proposed State Budget entitled The Budget: Overview of the Governor s Budget on January 13, 2015 (the Proposed Budget Overview ). In the Proposed Budget Overview, the LAO acknowledges that the Governor s budgeting philosophy continues to be a prudent one for the most part. The LAO noted that in the near term, the Governor s reluctance to propose significant new program commitments outside of Proposition 98 could help avoid a return to the boom and bust budgeting of the past. The LAO also noted that while the budget is on track to enter the next downturn and is healthier than it was a decade ago, the State s finances remain vulnerable to the sudden tax revenue declines that will inevitably return with little warning. The array of complex budget formulas especially those of Propositions 98 and 2 complicate budget planning and could exacerbate this vulnerability in some scenarios. The Proposed Budget Overview is available from the LAO at but such reference and such information is not incorporated herein by reference. Future State Actions. The District cannot predict what actions will be taken in the future by the State legislature and the Governor to address changing State revenues and expenditures. The District also cannot predict the impact such actions will have on State revenues available in the current or future years for education. The State budget will be affected by national and State economic conditions and other factors over which the District will have no control. Certain actions or results could produce a significant shortfall of revenue and cash, and could consequently impair the State s ability to fund schools. Continued State budget shortfalls in future fiscal years may also have an adverse financial impact on the financial condition of the District. State Lottery In the November 1984 general election, the voters of the State approved a constitutional amendment establishing a State lottery (the State Lottery ), the net revenues of which are used to supplement money allocated to public education. Such amendment stipulated that the funds derived from the State Lottery be used for the education of students and prohibited their use for non-instructional B-8

91 purposes, such as the acquisition of real property, the construction of facilities or the financing of research. State Lottery net revenues, gross revenues less prizes and administration expenses, are allocated by computing an amount per A.D.A., which is derived by dividing the total net revenues figure by the total A.D.A. for grades K-12, community colleges, the University of California, and California State University systems, and other participating educational institutions. Each district receives an amount equal to its total A.D.A. multiplied by the per A.D.A. figure. For the fiscal year ended June 30, 2014, the District received $2,998,812 as its fiscal year State Lottery allocation. The District has budgeted to receive $2,825,280 as its fiscal year allocation. Insurance Most District employees are entitled to benefits under a joint venture with the Self-Insured Schools of California (the SISC ). The SISC arranges for and provides health, workers compensation, and property and liability insurance for its member school districts in various counties in the State, including the Counties of Kern and Santa Barbara. Beginning January 1, 2012 (April 1, 2012, for eligible members of the Panama-Buena Vista Teachers Association), certain eligible employees of the District became entitled to benefits under a Medical Expense Reimbursement Program as an alternative to the SISC coverage. Labor Relations Since July 1, 1976, the provisions of the Rodda Act (Section 3540 and following of the California Government Code) have provided a formalized process for collective bargaining between school employees and boards of education throughout the State. The law allows employees to select an exclusive bargaining representative and to negotiate with the governing board for a binding contract. The law also provides that the employees may elect not to have an exclusive bargaining representative. The District currently employs 838 full-time-equivalent certificated and 683 full-time-equivalent classified employees. There are 1,411 non-management full-time-equivalent employees. The Panama- Buena Vista Teachers Association represents 751 full-time-equivalent certificated employees. The California School Employees Association represents 445 full-time-equivalent classified employees and the Teamsters Local #87 represents 133 full-time-equivalent classified employees. The prior contract between the District and the California School Employees Association was ratified December 16, 2013, and expired on June 30, The prior addendum to the contract between the District and the Teamsters Local #87 was ratified February 18, 2014, and expired on June 30, The prior addendum to the contract between the District and the Panama Teachers Association was ratified December 10, 2013, and expired on June 30, Negotiations are currently underway with all three entities as to new contracts or addenda, as applicable. Retirement Programs Qualified employees of the District are covered under multiple-employer defined benefit pension plans maintained by agencies of the State. Certificated employees generally participate in the State Teachers Retirement System (the STRS ). Classified employees generally participate in the Public Employees Retirement System (the PERS ). The District is required by statute to contribute 8.25% of gross salary expenditures to the STRS. Participants are required to contribute 8.00% of gross salary to the STRS and 7.00% of gross salary to the PERS. B-9

92 Contribution rates to these two retirement systems can vary annually depending on changes in actuarial assumptions and other factors, such as changes in benefits. The contribution rates are based on Statewide rates set by the STRS and the PERS State retirement boards. The STRS has a substantial Statewide unfunded liability. Since this liability has not been broken down by each school district, it is impossible to determine the District s share. Assessed Valuation All property is assessed using full cash value as defined by Article XIIIA of the California Constitution. State law provides exemptions from ad valorem property taxation for certain classes of property such as churches, colleges, non-profit hospitals, and charitable institutions. Future assessed valuation growth allowed under Article XIIIA (e.g., new construction, certain changes of ownership, 2% inflation) will be allocated on the basis of situs among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and schools will share the growth of base revenues from the tax rate area. Each year s growth allocation becomes part of each agency s allocation in the following year. The availability of revenue from growth in tax bases to such entities may be affected by the establishment of redevelopment agencies which, under certain circumstances, may be entitled to revenues resulting from the increase in certain property values. For assessment and collection purposes, property is classified as either secured or unsecured and is listed accordingly on separate parts of the assessment roll. The secured roll is that part of the assessment roll containing State-assessed property and real property having a tax lien which is sufficient, in the opinion of the assessor, to secure payment of the taxes. Unsecured property comprises all property not attached to land such as personal property or business property. Boats and airplanes are examples of unsecured property. Unsecured property is assessed on the unsecured roll. The passage of Assembly Bill 454 ( AB 454 ) in 1987 changed the manner in which unitary and operating nonunitary property is assessed by the State Board of Equalization. The legislation deleted the formula for the allocation of assessed value attributed to such property and imposed a State-mandated local program by requiring the assignment of the assessed value of all unitary and operating non-unitary property in each county of each State assessee other than a regulated railway company. The legislation established formulas for the computation of applicable countywide tax rates for such property and for the allocation of property tax revenues attributable to such property among taxing jurisdictions in the County beginning in fiscal year The legislation requires each county to issue each State assessee, other than a regulated railway company, a single tax bill for all unitary and operating non-unitary property. Property in the District is assessed by the County Assessor as shown below. The total assessed value of all property in the District for the fiscal year is $10,002,594,795. Approximately 0.69% of this value is classified as mineral (oil). The following tables summarize the secured and unsecured assessed valuation of property within the District and the former Panama Union School District area, respectively. B-10

93 Table 3 Panama-Buena Vista Union School District Assessed Valuation (Total District) Utility $ 760,878 $ 612,519 $ 612,976 $ 612,160 $ 609,494 Mineral 46,659,734 62,859,385 65,335,937 60,117,389 68,971,453 Mobile Home 8,818, ,991 5,224,272 6,682,177 6,587,633 Secured 8,553,239,999 8,347,456,788 8,459,023,011 8,960,212,542 9,661,654,148 Gross Secured $8,609,478,923 $8,411,491,683 $8,530,196,196 $9,027,624,268 9,737,822,728 Home Owners Exemption (132,145,659) (131,573,462) (130,839,714) (127,897,527 (125,590,789) Net Secured $8,477,333,264 $8,279,918,221 $8,399,356,482 $8,899,726,741 9,612,231,939 Gross Unsecured $242,857,475 $255,390,374 $267,646,262 $262,964, ,772,067 Home Owners Exemption (23,509) (23,527) (16,577) (16,628) (16,639) Net Unsecured $242,833,966 $255,366,847 $267,629,685 $262,947,908 $ 264,755,428 Net Secured and Unsecured Total $8,852,336,398 $8,535,285,068 $8,666,986,167 $9,162,674,649 $9,876,987,367 Gross Secured and Unsecured Total $8,720,167,230 $8,666,882,057 $8,797,842,458 $9,290,588,804 $10,002,594,795 Source: The District, pursuant to data obtained from the Kern County Auditor-Controller. Table 4 Panama-Buena Vista Union School District Assessed Valuation (Former Panama Union School District Area) Utility $ 695,166 $ 553,647 $ 553,647 $ 553,647 $ 553,647 Mineral 17,046,879 23,188,332 26,201,721 29,571,746 36,784,279 Mobile Home 8,818, ,991 5,224,272 6,682,177 6,587,633 Secured 6,564,041,092 6,381,133,083 6,444,129,972 6,757,381,530 7,218,983,319 Gross Secured $6,590,601,449 $6,405,438,053 $6,476,109,612 $6,794,189,100 7,262,908,878 Home Owners Exemption (105,580,659) (104,623,462) (103,868,714) (101,094,527) (98,577,789) Net Secured $6,485,020,790 $6,300,814,591 $6,372,422,898 $6,693,094,573 7,164,331,089 Gross Unsecured $226,116,428 $230,951,114 $240,928,996 $232,506, ,817,745 Home Owners Exemption (16,509) (16,527) (16,577) (16,628) (16,639) Net Unsecured $226,099,919 $230,934,587 $240,912,419 $232,489, ,801,106 Net Secured and Unsecured Total $6,816,717,877 $6,531,479,178 $6,613,335,317 $6,925,584,029 $7,397,132,195 Gross Secured and Unsecured Total $6,711,120,709 $6,636,389,167 $6,717,038,608 $7,026,695,184 $7,495,726,623 Source: The District, pursuant to data obtained from the Kern County Auditor-Controller. Property Tax Collection Procedures In California, property that is subject to ad valorem taxes is classified as secured or unsecured. The secured classification includes property on which any property tax levied by a county becomes a lien on that property sufficient, in the opinion of the county assessor, to secure payment of the taxes. Every tax that becomes a lien on secured property has priority over all other liens arising pursuant to State law on the secured property, regardless of the time of the creation of the other liens. A tax levied on unsecured property does not become a lien against the taxed unsecured property, but may become a lien on certain other property owned by the taxpayer. The County Assessor assesses all property in the District except public utility property, which is assessed by the State Board of Equalization. B-11

94 Secured and unsecured properties are entered on separate parts of the assessment roll maintained by the County Assessor. The method of collecting delinquent taxes is substantially different for the two classifications of property. The taxing authority has three methods of collecting unsecured personal property taxes in the absence of timely payment by the taxpayer: (a) a civil action against the taxpayer; (b) filing a certificate of delinquency for record in the County recorder s office, in order to obtain a lien on certain property of the taxpayer; and (c) seizure and sale of a personal property, improvements, or possessory interest belonging or assessed to the assessee. The exclusive means of enforcing the payment of delinquent taxes in respect of property on the secured roll is the sale of the property securing the taxes to the State for the amount of taxes that are delinquent. A 10% penalty is added to delinquent taxes that have been levied in respect of property on the secured roll. In addition, property on the secured roll with respect to which taxes are delinquent is auctioned by the County after five years. Such property may thereafter be redeemed by payment of the delinquent taxes and a delinquency penalty, plus a redemption penalty of 1.5% per month to the time of redemption. If taxes are unpaid for a period of five years or more, the property is deeded to the State and then is subject to sale by the County tax collector. A 10% penalty also attaches to delinquent taxes in respect of property on the unsecured roll and an additional penalty of 1.5% per month accrues with respect to such taxes beginning the first day of the third month following the delinquency date. Except for property assessed by the State, the valuation of property is determined as of March 1 each year for taxes owed with respect to the succeeding fiscal year. The tax rate is equalized during the following September of each year, at which time the tax rate is determined. Taxes are due in two equal installments. Installments of taxes levied upon secured property become delinquent on the following December 10 and April 10. Taxes on unsecured property are due March 1 and become delinquent August 31, and such taxes are levied at the prior year s secured tax rate. The evaluation of State assessed property is determined on January 1 of each year. State statutes provide for the supplemental assessment and taxation of property as of the occurrence of a change of ownership or completion of new construction. Collection of taxes based on supplemental assessments will occur throughout the year. Taxes due will be prorated according to the amount of time remaining in the tax year, with the exception of tax bills dated March 1 through May 31, which will be calculated on the basis of the remainder of the current fiscal year and the full twelve months of the next fiscal year. If the supplemental assessments are not paid on or before the date they become delinquent, a 10% penalty is attached. Supplemental assessments become a lien against the real property on the date of the change of ownership or completion of new construction. Unitary Property AB 454 (Chapter 921, Statutes of 1987) provides that revenues derived from most utility property assessed by the State Board of Equalization ( Unitary Property ), commencing with the fiscal year, are allocated as follows: (a) each jurisdiction will receive up to 102% of its prior year state-assessed revenue; and (b) if County-wide revenues generated from Unitary Property are less than the previous year s revenues or greater than 102% of the previous year s revenues, each jurisdiction will share the burden of the shortfall or excess revenues by a specified formula. Such provision applies to all Unitary Property except railroads whose valuation will continue to be allocated to individual tax rate areas. The provisions of AB 454 do not constitute an elimination of the assessment of any State assessed properties nor a revision of the methods of assessing utilities by the State Board of Equalization. B-12

95 Generally, AB 454 allows valuation growth or decline of Unitary Property to be shared by all jurisdictions in a county. Tax Levies, Collections, and Delinquencies The secured tax levy and year-end delinquencies for the District for through are shown in the following table: Table 5 PANAMA-BUENA VISTA UNION SCHOOL DISTRICT Secured Tax Charges and Delinquency (1) Secured Tax Charge (2) Amt. Del. June 30 % Del. June $ 707, $18, % , , , , ,321, , (1) The County utilizes the Teeter Plan for assessment levy and distribution. This method guarantees distribution of 100% of the assessments levied to the taxing entity, with the County retaining all penalties and interest. (2) Debt service levy only. Source: California Municipal Statistics, Inc. [Remainder of Page Intentionally Left Blank] B-13

96 Tax Rates The following is a summary of tax rates for a representative tax rate area, TRA , within the District for the fiscal years through TRA has a total fiscal year assessed valuation of $1,140,998,615, which represents approximately 11.41% of the District s total fiscal year assessed value of $10,002,594. Table 6 PANAMA-BUENA VISTA UNION SCHOOL DISTRICT Summary of Tax Rates for Tax Rate Area Per $100 of Assessed Valuation (Fiscal Years through ) (1) Source of Tax FY FY FY FY FY General Local Government Property Tax % % % % % Kern County Water Agency Zone 7 Debt Kern County Water Agency Zone 17 Debt Kern County Water Agency Zone 19 Debt Panama Union School District Bond Series Panama-Buena Vista Union School District 2012A Kern High School District Bond 96A Kern High School District Bond 1990E Kern High School District Bond 2004A Kern High School District Bond 2004B Kern High School District Bond 2004C Kern High School District Bond 2004D Kern High School District Bond Kern High School District Bond Kern High School District Bond Kern Community College District SRID 2002A Kern Community College District SRID 2002A Refunding Kern Community College District SRID 2002B Kern Community College District SRID 2002C Kern Community College District SRID 2005A Refunding Total All Property Tax Rates % (1) Fiscal year assessed valuation of TRA is $1,140,998,615, which is approximately 11.41% of the District s total assessed valuation. Source: California Municipal Statistics, Inc.. [Remainder of Page Intentionally Left Blank] B-14

97 Principal Taxpayers The following table lists the major taxpayers in the District in terms of their secured assessed valuations: Table 7 PANAMA-BUENA VISTA UNION SCHOOL DISTRICT Largest Secured Taxpayers % of Property Owner Primary Land Use Assessed Valuation Total (1) 1. Nestle Dreyers Ice Cream Company Industrial $199,063, % 2. Valley Plaza Mall LP Regional Mall 125,784, Donahue Schriber Realty Group LP Shopping Center 74,957, Chevron USA Inc. Office Building 64,236, Castle & Cooke Inc. Commercial and Residential 59,811, LSREF2 Tractor REO Bak LLC Office Building 54,550, GSF Springs I Investors LP Apartments 37,802, Bakersfield Mall LLC Movie Theater 37,387, Ming Prop LLC Office Building 37,353, Laurelglen Properties LLC Apartments 29,046, United States Cold Storage of California Industrial 28,612, Crimson Resource Management Corp. Industrial 28,545, Bolthouse Properties LLC Commercial 27,626, Vintage Production Cal LLC Office Building 26,123, GSF Edgewater Investors LP Apartments 26,001, LBUBS 2004 C6 Stockdale Office LP Office Building 24,641, Costco Wholesale Corp. Commercial 21,276, Foothill Energy Partners LP Industrial 19,473, Target Corporation Commercial 18,480, Stockdale Village LP Shopping Center 18,087, $958,862, % (1) Local Secured Assessed Valuation: $9,737,213,234. Source: California Municipal Statistics, Inc. [Remainder of Page Intentionally Left Blank] B-15

98 Building Permits The following table details the number of building permits issues, and the corresponding fees collected, within the District between fiscal years and : Table 8 PANAMA-BUENA VISTA UNION SCHOOL DISTRICT Building Permits and Collections (Fiscal Years through ) Fiscal Year Number of Building Permits Fees Collected $ 2,594, ,551, ,503, ,489, ,211, ,519,958 Total 3,010 $16,869,889 Source: District. [Remainder of Page Intentionally Left Blank] B-16

99 Comparative Financial Statements The following table reflects the District s general fund revenues, expenditures, and fund balances for fiscal years through (actual) and its fiscal year budget, as revised. See also APPENDIX D Excerpts from Panama-Buena Vista Union School District Budget/Projected Actuals for Fiscal Year (General Fund). Table 9 Panama-Buena Vista Union School District General Fund Revenues, Expenditures and Fund Balance Fiscal Years through Actual and Fiscal Year Budget Actual Actual Actual Actual Budgeted REVENUES State Aide Sources State Apportionment $ 78,846,921 $ 80,976,261 $ 83,478,715 $98,962,922 $111,379,654 Local Sources 11,815,445 10,878,246 10,652,955 11,515,557 10,724,008 Federal 11,332,914 6,077,004 6,267,444 6,701,606 8,176,768 Other State 22,474,745 22,473,458 22,801,487 16,506,510 13,477,887 Other Local 1,926,249 2,450,714 1,740,568 1,398,890 1,290,660 TOTAL REVENUE $126,396,274 $122,855,683 $124,941,169 $135,085,485 $ 145,048,977 EXPENDITURES Salaries Certified $ 57,740,651 $ 56,551,020 $ 59,308,737 $63,701,442 $ 67,602,859 Classified 17,513,771 17,742,698 18,570,739 20,078,500 21,372,051 Employee Benefits 25,913,008 28,109,174 28,537,959 30,644,085 33,347,755 Books, Supplies, and Other Expenses 15,689,882 14,364,029 15,031,438 16,247,033 20,198,603 Capital Outlay 171, , , , ,225 Transfer (In)Out/Other Outgo (1) 7,203,834 7,108,636 6,663,493 7,003,481 7,189,926 Debt service 290, , , , TOTAL EXPENDITURES $124,523,726 $124,917,294 $129,000,210 $138,175,282 $149,850,419 EXCESS REVENUE OVER (UNDER) EXPENDITURES 1,872,548 (2,061,611) ($4,059,041) ($3,089,797) ($4,801,442) Other Financing Sources (Uses) ($1,359,620) ($2,337,809) $1,500,000 NET INCREASE (DECREASE) IN FUND BALANCE 1,872,548 (2,061,611) ($5,418,661) ($5,327,606) ($3,301,442) FUND BALANCE, July 1 as originally stated $22,528,341 $24,400,890 $22,339,279 $16,920,618 $12,011,393 PRIOR YEAR ADJUSTMENT , ,715 FUND BALANCE, July 1, as restated $22,528,341 $24,400,890 $22,339,279 $17,338,999 $12,929,108 FUND BALANCE, June 30 $24,400,890 $22,339,279 $16,920,618 $12,011,393 $9,627,666 (1) Other outgo plus transfers out. Source: The District. [Remainder of Page Intentionally Left Blank] B-17

100 Direct and Overlapping Debt Set forth below is a direct and overlapping debt report (the Debt Report ) prepared by California Municipal Statistics, Inc., and dated as of February 12, The Debt Report is included for general information purposes only. The District has not reviewed the Debt Report for completeness or accuracy and makes no representation in connection therewith Assessed Valuation: $10,002,594,795 Table 10 PANAMA-BUENA VISTA UNION SCHOOL DISTRICT Direct and Overlapping Bonded Debt Dated as of February 12, 2015 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 5/1/15 (1) Kern Community College District Safety, Repair and Improvement District % $17,370,796 Kern High School District ,398,261 Panama-Buena Vista Union School District ,055,000 (2) Kern Delta Water District ,651 Wheeler Ridge-Maricopa Water Storage District ,167 City of Bakersfield 1915 Act Bonds ,483,584 TOTAL GROSS DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $84,769,459 Less: Wheeler Ridge-Maricopa Water Storage District 5,167 TOTAL NET OVERLAPPING TAX AND ASSESSMENT DEBT $84,764,292 DIRECT AND OVERLAPPING GENERAL FUND DEBT: Kern County Certificates of Participation % $ 11,642,902 Kern County Pension Obligations ,805,154 Kern County Board of Education Certificates of Participation ,296,293 Kern Community College District Certificates of Participation ,174,173 Kern Community College District Post Employment Benefit Obligation Bonds ,685,265 Kern High School District Certificates of Participation ,516,934 Panama-Buena Vista Union School District Certificates of Participation ,200,000 City of Bakersfield General Fund Obligations ,293,731 TOTAL DIRECT AND OVERLAPPING GENERAL FUND DEBT $125,614,452 GROSS COMBINED TOTAL DEBT $210,383,911 (3) NET COMBINED TOTAL DEBT $210,378,744 (1) Excludes any bonds sold between date of preparation (2/13/15) and 5/1/15. (2) Excludes issue to be sold. (3) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations. Ratios to Assessed Valuation: Direct Debt ($18,055,000) % Combined Direct Debt ($47,255,000) % Total Gross Direct and Overlapping Tax and Assessment Debt % Total Net Direct and Overlapping Tax and Assessment Debt % Gross Combined Total Debt % Net Combined Total Debt % Source: California Municipal Statistics, Inc. B-18

101 The following table reflects the District s existing debt service obligations with respect to its outstanding general obligation bond issues. See also APPENDIX D Excerpts from Panama-Buena Vista Union School District Budget/Projected Actuals for Fiscal Year (General Fund). Economic Profile of Surrounding Area The County. Table 11 PANAMA-BUENA VISTA UNION SCHOOL DISTRICT General Obligation Bond Debt Service Requirements Fiscal Year Outstanding Bonds $809, , , ,695 (1) (1) Interest payment for 2013 GO Bonds; first principal payment for 2013 GO Bonds was paid August 1, 2014, after the fiscal year. Source: The District. The County was organized in 1866 from portions of Los Angeles and Tulare Counties. Discovery of gold in the bed of the Kern River in 1851 brought an influx of settlers. Oil was discovered in 1865, but the oil boom did not start until The gold mining town of Havilah was the first County Seat, and in 1875 the County Seat was moved to Bakersfield. The County is the southernmost county of California s agricultural San Joaquin Valley. According to the Department of the Interior, Bureau of Mines, and the Department of Food and Agriculture, Bureau of Agriculture Statistics, the County is consistently among the top three most productive agricultural counties in the United States, and is also the leading petroleum-producing county in the nation. It is home to two of the nation s important military bases: Edwards Air Force Base, host to space shuttle landings, and China Lake Naval Weapons Center, the U.S. Navy s largest research, development, testing, and evaluation organization. Surrounded by three major mountain ranges, the County land area measures 143 miles east to west and 67 miles north to south. The County is the State s third largest county, covering just over 8,000 square miles. The County has three climatic zones-valley, mountain, and high desert. Population. The City was incorporated in It has a council-manager form of government and is composed of seven members elected from the seven separate wards on a non-partisan basis to serve fouryear overlapping terms. The County has eleven incorporated cities, with most of the population concentrated in the valley area of the County. Centrally located, the City is the largest municipality within the County. The City s growth rate has exceeded that of the County. The City s population has grown approximately 24.14% since 2005, from approximately 295,893 people in 2005 to approximately 367,315 in During the same period, the County s population has grown approximately 15.84% from approximately 753,070 in 2005 to approximately 872,322 in The following table shows the approximate changes in population in the City, the County, the State, and the United States for the years 2005 through B-19

102 Table 12 Estimated Population ( ) Year City Percent Change County Percent Change State (000) Percent Change United States (000) Percent Change , , , , , , , , , , , , , , , , , , , , , , , ,746 (1) , , ,570 (2.79) 311, , , , , , , , , , , , , (1) 2010 population figures for United States based on 2010 Census. Source for City, County, and State figures: State of California Department of Finance. Source for United States figures: U.S. Department of Commerce, Bureau of the Census. Taxable Sales. The following table shows taxable sales and the number of sales permits issued for the City and the County from 2008 through 2012 (the most recent annual data currently available from the California State Board of Equalization). Table 13 CITY OF BAKERSFIELD AND KERN COUNTY Taxable Sales ($000) and Sales Permits CITY OF BAKERSFIELD Taxable Sales: $5,314,000 $4,422,123 $4,667,745 $5,450,380 $5,954,794 Permits: 7,148 6,929 7,189 7,334 7,520 KERN COUNTY Taxable Sales: $12,085,853 $9,932,101 $11,057,910 $13,742,659 $14,666,473 Permits: 16,917 15,331 15,845 15,691 15,812 Source: State Board of Equalization. B-20

103 Industry and Employment. The major employers within the County as of January 2015 are listed in the following table. Table 14 KERN COUNTY Major Employers (As of January 2015) Company Business Type Number of Employees Edwards Air Force Base Federal Government National 10,000 + Grimmway Farms Agriculture 5,000 to 9,999 U.S. Naval Air Warfare Center Federal Government National 5,000 to U.S. Navy Public Affairs Office Federal Government National 5,000 to 9,999 American Honda Motor Co. Automotive Manufacturing 1,000 to 4,999 Bakersfield Memorial Hospital Medical 1,000 to 4,999 Chevron Corp. Oil Production 1,000 to 4,999 Kern County Human Services Government/Social Services 1,000 to 4,999 Kern County School Superintendent Education 1,000 to 4,999 Kern Medical Center Medical 1,000 to 4,999 Marko Zanivovich Inc. Agriculture 1,000 to 4,999 Mercy Hospital Medical 1,000 to 4,999 Nasa/Dryden Flight Research Research 1,000 to 4,999 Rio Tinto Minerals Mining 1,000 to 4,999 Robertsons Ready Mix Concrete Additives 1,000 to 4,999 San Joaquin Community Hospital Medical 1,000 to 4,999 State Farm Insurance Insurance 1,000 to 4,999 Sun Pacific Farming (and Sun Pacific Growers) Agriculture 1,000 to 4,999 Wasco State Prison Reception State Government Prison 1,000 to 4,999 Wm Bolthouse Farms Agriculture 1,000 to 4,999 Foster Care Human Services Mental Health Services 500 to 999 Source: California Employment Development Department. B-21

104 The number of persons employed in the County increased by approximately 4.6% between 2010 and The four largest employment industries in the County are services, government (State and local), agriculture, and trade (transportation and utilities). The table below shows data about the civilian labor force, employment, and unemployment for the County, the State, and the United States for the calendar years 2010 through Table 15 Employment - Averages Calendar Years County Labor Force (000s) Employment (000s) Unemployment Rate 15.9% 14.9% 13.3% 10.9% 9.9% State Labor Force (000s) 18, , , , ,726.0 Employment (000s) 16, , , , ,475.0 Unemployment Rate 12.4% 11.7% 10.5% 7.9% 6.7 United States Labor Force (000s) 153, , , , ,521.0 Employment (000s) 139, , , , ,190.0 Unemployment Rate 9.6% 8.9% 8.1% 6.5% 5.4% Source: California Employment Development Department. Transportation. Well-developed surface and air transportation facilities are available to District residents and business firms. Main lines of both the Union Pacific and the Burlington Northern Santa Fe railroads traverse the area. Amtrak service is also available. State Highway 99, the main north-south artery serving the most populous communities along the east side of the Central Valley, runs through the center of the City. State Highway 58 provides east-west linkage between Interstate 5 to the west and Interstate 15 at Barstow to the east. Highway 178, heading northeast, is the major route along the Kern River Valley. Highway 65, to the north, provides access to communities east of Highway 99 and to Sequoia National Park. Regularly scheduled passenger and air cargo service is available at Meadows Field (Kern County Airport), as well as charter service and general aviation services. The main runway at Meadows Field is 11,000 feet in length. A new airport terminal was completed at Meadows Field in February 2006 and can accommodate international flights. The California High-Speed Rail Authority has proposed a train system capable of operating at speeds in excess of 200 miles per hour on a fully grade-separated track serving the major metropolitan centers of California. The system would extend from Sacramento and the San Francisco Bay Area, through the Central Valley, to Los Angeles and San Diego. The Kern County Board of Supervisors voted 3-2 on February 7, 2012 to oppose the current business plan for the California high-speed rail project, joining Kings County and a growing list of local governments and agencies in the San Joaquin Valley saying no to the project. B-22

105 APPENDIX C PANAMA-BUENA VISTA UNION SCHOOL DISTRICT ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2014

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107 PANAMA-BUENA VISTA UNION SCHOOL DISTRICT ANNUAL FINANCIAL REPORT For the fiscal year ended June 30, 2014

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109 T A B L E O F C O N T E N T S INTRODUCTORY SECTION 1 Management Organization Chart 2 Board of Trustees and Administration 3 FINANCIAL SECTION 4 Independent Auditor s Report 5-7 Management s Discussion and Analysis 8-21 Basic Financial Statements: District-wide Financial Statements: Statement of Net Position 22 Statement of Activities 23 Fund Financial Statements: Balance Sheet Governmental Funds 24 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position 25 Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds 26 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities 27 Statement of Net Position Internal Service Fund 28 Statement of Revenues, Expenses and Changes in Fund Net Position Internal Service Fund 29 Statement of Cash Flows Internal Service Fund 30 Statement of Fiduciary Net Position 31 Notes to the Basic Financial Statements i -

110 REQUIRED SUPPLEMENTARY INFORMATION SECTION Schedule of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual (GAAP) General Fund 59 Schedule of Other Postemployment Benefits Funding Progress STATE AND FEDERAL COMPLIANCE INFORMATION SECTION 61 Schedule of Average Daily Attendance 62 Schedule of Instructional Time 63 Schedule of Financial Trends and Analysis 64 Schedule of Expenditures of Federal Awards Reconciliation of Annual Financial and Budget Report (SACS) With Audited Financial Statements 67 Notes to State and Federal Compliance Information 68 Other Auditor s Reports: Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditor s Report on Compliance for Each Major Federal Program and Report on Internal Control over Compliance as required by OMB Circular A Independent Auditor s Report on State Compliance Findings and Recommendations: Schedule of Audit Findings and Questioned Costs Summary Schedule of Prior Audit Findings 79 - ii -

111 INTRODUCTORY SECTION - 1 -

112 Panama-Buena Vista Union School District Management Organization Chart Board of Trustees Superintendent Assistant Superintendent Educational Services Assistant Superintendent Curriculum & Instruction Principals School Sites Assistant Superintendent Business Services Director of Human Resources Administrator of Consolidated Programs Assistant Principals Director of Fiscal Services Director of Day Care Services Director of Special Education Accounting Manager Administrator of Opportunity School Coordinators of Special Education Director of Maintenance & Operations Coordinator of Health and Safety Director of Research & Evaluation Supervisor Grounds Director of Library Services Supervisor Maintenance Coordinator of Visual & Performing Arts Supervisor Operations Director of Information & Technology Services Network Manager Purchasing Manager Transportation Manager Nutrition Services Manager Director of Facilities & Construction - 2 -

113 Panama-Buena Vista Union School District On July 1, 1988, the Panama Union School District merged with the Buena Vista School District to form the Panama-Buena Vista Union School District (the District ). The District is comprised of an area of approximately 90 square miles located in the rapidly growing southwest portion of Bakersfield, California. As of June 30, 2014, the District was operating eighteen elementary and five junior high schools. BOARD OF TRUSTEES AND ADMINISTRATION GOVERNING BOARD MEMBER OFFICE TERM Linda Brenner President November December 2016 Cheryl Palla Vice President November December 2014 Dean Haddock, Psy.D. Clerk November December 2016 Dee Whitley Trustee November December 2016 Keith C. Wolaridge Trustee November December 2014 ADMINISTRATION Kevin Silberberg, Ed.D. Gerrie Kincaid Glenn A. Imke, CPA Pam Bianchi, Ed.D. District Superintendent Assistant Superintendent, Educational Services Assistant Superintendent, Business Services Assistant Superintendent, Curriculum/Instruction - 3 -

114 FINANCIAL SECTION - 4 -

115 Daniells Phillips Vaughan & Bock CPAs & Advisors Certified Public Accountants Business & Personal Consultants Member of the McGladrey Alliance Member of AICPA Division for Firms Private Companies Practice Section NANCY C. BELTON INDEPENDENT AUDITOR'S REPORT Board of Trustees Panama-Buena Vista Union School District Bakersfield, California Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Panama-Buena Vista Union School District, as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the District s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and Standards and Procedures for Audits of California K-12 Local Education Agencies issued by the California Department of Education Audit Appeals Panel as regulations. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement New Stine Road Bakersfield, CA Tel Fax

116 An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Panama-Buena Vista Union School District, as of June 30, 2014, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis, budgetary comparison information and schedule of other postemployment benefits funding progress on pages 8-21 and be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. -6-

117 Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Panama-Buena Vista Union School District s basic financial statements. The supplementary information on pages 62-68, including the schedule of expenditures of federal awards, as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations (Circular A-133), is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information on pages is fairly stated in all material respects, in relation to the basic financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 5, 2014 on our consideration of the Panama-Buena Vista Union School District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Panama-Buena Vista Union School District s internal control over financial reporting and compliance. Bakersfield, California December 5,

118 Panama-Buena Vista Union School District Management s Discussion and Analysis (Unaudited) For the Year Ended June 30, 2014 An overview of the Panama-Buena Vista Union School District s financial activities for the fiscal year ended June 30, 2014, is provided in this discussion and analysis of the District s financial performance. This Management s Discussion and Analysis (MD & A) should be read in conjunction with the District s financial statements (including notes and supplementary information). Key financial highlights for 2014 are as follows: FINANCIAL HIGHLIGHTS In total, net position of governmental activities decreased $7,128,164 which represents a 4.5% decrease from General revenues accounted for $123,375,466 in revenue or 81% of all revenues. Program specific revenues in the form of charges for services, categorical, capital grants and contributions accounted for $28,936,570 or 19% of total revenues of $152,312,036. The District had $159,440,200 in expenses related to governmental activities. Instruction related expenses represented $89,807,229 or 56.3%; only $5,901,559 or 3.7% of total expenses were for general administration. As of June 30, 2014 the General Fund reported a positive fund balance of $12,011,393. The nonspendable fund balance was $385,744, the restricted fund balance was $6,334,587 and the reserve for economic uncertainties was $5,291,062. OVERVIEW OF THE FINANCIAL STATEMENTS The full annual financial report is a product of three separate parts: the basic financial statements, supplementary information, and this section, Management s Discussion and Analysis. The three sections together provide a comprehensive overview of the District. The basic financials are comprised of two kinds of statements that present financial information from different perspectives, District-wide and funds. District-wide financial statements, which comprise the first two statements, provide both short-term and long-term information about the District s overall financial position. Individual parts of the District, which are reported as fund financial statements, focus on reporting the District s operations in more detail. These fund financial statements comprise the remaining statements. o Basic services funding (i.e., regular and special education) is described in the governmental funds statements. These statements include short-term financing and the balance remaining for future spending. o Financial relationships, for which the District acts solely as an agent or trustee, for the benefit of others to whom the resources belong, are presented in the fiduciary fund statements. Notes to the financials, which are included in the financial statements, provide more detailed data and explain some of the information in the statements. The required supplementary information section - 8 -

119 Panama-Buena Vista Union School District Management s Discussion and Analysis (Unaudited) For the Year Ended June 30, 2014 provides further explanations and provides additional support for the financial statements. A comparison of the District s budget for the year is included. Figure A shows how the various parts of this annual report are arranged and related to one another. Figure A Organization of Panama-Buena Vista Union School District Annual Financial Report Management s Discussion And Analysis Basic Financial Statements Required Supplementary Information District-wide Financial Statements Fund Financial Statements Notes to the Financial Statements Summary Detail - 9 -

120 Panama-Buena Vista Union School District Management s Discussion and Analysis (Unaudited) For the Year Ended June 30, 2014 Figure B summarizes the major features of the District s financial statements, including the portion of the District s activities they cover and the types of information they contain. The remainder of this overview section of management s discussion and analysis highlights the structure and contents of each of the statements. Figure B Major Features of the District-wide and Fund Financial Statements District-wide Statements Governmental Funds Fund Financial Statements Fiduciary Funds Scope Entire District (except fiduciary funds) The activities of the District that are not fiduciary, such as special education and building maintenance Instances in which the District administers resources on behalf of someone else, such as student activities monies Required financial statements Statement of net position Statement of activities Balance sheet Statement of revenues, expenditures, and changes in fund balances Statement of fiduciary net position Accounting basis and measurement focus Accrual accounting and economic resources focus Modified accrual accounting and current financial focus Accrual accounting and economic resources focus Type of asset/ liability information All assets and liabilities, both financial and capital, short-term and long-term Generally assets expected to be used up and liabilities that come due during the year or soon thereafter; no capital assets or long-term liabilities included All assets and liabilities, both short-term and long-term; funds do not currently contain capital assets, although they can Type of inflow/outflow information All revenues and expenses during year, regardless of when cash is received or paid Revenues for which cash is received during or soon after the end of the year; expenditures when goods or services have been received and the related liability is due and payable All additions and deductions during the year, regardless of when cash is received or paid

121 Panama-Buena Vista Union School District Management s Discussion and Analysis (Unaudited) For the Year Ended June 30, 2014 The Statement of Net Position and the Statement of Activities The District as a whole is reported in the District-wide statements and uses accounting methods similar to those used by companies in the private sector. All of the District s assets and liabilities are included in the statement of net position. The statement of activities reports all of the current year s revenues and expenses regardless of when cash is received or paid. The District s financial health or position (net position) can be measured by the difference between the District s assets and liabilities. Increases or decreases in the net position of the District over time are indicators of whether its financial position is improving or deteriorating, respectively. Additional non-financial factors such as condition of school buildings and other facilities need to be considered in assessing the overall health of the District. In the Statement of Net Position and the Statement of Activities, districts report two kinds of activities: Governmental activities: The basic services provided by the District, such as regular and special education, administration, self-insurance services, transportation, day care, and cafeteria are included here. Property taxes and state formula aid finance most of these activities. Business-type activities: The District currently does not conduct business type-activities. FUND FINANCIAL STATEMENTS More detailed information about the District s most significant funds not the District as a whole is provided in the fund financial statements. Funds are accounting devices the District uses to keep track of specific sources of funding and spending on particular programs: Some funds are required by bond covenants and by state law. Other funds are established by the District to control and manage money for particular purposes (such as repaying its long-term debts). Other funds may also show proper usage of certain revenues (such as federal grants)

122 Panama-Buena Vista Union School District Management s Discussion and Analysis (Unaudited) For the Year Ended June 30, 2014 The District has three kinds of funds: Governmental funds: Most of the District s basic services are included in governmental funds, which generally focus on: o o How cash and other financial assets can be readily converted to cash flow (in and out). The balances left at year-end that are available for spending. A detailed short-term view is provided by the governmental fund statements. These help determine whether there are more or fewer financial resources that can be spent in the near future for financing the District s programs. Because this information does not encompass the additional long-term focus of the District-wide statements, additional information is provided at the bottom of the governmental fund statements that explains the differences (or relationships) between them. Fiduciary funds: For assets that belong to others, such as the student activities funds, the District acts as the trustee, or fiduciary. The District is responsible for ensuring that the assets reported in these funds are used only for their intended purposes and by those to whom the assets belong. A separate statement of fiduciary net position reports the District s fiduciary activities. These activities are excluded from the District-wide financial statements, as the assets cannot be used by the District to finance its operations. Internal Service Funds: Internal Service Funds are used to account for all financial resources intended to provide selfinsurance services to other operating funds of the District on a cost-reimbursement basis. The District maintains one Internal Service Fund for Health and Welfare Benefits. The Internal service fund is reported in the same way that all activities are reported in the Statement of Net Position and the Statement of Activities. The Health and Welfare Benefits Fund was established to pay for claims, administrative costs, insurance premiums, and related expenditures. The Internal Service Fund for Health and Welfare Benefits is reported with the governmental activities in the government-wide financial statements

123 Panama-Buena Vista Union School District Management s Discussion and Analysis (Unaudited) For the Year Ended June 30, 2014 FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE Table 1 summarizes the District s net position for the years ended June 30, 2014 and Net position decreased by 4.5% over this period from $159,669,313 to $152,541,149. The following are significant current year transactions that had an impact on the overall financial health of the District as a whole: Proposition 30 was passed by the voters on November 6, 2012, subsequently creating the Education Protection Account (EPA). Temporary tax revenues are to be received in the EPA through Consequently, the year-end state aide deferrals decreased which resulted in a reduction in receivables by $4,993,752. The decrease in other liabilities of $7,363,981 is primarily due to the decrease in the Tax and Revenue Anticipation Note (TRAN) which decreased from $31,349,300 to $20,703,880. Table 1: Net Position Total Percentage Governmental Activities Change Current and other assets: Cash $ 70,607,954 $ 78,122, % Receivables 22,019,339 29,879, Investments 60,894 60,781.2 Inventories 482, , Total current and other assets 93,170, ,535, Capital assets, net of accumulated depreciation 147,932, ,232,083.5 Total assets 241,102, ,767, Long-term debt outstanding 53,540,351 53,712, Other liabilities 35,021,341 42,385, Total liabilities 88,561,692 96,097, Net position: Invested in capital assets, net of related debt 98,828,849 97,266, Restricted 10,817,471 7,109, Unrestricted 42,894,829 55,292, Total net position $ 152,541,149 $ 159,669, %

124 Panama-Buena Vista Union School District Management s Discussion and Analysis (Unaudited) For the Year Ended June 30, 2014 Changes in Net Position Table 2 summarizes changes in the District s net position for the years ended June 30, 2014 and The District s total revenue for the year ended June 30, 2014 was $152,312,036 and the cost of all programs and services was $159,440,200. The following are significant current year transactions that had an impact on the change in net position: Proposition 30 was passed by the voters on November 6, 2012, subsequently creating the Education Protection Account (EPA). Temporary tax revenues are to be received in the EPA through The Gap funding percentage increased by 17.56% and the funded average daily attendance increased by 188. Consequently, the year-end state aide increased by $5,789,977. One-time state funding of $3,481,678 for Common Core State Standards totaling was received in The increase in the enterprise activities reflects an increase in claims expenditures of $4,659,361 from the self-insurance fund. Table 2: Changes in Net Position Total Percentage Governmental Activities Change Revenues Program revenues Charges for services $ 1,683,058 $ 1,765, % Federal and state categorical grants 27,253,512 24,652, General revenues Federal and state formula aid 101,757,179 94,854, Other 21,618,287 16,782, Total revenues 152,312, ,054, Expenses Instruction-related 89,807,229 83,346, Student support services 16,272,356 15,586, Maintenance and operations 12,683,989 12,247, Administration 5,901,559 5,676, Enterprise 23,246,864 19,900, Other 11,528,203 10,167, Total expenses 159,440, ,925, Decrease in net position $ (7,128,164) $ (8,870,172) -19.6%

125 Panama-Buena Vista Union School District Management s Discussion and Analysis (Unaudited) For the Year Ended June 30, 2014 Governmental Activities As shown in Table 3, the District s most significant source of revenue from governmental functions in the year ended June 30, 2014 was federal and state formula aid, comprising 66.8% of the total. Formula aid from the state is primarily revenue limit. The next most significant revenue category was federal and state categorical grants at 17.9%. Other revenue provided 14.2% and charges for services another 1.1%. Table 3: Summary of Revenues FYE 2014 Amount Revenues Program revenues Charges for services 1,683,058 Percent of Total Increase (Decrease) from FYE 2013 Total Percentage Change FYE 2013 Amount $ 1.1% $ (82,097) -4.7% $ 1,765,155 Federal and state categorical grants 27,253, ,601, ,652,394 General revenues Federal and state formula aid 101,757, ,902, ,854,766 Other 21,618, ,835, ,782,661 Total revenues $ 152,312, % $ 14,257, % $ 138,054,976 Federal and state categorical grants, 17.9% Charges for services, 1.1% Other, 14.2% Federal and state formula aid, 66.8%

126 Panama-Buena Vista Union School District Management s Discussion and Analysis (Unaudited) For the Year Ended June 30, 2014 Governmental Activities Table 4 presents a summary of expenses for governmental activities. The significant majority of expenses in the year ended June 30, 2014 were instruction-related at 56.3% of total expenses. Enterprise activities were the second largest expense category at 14.6%. Student support service expenses were next comprising 10.2%. Maintenance and operations, administration and other expenses were 8%, 3.7%, and 7.2%, respectively. Table 4: Summary of Expenses FYE 2014 Amount Percent of Total Increase (Decrease) from FYE 2013 Percent Change FYE 2013 Amount Expenses Instruction-related $ 89,807, % $ 6,461, % $ 83,346,170 Student support services 16,272, , ,586,050 Maintenance and operations 12,683, , ,247,938 Administration 5,901, , ,676,367 Enterprise 23,246, ,346, ,900,825 Other 11,528, ,360, ,167,798 Total expenses $ 159,440, % $ 12,515, % $ 146,925,148 Student support services 10.2% Maintenance and operations 8.0% Administration 3.7% Enterprise 14.6% Other 7.2% Instruction-related 56.3%

127 Panama-Buena Vista Union School District Management s Discussion and Analysis (Unaudited) For the Year Ended June 30, 2014 Governmental Activities Table 5 provides information on the total costs of governmental activities and the net costs after offsetting related program revenues. Table 5: Total and Net Costs of Governmental Activities Total Cost of Services Net Cost of Services Instruction $ 76,906,982 $ (67,886,636) Enterprise 23,246,864 (23,246,864) Pupil services 16,272,356 (6,639,530) Instruction-related services 12,900,247 (7,743,338) Plant services 12,683,989 (12,437,372) Other outgo 7,418,150 (3,115,270) General administration 5,901,559 (5,370,328) Interest on long-term debt 2,508,654 (2,508,654) Community services 1,509,721 (1,509,721) Ancillary services 91,678 (45,917) Total costs $ 159,440,200 $ (130,503,630)

128 Panama-Buena Vista Union School District Management s Discussion and Analysis (Unaudited) For the Year Ended June 30, 2014 FINANCIAL ANALYSIS OF THE DISTRICT S FUNDS General Governmental Functions As shown in Table 6, the District s governmental funds reported a combined fund balance of $59,920,107, which is lower than last year s total of $67,335,654. The decrease in the General Fund results from an ongoing structural deficit created by cuts to federal and state funding. The passage of Proposition 30 was intended to restore school funding through a new Local Control Funding Formula (LCFF). The transition to the LCFF began in the school year. The decrease in the Building Fund is due to various school site construction projects funded with the 2012 General Obligation Bonds, 2013 Series A. The increase in the Capital Facilities Fund balance is primarily a result of the increase in developer fees collected. The increase in the Special Reserve Fund is a result of the construction of new district office buildings. Table 6 is an analysis of the District s fund balances and the total change in fund balances from the prior year. Table 6: District's Fund Balances Fund Balance June 30, 2014 Fund Balance June 30, 2013 Increase (Decrease) General $ 12,011,393 $ 17,338,999 $ (5,327,606) Child Development 986, , ,215 Cafeteria 2,781,054 2,687,684 93,370 Building 14,709,995 17,787,956 (3,077,961) Capital Facilities 11,845,335 10,053,274 1,792,061 County School Facilities 13,555,786 13,508,269 47,517 Special Reserve 2,713,677 4,867,272 (2,153,595) Bond Interest and Redemption 1,294, ,315 1,061,630 Debt Service 21,142 9,320 11,822 Total $ 59,920,107 $ 67,335,654 $ (7,415,547)

129 Panama-Buena Vista Union School District Management s Discussion and Analysis (Unaudited) For the Year Ended June 30, 2014 General Fund Budgetary Highlights The District s budget is prepared in accordance with California law and is based on the modified accrual basis of accounting. Over the course of the year, the District revised its budget two times. These budget amendments fall into three categories: Changes made to account for differences between the final state budget and the governor s May revised budget proposal. A negotiated salary increase of 3.5% for all employee groups. Adjustments to state formula aide and categorical program revenues and expenditures after prior year carryovers became known and the state provided final entitlement amounts. Although the District s final general fund budget anticipated a decrease in fund balance of $6,839,874, the actual results provided a decrease in fund balance of $5,327,606. Total revenues were over budget expectations by $406,456 primarily due to special education entitlements and other one-time local revenues that were not included in the budget. Total expenditures were under budget expectations by $2,943,621 primarily due to district wide technology infrastructure projects that were funded with the 2012 General Obligation Bonds, 2013 Series A and reclassified to the Building Fund. A contribution in the amount of $2,237,809 was transferred from the General Fund to the Internal Service Fund to cover an unexpected increase in health claims expenditures

130 Panama-Buena Vista Union School District Management s Discussion and Analysis (Unaudited) For the Year Ended June 30, 2014 CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets The District s investment in capital assets amounts to $147,932,450 (net of accumulated depreciation). This investment primarily includes land, school buildings, administrative offices, warehouse and transportation facilities, maintenance shops, furniture, and equipment. As shown in Table 7, the District s total net capital assets increased $700,367 or.5% over the prior year. This increase is primarily due to the acquisition of portable classrooms and school site improvements. Table 7: Changes in Net Capital Assets Governmental Activities Percentage Change Land $ 12,150,705 $ 12,150,705.0% Buildings 107,009, ,263, Improvements of sites 20,987,464 20,322, Equipment 3,226,807 3,527, Work in progress 4,558,055 1,967, Net capital assets $ 147,932,450 $ 147,232,083.5% Long-Term Debt Table 8 shows the changes in the District s outstanding long-term debt for the year ended June 30, Long-term debt decreased overall by 1.7%. Capital lease obligations decreased by 52.0% as a result of scheduled payments. For more detailed information see Notes 6, 7, 8 and 9. Table 8: Outstanding Long-Term Debt Percentage District Total Change General obligation bonds (financed with property taxes) $ 18,405,000 $ 18,405,000 - Unamortized premium 181, , Certificates of participation 29,950,000 30,675, Unamortized premium 461, , Capital leases 105, , Total $ 49,103,601 $ 49,965, %

131 Panama-Buena Vista Union School District Management s Discussion and Analysis (Unaudited) For the Year Ended June 30, 2014 FACTORS BEARING ON THE DISTRICT S FUTURE The economy, legislative or voter-approved changes, bargaining unit agreements and district demographics are key factors in determining the District s financial outlook in future years. Currently known circumstances that will impact the District s financial status in the future are: Health insurance and post-retirement costs continue to grow at rates well in excess of the rate of inflation. The Superintendent has established a special task force with stakeholders from employee groups, the board and management to explore options and make recommendations for cost reduction strategies. Enrollment is showing signs of growth with much larger than expected kindergarten enrollment of the past two years. However, the District is projecting that enrollment will remain relatedly stable for the next two budget years. The passage of Proposition 30 in November 2012 changed the way school funding is calculated through the use of the Local Control Funding Formula (LCFF). The LCFF establishes a new uniform funding formula and a new system of academic accountability. The formula replaces revenue limits and most categorical programs with uniform base rates for all pupils and provides significantly more funding for English learner and low-income students. The new system of academic accountability requires school districts and charter schools to publicly report how they will use the funds provided under the formula, as well as establishes a new system of support and intervention support for underperforming school districts and charter schools. While the transition to the LCFF began in , it will take several years before all provisions are fully implemented and districts and charter schools are fully funded to formula targets. Moreover, a number of key decisions have yet to be made regarding the implementation of the new fiscal and academic accountability provisions. CONTACTING THE DISTRICT S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, parents, investors, and creditors with a general overview of the District s finances and to show the District s accountability for the money it receives. If you have questions regarding this report or need additional financial information, contact Glenn A. Imke, Assistant Superintendent Business Services, Panama-Buena Vista Union School District, 4200 Ashe Road, Bakersfield, CA

132 Panama-Buena Vista Union School District Statement of Net Position June 30, 2014 Assets Cash (Note 2) $ 70,607,954 Investments (Note 2) 60,894 Accounts receivable (Note 3) 22,019,339 Stores inventories-supplies (Note 1 - H2) 298,844 Stores inventories-food (Note 1 - H2) 183,360 Land (Note 5) 12,150,705 Buildings and improvements (Note 5) 209,512,409 Equipment (Note 5) 13,813,300 Work in progress (Note 5) 4,558,055 Less accumulated depreciation (Note 5) (92,102,019) Total assets 241,102,841 Liabilities Accounts payable and other current liabilities 13,759,478 Tax revenue anticipation note 20,703,880 Deferred revenue (Note 1 - H4) 557,983 Net OPEB Obligation ( Note 14) 4,436,750 Long-term liabilities (Notes 6,7,8 and 9): Due within one year 1,143,780 Due after one year 47,959,821 Total liabilities 88,561,692 Net position Invested in capital assets, net of related debt 98,828,849 Restricted for: Debt Service 3,539,337 Educational programs 4,111,336 Nutritional programs 2,275,255 Other purposes (nonexpendable) 891,543 Unrestricted 42,894,829 Total net position $ 152,541,149 The notes to the basic financial statements are an integral part of this statement

133 Panama-Buena Vista Union School District Statement of Activities Year Ended June 30, 2014 Functions Expenses Program Revenues Charges for Services Operating Grants and Contributions Revenue and Changes in Net Position Governmental Activities Governmental activities Instruction $ 76,906,982 $ 97,772 $ 8,922,574 $ (67,886,636) Instruction-related services: Supervision of instruction 5,025,789 16,999 5,105,858 97,068 Instructional library, media and technology 1,318,289-26,228 (1,292,061) School site administration 6,556,169-7,824 (6,548,345) Pupil services: Home-to-school transportation 2,588,597-95,320 (2,493,277) Food services 6,340,332 1,454,292 5,747, ,709 All other pupil services 7,343,427 47,253 2,288,212 (5,007,962) General administration: Data processing 847, (847,298) All other general administration 5,054,261 66, ,925 (4,523,030) Plant services 12,683, ,181 (12,437,372) Ancillary services 91,678-45,761 (45,917) Community services 1,509, (1,509,721) Enterprise 23,246, (23,246,864) Interest on long-term debt 2,508, (2,508,654) Other outgo 7,418,150-4,302,880 (3,115,270) Total governmental activities $ 159,440,200 $ 1,683,058 $ 27,253,512 (130,503,630) General revenues: Taxes and subventions: Taxes levied for general purposes Taxes levied for debt service Taxes levied for other specific purposes Federal and state aid not restricted to specific Interest and investment earnings Interagency revenues Miscellaneous Total general revenues Change in net position Net position beginning, as originally stated Prior Period Adjustments and Restatement (Note 15) Net position beginning, as restated Net position ending $ 11,590,081 1,359, ,757, ,382 66,088 8,340, ,375,466 (7,128,164) 161,679,646 (2,010,333) 159,669, ,541,149 The notes to the basic financial statements are an integral part of this statement

134 Panama-Buena Vista Union School District Balance Sheet Governmental Funds June 30, 2014 County General Fund Building Fund Capital Facilities Fund School Facilities Fund Other Governmental Funds Total Governmental Funds Assets Cash (Note 2) $ 12,195,997 $ 16,192,246 $ 12,161,433 $ 13,548,892 $ 8,008,064 $ 62,106,632 Investments (Note 2) ,894 60,894 Accounts receivable (Note 3) 19,107,392-9,565 6, ,461 19,866,312 Due from other funds (Note 4) 12,699, ,975 8, ,008 13,714,450 Stores inventories - supplies (Note 1 - H2) 298, ,844 Stores inventories - food (Note 1 - H2) , ,360 Total assets $ 44,301,630 $ 16,399,221 $ 12,179,068 $ 13,555,786 $ 9,794,787 $ 96,230,492 Liabilities and fund balances Liabilities: Accounts payable $ 6,928,302 $ 894,194 $ 208,103 $ - $ 1,212,011 $ 9,242,610 Due to other funds (Note 4) 4,171, , , ,337 5,805,912 Tax revenue anticipation note 20,703, ,703,880 Deferred revenue (Note 1 - H4) 486, , ,983 Total Liabilities 32,290,237 1,689, ,733-1,997,189 36,310,385 Fund balances: Nonspendable: Revolving fund 57, , ,289 Stores inventories 298, , ,204 Endowments 29, ,050 Restricted for: Educational programs 4,111, ,111,336 Nutritional programs ,275,255 2,275,255 Debt service 2,223, ,316,086 3,539,337 Assigned to: Capital projects - 14,709,995 11,845,335 13,555,786 1,796,953 41,908,069 Child development programs , ,780 Unassigned/Unappropriated: Reserve for ecomonic uncertainities 5,291, ,725 6,207,787 Unassigned/unappropriated Total Fund Equity 12,011,393 14,709,995 11,845,335 13,555,786 7,797,598 59,920,107 Total Liabilities and Fund Equity $ 44,301,630 $ 16,399,221 $ 12,179,068 $ 13,555,786 $ 9,794,787 $ 96,230,492 The notes to the basic financial statements are an integral part of this statement

135 Panama-Buena Vista Union School District Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position June 30, 2014 Total fund balances - governmental funds: $ 59,920,107 Amounts reported for assets and liabilities for governmental activities in the statement of net position are different from amounts reported in governmental funds because: Capital assets : In governmental funds, only current assets are reported. In the statement of net position all assets are reported, including capital assets and accumulated depreciation. Capital assets at historical cost $ 240,034,469 Accumulated depreciation (92,102,019) Unmatured interest on long-term debt: In governmental funds, interest on long-term debt is not recognized until the period in which it matures and is paid. In the district-wide statement of activities, it is recognized in the period that it is incurred. The additional liability for unmatured interest owing at the end of the period was: Other post employment benefits (OPEB): In governmental funds, net OPEB obligations are reported for benefit payments to retirees only if due and payable at year-end. In the statement of net position, net OPEB obligations are reported as a liability on the full accrual basis. The balance of net OPEB obligations was: Net 147,932,450 (621,095) (4,436,750) Long-term liabilities: In governmental funds, only current liabilities are reported. In the statement of net position, all liabilities, including long-term liabilities, are reported. Long-term liabilities relating to governmental activities consist of: General obligation bonds payable $ (18,586,755) Certificates of participation payable (30,411,846) Capital leases payable (105,000) Internal Service Funds: Internal service funds are used to conduct certain activities for which costs are charged to other funds on a full cost recovery basis. Because internal service funds are presumed to operate for the benefit of governemtal activities, assets and liabilities of internal service funds are reported with governmental activities in the statement of net position. Net position for internal service funds are: Total (49,103,601) (1,149,962) Total net position - governmental activities: $ 152,541,149 The notes to the basic financial statements are an integral part of this statement

136 Panama-Buena Vista Union School District Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds Year Ended June 30, 2014 Revenues: Local Control Funding Formula Sources: General Fund Building Fund Capital Facilities Fund County School Facilities Fund Other Governmental Funds Total Governmental State apportionments $ 98,884,078 $ - $ - $ - $ - $ 98,884,078 Local sources 11,594, ,594,401 Federal 6,701, ,599,371 12,300,977 Other state 16,506, ,358 17,114,868 Other local 1,398,890 71,915 6,006,273 47,517 4,893,117 12,417,712 Total revenues 135,085,485 71,915 6,006,273 47,517 11,100, ,312,036 Expenditures: Instruction 84,490, ,303 84,635,316 Supervision of instruction 5,469, ,569 5,487,632 Instructional library, media, and technology 1,565, ,565,904 School administration 7,892, ,892,896 Home to school transportation 2,757, ,757,925 Food services ,102,692 7,102,692 All other pupil services 8,500, ,500,972 Data processing services 895, ,918 All other general administration 4,371, , ,669 4,905,790 Plant services 14,296, ,674 14,390,136 Facility acquisition and construction 170,568 2,957,842 1,894,040-2,198,610 7,221,060 Ancillary services 91, ,678 Community services 138, ,586,572 1,724,660 Transfers betw een agencies 7,418, ,418,151 Other outgo - 3, ,442 Debt service: Principal 92, , ,806 Interest 23,466-1,475, ,907 1,977,796 Total expenditures 138,175,282 2,961,284 4,214,212-12,038, ,389,774 Excess (deficiency) of revenues over expenditures (3,089,797) (2,889,369) 1,792,061 47,517 (938,150) (5,077,738) Other financing sources (uses): Operating transfers in (Note 4) 100, , ,592 Operating transfers out (Note 4) (2,337,809) (188,592) - - (100,000) (2,626,401) Total other financing sources (uses) (2,237,809) (188,592) ,592 (2,337,809) Net change in fund balances (5,327,606) (3,077,961) 1,792,061 47,517 (849,558) (7,415,547) Fund balances, July 1, 2013, as originally stated 16,920,619 17,787,956 10,053,274 13,508,269 8,612,714 66,882,832 Prior Period Adjustments 418, , ,822 Fund balances, July 1, 2013, as restated 17,338,999 17,787,956 10,053,274 13,508,269 8,647,156 67,335,654 Fund balances, June 30, 2014 $ 12,011,393 $ 14,709,995 $ 11,845,335 $ 13,555,786 $ 7,797,598 $ 59,920,107 Funds The notes to the basic financial statements are an integral part of this statement

137 Panama-Buena Vista Union School District Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities Year Ended June 30, 2014 Total net change in fund balances - governmental funds: Amounts reported for governmental activities in the statement of activities are different from amounts reported in governmental funds because: $ (7,415,547) Capital outlay: In governmental funds, the costs of capital assets are reported as expenditures in the period when the assets are acquired. In the statement of activities, costs of capital assets are allocated over their estimated useful lives as depreciation expense. The difference between capital outlay expenditures and depreciation expense for the period is: Expenditures for capital outlay $ 7,408,396 Depreciation expense (5,958,263) Debt service: In the governmental funds, repayments of long-term debt are reported as expenditures. In the government-wide statements, repayments of long-term debt are reported as reductions of liabilities. Expenditures for repayment of the principal portion of long-term debt were: Payment of certificates of participation $ 725,000 Payment of capital leases 113,807 Gain or loss from disposal of capital assets: In governmental funds, the entire proceeds from disposal of capital assets are reported as revenue. In the statement of activities, only the resulting gain or loss is reported. The difference between the proceeds from disposal of capital assets and the resulting gain or loss is: Unmatured interest on long-term debt: In governmental funds, interest on long-term debt is recognized in the period that it becomes due. In the district-wide statement of activities, it is recognized in the period that it is incurred. Unmatured interest owing at the end of the period, less matured interest paid during the period but owing from the prior period, was: Postemployment benefits other than pensions (OPEB): In governmental funds, OPEB expense is reported for benefit payments to retirees during the year and those due and payable at yearend. In the statement of activities, OPEB expense is the Annual Required Contribution (ARC) less employer contributions. The difference between employer OPEB contributions and the Annual Required Contribution was: Amortization of debt issue premium or discount: In governmental funds, if debt is issued at a premium or at a discount, the premium or discount is recognized as an Other Financing Source or an Other Financing Use in the period it is incurred. In the government-wide statements, the premium or discount is amortized as interest over the life of the debt. Amortization of premium or discount for the period is: Internal Service Funds: Internal service funds are used to conduct certain activities for which costs are charged to other funds on a full cost recovery basis. Because internal service funds are presumed to benefit governemtal activities, internal service activities are reported as governmental in the statement of activities. The net decrease in internal service funds was: Net 1,450,133 Total 838,807 (749,766) (553,638) (689,370) 22,780 (31,563) Change in net position - governmental activities: $ (7,128,164) The notes to the basic financial statements are an integral part of this statement

138 Panama-Buena Vista Union School District Statement of Net Position Internal Service Fund June 30, 2014 Self-Insurance Fund Current Assets Cash (Note 2) $ 8,501,322 Accounts receivable (Note 3) 2,153,027 Due from other funds (Note 4) 4,232,880 Total current assets 14,887,229 Current Liabilities Accounts payable 2,066,946 Due to other funds (Note 4) 12,141,418 Estimated liability for self-insurance claims 1,828,827 Total current liabilities 16,037,191 Net position (deficit) $ (1,149,962) The notes to the basic financial statements are an integral part of this statement

139 Panama-Buena Vista Union School District Statement of Revenues, Expenses, and Changes in Fund Net Position Internal Service Fund Year Ended June 30, 2014 Self-Insurance Fund Operating Revenues In-district premiums $ 20,985,376 Interest 14,835 Total Operating Revenues 21,000,211 Operating Expenses Premiums & claims expense 21,922,104 Claims administration 1,447,479 Total Operating Expenses 23,369,583 Other Financing Sources Operating transfers in (Note 4) 2,337,809 Change in Net Position (31,563) Total Net Position, July 1, 2013 as originally stated 468,872 Prior Period Adjustment (Note 15) (1,587,271) Total Net Position (Deficit), July 1, 2013 as restated (1,118,399) Total Net Position (Deficit), June 30, 2013 $ (1,149,962) The notes to the basic financial statements are an integral part of this statement

140 Panama-Buena Vista Union School District Statement of Cash Flows Internal Service Fund Year Ended June 30, 2014 Self-Insurance Fund Cash Flows From Operating Activities Receipts from assessments to other funds $ 21,479,046 Receipts from interest 14,835 Cash payments for premiums and claims expense (17,881,412) Cash payments for claims administration (1,457,708) Operating transfers in 2,337,809 Net cash provided by operating activities 4,492,570 Net increase in cash 4,492,570 Cash, July 1, ,008,752 Cash, June 30, 2014 $ 8,501,322 Reconciliation of operating income to net cash provided by operating activities: Operating income (loss) $ (31,563) Adjustments to reconcile operating income to net cash provided by operating activities: Changes in operating assets and liabilities: (Increase) in accounts receivable (2,148,110) Decrease in due from other funds 493,670 Increase in due to other funds 5,691,585 Increase in accounts payable 200,296 Increase in estimated liability for self insurance claims 286,692 Total adjustments 4,524,133 Net cash provided by operating activities $ 4,492,570 The notes to the basic financial statements are an integral part of this statement

141 Panama-Buena Vista Union School District Statement of Fiduciary Net Position June 30, 2014 Agency Funds Student Body Funds Assets Cash $ 243,897 Total assets $ 243,897 Liabilities Due to student groups $ 243,897 Total liabilities $ 243,897 Net Position Reserved $ - Total net position $ - The notes to the basic financial statements are an integral part of this statement

142 Panama-Buena Vista Union School District Notes to the Basic Financial Statements Year Ended June 30, 2014 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES A. Accounting Policies The Panama-Buena Vista Union School District (the District) accounts for its financial transactions in accordance with the policies and procedures of the Department of Education's California School Accounting Manual. The accounting policies of the District conform to generally accepted accounting principles as prescribed by the Governmental Accounting Standards Board (GASB) and the American Institute of Certified Public Accountants (AICPA). B. Reporting Entity The District is the level of government primarily accountable for activities related to public education. The governing authority consists of five elected officials who, together, constitute the Board of Trustees. On April 11, 1994, certain members of the District s board of education and District employees formed a nonprofit benefit corporation, known as the Panama-Buena Vista Union School District Financing Corporation (the Corporation), which is organized under Nonprofit Benefit Corporation Law of the State of California. The purpose of the Corporation is to finance the acquisition and construction of facility improvements together with necessary equipment of District schools and other facilities as may be required from time to time at the determination of the Board of Trustees. The Corporation issues Certificates of Participation (COPs), a form of long-term debt, which the District uses to finance construction of such improvements. The District and the Corporation have a financial and operational relationship that meets the reporting entity definition of GASB Statement No. 14, The Financial Reporting Entity, for inclusion of the Corporation as a component unit of the District. The basic, but not the only, criterion for including a governmental department, agency, institution, commission, public authority, or other governmental organization in a governmental unit s reporting entity for general purpose financial reports is the ability of the governmental unit s elected officials to exercise oversight responsibility over such agencies. Oversight responsibility implies that one governmental unit is dependent on another and that the dependent unit should be reported as a part of the other. Oversight responsibility is derived from the governmental unit s power and includes, but is not limited to: Financial interdependency Selection of governing authority Designation of management Ability to significantly influence operations Accountability for fiscal matters At June 30, 2014 and for the year then ended, the Corporation had no assets, liabilities, or financial activity

143 Panama-Buena Vista Union School District Notes to the Basic Financial Statements, Continued Year Ended June 30, 2014 C. Basis of Presentation District-wide Financial Statements: The district-wide financial statements (i.e., the statement of net position and the statement of changes in net position) report information on all of the nonfiduciary activities of the District and its component units. The district-wide statements are prepared using the economic resources measurement focus. This is the same approach used in the preparation of the proprietary fund and fiduciary fund financial statements but differs from the manner in which governmental fund financial statements are prepared. Governmental fund financial statements, therefore, include a reconciliation with brief explanations to better identify the relationship between the district-wide statements and the statements for the governmental funds. The district-wide statement of activities presents a comparison between direct expenses and program revenues for each function or program of the District s governmental activities. Direct expenses are those that are specifically associated with a service, program, or department and are therefore clearly identifiable to a particular function. The District does not allocate indirect expenses to functions in the statement of activities. Program revenues include charges paid by the recipients of goods or services offered by a program, as well as grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues are presented as general revenues of the District, with certain exceptions. The comparison of direct expenses with program revenues identifies the extent to which each governmental function is self-financing or draws from the general revenues of the District. Fund Financial Statements: Fund financial statements report detailed information about the District. The focus of governmental fund financial statements is on major funds rather than reporting funds by type. Each major governmental fund is presented in a separate column, and all non-major funds are aggregated into one column. Fiduciary funds are reported by fund type. The accounting and financial treatment applied to a fund is determined by its measurement focus. All governmental funds are accounted for using a flow of current financial resources measurement focus. With this measurement focus, only current assets and current liabilities are generally included on the balance sheet. The Statement of Revenues, Expenditures, and Changes in Fund Balances for these funds present increases (i.e., revenues and other financing sources) and decreases (i.e., expenditures and other financing uses) in net current assets. Fiduciary funds are reported using the economic resources measurement focus. D. Basis of Accounting Basis of accounting refers to when revenues and expenditures are recognized in the accounts and reported in the financial statements. District-wide financial statements are prepared using the accrual basis of accounting. Governmental funds use the modified accrual basis of accounting. Fiduciary funds use the accrual basis of accounting

144 Panama-Buena Vista Union School District Notes to the Basic Financial Statements, Continued Year Ended June 30, 2014 Revenues Exchange and Non-exchange Transactions: Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded under the accrual basis when the exchange takes place. On a modified accrual basis, revenue is recorded in the fiscal year in which the resources are measurable and become available. Available means the resources will be collected within the current fiscal year or are expected to be collected soon enough thereafter to be used to pay liabilities of the current fiscal year. For the District, available means collectible within the current period or within 60 days after year-end. Non-exchange transactions, in which the District receives value without directly giving equal value in return, include property taxes, grants, and entitlements. Under the accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from grants and entitlements is recognized in the fiscal year in which all eligibility requirements have been satisfied. Eligibility requirements include timing requirements, which specify the year when the resources are to be used or the fiscal year when use is first permitted; matching requirements, in which the District must provide local resources to be used for a specific purpose; and expenditure requirements, in which the resources are provided to the District on a reimbursement basis. Under the modified accrual basis, revenue from non-exchange transactions must also be available before it can be recognized. Deferred revenue: Deferred revenue arises when assets are received before revenue recognition criteria have been satisfied. Grants and entitlements received before eligibility requirements are met are recorded as deferred revenue. On governmental fund financial statements, receivables associated with non-exchange transactions that will not be collected within the availability period have also been recorded as deferred revenue. Expenses/Expenditures: On the accrual basis of accounting, expenses are recognized at the time a liability is incurred. On the modified accrual basis of accounting, expenditures are generally recognized in the accounting period in which the related fund liability is incurred, as under the accrual basis of accounting. However, under the modified accrual basis of accounting, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Allocations of cost, such as depreciation and amortization, are not recognized in the governmental funds. When both restricted and unrestricted resources are available for use, it is the District s policy to use restricted resources first, then unrestricted resources as they are needed. E. Fund Accounting The accounts of the District are organized on the basis of funds, each of which is considered to be a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity or retained earnings, revenues, and expenditures or expenses, as appropriate. District resources are allocated to and accounted for in individual funds based upon the

145 Panama-Buena Vista Union School District Notes to the Basic Financial Statements, Continued Year Ended June 30, 2014 purpose for which they are to be spent and the means by which spending activities are controlled. The District's accounts are organized into major, non-major, proprietary, and fiduciary funds as follows: Major Governmental Funds: The General Fund is the general operating fund of the District. It is used to account for all financial resources except those required to be accounted for in another fund. The Building Fund is used to account separately for proceeds from the sale of bonds (Education Code Section 15146) and may not be used for any purposes other than those for which the bonds were issued. Other authorized revenues to the Building Fund are proceeds from the sale or lease-with-option-to purchase of real property (Education Code Section 17462) and revenue from rentals and leases of real property specifically authorized for deposit into the fund by the governing board (Education Code Section 41003). The Capital Facilities Fund is used to account for resources received from developer impact fees assessed under provisions of the California Environmental Quality Act (CEQA). The County School Facilities Fund is used to account for state apportionments and District matching funds as authorized by Education Code Section Non-major Governmental Funds: Special Revenue Funds are used to account for the proceeds of specific revenue sources that are legally restricted to expenditures for specific purposes. The District maintains five non-major special revenue funds: The Child Development Fund is used to account for resources committed to child development programs maintained by the District. The Cafeteria Fund is used to account for revenues received and expenditures made to operate the District s cafeterias. The Deferred Maintenance Fund is used for the purpose of major repair or replacement of District property. The Special Reserve Fund is used to account for the accumulation of excess General Fund monies for future capital outlay purposes. Debt Service Funds are used to account for the accumulation of resources for, and the payment of, general long-term debt principal, interest and related costs. The District maintains one non-major debt service fund: The Bond Interest and Redemption Fund is maintained by the County Treasurer and is used to account for both the accumulation of resources from ad valorem tax levies and the interest and the redemption of principal of the bonds issued by the District

146 Panama-Buena Vista Union School District Notes to the Basic Financial Statements, Continued Year Ended June 30, 2014 Proprietary Funds: Internal Service Funds are used to account for all financial resources intended to provide self-insurance services to other operating funds of the District on a cost-reimbursement basis. The District maintains one Internal Service Fund for Health and Welfare Benefits. The Health and Welfare Benefits Fund was established to pay for claims, administrative costs, insurance premiums, and related expenditures. Under the full accrual basis of accounting that is generally accepted for Internal Service Funds, total estimated liabilities for self-insurance are recorded based on estimated claims liabilities, including the estimated liability for incurred but not reported claims. No discount is applied to estimated Health and Welfare Benefits Fund claims because they are generally paid within a short period of time after the claims are filed. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund s principal ongoing operations. The principal operating revenues of the District s internal service funds are charges to other operating funds for self-insurance services. Operating expenses include the cost of services including insurance premiums, claims, and administrative costs. All revenues and expenses not meeting this definition are nonoperating revenues and expenses. Fiduciary Funds: Agency Funds are used to account for assets of others for which the District acts as an agent. The District maintains agency funds for student body accounts. The District maintains student body funds, which are used to account for the raising and expending of money to promote the general welfare, morale, and educational experience of the student body. The amounts reported for student body funds represent the combined totals of all schools within the District. F. Budgets and Budgetary Accounting Annual budgets are adopted on a basis consistent with generally accepted accounting principles for all governmental funds. By state law, the District s governing board must adopt a final budget no later than June 30. A public hearing must be conducted to receive comments prior to adoption. The District s governing board satisfied these requirements. The District s governing board and District superintendent revise these budgets during the year to give consideration to unanticipated income and expenditures and for anticipated events that are not yet measurable. The original and final revised budgets are presented for the General Fund in the financial statements. Formal budgetary integration was employed as a management control device during the year for all budgeted funds. The District employs budget control by minor object and by individual appropriation accounts. Expenditures cannot legally exceed appropriations by major object account

147 Panama-Buena Vista Union School District Notes to the Basic Financial Statements, Continued Year Ended June 30, 2014 G. Encumbrances Encumbrance accounting is used in all budgeted funds to reserve portions of applicable appropriations for which commitments have been made. Encumbrances are recorded for purchase orders, contracts, and other commitments when they are written. Encumbrances are liquidated when the commitments are paid. All encumbrances are liquidated as of June 30. H. Assets, Liabilities, and Equity 1. Deposits and Investments In accordance with Education Code Section 41001, the District maintains substantially all its cash in the Kern County Treasury. The County pools these funds with those of other Districts in the County and invests the cash. These pooled funds are carried at cost, which approximates market value. Interest earned is deposited quarterly into participating funds. Any investment losses are proportionately shared by all funds in the pool. The County is authorized to deposit cash and invest excess funds by California Government Code Section et seq. The funds maintained by the County are either secured by federal depository insurance or are collateralized. 2. Stores Inventories and Prepaid Expenditures Inventories are recorded using the consumption method, in that inventory acquisitions are initially recorded in inventory (asset) accounts, and are charged as expenditures when used. Reported inventories are equally offset by a fund balance reserve, which indicates that these amounts are not available for appropriation and expenditure even though they are a component of net current assets. The District s central warehouse and cafeteria inventories are valued at a moving average cost for presentation. The District has the option of reporting an expenditure in governmental funds for prepaid items either when purchased or during the benefiting period. The District has chosen to report the expenditure during the benefiting period. 3. Capital Assets Capital assets are those purchased or acquired with an original cost of $5,000 or more and are reported at historical cost or estimated historical cost. Contributed assets are reported at fair market value as of the date received. Additions, improvements, and other capital outlays that significantly extend the useful life of an asset are capitalized. The costs of normal maintenance and repairs that do not add to the value of the assets or materially extend the assets lives are not capitalized but are expensed as incurred

148 Panama-Buena Vista Union School District Notes to the Basic Financial Statements, Continued Year Ended June 30, 2014 Depreciation on all capital assets is computed using a straight-line basis over the following estimated useful lives: Asset Class Examples Estimated Useful Life in Years Land N/A Site improvements Paving, flagpoles, retaining walls, sidewalks, fencing, outdoor lighting 20 School buildings 50 Portable classrooms 25 HVAC systems Heating, ventilation, and air conditioning systems 20 Roofing 20 Interior construction 25 Carpet replacement 7 Electrical/plumbing 30 Sprinkler/fire system Fire suppression systems 25 Outdoor equipment Playground, radio towers, fuel tanks, pumps 20 Machinery & tools Shop & maintenance equipment, tools 15 Kitchen equipment Appliances 15 Custodial equipment Floor scrubbers, vacuums, other 15 Science & engineering Lab equipment, scientific apparatus 10 Furniture & accessories Classroom & other furniture 20 Business machines Fax, duplicating & printing equipment 10 Copiers 5 Communication equipment Mobile, portable radios, noncomputerized 10 Computer hardware PCs, printers, network hardware 5 Computer software Instructional, other short-term 5 to 10 Computer software Administrative or long-term 10 to 20 Audio visual equipment Projectors, cameras (still & digital) 10 Athletic equipment Gymnastics, football, weight machines, wrestling mats 10 Musical instruments Pianos, strings, brass, percussion 10 Library books Collections 5 to 7 Licensed vehicles Buses, other on-road vehicles 8 Contractors equipment Major off-road vehicles, front-end loaders, large tractors, mobile air 10 compressor Grounds equipment Mowers, tractors, attachments

149 Panama-Buena Vista Union School District Notes to the Basic Financial Statements, Continued Year Ended June 30, Deferred Revenue Cash received for certain federal and state special projects and programs is recognized as revenue to the extent that qualified expenditures have been incurred. Deferred revenue is recorded to the extent cash received on these specific projects and programs exceed qualified expenditures. 5. Compensated Absences All vacation pay plus related payroll taxes are accrued when incurred in both the district-wide financial statements and in the governmental funds. Accumulated sick leave benefits are not recognized as liabilities of the District. The District s policy is to record sick leave as an operating expense in the period taken since such benefits do not vest nor is payment probable. However, unused sick leave is added to the creditable service period for calculation of retirement benefits when the employee retires. 6. Accrued Liabilities and Long-Term Debt All accrued liabilities and long-term debt are reported in the district-wide financial statements. For governmental fund financial statements, accrued liabilities are generally reported if payment is due as of the balance sheet date regardless of whether they will be liquidated with current financial resources. However, claims and judgments and compensated absences paid from governmental funds are reported as a fund liability only to the extent they are expected to be paid from expendable available financial resources. Long-term liabilities or liabilities with a maturity of more than one year paid from governmental funds are not recognized within the fund financial statements until payment is due. Long-term debt is reported net of applicable bond premium or discount. 7. Fund Balance Fund balances of governmental funds are classified based on the level of constraint placed on the resources of the funds as follows: a. Nonspendable fund balance includes amounts that are not expected to be converted to cash, such as resources that are not in a spendable form (e.g., inventories and prepaids) or that are legally or contractually required to be maintained intact. b. Restricted fund balance includes amounts constrained to specific purposes by their providers or by law. c. Committed fund balance includes amounts constrained to specific purposes by the Board. For this purpose, all commitments of funds shall be approved by a majority vote of the Board. The constraints shall be imposed no later than the end of the reporting period of June 30, although the actual amounts may be determined subsequent to that date but prior to the issuance of the financial statements

150 Panama-Buena Vista Union School District Notes to the Basic Financial Statements, Continued Year Ended June 30, 2014 d. Assigned fund balance includes amounts which the Board or its designee intends to use for a specific purpose. The Board delegates authority to assign funds to the assigned fund balance to the Superintendent or designee and authorizes the assignment of such funds to be made any time prior to the issuance of the financial statements. e. Unassigned fund balance includes amounts that are available for any purpose. When multiple types of funds are available for an expenditure, the district shall first utilize funds from the restricted fund balance as appropriate, then from the committed fund balance, and lastly from the unassigned fund balance. To protect the district against unforeseen circumstances such as revenue shortfalls and unanticipated expenditures, the Board intends to maintain a minimum unassigned fund balance which includes a reserve for economic uncertainties equal to at least two months of general fund operating expenditures, or 17 percent of general fund expenditures and other financing uses. If the unassigned fund balance falls below this level due to an emergency situation, unexpected expenditures, or revenue shortfalls, the Board shall develop a plan to recover the fund balance which may include dedicating new unrestricted revenues, reducing expenditures, and/or increasing revenues or pursuing other funding sources. 8. Net Position Net position represents the difference between assets and liabilities. Net position invested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for the acquisition, construction, or improvement of capital assets. Net position is reported as restricted when there are limitations imposed on their use either through enabling legislation adopted by the District or through external restrictions imposed by creditors, grantors or laws and regulations of other governments. The District s policy is to first apply restricted resources when an expense is incurred for the purposes for which both restricted and unrestricted net position are available. I. Revenue Limit/Property Tax The District s revenue limit is received from a combination of local property taxes, state apportionments, and other local sources. The County is responsible for assessing, collecting, and apportioning property taxes. Taxes are levied for each fiscal year on taxable real and personal property in the county. The levy is based on the assessed values as of the preceding March 1, which is also the lien date. Property taxes on the secured roll are due on November 1 and February 1, and taxes become delinquent after December 10 and April 10, respectively. Property taxes on the unsecured roll are due on the lien date (March 1) and become delinquent if unpaid by August 31. Secured property taxes are recorded as revenue when apportioned, in the fiscal year of the levy. The county apportions secured property tax revenue in accordance with

151 Panama-Buena Vista Union School District Notes to the Basic Financial Statements, Continued Year Ended June 30, 2014 the alternate method of distribution prescribed by Section 4705 of the California Revenue and Taxation Code. This alternate method provides for crediting each applicable fund with its total secured taxes upon completion of the secured tax roll approximately October 1 of each year. The County Auditor reports the amount of the District s allocated property tax revenue to the California Department of Education. Property taxes are recorded as local revenue limit sources by the District. The California Department of Education reduces the District s entitlement by the District s local property tax revenue. The balance is paid from the state General Fund and is known as the State Apportionment. The District s Base Revenue Limit is the amount of general purpose tax revenue, per average daily attendance (ADA), that the District is entitled to by law. This amount is multiplied by the second period ADA to derive the District s total entitlement. J. Management Estimates The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related revenues and expenditures for the financial statement reporting period. Actual results may differ from those estimates. Significant estimates with respect to these financial statements include the OPEB liability, liabilities for self-insurance and the amount receivable from the State of California, as further discussed at Notes 11, 13 and 14. K. Subsequent Events Management has evaluated subsequent events through December 5, 2014, the date on which the financial statements were available to be issued. There were no subsequent events identified which would require disclosure in the financial statements. L. Authoritative pronouncements In March 2012 the Government Accounting Standards Board (GASB) issued GASB Statement No. 65, Items Previously Reported as Assets and Liabilities. GASB No. 65 requires organizations to account for debt issuance costs, except for any portion related to prepaid insurance costs, as an expense in the period incurred. Prepaid insurance costs should be reported as an asset and recognized as an expense in a systematic and rational manner over the duration of the related debt. The District adopted the recognition provisions of GASB No. 65 for its year ending June 30,

152 Panama-Buena Vista Union School District Notes to the Basic Financial Statements, Continued Year Ended June 30, 2014 In June 2012 the Government Accounting Standards Board (GASB) issued GASB Statement No. 68, Accounting and Financial Reporting for Pensions. GASB No. 68 addresses accounting and financial reporting for pensions that are provided to the employees of state and local governmental employers through pension plans that are administered through trusts where contributions from employers and nonemployer contributing entities to the pension plan and earnings on those contributions are irrevocable, pension plan assets are dedicated to providing pensions to plan members in accordance with the benefit term, and pension plan assets are legally protected from the creditors of employers, nonemployer contributing entities, and the pension plan administrator. If the plan is a defined benefit pension plan, plan assets also are legally protected from creditors of the plan members. GASB No. 68 establishes standards for measuring and recognizing liabilities, deferred outflows of resources, and deferred inflows of resources, and expense/expenditures. For defined benefit pensions, GASB No. 68 identifies the methods and assumptions that should be used to project benefit payments, discount projected benefit payments to their actuarial present value, and attribute that present value to periods of employee service. The District is required to adopt the recognition provisions of GASB No. 68 for its year ending June 30, The effect of the implementation of GASB No. 68 has not been determined and is being evaluated by management NOTE 2 - CASH AND INVESTMENTS Cash and investments as of June 30, 2014 consist of the following: Governmental Funds Internal Service Fund Total Cash in county treasury $ 58,899,386 $ 6,781,578 $ 65,680,964 Cash on hand, in banks and revolving fund 661,556 79, ,300 Cash with fiscal agent 2,545,690 1,640,000 4,185,690 Total cash 62,106,632 8,501,322 70,607,954 Investments 60,894-60,894 Total cash and investments $ 62,167,526 $ 8,501,322 $ 70,668,848 Investments Authorized by the Entity s Investment Policy The District s investment policy requires compliance with current state law, current legislation and applicable education codes

153 Panama-Buena Vista Union School District Notes to the Basic Financial Statements, Continued Year Ended June 30, 2014 Disclosures Relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. District policy provides that any given instrument will not have a maturity in excess of five years. No less than fifty percent (50%) of the District s portfolio shall be in maturities of one year or less. Up to thirty-five (35%) cumulative of the portfolio may be invested for two years; and up to ten percent (10%) may be invested in years three and four; and up to five percent (5%) may be invested for five years. Disclosures Relating to Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Local Agency Investment Fund (LAIF) does not have a rating provided by a nationally recognized statistical rating organization. District policy provides for the investigation of the financial soundness, experience and personnel of all institutions or brokerage firms prior to the committal of any funds on behalf of the District. Concentration of Credit Risk The investment policy of the District contains no limitations on the amount that can be invested in any one issuer beyond that stipulated by the California Government Code. District policy does require diversification of the investment portfolio in such a manner not to obligate the District towards dependence in one investment instrument. Investments in any one financial instrument shall not exceed $2,500,000 or 50% of the total portfolio at time of investment settlement with the exception of the United States Government or its agencies, Kern County Treasurer s Fund, or Local Agency Investment Fund. Custodial Credit Risk Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The California Government Code and the District s investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits, other than the following provision for deposits: The California Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure District deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., broker-dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party

154 Panama-Buena Vista Union School District Notes to the Basic Financial Statements, Continued Year Ended June 30, 2014 The California Government Code and the District s investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for investments. With respect to investments, custodial credit risk generally applies only to direct investments in marketable securities. Custodial credit risk does not apply to a local government s indirect investment in securities through the use of mutual funds or government investment pools (such as LAIF). Investment in State Investment Pool The District is a voluntary participant in the LAIF that is regulated by the California Government Code under the oversight of the Treasurer of the State of California. The $60,894 fair value of the District s investment in this pool is reported in the accompanying financial statements at amounts based upon the District s pro-rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded on an amortized cost basis that approximates fair value. NOTE 3 - ACCOUNTS RECEIVABLE Receivables as of June 30, 2014, consist of the following: General Fund Special Revenue Funds Other Governmental Funds Internal Service Fund Totals Federal government: Categorical aid programs $ 2,729,660 $ 655,006 $ - $ - $ 3,384,666 State government: Categorical aid programs 136,800 50, ,351 Other 15,968, ,968,365 Total state government 16,105,165 50, ,155,716 Local government: Interest 17,248 2,226 30,221-49,695 Other 255,319 20,916-2,153,027 2,429,262 Total local 272,567 23,142 30,221 2,153,027 2,478,957 Total accounts receivable $ 19,107,392 $ 728,699 $ 30,221 $ 2,153,027 $ 22,019,

155 Panama-Buena Vista Union School District Notes to the Basic Financial Statements, Continued Year Ended June 30, 2014 NOTE 4 - INTERFUND TRANSACTIONS Interfund transactions are reported as loans, services provided, reimbursements, or transfers. Loans are reported as Interfund receivables and payables, as appropriate, and are subject to elimination upon consolidation. Services provided, deemed to be at market or near market rates, are treated as revenues and expenditures/expenses. Reimbursements occur when one fund incurs a cost, charges the appropriate benefiting fund, and reduces its related cost as a reimbursement. All other interfund transactions are treated as transfers. Transfers among governmental funds are netted as part of the reconciliation to the district-wide financial statements. As of June 30, 2014, interfund receivables and payables were as follows: Funds Interfund Receivables Interfund Payables General fund $ 12,699,397 $ 4,171,913 Building fund 206, ,032 Capital facilities fund 8, ,630 Non-major governmental funds 800, ,337 13,714,450 5,805,912 Internal Service Fund 4,232,880 12,141,418 Totals $ 17,947,330 $ 17,947,330 Interfund Transfers Interfund transfers consist of operating transfers from funds receiving resources to funds through which the resources are to be expended. Interfund transfers for the fiscal year were as follows: Funds Transfers In Transfers Out General fund $ 100,000 $ 2,337,809 All other funds: Child development fund - 100,000 Building fund - 188,592 Bond interest & redemption fund 188,592 - Self-insurance fund 2,337,809 - Total $ 2,626,402 $ 2,626,402 Transfer of $100,000 from the child development fund to the general fund was a cost reimbursement for the construction of day care relocatable classrooms. Transfer bond premium of $188,592 from the building fund to the bond interest & redemption fund. Transfer of $2,337,809 from the general fund to the self-insurance fund to cover unexpected large claims expenditures in excess of the budgeted contributions

156 Panama-Buena Vista Union School District Notes to the Basic Financial Statements, Continued Year Ended June 30, 2014 NOTE 5 - CAPITAL ASSETS AND DEPRECIATION Capital asset activity for the year ended June 30, 2014 is shown below: Balance June 30, 2013 Additions Deductions Transfers Balance June 30, 2014 Capital assets not being depreciated: Land $ 12,150,705 $ - $ - $ 12,150,705 Work in progress 1,967,783 6,021, ,751 (2,725,845) 4,558,055 Total capital assets not being depreciated 14,118,488 6,021, ,751 (2,725,845) 16,708,760 Capital assets being depreciated: Buildings 178,038, ,458-1,283, ,725,600 Improvements of sites 27,758, ,319-1,352,332 29,786,809 Equipment 13,744, , ,925 89,917 13,813,300 Total capital assets being depreciated 219,541,261 1,386, ,925 2,725, ,325,709 Less accumulated depreciation for: Buildings 68,774,665 3,941, ,716,181 Improvements of sites 7,435,556 1,363, ,799,345 Equipment 10,217, , ,910-10,586,493 Total accumulated depreciation 86,427,666 5,958, ,910-92,102,019 Total capital assets being depreciated, net 133,113,595 (4,571,735) 44,015 2,725, ,223,690 Governmental activities capital assets, net $ 147,232,083 $ 1,450,133 $ 749,766 $ - $ 147,932,

157 Panama-Buena Vista Union School District Notes to the Basic Financial Statements, Continued Year Ended June 30, 2014 Depreciation expense was charged to governmental activities as follows: Governmental activities: Instruction $ 4,875,827 Facilities acquisition and construction 587,491 Plant services 122,680 Home-to-school transportation 165,140 Instructional library, media, and technology 52,283 All other general administration 65,143 Food services 55,111 School site administration 14,815 Supervision of instruction 1,519 Centralized data processing 12,858 All other pupil services 5,226 Community services 170 Total depreciation expense $ 5,958,263 NOTE 6 - GENERAL OBLIGATION BONDS On May 29, 2013 the District issued $18,405,000 of Series 2013 A bonds for rehabilitation, repairs, technology upgrades and modernization at our school sites. The interest rate ranges from 3.0% to 4.0%. The final maturity date is August 1, The outstanding general obligation bond debt of the District as of June 30, 2014 is as follows: Bond Series 2013 Interest Rate Date of Issue Maturity Date Amount of Original Issue Bonds Redeemed Outstanding During June 30, 2013 Year Bonds Outstanding June 30, to 4.0% 5/29/2013 8/1/2042 $ 18,405,000 $ 18,405,000 $ - $ 18,405,000 `

158 Panama-Buena Vista Union School District Notes to the Basic Financial Statements, Continued Year Ended June 30, 2014 The annual requirements to amortize the Series 2013 General Obligation Bonds Payable, outstanding as of June 30, 2014, are as follows: Year Ending June 30, Principal Interest Total 2015 $ 350,000 $ 699,652 $ 1,049, ,535, ,561 2,177, ,650, ,659 2,226, , , , , ,000 2,840,383 3,115, ,235,000 2,717,293 3,952, ,625,000 2,369,514 4,994, ,830,000 1,624,239 6,454, ,905, ,708 6,306,708 Totals $ 18,405,000 $ 13,014,059 $ 31,419,059 NOTE 7 - CERTIFICATES OF PARTICIPATION On July 21, 2006, the Panama-Buena Vista Union School District s Financing Corporation issued certificates of participation (COPs) in the amount of $33,880,000 to provide funds for the acquisition of land and the construction of school facilities. Interest rates range from 4.0% to 5.0% and is payable on each March 1 and September 1. The certificates mature through 2037 as follows: Year Ending June 30, Interest Rate Principal Interest Total % $ 750,000 $ 1,437,353 $ 2,187, % 780,000 1,410,198 2,190, % 810,000 1,369,491 2,179, % 845,000 1,337,849 2,182, % 880,000 1,300,705 2,180, % 5,105,000 5,776,903 10,881, % 6,485,000 4,070,175 10,555, % 8,275,000 2,581,575 10,856, % 6,020, ,487 6,482,487 Totals $ 29,950,000 $ 19,746,736 $ 49,696,

159 Panama-Buena Vista Union School District Notes to the Basic Financial Statements, Continued Year Ended June 30, 2014 NOTE 8 - CAPITAL LEASES The California Department of Education (CDE) and the District entered into a contract and lease-to-own agreement for the pre-kindergarten facility at Seibert Elementary. The CDE paid $210,000 for the purchase and installation of the facility. The District agreed to lease the facility with no interest for ten years. Under terms of the lease the title will be transferred to the District upon repayment of the entire amount of the funds. The future minimum lease payments are as follows: Year ending June 30, Principal Interest Lease Payments 2015 $ 21,000 $ - $ 21, ,000-21, ,000-21, ,000-21, ,000-21,000 Totals $ 105,000 $ - $ 105,000 NOTE 9 - LONG-TERM DEBT SCHEDULE OF CHANGES A schedule of changes in long-term debt for the year ended June 30, 2014 is shown below: Balance June 30, 2013 Additions Deductions Balance June 30, 2014 Due Within One Year Due After One Year General obligation bonds $ 18,405,000 $ - $ - $ 18,405,000 $ 350,000 $ 18,055,000 Unamortized premium 188,041-6, ,755 6, ,469 Total General Obligation Bond 18,593,041-6,286 18,586, ,286 18,230,469 Certificates of participation 30,675, ,000 29,950, ,000 29,200,000 Unamortized premium 478,340-16, ,846 16, ,352 Total Certificates of participation 31,153, ,494 30,411, ,494 29,645,352 Capital leases 218, , ,000 21,000 84,000 Total $ 49,965,188 $ - $ 861,587 $ 49,103,601 $ 1,143,780 $ 47,959,821 NOTE 10 - JOINT VENTURES (JOINT POWERS AGREEMENTS) The District participates in six joint ventures under joint powers agreements (JPA s); three with the Self Insured Schools of California (SISC), one with Partners in Nutrition Cooperative (PinCo), one with School District Facility Services and one with Schools Legal Services. The relationships between the District and the JPA s are such that the JPA s are not component units of the District for financial reporting purposes. Self Insured Schools of California (SISC) arranges for and provides insurance for its members; a board consisting of representatives from the member districts governs SISC. The board

160 Panama-Buena Vista Union School District Notes to the Basic Financial Statements, Continued Year Ended June 30, 2014 controls the operations of SISC, including selection of management and approval of operating budgets, independent of any influence by the member districts beyond their representation on the board. Each member district pays a premium commensurate with the level of coverage requested and shares surpluses and deficits proportionate to their participation in SISC. Partners in Nutrition Cooperative (PinCo) coordinates the acquisition, storage and distribution of commodities and other related food product to member districts in California. An advisory committee consisting of representatives from member districts governs PinCo. The advisory committee controls the operations of PinCo including the review of performance of the lead district; and the review and approval of the monthly service fee to be paid by the member districts to the lead district. The advisory committee functions independently of any influence by the member districts beyond their representation on the committee. Each member district establishes a revolving fund approximately equal to 2.5 times the average monthly purchases, plus some additional expenses. School District Facility Services (SDFS), established in 1994, provides administrative services to member districts pursuant to various statutory provisions related to the collection of School Facilities Fees (formerly Developer Fees) levied on new construction and/or other school facilities issues pertinent to school construction funding. Member districts are limited to public school districts or other public educational entities within the County of Kern and the Kern County Superintendent of Schools. The SDFS Advisory Board is comprised of fifteen elected officials from member districts and the agency is funded through an assessment of 1.5% of the fees collected on behalf of each member district. Advisory Board members include small and large school districts, both urban and rural, with the governing board structured to ensure input from each. The Kern County Superintendent of Schools acts as the administrative agent for the SDFS JPA. Schools Legal Service (SLS) is a legal services consortium serving school and community college districts and county offices of education since The first such agency of its kind in California, the service is based in Bakersfield, administered by the Kern County Superintendent of Schools, and serves agency members throughout the state. The SLS governing board is made up of representatives of school and community college districts and county office of education members. Governing Board members include small and large school districts, both urban and rural, with the governing board structured to ensure input from each. Members pay a minimum annual fee for legal services based on student enrollment; collective bargaining services are provided for an additional fee based on district size and number of bargaining units. (Fees allocated to hours of collective bargaining services rendered and related expenses are generally recoverable as mandated costs). SLS services include the following: o Help-desk for general education law matters o Personnel advice and representation in disciplinary proceedings o Advice and representation in student discipline matters o Special education advice and representation at difficult IEPs, mediations and fair hearings o Construction document review o Construction litigation o Collective bargaining advice and representation at the bargaining table o Representation in PERB hearings

161 Panama-Buena Vista Union School District Notes to the Basic Financial Statements, Continued Year Ended June 30, 2014 o o o o o o o Monitor legislative developments of concern to members Defense in most litigation matters not covered by insurance Formation and counseling of educational foundations Copyright and trademark registration General transactional work (Contract review and drafting) Workshops and clinics on special topics Access to publications and websites. NOTE 11 - COMMITMENTS AND CONTINGENCIES State and Federal Allowances, Awards and Grants The District has received state and federal funds for specific purposes that are subject to review and audit by the grantor agencies. If the review or audit discloses exceptions, the District may incur a liability to grantor agencies. The District s financial statements include revenues apportioned from the State of California that are considered continuously appropriated under State Education Code. Continuously Appropriated means that the State does not specifically appropriate the apportionment year after year in its budget approval process under this guidance. The State budget assumed the state would end the fiscal year with a reserve of $3 billion. The Legislative Analyst s Office now estimates that the General Fund revenues will be about $2 billion higher than estimated in this year s budget act. The increase, however, is fully offset by higher General Fund spending on Proposition 98. The budget is currently projected to end with $4.2 billion in total reserves assuming no new budget commitments are made. This total includes an estimated $2 billion deposit in the rainy-day fund in under the new rules passed by voters in Proposition 2. Property Taxes The County of Kern and its related municipal entities have been subjected to continuing taxpayer litigation suits asserting over assessments of property taxes. The Auditor-Controller of Kern County has advised the District that it would be prudent to impound funds in anticipation of possibly adverse findings by the courts. The District authorized the Auditor- Controller of the County of Kern to impound approximately $104,803 into the impound account during the fiscal year ended June 30, The balance in the district s impound account was $1,604,339 at June 30, The pending appeals less interest was $2,520,986 which leaves a net contingent liability of $916,647 as of June 30, Retirement Incentives See Note 12 for a full description of the retirement incentive commitments as of June 30,

162 Panama-Buena Vista Union School District Notes to the Basic Financial Statements, Continued Year Ended June 30, 2014 Employee Benefits Historically, all full-time District employees were required to participate, along with their spouses and dependents, in a pooled, composite-rated plan administered by Self Insured Schools of California (SISC). Employees working half-time or more are allowed to participate at their option but the District s contribution for their benefits is limited to the same percentage as the employee s full time equivalence. The SISC risk pool comprises numerous other California school districts. Under this program, a pseudo premium is assessed for each employee participant in each district reflecting the level of benefits each District elected to provide its employees, and the cost trend and reserves of the pool. Effective January 1, 2012, the District s risk is no longer pooled with that of other districts. Instead, the District pays the actual claims and administration costs for its employees. The District s risk is limited by stop-loss coverage. Employees who are not eligible to participate in a SISC health plan will participate in a Medical Expense Reimbursement Plan (MERP). As a result, the District will avoid primary responsibility for the claim payments of its MERP participants. Significant health cost savings are expected to result from this change, but a reasonable estimate is not possible at this time. NOTE 12 - RETIREMENT INCENTIVE The District adopted a retirement incentive program (the Program) in January 2009 supplementing STRS/PERS, and qualifying under the relevant sections of Section 403(b) of the Internal Revenue Code. The District will fund a supplemental benefit under the Program for each participant in the form of employer contributions into the participant s 403(b) annuity contract held at Pacific Life Insurance Company effective July 1, Employees that satisfy all of the eligibility requirements are eligible to receive District contributions under this plan. The sum of the contributions shall equal: Certificated non-management employees = 80% of final pay; Certificated management employees = $10,000 Classified employees = 50% of final pay A total of 35 employees satisfied the conditions for eligibility as described above. The District s final contribution of $402,657 to the Program was funded on July 10, The District also adopted a supplementary retirement plan (the Plan) in January 2011 supplementing STRS/PERS, and qualifying under the relevant sections of Section 403(b) of the Internal Revenue Code. Participants will receive five annual contributions totaling $50,000 to a 403(b) annuity contract or custodial account with a District-approved vendor of the employee s choosing. Each annual contribution is $10,

163 Panama-Buena Vista Union School District Notes to the Basic Financial Statements, Continued Year Ended June 30, 2014 A total of 42 employees satisfied the conditions for eligibility as described above. The District s contributions to the Plan will be funded in annual installments as follows: Date Amount 7/10/2014 $ 420,000 7/10/2015 $ 420, ,000 NOTE 13 - EMPLOYEE RETIREMENT SYSTEMS Qualified employees are covered under multiple-employer defined benefit pension plans maintained by agencies of the State of California and the Kern County Superintendent of Schools. Certificated employees are members of the State Teachers Retirement System (STRS), and classified employees are members of the California Public Employees Retirement System (CalPERS). Part-time temporary and seasonal (PTS) employees may elect to become members of SISC (see Note 10) Defined Benefit Plan (SDBP). CalPERS Plan Description The District contributes to the School Employer Pool under the California Public Employees Retirement System (CalPERS), a cost-sharing multiple-employer public employee retirement system defined benefit pension plan administered by CalPERS. The plan provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. State statutes, as legislatively amended, within the Public Employees Retirement Law, establish benefit provisions. CalPERS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the CalPERS annual financial report may be obtained from the CalPERS Executive Office, 400 P Street, Sacramento, California Funding Policy Active plan members are required to contribute 7% of their salary and the District is required to contribute an actuarially determined rate. The actuarial methods and assumptions used for determining the rate are those adopted by the CalPERS Board of Administration. The required employer contribution rate for fiscal year was % of annual payroll. The contribution requirements of the plan members are established by state statute. The District s contributions to CalPERS for the fiscal years ending June 30, 2014, 2013, and 2012 were $2,239,994, $2,047,777 and $1,861,195, respectively, and were equal to the required contributions for each year. STRS Plan Description The District contributes to the State Teachers Retirement System (STRS), a cost-sharing multiple-employer public employee retirement system defined benefit pension plan administered by STRS. The plan provides retirement, disability, and survivor benefits to

164 Panama-Buena Vista Union School District Notes to the Basic Financial Statements, Continued Year Ended June 30, 2014 beneficiaries. State statutes, as legislatively amended, within the State Teachers Retirement Law, establish benefit provisions. STRS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the STRS annual financial report may be obtained from STRS, 7667 Folsom Boulevard, Sacramento, California Funding Policy Active plan members are required to contribute 8% of their salary and the District is required to contribute an actuarially determined rate. The actuarial methods and assumptions used for determining the rate are those adopted by the STRS Teachers Retirement Board. The required employer contribution rate for fiscal year was 8.25% of annual payroll. The contribution requirements of the plan members are established by state statute. The District s contributions to STRS for fiscal years ending June 30, 2014, 2013, and 2012 were $5,088,885, $4,759,892, and $4,725,180, respectively, and were equal to the required contributions for each year. SDBP Plan Description The District contributes to the SISC Defined Benefit Plan (SDBP), a cost-sharing multiple employer public employee retirement plan. The District is part of a cost sharing pool with SDBP. One actuarial valuation is performed for those employers participating in the pool, and the same contribution rate applies to each. The plan provides for retirement benefits established by California Government Code Section 6507, which created Self-Insured Schools of California (SISC), a Joint Powers Agency with the authority to establish and amend the benefit provisions of the plan. SDBP issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the SDBP annual financial report may be obtained from the SDBP, th Street, Bakersfield, California Funding Policy The District is required to contribute an actuarially determined rate. The actuarial methods and assumptions used for determining the rate are those adopted by the SISC III Board of Directors. The required employer contribution rate was 3.1% of annual payroll for 2014 and 3.7% for 2013, and 4.8% for The contribution requirements of the plan members are established by state statute. The District s contributions to SDBP for the fiscal years ending June 30, 2014, 2013, and 2012 were $92,445, $112,703, and $115,572, respectively, and were equal to the required contributions for each year

165 Panama-Buena Vista Union School District Notes to the Basic Financial Statements, Continued Year Ended June 30, 2014 NOTE 14 - POSTEMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS Plan Description: The Panama-Buena Vista Union School District Postemployment Benefits Plan (the Plan) is a single-employer, defined benefit healthcare plan administered by Self- Insured Schools of California (SISC). The Plan provides medical insurance benefits to eligible employees and their spouses (not surviving spouse). There are two medical plans available for retirees to select. Depending on the plan selected, medical benefits include inpatient services at 100% or 90%. Other base benefits include surgery, anesthesia, diagnostic x-ray and laboratory. An accident benefit of $500 is also provided under the base plan. Major medical has a $100 or $200 deductible with a family maximum of $300 or $500. The District s Board of Trustees has the authority to establish and amend benefit provisions. The Plan is included in the financial report of Self-Insured Schools of California (SISC) which can be obtained by contacting Glenn A. Imke, Assistant Superintendent Business Services, Panama-Buena Vista Union School District, 4200 Ashe Road, Bakersfield, California Eligibility: Certificated employees, who retire from the District on or after attaining age 59 with at least 15 years of service or attaining age 55 with at least 20 years of service, and classified employees who retire on or after attaining age 60 with at least 10 years of service or attaining age 55 with at least 20 years of service. Coverage for retirees is until age 65. There were 127 and 154 retirees who met these eligibility requirements at June 30, 2014 and 2013, respectively. Funding Policy: The contribution requirements of plan members and the District are established by the District s Board of Trustees. The required contribution is based on projected pay-as-you-go financing requirements, with an additional amount to prefund benefits as determined annually by the District s Board of Trustees. For the year ended June 30, 2014, the District contributed $2,315,930 for current premiums. Plan members receiving benefits contributed $667,695, or approximately 29 percent of the total premiums. Annual OPEB Cost and Net OPEB Obligation: The District s annual other postemployment benefit (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years

166 Panama-Buena Vista Union School District Notes to the Basic Financial Statements, Continued Year Ended June 30, 2014 The following table shows the components of the District s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the District s net OPEB obligation to the Plan: Annual required contribution $ 3,045,200 Interest on net OPEB Obligation 262,300 Adjustment to annual required contribution (302,200) Annual OPEB cost (expense) 3,005,300 Contributions made (2,315,930) Increase in net OPEB obligation 689,370 Net OPEB obligation, beginning of year 3,747,380 Net OPEB obligation, end of year $ 4,436,750 The District s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for 2014 was as follows: Percentage of Net Fiscal Annual Annual OPEB Cost OPEB Year OPEB Cost Contributed Obligation 6/30/2014 $ 3,005, % $ 4,436,750 6/30/2013 $ 3,015, % $ 3,747,380 6/30/2012 $ 2,450, % $ 3,132,502 Funded Status and Funding Progress: As of July 1, 2012, the most recent actuarial valuation date, the plan was 2.0% funded. The actuarial accrued liability for benefits was $26,408,100, and the actuarial value of assets was $624,800, resulting in an unfunded actuarial accrued liability (UAAL) of $25,783,300. The covered payroll (annual payroll of active employees covered by the plan) was $64,309,700, and the ratio of the UAAL to the covered payroll was 40 percent. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future

167 Panama-Buena Vista Union School District Notes to the Basic Financial Statements, Continued Year Ended June 30, 2014 Actuarial Methods and Assumptions: Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of shortterm volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the July 1, 2012 actuarial valuation, the projected unit credit actuarial cost method was used. The actuarial assumptions included a 7 percent investment rate of return (net of administrative expenses), and an annual healthcare cost trend rate of 7 percent initially, reduced by decrements to an ultimate rate of 5 percent. The actuarial value of assets was determined using techniques that spread the effects of short-term volatility in the market value of investments over a five-year period. The UAAL is being amortized as a level dollar over a static 30 years starting at July 1, NOTE 15 - PRIOR PERIOD ADJUSTMENTS AND RESTATEMENT Beginning net position was decreased by $1,134,447 to correct two errors from prior years. Beginning net position for the Internal Service Fund for self insurance has been decreased by $1,587,269 to reflect an invoice that was improperly excluded as a liability at June 30, Additionally, beginning net position for the General Fund, Child Development Fund and Cafeteria Fund was increased by $418,380, $20,474 and $13,968, respectively, to correct for previous overstatements of accrued vacation. As a result of the implementation of GASB 65 as explained in Note 1L, a restatement of beginning net position was required. Prepaid debt issuance costs as of June 30, 2013 were removed from the balance sheet in accordance with GASB 65 requirements, which decreased the beginning net position by $875,

168 REQUIRED SUPPLEMENTARY INFORMATION SECTION

169 Panama-Buena Vista Union School District Schedule of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual (GAAP) General Fund Year Ended June 30, 2014 Budgeted Amounts Original Revenues: Local control funding formula sources $ 99,734,767 $ 111,186,954 $ 110,478,479 $ (708,475) Federal revenues 5,990,367 6,393,632 6,701, ,974 Other state revenues 26,151,173 15,499,762 16,506,510 1,006,748 Other local revenues 1,598,681 1,598,681 1,398,890 (199,791) Total revenues 133,474, ,679, ,085, ,456 Expenditures: Certificated salaries 61,099,102 63,736,412 63,736,412 - Classified salaries 18,715,770 20,043,530 20,043,530 - Employee benefits 30,588,595 30,644,085 30,644,085 - Books and supplies 7,588,523 8,452,186 5,788,941 2,663,245 Services and other operating expenditures 12,073,705 10,738,468 10,458, ,376 Capital outlay 264, , ,469 - Other outgo 6,293,303 7,003,481 7,003,481 - Debt service: Principal 92,807 92,806 92,806 - Interest 107,000 23,466 23,466 - Total expenditures 136,823, ,118, ,175,282 2,943,621 Deficiency of revenues over expenditures (3,348,717) (6,439,874) (3,089,797) 3,350,077 Other financing sources (uses) Transfers in 100, , ,000 - Transfers out (500,000) (500,000) (2,337,809) (1,837,809) Total other financing sources (400,000) (400,000) (2,237,809) (1,837,809) Deficiency of revenues and other financing sources over expenditures and other uses (3,748,717) (6,839,874) (5,327,606) 1,512,268 Fund balances, July 1, 2013, as originally stated 16,920,619 16,920,619 16,920,619 - Prior Period Adjustments 418, , ,380 - Fund balances, July 1, 2013, as restated 17,338,999 17,338,999 17,338,999 - Fund balances, June 30, 2014 $ 13,590,282 $ 10,499,125 $ 12,011,393 $ 1,512,268 Final Actual (GAAP Basis) Variance with Final Budget Positive - (Negative)

170 Panama-Buena Vista Union School District Schedule of Other Postemployment Benefits Funding Progress Year Ended June 30, 2014 Unfunded UAAL as a Actuarial Actuarial Actuarial Actuarial Percentage of Valuation Value of Accrued Accrued Funded Covered Covered Date Assets Liability Liability Ratio Payroll Payroll 7/01/12 $ 624,800 $ 26,408,100 $ 25,783, % $64,309,700 40% 7/01/10 $ 248,600 $ 20,560,100 $ 20,311, % $66,187,300 31% 7/01/08 $ - $ 23,825,800 $ 23,825, % $67,271,200 35%

171 STATE AND FEDERAL COMPLIANCE INFORMATION SECTION

172 Panama-Buena Vista Union School District Schedule of Average Daily Attendance Year Ended June 30, 2014 Elementary: Second Period Report Annual Report Kindergarten through Grade 3 7,484 7,484 Grades 4 through 6 5,467 5,463 Grades 7 and 8 3,762 3,751 ADA Totals 16,713 16,698 Average daily attendance is a measurement of the number of pupils attending classes of the District. The purpose of attendance accounting from a fiscal standpoint is to provide the basis on which apportionments of state funds are made to school districts. This schedule provides information regarding the attendance of students at various grade levels and in different programs

173 Panama-Buena Vista Union School District Schedule of Instructional Time Year Ended June 30, No. of Days Actual Minutes Actual Traditional Grade Level Minutes Requirements Minutes Calendar Status Kindergarten 31,680 36,000 52, Complied First 43,580 50,400 52, Complied Second 43,580 50,400 52, Complied Third 43,580 50,400 52, Complied Fourth 54,140 54,000 56, Complied Fifth 54,140 54,000 56, Complied Sixth 54,140 54,000 56, Complied Seventh 57,076 54,000 58, Complied Eighth 57,076 54,000 58, Complied Districts must maintain their instructional minutes at either the actual minutes or the requirement, whichever is greater, as required by Education Code Section The District has received incentive funding for increasing instructional time as provided by the Incentives for Longer Instructional Day. This schedule presents information on the amount of instruction time offered by the District and whether the District complied with the provision of Education Code Sections through

174 Panama-Buena Vista Union School District Schedule of Financial Trends and Analysis Year Ended June 30, 2014 General Fund Sources (Budget) $ 143,998,908 $ 135,185,485 $ 126,281,548 $ 122,855,683 Expenditures 145,887, ,175, ,000, ,917,292 Other Uses and Transfers Out - 2,337,809 2,700,000 - Total Outgo 145,887, ,513, ,700, ,917,292 Change in Fund Balance (Deficit) $ (1,888,604) $ (5,327,606) $ (5,418,661) $ (2,061,609) Ending Fund Balance $ 10,122,789 $ 12,011,393 $ 16,920,619 $ 22,339,280 Available Reserves $ 5,244,156 $ 5,291,062 $ 12,727,465 $ 18,169,305 Designated for Economic Uncertainties $ 5,244,156 $ 5,291,062 $ 12,727,465 $ 18,169,305 Unassigned/Unappropriated Fund Balance $ - $ - $ - $ - Available Reserves as a Percentage of Total Outgo 3.59% 3.77% 9.66% 14.55% Total Long-Term Debt $ 47,959,821 $ 49,103,601 $ 49,965,188 $ 33,102,872 Average Daily Attendance at P-2 16,713 16,713 16,530 16,126 This schedule discloses the District s financial trends by displaying past years actual (GAAP basis) data along with current year budget information. These financial trend disclosures are used to evaluate the District s ability to continue as a going concern for a reasonable period of time. The General Fund balance decreased by $5,327,606 in the year ended June 30, The fiscal year budget projects a decrease of $1,888,604. For a district of this size, the state recommends available reserves of at least 3% of total General Fund expenditures, transfers out, and other uses (total outgo). The District has incurred operating deficits totaling $12,807,876 over the past three years and is anticipating an operating deficit of $1,888,604 for Total long-term debt has increased over the past two years by $16,000,729 primarily due to the issuance of the 2012 General Obligation Bonds. Average daily attendance has increased by 587 over the past two years. Due to the slow economic recovery District management anticipates no growth in ADA for the fiscal year

175 Panama-Buena Vista Union School District Schedule of Expenditures of Federal Awards Year Ended June 30, 2014 Pass-Through Federal CFDA Number Federal Grantor/Pass-Through Grantor/Program or Cluster Title Entity Identifying Number Federal Expenditures U.S. Department of Education Passed Thorugh California Department of Education (CDE): Special Education Cluster: Special Ed: IDEA Basic Local Assistance Entitlement, Part B, Sec $ 2,571, Special Ed: IDEA Local Assistance, Part B, Private Schools , Special Ed: IDEA Preschool Grants, Part B, Sec , A Special Ed: IDEA Preschool Local Entitlement, Part B, Sec ,399 Subtotal Special Education Cluster 2,832, NCLB: Title I, Part A, Basic Grants Low-Income and Neglected ,070, NCLB: Title II, Part A, Teacher Quality , NCLB: Title II, Part A, Administrator Training ,961 Total U.S. Department of Education 6,296,120 U.S. Department of Health Care Services Passed Thorugh CDE: Medi-Cal Billing Option ,498 U.S. Department of Agriculture: Passed Thorugh CDE: National School Lunch ,363, Estimated fair value of commodities , Child Nutrition-Fresh Fruit & Vegetable Program ,036 Audited as a major program Total U.S. Department of Agriculture 7,915,353 Total expenditures of federal awards $ 14,435,

176 Panama-Buena Vista Union School District Schedule of Expenditures of Federal Awards, Continued Year Ended June 30, 2014 The accompanying note is an integral part of this schedule. Note1. Basis of Presentation The accompanying schedule of expenditures of federal awards includes the federal grant activity of Panama-Buena Vista Union School District and is presented on the modified accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the financial statements

177 Panama-Buena Vista Union School District Reconciliation of Annual Financial and Budget Report (SACS) With Audited Financial Statements Year Ended June 30, 2014 General Fund June 30, 2014, Annual Financial and Budget Report (SACS) Fund Balance $ 11,559,184 Adjustments and Reclassifications: Accrued vacation overstatement 472,775 Interest expense understatement (20,566) June 30, 2014 audited financial statement fund balance $ 12,011,393 Child Development Fund June 30, 2014, Annual Financial and Budget Report (SACS) Fund Balance $ 965,125 Adjustments and Reclassifications: Accrued vacation overstatement 21,655 June 30, 2014 audited financial statement fund balance $ 986,780 Cafeteria Fund June 30, 2014, Annual Financial and Budget Report (SACS) Fund Balance $ 2,767,363 Adjustments and Reclassifications: Accrued vacation overstatement 13,691 June 30, 2014 audited financial statement fund balance $ 2,781,054 Building Fund June 30, 2014, Annual Financial and Budget Report (SACS) Fund Balance $ 14,638,080 Adjustments and Reclassifications: Reclassify interest earned on bond proceeds 71,915 June 30, 2014 audited financial statement fund balance $ 14,709,995 Bond and Interest Fund June 30, 2014, Annual Financial and Budget Report (SACS) Fund Balance $ 1,366,860 Adjustments and Reclassifications: Reclassify interest earned on bond proceeds 71,915 June 30, 2014 audited financial statement fund balance $ 1,438,775 There were no adjustments proposed to any other funds of the District

178 Panama-Buena Vista Union School District Notes to State and Federal Compliance Information Year Ended June 30, 2014 NOTE CHARTER SCHOOLS The District does not sponsor any charter schools. NOTE EARLY RETIREMENT INCENTIVE Education Code section requires certain disclosure in the financial statements of districts which adopt early retirement incentive programs pursuant to Education Code Sections and For the fiscal year ended June 30, 2014, the District did not adopt this program

179 Daniells Phillips Vaughan & Bock CPAs & Advisors Certified Public Accountants Business & Personal Consultants Member of the McGladrey Alliance Member of AICPA Division for Firms Private Companies Practice Section NANCY C. BELTON INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Board of Trustees Panama-Buena Vista Union School District Bakersfield, California We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of Panama-Buena Vista Union School District, as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise Panama- Buena Vista Union School District s basic financial statements, and have issued our report thereon dated December 5, Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered Panama-Buena Vista Union School District's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Panama-Buena Vista Union School District s internal control. Accordingly, we do not express an opinion on the effectiveness of Panama-Buena Vista Union School District s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance New Stine Road Bakersfield, CA Tel Fax

180 Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. We did identify certain deficiencies in internal control, described in the accompanying schedule of audit findings and questioned costs as items FS and FS that we considered to be significant deficiencies. Compliance and Other Matters As part of obtaining reasonable assurance about whether Panama-Buena Vista Union School District's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Panama-Buena Vista Union School District s Response to Findings Panama-Buena Vista Union School District s responses to the findings identified in our audit report are described in the accompanying schedule of findings and questioned costs. Panama- Buena Vista Union School District s responses were not subject to the auditing procedures applied in the audit of the financial statements and, accordingly, we do not express an opinion on them. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Bakersfield, California December 5,

181 Daniells Phillips Vaughan & Bock CPAs & Advisors Certified Public Accountants Business & Personal Consultants Member of the McGladrey Alliance Member of AICPA Division for Firms Private Companies Practice Section NANCY C. BELTON INDEPENDENT AUDITOR S REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE AS REQUIRED BY OMB CIRCULAR A-133 Board of Trustees Panama-Buena Vista Union School District Bakersfield, California Report on Compliance for Each Major Federal Program We have audited Panama-Buena Vista Union School District s compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of Panama-Buena Vista Union School District s major federal programs for the year ended June 30, Panama-Buena Vista Union School District s major federal programs are identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of Panama-Buena Vista Union School District s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Panama-Buena Vista Union School District s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of Panama-Buena Vista Union School District s compliance New Stine Road Bakersfield, CA Tel Fax

182 Opinion on Each Major Federal Program In our opinion, Panama-Buena Vista Union School District complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, Report on Internal Control Over Compliance Management of Panama-Buena Vista Union School District is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered Panama- Buena Vista Union School District s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of Panama-Buena Vista Union School District s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Purpose of this Report The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of OMB Circular A-133. Accordingly, this report is not suitable for any other purpose. Bakersfield, California December 5,

183 Daniells Phillips Vaughan & Bock CPAs & Advisors Certified Public Accountants Business & Personal Consultants Member of the McGladrey Alliance Member of AICPA Division for Firms Private Companies Practice Section NANCY C. BELTON INDEPENDENT AUDITOR S REPORT ON STATE COMPLIANCE Board of Trustees Panama-Buena Vista Union School District Bakersfield, California Report on State Compliance We have audited Panama-Buena Vista Union School District s compliance with the requirements as identified in the Standards and Procedures for Audits of California K-12 Local Educational Agencies that could have a direct and material effect on each of Panama-Buena Vista Union School District s State government programs as noted below for the year ended June 30, Management s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its State programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance of each of Panama-Buena Vista Union School District s State programs based on our audit of the types of compliance requirements referred to above. We conducted our audit in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the Standards and Procedures for Audits of California K-12 Local Educational Agencies These standards require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the compliance requirements referred to above that could have a material effect on the applicable government programs noted below occurred. An audit includes examining, on a test basis, evidence about Panama-Buena Vista Union School District s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of Panama-Buena Vista Union School District s compliance with those requirements. Unmodified Opinion on Each of the Other Programs In our opinion, Panama-Buena Vista Union School District complied, in all material respects, with the compliance requirements referred to above that are applicable to the government programs noted below that were audited for the year ended June 30, New Stine Road Bakersfield, CA Tel Fax

184 Other Matters Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. We noted a non-material exception which is described in the schedule of audit findings and questioned costs as item SA Panama-Buena Vista Union School District s response to the finding identified in our audit is described in the accompanying schedule of audit findings and questioned costs. Panama-Buena Vista Union School District s response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response. In connection with the audit referred to above, we selected and tested transactions and records to determine Panama-Buena Vista Union School District s compliance with the State laws and regulations applicable to the following items: Procedures in Procedures Description Audit Guide Performed Attendance Accounting: Attendance Reporting 6 Yes Teacher Certification and Misassignments 3 Yes Kindergarten Continuance 3 Yes Independent Study 23 Not applicable Continuation Education 10 Not applicable Instructional Time: School Districts 10 Yes Instructional Materials: General requirements 8 Yes Ratios of Administrative Employees to Teachers 1 Yes Classroom Teacher Salaries 1 Yes Early Retirement Incentive 4 Not applicable 1 GANN Limit Calculation 1 Yes School Accountability Report Card 3 Yes Juvenile Court Schools 8 Not applicable Local Control Funding Formula Certification 1 Yes California Clean Energy Jobs Act 3 Yes After School Education and Safety Program: General requirements 4 Yes After school 5 Yes Before school 6 Not applicable Education Protection Account Funds 1 Yes Common Core Implementation Funds 3 Yes Unduplicated Local Control Funding Formula Pupil Counts 3 Yes Charter Schools: Contemporaneous Records of Attendance 8 Not applicable Mode of Instruction 1 Not applicable Nonclassroom-based Instruction/Independent Study 15 Not applicable Determination of Funding for Nonclassroom-Based Instruction 3 Not applicable Annual Instructional Minutes Classroom Based 4 Not applicable Charter School Facility Grant Program 1 Not applicable 1 The District s Early Retirement Incentive does not meet the definition of the Early Retirement Incentive program under STRS. Bakersfield, California December 5,

185 Panama-Buena Vista Union School District Schedule of Audit Findings and Questioned Costs Year Ended June 30, 2014 Section I Summary of Auditor s Results Financial Statements Type of auditor s report issued: Unmodified Internal control over financial reporting: Material weaknesses identified? Yes X No Significant deficiencies identified that are not considered to be material weaknesses? X Yes None reported Noncompliance material to financial statements noted? Yes X No Federal Awards Internal control over major programs: Material weaknesses identified? Yes X No Significant deficiencies identified that are not considered to be material weaknesses? Yes X None reported Type of auditor s report issued on compliance for major programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with Circular A-133, Section.510(a) Yes X No Identification of major programs: CDFA Number / Name of Federal Program or Cluster Special Education Custer NCLB: Title 1 Grants to Local Education Agencies Fresh Fruit and Vegetable Program Dollar threshold used to distinguish between Type A And Type B programs: $433,079 Auditee qualified as low-risk auditee? X Yes No State Awards Internal control over major programs: Material weaknesses identified? Yes X No Significant deficiencies identified that are not considered to be material weaknesses? Yes X None reported Any audit findings disclosed that are required to be reported in accordance with Local Educational Agencies K-12 Audit Guide X Yes No Type of auditor s report issued on compliance for state programs: Unmodified

186 Panama-Buena Vista Union School District Schedule of Audit Findings and Questioned Costs Year Ended June 30, 2014 Section II Financial Statement Findings FS Electronic Signatures Instances were noted where electronic signatures were utilized without the employee s knowledge or approval. The District should develop and implement policies and procedures over the use of electronic signatures of individuals within the District to properly safeguard those signatures. Management s Response: Management intends to implement the following policy: Background Understanding that California Education Code permits a person or persons to sign orders behalf of the Governing Board. Accordingly, a person s signature on certification of claims or correspondence may be affixed by stamp or other mechanical means as long as the instrument use is in his/her general possession and control and is applied by himself/herself or by another within his/her authority. According to California Government Code 5502, a facsimile signature has the same legal effect as an official seal. Policy A person s signature may be affixed by stamp or other mechanical device as long as the instrument is directly used by the District officer. A person s signature may be applied by another within the person s authority in so far that the officer intends for their signature to be affixed to a document. When a stamped or facsimile signature is applied, the person who applied the signature must initial the signature. Delegation of Signature Authority A person may delegate or assign to another authority to use a signature stamp with the person s name or to sign the person s name. When this delegation has taken place, it is the responsibility of the delegator to assure that the individual to whom such authority is assigned understands the limits of the delegated authority. Such delegated authority may not be subdelegated. The person delegating signature authority to another is ultimately responsible for the delegated individual s actions. The delegation of signature authority will be documented in writing and will be reviewed periodically. FS Information Technology Usage Policy The District did not have adequate controls in place regarding the monitoring of the information technology usage policy. Though the District does have an acceptable usage policy related to information technology, the usage policy is not consistently implemented with fidelity. This was evidenced by a fair amount of personal data causing a system back-up to take much longer than it should have, which delayed the ability of District personnel to perform their duties. The District should implement a policy whereby the information technology usage policy is properly monitored to ensure it is being adhered to by employees of the District

187 Management s Response: Panama-Buena Vista Union School District Schedule of Audit Findings and Questioned Costs Year Ended June 30, 2014 Management intends to begin executing administrative rights inherent with the current acceptable use policy in effect. Information Technology staff will begin monitoring the personal use of server space. This may result in the removal of personal files kept by employees. Section III Federal Award Findings and Questioned Costs None Section IV State Award Findings and Questioned Costs SA After School Education and Safety Program (ASES) Attendance Criteria: Education Code Section requires Local Education Agencies (LEAs) that operate After School Education and Safety Programs to report attendance to the California Department of Education. The number of students served must be supported by written records that document the pupil s participation. Condition: One of three schools selected for attendance testing for the ASES program had discrepancies between the number of students served as reported and the totals arising from the supporting documentation. The days attended for September 2013 was reported as 1,735 days, whereas the number of days per the supporting documentation was 1,736. This resulted in the District understating the monthly attendance by one day for the first half of the ASES program. Additionally, one of 23 school sites and five of the ten operating months in the school year did not have adequate underlying documentation for the daily attendance; therefore, the District estimated the number of students served. As a result, the number reported for the first half of the ASES program for one school site could not be substantiated. Effect: The net effect of the condition resulted in underreporting of one day of attendance for the first half of the ASES program, however the net effect could not be determined regarding the reporting of estimated verses actual numbers for one school site for the first half of the ASES program. Cause: The error occurred due to a lack of review at the program level to ensure that all documentation is complete and accurate

188 Recommendation: Panama-Buena Vista Union School District Schedule of Audit Findings and Questioned Costs Year Ended June 30, 2014 We recommend that the District follow their current policies and procedures in place to ensure that attendance records are complete and based on actual verses estimated attendance numbers and that reports are reviewed for accuracy and completeness prior to submission to the California Department of Education. Management s Response: Regular periodic monitoring of attendance records for the ASES program will take place. Documentation will be reviewed and substantiated by the ASES administrative clerical staff to assure that information is clear and consistent. Staff whom are immediately responsible for attendance records will receive training

189 Panama-Buena Vista Union School District Summary Schedule of Prior Audit Findings Year Ended June 30, 2014 Client Response Finding/Recommendation Current Status If Not Implemented One of nine students selected for Resolved-no instances N/A kindergarten continuance did noted in the current not have the Agreement for year. Pupil to Continue Kindergarten form which is required to be signed by the parent. Minor incidents of incorrectly Resolved-no instances N/A reported attendance. noted in the current year. Minor incidents of incorrectly reported enrollment for Class Size Reduction No longer a State Compliance requirement N/A not tested in current year

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191 APPENDIX D EXCERPTS FROM PANAMA-BUENA VISTA UNION SCHOOL DISTRICT BUDGET/PROJECTED ACTUALS FOR FISCAL YEAR (General Fund)

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193 PBVUSD General Fund Revised Budget Revision # March 10, 2015 Adopted Budget Unrestricted Restricted Total Increase Revised Budget Adopted Budget Increase Revised Budget Adopted Budget Increase (Decrease) (Decrease) (Decrease) Revised Budget Revenues: State Aid Sources $ 122,256,652 $ (152,990) $ 122,103,662 $ - $ - $ - $ 122,256,652 $ (152,990) $ 122,103,662 Federal Revenues - - 7,739, ,832 8,176,768 7,739, ,832 8,176,768 Other State Revenues 2,791, ,968 3,707,523 9,742,129 28,235 9,770,364 12,533, ,203 13,477,887 Other Local Revenues 422,923 48, , , ,774 1,241,697 48,963 1,290,660 Total Revenues 125,471, , ,283,071 18,300, ,067 18,765, ,771,969 1,277, ,048,977 Expenditures: Certificated Salaries 55,156,470 (276,876) 54,879,594 12,521, ,793 12,723,265 67,677,942 (75,083) 67,602,859 Classified Salaries 14,983, ,374 15,377,786 6,015,034 (20,769) 5,994,265 20,998, ,605 21,372,051 Employee Benefits 27,572,879 (247,238) 27,325,641 6,238,556 (216,442) 6,022,114 33,811,435 (463,680) 33,347,755 Books and Supplies 3,181,723 1,244,131 4,425,854 2,774,825 1,327,337 4,102,162 5,956,548 2,571,468 8,528,016 Services and Other Operating Expenses 6,107,091 1,860,221 7,967,312 3,755,762 (52,487) 3,703,275 9,862,853 1,807,734 11,670,587 Sites, Buildings, and Equipment 26,765 30,378 57, ,082 (55,000) 82, ,847 (24,622) 139,225 Other Outgo ,624,122-7,624,122 7,624,122-7,624,122 Transfer of indirect costs (1,332,373) (46,217) (1,378,590) 897,755 46, ,394 (434,618) 422 (434,196) Total Expenditures 105,695,967 2,958, ,654,740 39,964,608 1,231,071 41,195, ,660,575 4,189, ,850,419 Excess (Deficit) of Revenues Over Expenses 19,775,163 (2,146,832) 17,628,331 (21,663,769) (766,004) (22,429,773) (1,888,606) (2,912,836) (4,801,442) Other Financing Sources (Uses): Interfund Transfers in from Day Care 100, , , ,000 Interfund Transfers in from Special Reserve - 1,400,000 1,400, ,400,000 1,400,000 Interfund Transfers out to Self Insurance Contributions to Restricted Programs (19,775,164) 598,599 (19,176,565) 19,775,164 (598,599) 19,176, Net Transfers (19,675,164) 1,998,599 (17,676,565) 19,775,164 (598,599) 19,176, ,000 1,400,000 1,500,000 Net Increase (Decrease) in Fund Balance 99,999 (148,233) (48,234) (1,888,605) (1,364,603) (3,253,208) (1,788,606) (1,512,836) (3,301,442) Beginning Fund Balance 7,920, ,715 8,837,888 4,091,220-4,091,220 12,011, ,715 12,929,108 Ending Fund Balance $ 8,020,172 $ 769,482 $ 8,789,654 $ 2,202,615 $ (1,364,603) $ 838,012 $ 10,222,787 $ (595,121) $ 9,627,666 M:\Planning\Budget\ \Budget Revisions\Budget Revision # :tw:3/5/2015

194 PBVUSD General Fund Revised Budget Revision # December 12, 2014 Adopted Budget Unrestricted Restricted Total Increase Revised Budget Adopted Budget Increase Revised Budget Adopted Budget Increase (Decrease) (Decrease) (Decrease) Revised Budget Revenues: State Aid Sources $ 119,335,303 $ 2,921,348 $ 122,256,651 $ 4,592,793 (4,592,793) $ - $ 123,928,096 $ (1,671,445) $ 122,256,651 Federal Revenues ,835, ,585 7,739,937 6,835, ,585 7,739,937 Other State Revenues 2,791,555-2,791,555 9,742,129-9,742,129 12,533,684-12,533,684 Other Local Revenues 422, , , ,774 1,241,698-1,241,698 Total Revenues 122,549,782 2,921, ,471,130 21,989,048 (3,688,208) 18,300, ,538,830 (766,860) 143,771,970 Expenditures: Certificated Salaries 55,156,470-55,156,470 12,521,472-12,521,472 67,677,942-67,677,942 Classified Salaries 13,410,883 1,572,529 14,983,412 7,587,563 (1,572,529) 6,015,034 20,998,446-20,998,446 Employee Benefits 26,970, ,710 27,572,879 6,841,266 (602,710) 6,238,556 33,811, ,811,435 Books and Supplies 2,650, ,974 3,181,723 3,963,880 (1,189,055) 2,774,825 6,614,629 (658,081) 5,956,548 Services and Other Operating Expenses 6,055,583 51,508 6,107,091 2,944, ,703 3,755,762 8,999, ,211 9,862,853 Sites, Buildings, and Equipment 791,765 (765,000) 26, , , ,847 (765,000) 163,847 Other Outgo ,894, ,864 7,624,122 6,894, ,864 7,624,122 Transfer of indirect costs (1,332,373) - (1,332,373) 897, ,755 (434,618) - (434,618) Total Expenditures 103,703,246 1,992, ,695,967 41,787,335 (1,822,727) 39,964, ,490, , ,660,575 Excess (Deficit) of Revenues Over Expenses 18,846, ,627 19,775,163 (19,798,287) (1,865,481) (21,663,768) (951,751) (936,854) (1,888,605) Other Financing Sources (Uses): Interfund Transfers in from Day Care 100, , , ,000 Interfund Transfers out to Self Insurance Contributions to Restricted Programs (17,909,683) (1,865,481) (19,775,164) 17,909,683 1,865,481 19,775, Net Transfers (17,809,683) (1,865,481) (19,675,164) 17,909,683 1,865,481 19,775, , ,000 Net Increase (Decrease) in Fund Balance 1,036,853 (936,854) 99,999 (1,888,604) - (1,888,604) (851,751) (936,854) (1,788,605) Beginning Fund Balance 7,467, ,209 7,920,173 4,091,220-4,091,220 11,559, ,209 12,011,393 Ending Fund Balance $ 8,504,817 $ (484,645) $ 8,020,172 $ 2,202,616 $ - $ 2,202,616 $ 10,707,433 $ (484,645) $ 10,222,788 M:\Planning\Budget\ \Budget Revisions\MYP_ Adopted Budget Revision #2:gi:12/11/2014

195 PBVUSD General Fund Revised Budget (45 Day) August 12, 2014 Adopted Budget Unrestricted Restricted Total Increase Revised Budget Adopted Budget Increase Revised Budget Adopted Budget Increase (Decrease) (Decrease) (Decrease) Revised Budget Revenues: State Aid Sources $ 118,695,382 $ 639,921 $ 119,335,303 $ 4,592,793 - $ 4,592,793 $ 123,288,175 $ 639,921 $ 123,928,096 Federal Revenues ,835,352-6,835,352 6,835,352-6,835,352 Other State Revenues 2,791,555-2,791,555 9,742,129-9,742,129 12,533,684-12,533,684 Other Local Revenues 422, , , ,774 1,241,697-1,241,697 Total Revenues 121,909, , ,549,781 21,989,048-21,989, ,898, , ,538,829 Expenditures: Certificated Salaries 55,156,470-55,156,470 12,521,472-12,521,472 67,677,942-67,677,942 Classified Salaries 13,410,883-13,410,883 7,587,563-7,587,563 20,998,446-20,998,446 Employee Benefits 27,367,100 (396,931) 26,970,169 6,841,266-6,841,266 34,208,366 (396,931) 33,811,435 Books and Supplies 2,650,749-2,650,749 3,963,880-3,963,880 6,614,629-6,614,629 Services and Other Operating Expenses 6,055,583-6,055,583 2,944,059-2,944,059 8,999,642-8,999,642 Sites, Buildings, and Equipment 791, , , , , ,847 Other Outgo ,894,258-6,894,258 6,894,258-6,894,258 Transfer of indirect costs (1,332,373) - (1,332,373) 897, ,755 (434,618) - (434,618) Total Expenditures 104,100,177 (396,931) 103,703,246 41,787,335-41,787, ,887,512 (396,931) 145,490,581 Excess (Deficit) of Revenues Over Expenses 17,809,683 1,036,852 18,846,535 (19,798,287) - (19,798,287) (1,988,604) 1,036,852 (951,752) Other Financing Sources (Uses): Interfund Transfers in from Day Care 100, , , ,000 Interfund Transfers out to Self Insurance Contributions to Restricted Programs (17,909,683) - (17,909,683) 17,909,683-17,909, Net Transfers (17,809,683) - (17,809,683) 17,909,683-17,909, , ,000 Net Increase (Decrease) in Fund Balance - 1,036,852 1,036,852 (1,888,604) - (1,888,604) (1,888,604) 1,036,852 (851,752) Beginning Fund Balance 9,213,754-9,213,754 2,412,349-2,412,349 11,626,103-11,626,103 Ending Fund Balance $ 9,213,754 $ 1,036,852 $ 10,250,606 $ 523,745 $ - $ 523,745 $ 9,737,499 $ 1,036,852 $ 10,774,351 M:\Planning\Budget\ \Budget Revisions\MYP_ Adopted Budget 45 Day Revision:ad:8/8/2014

196 Panama-Buena Vista Union School District Multi-Year Projection Assumptions December 12, 2014 Adopted Revised Projected Projected Projected Budget Budget Budget Budget Budget ADA 16, , , , , COLA 0.85% 0.85% 2.19% 2.14% 2.50% LCFF - DOF Gap Funding percentage 29.56% 29.56% 20.68% 25.48% 21.67% Indirect Costs 4.34% 4.34% 4.34% 4.34% 4.34% Salaries Increase 5 staff in FY to complete mandatory special education assessements previously administered by KCSOS. Increase in 20 staff in FY for further class size reduction in accordance with LCAP. Steps and Column adjustments: Certificated 1.74% 1.74% 1.74% 1.74% 1.74% Classified 1.58% 1.58% 1.58% 1.58% 1.58% Benefits Increase in costs due to the implementation A1522 which requires mandatory sick leave for part time employees. In addition statuatory benefits have been increased based on salary steps increase. There is no cost increase projected in health and welfare costs as the Health Benefits Task Force has not yet made a recommendation to the Superintendent. Total compensation cuts will be negotiated in the event that projected benefits exceed the FY Budget. PERS Rates 11.77% 11.77% 12.60% 15.00% 16.60% CalSTRS 8.88% 8.88% 10.73% 12.58% 14.43% Books & Supplies $ 6,614,629 $ 6,577,728 $ 6,367,256 $ 6,614,629 $ 5,012,965 The contribution for the Restricted Maintenance Account equals 2.5% of general fund expenditures for FY and 3% for FY and FY in accordance with ED Code Contract Services CPI rate of 2% to expenditure projections Capital Outlay Deferred Maintenance for FY and FY will be reallocated to the Bond Fund. Deferred Maintenance will be restored in the General Fund in FY CPI rate of 2% to expenditure projections Other Outgo Increase in costs in payments to KCSOS due to increase in costs for Special Education Transportation billback and due to the increase in pupils served by the KCSOS. CPI rate of 2% to expenditure projections M:\Accounting\Interim Reports\14-15\MYP_ st Interim:tw:12/11/2014

197 Panama-Buena Vista Union School District General Fund Budget Assumptions Original Budget Budget Revision #1 (45 day) Budget Revision #2 (1st Interim) Budget Revision #3 (2nd Interim) ADA 17, , , , COLA 0.85% 0.86% 0.85% 0.85% LCFF - DOF Gap Funding percentage 28.05% 29.56% 29.56% 29.15% Indirect Costs 4.34% 4.34% 4.34% 4.34% Revenues $ 143,898,908 $ 144,538,829 $ 143,771,969 $ 145,048,977 State Aide: Local Control Funding Formula was adjsted to reflect the most recent GAP funding percentage from the Department of Finance. Additionally, the LCFF was adjusted to reflect an over projection 250 Average Daily Attendance Federal Revenue : Adjustments were made to increase the revenue budget to reflect the most recent grant notices in addition to recognizing the deferred revenue from Other State Revenue: Adjustments were made to increase the revenue budget to reflect receipt of Mandated Reimbursements of $1,010,297 in addition to adjusting for the most recent apportionment notices Other Local Revenue: Adjustments were made to decrease the budgeted revenue based on cash flow projections through January 31, 2015 Salaries $ 88,676,388 $ 88,676,388 $ 88,676,388 $ 88,974,910 COLA 0.00% 0.00% 0.00% 0.00% Steps and Column adjustments: Certificated 1.74% 1.74% 1.74% 1.74% Classified 1.58% 1.58% 1.58% 1.58% Adopted Budget: The District wide K-3 average for was 30. The Target CSR for K-3 = Progress to target for 14-15, & is 28.50, 28 and 27.5, respectively. GAP funding rates based on BASC calculator v15.2a for 14-15, & are 28.05%, 33.95% & 21.67%, respectively. The number of teachers to reduce class sizes in K-3 is 25 each year. Column 3 step 3 of the teacher salary schedule is 54,026 which totals $1,350,650 increase in salaries due to CSR Budget Revision #3: Amend salaries to correspond to projected cash flow and changes to positon control Benefits $ 34,208,366 $ 33,811,435 $ 33,811,435 $ 33,347,755 PERS Rates 12.70% 11.77% 11.77% 11.77% CalSTRS 9.50% 8.88% 8.88% 8.88% Budget Revision #1: The Adopted Budget was decreased to reflect favorable changes to the PERS & STRS benefit rates based on the Governor's Adopted Budget. Statutory benefits include an increase in PERS for of 12.7% and STRS for of 9.5%. Both PERS and STRS were revised based on the Governor's Adopted Budget. Budget Revision #3 : Expenditure adjustments are based on cash flow projections through January 31, M:\Planning\Budget\ \Budget Revisions\Budget Revision # :gi:3/5/2015

198 Panama-Buena Vista Union School District General Fund Budget Assumptions Original Budget Budget Revision #1 (45 day) Budget Revision #2 (1st Interim) Budget Revision #3 (2nd Interim) Materials, Books & Supplies 6,614,629 $ $ 6,614,629 $ 5,956,548 $ 8,528,016 Adopted Budget: Instructional materials for growth of 250 ADA. Budget Revision #2 : The Adopted Budget included Restricted Maintenance Account expenditures equal to 3% of general fund expenditures for FY in accordance with ED Code However, flexibility provisions allow the District to reduce funding down to 1% through 6/30/2015. Due to needs in other departments the Restriected Maintenance Account expenditures were cut. Budget Revision #3 : Adjusted the budgeted expenditures to account for text book purchases and categorical books and supplies Contract Service and Other Operating Expenditues $ 8,999,642 $ 8,999,642 $ 9,862,853 $ 11,670,587 Adopted Budget : Consumer Price Index (CPI) rate of 2% was applied to expenditure projections. Routine Restricted Maintenance was budgeted at 3% of total general fund expenditures. Budget Revision #2: Increase budgeted expenditures for Title I to spend the deferred revenue and grant adjustment. Budget Revision #3: Unrestricted budget was increased to accommodate for the following: Renaissance Learning, Greenfield Learning (Lexia), utilities and other operating expenditures. Capital Outlay 928,847 $ $ 928,847 $ 163,847 $ 139,225 Adopted Budget: CPI rate of 2% was applied to expenditure projections. Deferred Maintenance is budgeted at $765,000 per year starting in and increased each year based on the CPI. Budget Revision #2: Deferred Maintenance was reallocated to the Bond Fund. It is not projected as to when Deferred Maintenance in the amount of $765,000 will be restored back to the General Fund. Budget Revision #3: Routine Restricted Maintenance expenditures of $139,225 were reappropriated to curriculum and instruction for the purchase of materials and supplies Other Outgo $ 6,894,258 $ 6,894,258 $ 7,624,122 $ 7,624,122 Adopted Budget: Includes the County Office of Education Special Ed Billback of $6,894,258 for Budget Revision #2: Projected KCSOS special education program cost increases have resulted in an increase in the Billback for for all Districts. In addition, total Billback for PBVUSD has increased due to growth in the number of students served. Furthermore, the transportation funding that supported the KCSOS special program was reallocated to other KCSOS programs. Consequently, the Billback for special education transportation has been increased for M:\Planning\Budget\ \Budget Revisions\Budget Revision # :gi:3/5/2015

199 Panama-Buena Vista Union Elementary Kern County July 1 Budget (Single Adoption) General Fund Unrestricted and Restricted Expenditures by Object Form Estimated Actuals Budget (Original) Description Resource Codes Object Codes Unrestricted (A) Restricted (B) Total Fund col. A + B (C) Unrestricted (D) Restricted (E) Total Fund col. D + E (F) % Diff Column C & F A. REVENUES 1) LCFF Sources ,135, ,190, ,326, ,695, ,592, ,288, % 2) Federal Revenue ,559, ,559, ,835, ,835, % 3) Other State Revenue ,821, ,467, ,288, ,791, ,742, ,533, % 4) Other Local Revenue , , ,241, , , ,241, % 5) TOTAL, REVENUES 110,379, ,036, ,415, ,909, ,989, ,898, % B. EXPENDITURES 1) Certificated Salaries ,508, ,654, ,163, ,156, ,521, ,677, % 2) Classified Salaries ,376, ,296, ,672, ,410, ,587, ,998, % 3) Employee Benefits ,890, ,172, ,063, ,367, ,841, ,208, % 4) Books and Supplies ,270, ,524, ,795, ,650, ,963, ,614, % 5) Services and Other Operating Expenditures ,800, ,414, ,215, ,055, ,944, ,999, % 6) Capital Outlay , , , , , , % 7) Other Outgo (excluding Transfers of Indirect Costs) , ,894, ,985, ,894, ,894, % 8) Other Outgo - Transfers of Indirect Costs (1,394,243.39) 970, (423,830.66) (1,332,372.88) 897, (434,617.50) 2.5% 9) TOTAL, EXPENDITURES 97,885, ,065, ,950, ,100, ,787, ,887, % C. EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES BEFORE OTHER FINANCING SOURCES AND USES (A5 - B9) 12,494, (15,029,067.67) (2,535,059.76) 17,809, (19,798,286.64) (1,988,603.96) -21.6% D. OTHER FINANCING SOURCES/USES 1) Interfund Transfers a) Transfers In , , , , % b) Transfers Out ,868, ,868, % 2) Other Sources/Uses a) Sources % b) Uses % 3) Contributions (15,899,614.30) 15,899, (17,909,682.68) 17,909, % 4) TOTAL, OTHER FINANCING SOURCES/USES (18,659,069.18) 15,899, (2,759,454.88) (17,809,682.68) 17,909, , % California Dept of Education SACS Financial Reporting Software File: fund-a (Rev 04/28/2014) Page 1 Printed: 6/21/2014 1:59 PM

200 Panama-Buena Vista Union Elementary Kern County July 1 Budget (Single Adoption) General Fund Unrestricted and Restricted Expenditures by Object Form 01 Description Resource Codes Object Codes Unrestricted (A) Estimated Actuals Budget Restricted (B) Total Fund col. A + B (C) Unrestricted (D) Restricted (E) Total Fund col. D + E (F) E. NET INCREASE (DECREASE) IN FUND BALANCE (C + D4) (6,165,061.27) 870, (5,294,514.64) 0.00 (1,888,603.96) (1,888,603.96) -64.3% F. FUND BALANCE, RESERVES 1) Beginning Fund Balance a) As of July 1 - Unaudited ,378, ,541, ,920, ,213, ,412, ,626, % b) Audit Adjustments % c) As of July 1 - Audited (F1a + F1b) 15,378, ,541, ,920, ,213, ,412, ,626, % d) Other Restatements % e) Adjusted Beginning Balance (F1c + F1d) 15,378, ,541, ,920, ,213, ,412, ,626, % 2) Ending Balance, June 30 (E + F1e) 9,213, ,412, ,626, ,213, , ,737, % Components of Ending Fund Balance a) Nonspendable Revolving Cash , , , , % Stores , , , , % Prepaid Expenditures % All Others ,262, ,262, ,262, ,262, % b) Restricted ,412, ,412, , , % c) Committed Stabilization Arrangements % Other Commitments % d) Assigned Other Assignments % e) Unassigned/unappropriated (Original) Reserve for Economic Uncertainties ,550, ,550, ,550, ,550, % Unassigned/Unappropriated Amount % % Diff Column C & F California Dept of Education SACS Financial Reporting Software File: fund-a (Rev 04/28/2014) Page 2 Printed: 6/21/2014 1:59 PM

201 Panama-Buena Vista Union Elementary Kern County July 1 Budget (Single Adoption) General Fund Unrestricted and Restricted Expenditures by Object Form Estimated Actuals Budget (Original) Description Resource Codes Object Codes Unrestricted (A) Restricted (B) Total Fund col. A + B (C) Unrestricted (D) Restricted (E) Total Fund col. D + E (F) % Diff Column C & F G. ASSETS 1) Cash a) in County Treasury ) Fair Value Adjustment to Cash in County Treasury b) in Banks c) in Revolving Fund d) with Fiscal Agent e) collections awaiting deposit ) Investments ) Accounts Receivable ) Due from Grantor Government ) Due from Other Funds ) Stores ) Prepaid Expenditures ) Other Current Assets ) TOTAL, ASSETS H. DEFERRED OUTFLOWS OF RESOURCES 1) Deferred Outflows of Resources ) TOTAL, DEFERRED OUTFLOWS I. LIABILITIES 1) Accounts Payable ) Due to Grantor Governments ) Due to Other Funds ) Current Loans ) Unearned Revenue ) TOTAL, LIABILITIES J. DEFERRED INFLOWS OF RESOURCES 1) Deferred Inflows of Resources ) TOTAL, DEFERRED INFLOWS K. FUND EQUITY Ending Fund Balance, June 30 (G9 + H2) - (I6 + J2) California Dept of Education SACS Financial Reporting Software File: fund-a (Rev 04/28/2014) Page 3 Printed: 6/21/2014 1:59 PM

202 Panama-Buena Vista Union Elementary Kern County July 1 Budget (Single Adoption) General Fund Unrestricted and Restricted Expenditures by Object Form Estimated Actuals Budget (Original) Description Resource Codes Object Codes Unrestricted (A) Restricted (B) Total Fund col. A + B (C) Unrestricted (D) Restricted (E) Total Fund col. D + E (F) % Diff Column C & F LCFF SOURCES Principal Apportionment State Aid - Current Year ,325, ,325, ,256, ,256, % Education Protection Account State Aid - Current Year ,349, ,349, ,608, ,608, % State Aid - Prior Years , , % Tax Relief Subventions Homeowners' Exemptions , , , , % Timber Yield Tax % Other Subventions/In-Lieu Taxes % County & District Taxes Secured Roll Taxes ,400, ,400, ,400, ,400, % Unsecured Roll Taxes ,013, ,013, ,013, ,013, % Prior Years' Taxes 8043 (9,044.06) 0.00 (9,044.06) (9,044.06) 0.00 (9,044.06) 0.0% Supplemental Taxes , , , , % Education Revenue Augmentation Fund (ERAF) 8045 (1,534,714.00) 0.00 (1,534,714.00) (1,534,714.00) 0.00 (1,534,714.00) 0.0% Community Redevelopment Funds (SB 617/699/1992) % Penalties and Interest from Delinquent Taxes , , , , % Miscellaneous Funds (EC 41604) Royalties and Bonuses % Other In-Lieu Taxes , , , , % Less: Non-LCFF (50%) Adjustment % Subtotal, LCFF Sources 111,396, ,396, ,358, ,358, % LCFF Transfers Unrestricted LCFF Transfers - Current Year (4,190,588.88) (4,190,588.88) (4,592,793.48) (4,592,793.48) 9.6% All Other LCFF Transfers - Current Year All Other ,190, ,190, ,592, ,592, % Transfers to Charter Schools in Lieu of Property Taxes 8096 (70,268.00) 0.00 (70,268.00) (70,268.00) 0.00 (70,268.00) 0.0% Property Taxes Transfers % LCFF/Revenue Limit Transfers - Prior Years % TOTAL, LCFF SOURCES 107,135, ,190, ,326, ,695, ,592, ,288, % FEDERAL REVENUE Maintenance and Operations % Special Education Entitlement ,588, ,588, ,588, ,588, % Special Education Discretionary Grants , , , , % Child Nutrition Programs % Forest Reserve Funds % Flood Control Funds % Wildlife Reserve Funds % FEMA % Interagency Contracts Between LEAs % Pass-Through Revenues from Federal Sources % NCLB: Title I, Part A, Basic Grants Low- Income and Neglected ,398, ,398, ,674, ,674, % NCLB: Title I, Part D, Local Delinquent Programs % NCLB: Title II, Part A, Teacher Quality , , , , % NCLB: Title III, Immigrant Education Program % California Dept of Education SACS Financial Reporting Software File: fund-a (Rev 04/28/2014) Page 4 Printed: 6/21/2014 1:59 PM

203 Panama-Buena Vista Union Elementary Kern County July 1 Budget (Single Adoption) General Fund Unrestricted and Restricted Expenditures by Object Form 01 Description Resource Codes Object Codes Unrestricted (A) Estimated Actuals Budget Restricted (B) Total Fund col. A + B (C) Unrestricted (D) Restricted (E) Total Fund col. D + E (F) NCLB: Title III, Limited English Proficient (LEP) Student Program % NCLB: Title V, Part B, Public Charter Schools Grant Program (PCSGP) % Other No Child Left Behind , , , , , , , % Vocational and Applied Technology Education % Safe and Drug Free Schools % All Other Federal Revenue All Other , , , , % TOTAL, FEDERAL REVENUE ,559, ,559, ,835, ,835, % OTHER STATE REVENUE (Original) % Diff Column C & F Other State Apportionments ROC/P Entitlement Current Year % Prior Years % Special Education Master Plan Current Year ,876, ,876, ,876, ,876, % Prior Years % All Other State Apportionments - Current Year All Other % All Other State Apportionments - Prior Years All Other % Class Size Reduction, K % Child Nutrition Programs % Mandated Costs Reimbursements , , , , % Lottery - Unrestricted and Instructional Materials ,326, , ,824, ,326, , ,824, % Tax Relief Subventions Restricted Levies - Other Homeowners' Exemptions % Other Subventions/In-Lieu Taxes % Pass-Through Revenues from State Sources % School Based Coordination Program % After School Education and Safety (ASES) ,368, ,368, ,368, ,368, % Charter School Facility Grant % Drug/Alcohol/Tobacco Funds 6650, % California Clean Energy Jobs Act , , % Healthy Start % American Indian Early Childhood Education % Specialized Secondary % School Community Violence Prevention Grant % Quality Education Investment Act % Common Core State Standards Implementation ,481, ,481, % All Other State Revenue All Other , , % TOTAL, OTHER STATE REVENUE 2,821, ,467, ,288, ,791, ,742, ,533, % California Dept of Education SACS Financial Reporting Software File: fund-a (Rev 04/28/2014) Page 5 Printed: 6/21/2014 1:59 PM

204 Panama-Buena Vista Union Elementary Kern County July 1 Budget (Single Adoption) General Fund Unrestricted and Restricted Expenditures by Object Estimated Actuals Budget (Original) Form 01 Description Resource Codes Object Codes Unrestricted (A) Restricted (B) Total Fund col. A + B (C) Unrestricted (D) Restricted (E) Total Fund col. D + E (F) % Diff Column C & F OTHER LOCAL REVENUE Other Local Revenue County and District Taxes Other Restricted Levies Secured Roll % Unsecured Roll % Prior Years' Taxes % Supplemental Taxes % Non-Ad Valorem Taxes Parcel Taxes % Other % Community Redevelopment Funds Not Subject to LCFF Deduction % Penalties and Interest from Delinquent Non-LCFF Taxes % Sales Sale of Equipment/Supplies % Sale of Publications % Food Service Sales % All Other Sales % Leases and Rentals , , , , % Interest , , , , % Net Increase (Decrease) in the Fair Value of Investments % Fees and Contracts Adult Education Fees % Non-Resident Students % Transportation Fees From Individuals % Interagency Services % Mitigation/Developer Fees % All Other Fees and Contracts , , , , % Other Local Revenue Plus: Misc Funds Non-LCFF (50%) Adjustment % Pass-Through Revenues From Local Sources % All Other Local Revenue , , , , , , % Tuition % All Other Transfers In % Transfers of Apportionments Special Education SELPA Transfers From Districts or Charter Schools % From County Offices % From JPAs % ROC/P Transfers From Districts or Charter Schools % From County Offices % From JPAs % Other Transfers of Apportionments From Districts or Charter Schools All Other % From County Offices All Other % From JPAs All Other % All Other Transfers In from All Others % TOTAL, OTHER LOCAL REVENUE 422, , ,241, , , ,241, % TOTAL, REVENUES 110,379, ,036, ,415, ,909, ,989, ,898, % California Dept of Education SACS Financial Reporting Software File: fund-a (Rev 04/28/2014) Page 6 Printed: 6/21/2014 1:59 PM

205 Panama-Buena Vista Union Elementary Kern County July 1 Budget (Single Adoption) General Fund Unrestricted and Restricted Expenditures by Object Form Estimated Actuals Budget (Original) Description Resource Codes Object Codes Unrestricted (A) Restricted (B) Total Fund col. A + B (C) Unrestricted (D) Restricted (E) Total Fund col. D + E (F) % Diff Column C & F CERTIFICATED SALARIES Certificated Teachers' Salaries ,353, ,955, ,308, ,878, ,341, ,219, % Certificated Pupil Support Salaries ,147, ,141, ,288, ,176, ,266, ,442, % Certificated Supervisors' and Administrators' Salaries ,215, , ,988, ,300, , ,180, % Other Certificated Salaries , , ,577, , ,033, ,834, % TOTAL, CERTIFICATED SALARIES 51,508, ,654, ,163, ,156, ,521, ,677, % CLASSIFIED SALARIES Classified Instructional Salaries ,719, ,961, ,680, ,206, ,931, ,138, % Classified Support Salaries ,977, ,479, ,457, ,198, ,688, ,887, % Classified Supervisors' and Administrators' Salaries , , ,518, , , ,664, % Clerical, Technical and Office Salaries ,719, , ,115, ,855, , ,265, % Other Classified Salaries , , ,901, ,161, , ,042, % TOTAL, CLASSIFIED SALARIES 12,376, ,296, ,672, ,410, ,587, ,998, % EMPLOYEE BENEFITS STRS ,308, , ,261, ,279, ,234, ,514, % PERS ,235, , ,962, ,366, , ,140, % OASDI/Medicare/Alternative ,773, , ,564, ,900, , ,710, % Health and Welfare Benefits ,638, ,477, ,116, ,558, ,668, ,226, % Unemployment Insurance , , , , , , % Workers' Compensation , , , , , ,080, % OPEB, Allocated ,220, , ,233, ,386, , ,490, % OPEB, Active Employees % Other Employee Benefits % TOTAL, EMPLOYEE BENEFITS 24,890, ,172, ,063, ,367, ,841, ,208, % BOOKS AND SUPPLIES Approved Textbooks and Core Curricula Materials , ,500, ,687, , , , % Books and Other Reference Materials , , , , , , % Materials and Supplies ,546, ,608, ,155, ,053, ,773, ,827, % Noncapitalized Equipment , , , , , , % Food % TOTAL, BOOKS AND SUPPLIES 3,270, ,524, ,795, ,650, ,963, ,614, % SERVICES AND OTHER OPERATING EXPENDITURES Subagreements for Services , , , , % Travel and Conferences , , , , , , % Dues and Memberships , , , , % Insurance , , , , , , % Operations and Housekeeping Services ,571, ,571, ,499, ,499, % Rentals, Leases, Repairs, and Noncapitalized Improvements , , ,267, , , ,155, % Transfers of Direct Costs 5710 (420,316.83) 420, (266,079.53) 266, % Transfers of Direct Costs - Interfund 5750 (5,166.18) (9,383.82) (14,550.00) (4,491.58) (10,058.42) (14,550.00) 0.0% Professional/Consulting Services and Operating Expenditures ,225, ,964, ,189, ,379, ,606, ,986, % Communications , , , , , , % TOTAL, SERVICES AND OTHER OPERATING EXPENDITURES 6,800, ,414, ,215, ,055, ,944, ,999, % California Dept of Education SACS Financial Reporting Software File: fund-a (Rev 04/28/2014) Page 7 Printed: 6/21/2014 1:59 PM

206 Panama-Buena Vista Union Elementary Kern County July 1 Budget (Single Adoption) General Fund Unrestricted and Restricted Expenditures by Object Form Estimated Actuals Budget (Original) Description Resource Codes Object Codes Unrestricted (A) Restricted (B) Total Fund col. A + B (C) Unrestricted (D) Restricted (E) Total Fund col. D + E (F) % Diff Column C & F CAPITAL OUTLAY Land % Land Improvements , , , , , , % Buildings and Improvements of Buildings , , , , % Books and Media for New School Libraries or Major Expansion of School Libraries % Equipment , , , , , , % Equipment Replacement , , % TOTAL, CAPITAL OUTLAY 341, , , , , , % OTHER OUTGO (excluding Transfers of Indirect Costs) Tuition Tuition for Instruction Under Interdistrict Attendance Agreements % State Special Schools % Tuition, Excess Costs, and/or Deficit Payments Payments to Districts or Charter Schools % Payments to County Offices ,894, ,894, ,894, ,894, % Payments to JPAs % Transfers of Pass-Through Revenues To Districts or Charter Schools % To County Offices % To JPAs % Special Education SELPA Transfers of Apportionments To Districts or Charter Schools % To County Offices % To JPAs % ROC/P Transfers of Apportionments To Districts or Charter Schools % To County Offices % To JPAs % Other Transfers of Apportionments All Other % All Other Transfers % All Other Transfers Out to All Others % Debt Service Debt Service - Interest , , % Other Debt Service - Principal , , % TOTAL, OTHER OUTGO (excluding Transfers of Indirect Costs) 90, ,894, ,985, ,894, ,894, % OTHER OUTGO - TRANSFERS OF INDIRECT COSTS Transfers of Indirect Costs 7310 (970,412.73) 970, (897,755.38) 897, % Transfers of Indirect Costs - Interfund 7350 (423,830.66) 0.00 (423,830.66) (434,617.50) 0.00 (434,617.50) 2.5% TOTAL, OTHER OUTGO - TRANSFERS OF INDIRECT COSTS (1,394,243.39) 970, (423,830.66) (1,332,372.88) 897, (434,617.50) 2.5% TOTAL, EXPENDITURES 97,885, ,065, ,950, ,100, ,787, ,887, % California Dept of Education SACS Financial Reporting Software File: fund-a (Rev 04/28/2014) Page 8 Printed: 6/21/2014 1:59 PM

207 Panama-Buena Vista Union Elementary Kern County July 1 Budget (Single Adoption) General Fund Unrestricted and Restricted Expenditures by Object Form Estimated Actuals Budget (Original) Description Resource Codes Object Codes Unrestricted (A) Restricted (B) Total Fund col. A + B (C) Unrestricted (D) Restricted (E) Total Fund col. D + E (F) % Diff Column C & F INTERFUND TRANSFERS INTERFUND TRANSFERS IN From: Special Reserve Fund % From: Bond Interest and Redemption Fund % Other Authorized Interfund Transfers In , , , , % (a) TOTAL, INTERFUND TRANSFERS IN 109, , , , % INTERFUND TRANSFERS OUT To: Child Development Fund % To: Special Reserve Fund % To: State School Building Fund/ County School Facilities Fund % To: Cafeteria Fund % Other Authorized Interfund Transfers Out ,868, ,868, % (b) TOTAL, INTERFUND TRANSFERS OUT 2,868, ,868, % OTHER SOURCES/USES SOURCES State Apportionments Emergency Apportionments % Proceeds Proceeds from Sale/Lease- Purchase of Land/Buildings % Other Sources Transfers from Funds of Lapsed/Reorganized LEAs % Long-Term Debt Proceeds Proceeds from Certificates of Participation % Proceeds from Capital Leases % Proceeds from Lease Revenue Bonds % All Other Financing Sources % (c) TOTAL, SOURCES % USES Transfers of Funds from Lapsed/Reorganized LEAs % All Other Financing Uses % (d) TOTAL, USES % CONTRIBUTIONS Contributions from Unrestricted Revenues 8980 (15,899,614.30) 15,899, (17,909,682.68) 17,909, % Contributions from Restricted Revenues % (e) TOTAL, CONTRIBUTIONS (15,899,614.30) 15,899, (17,909,682.68) 17,909, % TOTAL, OTHER FINANCING SOURCES/USES (a - b + c - d + e) (18,659,069.18) 15,899, (2,759,454.88) (17,809,682.68) 17,909, , % California Dept of Education SACS Financial Reporting Software File: fund-a (Rev 04/28/2014) Page 9 Printed: 6/21/2014 1:59 PM

208 Panama-Buena Vista Union Elementary Kern County July 1 Budget (Single Adoption) General Fund Unrestricted and Restricted Expenditures by Function Form Estimated Actuals Budget (Original) Description Function Codes Object Codes Unrestricted (A) Restricted (B) Total Fund col. A + B (C) Unrestricted (D) Restricted (E) Total Fund col. D + E (F) % Diff Column C & F A. REVENUES 1) LCFF Sources ,135, ,190, ,326, ,695, ,592, ,288, % 2) Federal Revenue ,559, ,559, ,835, ,835, % 3) Other State Revenue ,821, ,467, ,288, ,791, ,742, ,533, % 4) Other Local Revenue , , ,241, , , ,241, % 5) TOTAL, REVENUES 110,379, ,036, ,415, ,909, ,989, ,898, % B. EXPENDITURES (Objects ) 1) Instruction ,825, ,424, ,249, ,626, ,156, ,783, % 2) Instruction - Related Services ,533, ,696, ,229, ,589, ,229, ,818, % 3) Pupil Services ,735, ,069, ,804, ,894, ,511, ,405, % 4) Ancillary Services , , , , , , % 5) Community Services , , , , % 6) Enterprise % 7) General Administration ,109, , ,091, ,138, , ,036, % 8) Plant Services ,449, ,972, ,421, ,710, ,070, ,780, % 9) Other Outgo Except , ,894, ,985, ,894, ,894, % 10) TOTAL, EXPENDITURES 97,885, ,065, ,950, ,100, ,787, ,887, % C. EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES BEFORE OTHER FINANCING SOURCES AND USES (A5 - B10) 12,494, (15,029,067.67) (2,535,059.76) 17,809, (19,798,286.64) (1,988,603.96) -21.6% D. OTHER FINANCING SOURCES/USES 1) Interfund Transfers a) Transfers In , , , , % b) Transfers Out ,868, ,868, % 2) Other Sources/Uses a) Sources % b) Uses % 3) Contributions (15,899,614.30) 15,899, (17,909,682.68) 17,909, % 4) TOTAL, OTHER FINANCING SOURCES/USES (18,659,069.18) 15,899, (2,759,454.88) (17,809,682.68) 17,909, , % California Dept of Education SACS Financial Reporting Software File: fund-a (Rev 02/06/2014) Page 1 Printed: 6/21/2014 1:59 PM

209 Panama-Buena Vista Union Elementary Kern County July 1 Budget (Single Adoption) General Fund Unrestricted and Restricted Expenditures by Function Form 01 Description Function Codes Object Codes Unrestricted (A) Estimated Actuals Budget Restricted (B) Total Fund col. A + B (C) Unrestricted (D) Restricted (E) Total Fund col. D + E (F) E. NET INCREASE (DECREASE) IN FUND BALANCE (C + D4) (6,165,061.27) 870, (5,294,514.64) 0.00 (1,888,603.96) (1,888,603.96) -64.3% F. FUND BALANCE, RESERVES 1) Beginning Fund Balance a) As of July 1 - Unaudited ,378, ,541, ,920, ,213, ,412, ,626, % b) Audit Adjustments % c) As of July 1 - Audited (F1a + F1b) 15,378, ,541, ,920, ,213, ,412, ,626, % d) Other Restatements % e) Adjusted Beginning Balance (F1c + F1d) 15,378, ,541, ,920, ,213, ,412, ,626, % 2) Ending Balance, June 30 (E + F1e) 9,213, ,412, ,626, ,213, , ,737, % Components of Ending Fund Balance a) Nonspendable Revolving Cash , , , , % Stores , , , , % Prepaid Expenditures % All Others ,262, ,262, ,262, ,262, % b) Restricted ,412, ,412, , , % c) Committed Stabilization Arrangements % Other Commitments (by Resource/Object) % d) Assigned (Original) Other Assignments (by Resource/Object) % e) Unassigned/unappropriated Reserve for Economic Uncertainties ,550, ,550, ,550, ,550, % Unassigned/Unappropriated Amount % % Diff Column C & F California Dept of Education SACS Financial Reporting Software File: fund-a (Rev 02/06/2014) Page 2 Printed: 6/21/2014 1:59 PM

210 Panama-Buena Vista Union Elementary Kern County July 1 Budget (Single Adoption) General Fund Exhibit: Restricted Balance Detail Form Resource Description Estimated Actuals Budget (Original) 5640 Medi-Cal Billing Option 523, , Common Core State Standards Implementation 1,888, Total, Restricted Balance 2,412, , California Dept of Education SACS Financial Reporting Software File: fund-a (Rev 04/06/2011) Page 1 Printed: 6/21/2014 1:59 PM

211 APPENDIX E PROPOSED FORM OF SPECIAL COUNSEL OPINION Upon execution and delivery of the Certificates, Goodwin Procter LLP, Los Angeles, California, Special Counsel to the District, proposes to render its final approving opinion with respect to the Certificates in substantially the following form: Board of Trustees Panama-Buena Vista Union School District 4200 Ashe Road Bakersfield, California [Closing Date] Re: FINAL OPINION $26,920,000 Panama-Buena Vista Union School District Refunding Certificates of Participation (2006 School Construction Project), Series 2015 Ladies and Gentlemen: We have acted as Special Counsel in connection with the execution and delivery of $26,920,000 aggregate principal amount of the Panama-Buena Vista Union School District Refunding Certificates of Participation (2006 School Construction Project), Series 2015 (the Certificates ), pursuant to the provisions of a Trust Agreement, dated as of April 1, 2015 (the Trust Agreement ), by and among the Panama-Buena Vista Union School District (the District ), the Panama-Buena Vista Union School District Financing Corporation (the Corporation ), and The Bank of New York Mellon Trust Company, N. A., as trustee (the Trustee ). Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Trust Agreement and in the Master Lease and Option to Purchase, dated as of April 1, 2015 (the Lease ), by and between the Corporation and the District, as applicable. In such connection, we have reviewed the Trust Agreement, the Lease, the Property Lease, dated as of April 1, 2015 (the Property Lease ), by and between the District and the Corporation, the Tax Certificate of the District and the Corporation, dated the date hereof (the Tax Certificate ), certifications of the District, the Corporation, and others, and such other documents, opinions, and matters to the extent we deemed necessary to render the opinions set forth herein. Certain agreements, requirements, and procedures contained or referred to in the Trust Agreement, the Lease, the Property Lease, the Tax Certificate, and other relevant documents may be changed and certain actions (including, without limitation, defeasance of the Certificates) may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents. No opinion is expressed herein as to any Certificate or the interest thereon if any such change occurs or action is taken or omitted upon the advice or approval of counsel other than ourselves. The opinions expressed herein are expressed only on and as of the date hereof and are based on an analysis of existing laws, regulations, rulings, and judicial decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events E-1

212 occurring after the date hereof. Changes to existing law may occur hereafter and could have retroactive effect. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or such events do occur. Our engagement with respect to the Certificates has concluded with their execution and delivery, and we disclaim any obligation to update this opinion letter. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or copies) and the due and legal execution and delivery thereof by, and validity against, any parties other than the District. We have not undertaken to verify independently, and have assumed, the accuracy of the factual matters represented, warranted, or certified in the documents, and of the legal conclusions contained in the opinions, referred to in the second paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Trust Agreement, the Lease, the Property Lease, and the Tax Certificate, including (without limitation) covenants and agreements compliance with which is necessary to assure that future actions, omissions, or events will not cause the portion of the Base Rental designated as and comprising interest and received by the Owners of the Certificates to be included in gross income for federal income tax purposes. In addition, we call attention to the fact that the rights and obligations under the Certificates, the Trust Agreement, the Lease, the Property Lease, and the Tax Certificate and their enforceability may be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium, and other similar laws relating to or affecting creditors rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases, and to the limitations on legal remedies against school districts and counties in the State of California (the State ). We express no opinion with respect to any indemnification, arbitration, contribution, penalty, choice of law, choice of forum, choice of venue, severability, or waiver provisions contained in the documents mentioned in the previous sentence. We have not made or undertaken to make an investigation of the state of title to each of the sites described in the Lease or of the accuracy or sufficiency of the description of such property contained therein, and we express no opinion with respect to such matters. We undertake no responsibility for the accuracy, completeness, or fairness of the Official Statement for the Certificates dated April 1, 2015, or other offering material relating to the Certificates and express no opinion with respect thereto. Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions: 1. The Lease, the Property Lease, and the Trust Agreement have been duly authorized, executed, and delivered by the District and, assuming due authorization, execution, and delivery by the other respective parties thereto, constitute valid and binding obligations of the District. 2. The obligation of the District to pay the Base Rental and Additional Rental payments under the Lease constitutes a valid and binding obligation of the District payable from funds of the District lawfully available therefor, and does not constitute a debt of the District, the County of Kern (the County ), the State, or any political subdivision thereof within the meaning of any constitutional or statutory debt limit or restriction, and does not constitute an obligation for which the District, the County, the State, or any political subdivision thereof is obligated to levy or pledge any form of taxation or for which the District, the County, the State, or any political subdivision thereof has levied or pledged any form of taxation. E-2

213 3. Assuming due authorization, execution, and delivery of the Trust Agreement and the Certificates by the Trustee, the Certificates are entitled to the benefits of the Trust Agreement. 4. The portion of the Base Rental designated as and comprising interest and received by the Owners of the Certificates is excludable from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended (the Code ), and is exempt from State of California personal income taxes. The portion of the Base Rental designated as and comprising interest and received by the Owners of the Certificates is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although we observe that such interest is included in adjusted current earnings in calculating corporate alternative minimum taxable income. We express no opinion regarding other tax consequences relating to the ownership or disposition of, or the accrual or receipt of interest with respect to, the Certificates. Except as stated in paragraph 4 above, we express no opinion as to federal or State tax consequences of the ownership of the Certificates, including whether the portion of the Base Rental designated as and comprising interest and received by the Owners of the Certificates is (a) included in the calculation of the amount subject to the branch-level tax imposed by Section 884 of the Code upon the earnings of certain foreign corporations engaged in a trade or business within the United States or (b) included in the income of certain Subchapter S corporations for purposes of the tax imposed thereon by Section 1375 of the Code. We also express no opinion as to any other federal, state, or local or any foreign tax consequences with respect to acquisition, ownership, or disposition of the Certificates. Respectfully submitted, E-3

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215 APPENDIX F FORM OF CONTINUING DISCLOSURE CERTIFICATE This Continuing Disclosure Certificate (the Disclosure Certificate ) is executed and delivered by the Panama-Buena Vista Union School District (the District ) in connection with the execution and delivery of the Panama-Buena Vista Union School District Certificates of Participation (2006 School Construction Project), Series 2015, in the aggregate principal amount of $26,920,000 (the Certificates ). The Certificates are being executed and delivered by The Bank of New York Mellon Trust Company, N.A., as trustee (the Trustee ), pursuant to the provisions of that certain Trust Agreement, dated as of April 1, 2015 (the Trust Agreement ), by and among the District, the Panama-Buena Vista Union School District Financing Corporation (the Corporation ), and the Trustee, in order to provide funds to refund in advance of maturity the District s Certificates of Participation (2006 School Construction Project), which were executed and delivered on August 2, 2006, in the original aggregate principal amount of $33,880,000. The District hereby certifies, covenants, and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the District for the benefit of the holders and beneficial owners of the Certificates and in order to assist the Participating Underwriter in complying with Rule 15c2-12(b)(5) promulgated under the Securities and Exchange Act of Section 2. Definitions. In addition to the definitions set forth in the Trust Agreement and in the Master Lease and Option to Purchase, dated as of April 1, 2015 (the Lease ), by and between the District and the Corporation, which apply to any capitalized terms used in this Disclosure Certificate, unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: Annual Report shall mean any Annual Report provided by the District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. Annual Report Date shall mean March 31 in each year, the date that is nine (9) months after the end of the District s fiscal year, the end of which fiscal year, as of the date of this Disclosure Certificate, is June 30. Dissemination Agent shall mean any Dissemination Agent designated in writing by the District and which has filed a written acceptance of such designation with the District. If no Dissemination Agent is designated by the District, the District shall serve as the Dissemination Agent. Listed Events shall mean any of the events listed in Section 5(a) of this Disclosure Certificate. MSRB shall mean the Municipal Securities Rulemaking Board. Official Statement means the Official Statement dated April 1, 2015, relating to the Certificates. Participating Underwriter shall mean Stifel, Nicolaus & Company, Incorporated, the original underwriter of the Certificates required to comply with the Rule in connection with offering of the Certificates. Rule shall mean Rule 15c2-12(b)(5) adopted by the SEC under the Securities Exchange Act of 1934, as the same may be amended from time to time. SEC shall mean the Securities and Exchange Commission. F-1

216 Section 3. Provision of Annual Reports. (a) The District shall, or shall cause the Dissemination Agent to, not later than the Annual Report Date, commencing March 31, 2016, provide to MSRB an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Certificate, with a copy to the Trustee and the Participating Underwriter. Not later than 15 calendar days prior to said date, the District shall provide its Annual Report to the Dissemination Agent, if such Dissemination Agent is a different entity than the District. The Annual Report must be submitted in an electronic format as prescribed by MSRB, accompanied by such identifying information as is prescribed by MSRB, and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the District may be submitted separately from and later than the balance of the Annual Report if they are not available by the applicable Annual Report Date. If the District s fiscal year changes, the District shall provide a written notice of such change in the same manner as for a Listed Event under Section 5(c). The District shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished hereunder. The Dissemination Agent may conclusively rely upon such certification of the District and shall have no duty or obligation to review such Annual Report. (b) If the District is unable to provide MSRB an Annual Report by the date required in subsection (a), the Dissemination Agent shall send a notice to MSRB in substantially the form attached as Exhibit A. Such notice must be submitted in an electronic format as prescribed by MSRB, accompanied by such identifying information as prescribed by MSRB. (c) The Dissemination Agent shall: 1. provide any Annual Report received by it to MSRB by the date required in subsection (a); and 2. file a report with the District and the Trustee (if the Dissemination Agent is other than the Trustee) certifying that the Annual Report has been provided to MSRB pursuant to this Disclosure Certificate and stating the date it was so provided. Section 4. Content of Annual Reports. The District s Annual Report shall contain or incorporate by reference the following: (a) Audited financial statements of the District, which include information regarding the funds and accounts of the District, if any, for the most recent fiscal year of the District then ended. If such audited financial statements are not available by the time the Annual Report is required to be filed, the Annual Report shall contain any unaudited financial statements of the District in a format similar to the audited financial statements, and the audited financial statements shall be filed in the same matter as the Annual Report when they become available. Audited financial statements of the District shall be audited by such auditor as shall then be required or permitted by State law. Audited financial statements shall be prepared in accordance with generally accepted accounting principles as prescribed for governmental units by the Governmental Accounting Standards Board; provided, however, that the District may from time to time, if required by federal or state legal requirements, modify the basis upon which its financial statements are prepared. In the event that the District shall modify the basis upon which its financial statements are prepared, the District shall provide a notice of such modification to MSRB, including a reference to the specific federal or state law or regulation specifically describing the legal requirements for the change in accounting basis. F-2

217 (b) The following information with respect to the District for the fiscal year to which the Annual Report relates, which information may be provided by its inclusion in the audited financial statements of the District for the prior fiscal year described in subsection (a) above: 1. Principal amount of the Certificates (including principal amount and years of maturity of Certificates, if any, called for prepayment in advance of maturity) and any bonds or certificates of participation issued or executed and delivered, as applicable, to refund the same. 2. Balance in the funds and accounts established under the Trust Agreement or the Lease. 3. If the amount on deposit in the Reserve Fund is not equal to the Reserve Fund Requirement, the amount of the delinquency or surplus, as applicable. 4. A detailed description of any material changes to or substitutions of any Components of the Property, if any. (c) In addition to any of the information expressly required to be provided under paragraphs (a) and (b) of this Section, the District shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading. (d) Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the District or related public entities that are available to the public on MSRB s internet website or filed with the Securities and Exchange Commission. The District shall clearly identify each such other document so included by reference. Section 5. Reporting of Listed Events. (a) Pursuant to the provisions of this Section 5, the District shall give, or cause to be given, not in excess of 10 business days after the occurrence of any of the following events, notice of the occurrence of such event with respect to the Certificates: (i) (ii) (iii) (iv) (v) (vi) (vii) principal and interest payment delinquencies; non-payment related defaults, if material; unscheduled draws on any reserve fund for the Certificates reflecting financial difficulties; unscheduled draws on any credit enhancements securing the Certificates reflecting financial difficulties; substitution of any credit or liquidity providers, or their failure to perform; adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form TEB) or other material notices or determinations with respect to the tax status of the Certificates, or other material events affecting the tax status of the Certificates; modifications to the rights of owners of the Certificates, if material; F-3

218 (viii) (ix) (x) (xi) (xii) Certificate calls, if material, and tender offers for the Certificates; defeasances; release, substitution, or sale of property securing repayment of the Certificates, if material; rating changes; any bankruptcy, insolvency, receivership, or similar event of the District [this Listed Event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the District in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the District, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the District]; (xiii) the consummation of a merger, consolidation, or acquisition involving the District or the sale of all or substantially all of the assets of the District, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (xiv) appointment of a successor or additional trustee or the change of name of a trustee, if material. (b) (c) (d) Upon and after the occurrence of a Listed Event listed under subsection (a)(ii), (a)(vii), (a)(viii), (a)(x), (a)(xiii), or (a)(xiv) above, the District shall as soon as possible determine if such event would be material under applicable federal securities laws. If the District determines that knowledge of the occurrence of such Listed Event would be material under applicable federal securities laws, the District shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (d) below. Upon and after the occurrence of any Listed Event (other than a Listed Event listed under subsection (a)(ii), (a)(vii), (a)(viii), (a)(x), (a)(xiii), or (a)(xiv) above), the District shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (d) below. If the Dissemination Agent has been instructed by the District to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with MSRB, with a copy to the Trustee and the Participating Underwriter, not in excess of ten (10) business days after the occurrence of such Listed Event. Such notice must be submitted in an electronic format as prescribed by MSRB, accompanied by such identifying information as prescribed by MSRB. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(viii) and (ix) need not be given under this F-4

219 subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Certificates pursuant to the Trust Agreement. Section 6. Termination of Reporting Obligation. The obligations of the District specified in this Disclosure Certificate shall terminate upon the legal defeasance, prior prepayment or payment in full of all of the Certificates. If such termination occurs prior to the final maturity of the Certificates, the District shall give notice of such termination in the same manner as for a Listed Event under Section 5(c). Section 7. Dissemination Agent. The District may from time to time appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. If at any time there is not any other designated Dissemination Agent, the District shall act as Dissemination Agent. The initial Dissemination Agent shall be the District. Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the District may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: (a) if the amendment or waiver relates to annual or event information to be provided hereunder, it may only be made in connection with a change in circumstances that arises from a change in legal (including regulatory) requirements, a change in law (including rules or regulations) or interpretations thereof, or a change in the identity, nature, or status of the District or the type of business conducted thereby; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel have complied with the requirements of the Rule at the time of the primary offering of the Certificates, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver (i) is approved by holders of the Certificates in the manner provided in the Trust Agreement for amendments to the Trust Agreement with the consent of holders, or (ii) does not, in the opinion of the District or nationally recognized bond counsel, materially impair the interest of Certificates owners. If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the annual financial information containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the District to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be sent to the MSRB. Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in F-5

220 any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the District chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the District shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Section 10. Default. In the event of a failure of the District to comply with any provisions of this Disclosure Certificate any Participating Underwriter or any holder or beneficial owner of the Certificates, or the Trustee on behalf of the holders of the Certificates, may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed a default under the Trust Agreement, and the sole remedy under this Disclosure Certificate in the event of any failure of the District to comply with this Disclosure Certificate shall be an action to compel performance. Section 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the District agrees to indemnify and save the Dissemination Agent and its officers, directors, employees and agents, harmless against any loss, expense and liabilities that it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent s negligence or willful misconduct. The obligations of the District under this section shall survive resignation or removal of the Dissemination Agent and payment of all of the Certificates. The Dissemination Agent shall not be responsible in any manner for the format or content of any notice or Annual Report prepared by the District pursuant to this Disclosure Certificate. The District shall pay the reasonable fees and expenses of the Dissemination Agent for its duties hereunder. Section 12. Beneficiaries. The Disclosure Certificate shall insure solely to the benefit of the District, the Dissemination Agent, the Trustee, the Participating Underwriter and holders and beneficial owners from time to time of the Certificates, and shall create no rights in any other person or entity. Date: [Closing Date] PANAMA-BUENA VISTA UNION SCHOOL DISTRICT By: Authorized Signatory F-6

221 EXHIBIT A TO CONTINUING DISCLOSURE CERTIFICATE NOTICE OF FAILURE TO FILE ANNUAL REPORT Name of Obligor: Name of Certificates: Panama-Buena Vista Union School District Panama-Buena Vista Union School District Refunding Certificates of Participation (2006 School Construction Project), Series 2015 NOTICE IS HEREBY GIVEN that Panama-Buena Vista Union School District (the District ) has not provided an Annual Report with respect to the above-named Certificates as required by the Continuing Disclosure Certificate, dated [Closing Date]. The District anticipates that the Annual Report will be filed by. Dated: PANAMA-BUENA VISTA UNION SCHOOL DISTRICT By: Authorized Signatory F-7

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223 APPENDIX G BOOK-ENTRY ONLY SYSTEM The following description of DTC and its book-entry system has been provided by DTC and has not been verified for accuracy or completeness by the District, and the District shall have no liability with respect thereto. The District shall have no responsibility or liability for any aspects of the records maintained by DTC relating to or payments made on account of beneficial ownership, or for maintaining, supervising, or reviewing any records maintained by DTC relating to beneficial ownership, of interests in the Certificates. DTC will act as securities depository for the Certificates. The Certificates will be executed and delivered as fully-registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for each maturity of the Certificates, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate, and municipal debt issues, and money market instruments (from over 100 countries) that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation, and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has a Standard & Poor s rating of AA+. The DTC Rules applicable to its Participants are on file with the SEC. More information about DTC can be found at The foregoing reference to an internet website is made for reference and convenience only; the information contained within the website has not been reviewed by the District and is not incorporated in this Official Statement by reference. Purchases of Certificates under the DTC system must be made by or through Direct Participants, which will receive a credit for the Certificates on DTC s records. The ownership interest of each actual purchaser of each Certificate ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Certificates are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Certificates except in the event that use of the book-entry system for the Certificates is discontinued. G-1

224 To facilitate subsequent transfers, all Certificates deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Certificates with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Certificates; DTC s records reflect only the identity of the Direct Participants to whose accounts such Certificates are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners, will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Certificates may wish to take certain steps to augment transmission to them of notices of significant events with respect to the Certificates, such as redemptions, tenders, defaults, and proposed amendments to the Certificate documents. For example, Beneficial Owners of Certificates may wish to ascertain that the nominee holding the Certificates for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Certificates are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Certificates unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the District as soon as possible after the Record Date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the Certificates are credited on the Record Date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments with respect to the Certificates will be made to Cede & Co. or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from the District on the payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC nor its nominee or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the District, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Certificates at any time by giving reasonable notice to the District. Under such circumstances, in the event that a successor securities depository is not obtained, certificates are required to be printed and delivered in accordance with the terms of the Trust Agreement. The District may decide to discontinue use of the system of book-entry only transfers through DTC (or a successor securities depository). In that event, certificates will be printed and delivered to DTC in accordance with the terms of the Trust Agreement. G-2

225 THE INFORMATION IN THIS SECTION CONCERNING DTC AND DTC S BOOK-ENTRY SYSTEM HAS BEEN OBTAINED FROM SOURCES THAT THE DISTRICT BELIEVES TO BE RELIABLE, BUT THE DISTRICT TAKES NO RESPONSIBILITY FOR THE ACCURACY THEREOF. THE DISTRICT GIVES NO ASSURANCES THAT DTC WILL DISTRIBUTE PAYMENTS TO DTC PARTICIPANTS OR THAT PARTICIPANTS OR OTHERS WILL DISTRIBUTE PAYMENTS WITH RESPECT TO THE CERTIFICATES RECEIVED BY DTC OR ITS NOMINEES AS THE REGISTERED OWNER, ANY REDEMPTION NOTICES, OR OTHER NOTICES TO THE BENEFICIAL OWNERS, OR THAT THEY WILL DO SO ON A TIMELY BASIS, OR THAT DTC WILL SERVE AND ACT IN THE MANNER DESCRIBED IN THIS OFFICIAL STATEMENT. G-3

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227 APPENDIX H SPECIMEN CERTIFICATE INSURANCE POLICY

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229 MUNICIPAL BOND INSURANCE POLICY ISSUER: [NAME OF ISSUER] Policy No: MEMBER: [NAME OF MEMBER] BONDS: $ in aggregate principal amount of [NAME OF TRANSACTION] [and maturing on] Effective Date: Risk Premium: $ Member Surplus Contribution: $ Total Insurance Payment: $ BUILD AMERICA MUTUAL ASSURANCE COMPANY ( BAM ), for consideration received, hereby UNCONDITIONALLY AND IRREVOCABLY agrees to pay to the trustee (the Trustee ) or paying agent (the Paying Agent ) for the Bonds named above (as set forth in the documentation providing for the issuance and securing of the Bonds), for the benefit of the Owners or, at the election of BAM, directly to each Owner, subject only to the terms of this Policy (which includes each endorsement hereto), that portion of the principal of and interest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer. On the later of the day on which such principal and interest becomes Due for Payment or the first Business Day following the Business Day on which BAM shall have received Notice of Nonpayment, BAM will disburse (but without duplication in the case of duplicate claims for the same Nonpayment) to or for the benefit of each Owner of the Bonds, the face amount of principal of and interest on the Bonds that is then Due for Payment but is then unpaid by reason of Nonpayment by the Issuer, but only upon receipt by BAM, in a form reasonably satisfactory to it, of (a) evidence of the Owner s right to receive payment of such principal or interest then Due for Payment and (b) evidence, including any appropriate instruments of assignment, that all of the Owner s rights with respect to payment of such principal or interest that is Due for Payment shall thereupon vest in BAM. A Notice of Nonpayment will be deemed received on a given Business Day if it is received prior to 1:00 p.m. (New York time) on such Business Day; otherwise, it will be deemed received on the next Business Day. If any Notice of Nonpayment received by BAM is incomplete, it shall be deemed not to have been received by BAM for purposes of the preceding sentence, and BAM shall promptly so advise the Trustee, Paying Agent or Owner, as appropriate, any of whom may submit an amended Notice of Nonpayment. Upon disbursement under this Policy in respect of a Bond and to the extent of such payment, BAM shall become the owner of such Bond, any appurtenant coupon to such Bond and right to receipt of payment of principal of or interest on such Bond and shall be fully subrogated to the rights of the Owner, including the Owner s right to receive payments under such Bond. Payment by BAM either to the Trustee or Paying Agent for the benefit of the Owners, or directly to the Owners, on account of any Nonpayment shall discharge the obligation of BAM under this Policy with respect to said Nonpayment. Except to the extent expressly modified by an endorsement hereto, the following terms shall have the meanings specified for all purposes of this Policy. Business Day means any day other than (a) a Saturday or Sunday or (b) a day on which banking institutions in the State of New York or the Insurer s Fiscal Agent (as defined herein) are authorized or required by law or executive order to remain closed. Due for Payment means (a) when referring to the principal of a Bond, payable on the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity (unless BAM shall elect, in its sole discretion, to pay such principal due upon such acceleration together with any accrued interest to the date of acceleration) and (b) when referring to interest on a Bond, payable on the stated date for payment of interest. Nonpayment means, in respect of a Bond, the failure of the Issuer to have provided sufficient funds to the Trustee or, if there is no Trustee, to the Paying Agent for payment in full of all principal and interest that is Due for Payment on such Bond. Nonpayment shall also include, in respect of a Bond, any payment made to an Owner by or on behalf of the Issuer of principal or interest that is Due for Payment, which payment has been recovered from such Owner pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court having competent jurisdiction. Notice means delivery to BAM of a notice of claim and certificate, by certified mail, or telecopy as set forth on the attached Schedule or other acceptable electronic delivery, in a form satisfactory to BAM, from and signed by an Owner, the Trustee or the Paying Agent, which notice shall specify (a) the person or entity making the claim, (b) the Policy Number, (c) the claimed amount, (d) payment instructions and (e) the date such claimed amount becomes or became Due for Payment. Owner means, in respect of a Bond, the person or entity who, at the time of Nonpayment, is entitled under the terms of such Bond to payment thereof, except that Owner shall not include the Issuer, the Member or any other person or entity whose direct or indirect obligation constitutes the underlying security for the Bonds. H-1