This Official Statement is dated May 21, 2015.

Transcription

1 NEW ISSUE BOOK-ENTRY ONLY RATINGS Standard & Poor s Insured Rating: AA Standard & Poor s Underlying Rating: A (See Rating ) In the opinion of Kronick, Moskovitz, Tiedemann & Girard, a Professional Corporation, Sacramento, California, Special Counsel, based upon an analysis of existing statutes, regulations, rulings, and court decisions and assuming, among other things, the accuracy of certain representations and compliance with certain covenants, the portion of the rental payments designated as and constituting interest paid by the District under the Facilities Lease and received by the owners of the Certificates is excludable from gross income for federal income tax purposes and is exempt from State of California personal income taxes. In the further opinion of Special Counsel, such interest evidenced by the Certificates is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals or corporations; however, such interest is taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on certain corporations. The Certificates are eligible and the District will designate them as qualified tax-exempt obligations pursuant to Section 265(b)(3) of the Internal Revenue Code of Special Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest with respect to, the Certificates. See Tax Matters. $6,380, CERTIFICATES OF PARTICIPATION Evidencing Undivided Proportionate Interests in Rental Payments Made by the RIO ELEMENTARY SCHOOL DISTRICT (Ventura County, California) Dated: Date of Delivery Due: March 1, as shown on inside cover The District will use proceeds of the Certificates (i) to finance the remaining costs associated with the acquisition and construction of school facilities, (ii) to pay premiums for policies of municipal bond insurance and debt service reserve insurance, and (iii) to pay certain other costs of execution and delivery of the Certificates. See Estimated Sources and Uses of Funds. The Certificates evidence undivided proportionate interests in Rental Payments made by the District under a Facilities Lease. The District has covenanted in the Facilities Lease to take all action necessary to include all Rental Payments in its annual budget and to make annual appropriations for such payments. The District s obligation to make Rental Payments may be abated during any period in which there is substantial interference with the District s use and occupancy of the property leased under the Facilities Lease by reason of material damage to, condemnation of, or defect in the District s title to the property. See Risk Factors Abatement of Rental Payments. Interest with respect to the Certificates is payable on September 1, 2015, and thereafter on each March 1 and September 1 to maturity or prior redemption, at the rates shown on the inside cover. Principal will be paid on March 1 in the years and in the amounts shown in the Maturity Schedule on the inside cover. See The Certificates. The Certificates will be delivered in book-entry form only, registered to Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ), which will act as securities depository of the Certificates. Purchasers will not receive physical certificates representing their interest in the Certificates. Payments of principal and interest with respect to the Certificates will be made by U.S. Bank National Association, as Trustee, to DTC, which remits such payments to its Participants for subsequent distribution to the beneficial owners of the Certificates. See Appendix F Book-Entry Only System. The Certificates are subject to redemption prior to maturity as described herein. See The Certificates Redemption of Certificates. The obligation of the District to make Rental Payments does not constitute an obligation 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 Rental Payments constitutes an indebtedness of the District, the State of California, or any of its political subdivisions within the meaning of any constitutional or statutory debt limitation or restriction. The scheduled payment of principal and interest with respect to the Certificates when due will be guaranteed under a municipal bond insurance policy to be issued concurrently with the delivery of the Certificates by BUILD AMERICA MUTUAL ASSURANCE COMPANY. See Certificate Insurance and Appendix G Specimen Municipal Bond Insurance Policy. This cover page is for quick reference only. Investors should review the entire Official Statement to obtain information essential in making an informed investment. See Risk Factors for a discussion of factors that should be considered, in addition to the other matters set forth herein, in evaluating the investment quality of the Certificates. MATURITY SCHEDULE (on inside front cover) The Certificates are offered when, as and if delivered and received by the Underwriter, subject to the approval as to their legality by Kronick, Moskovitz, Tiedemann & Girard, a Professional Corporation, Sacramento, California, Special Counsel. Kronick, Moskovitz, Tiedemann & Girard, A Professional Corporation, is also serving as Disclosure Counsel to the District. Nossaman LLP, Irvine, California, is serving as counsel to the Underwriter. It is anticipated that the Certificates, in book-entry form, will be available for delivery through the facilities of DTC, on or about June 4, This Official Statement is dated May 21, 2015.

2 $6,380, CERTIFICATES OF PARTICIPATION Evidencing Undivided Proportionate Interests in Rental Payments Made by the RIO ELEMENTARY SCHOOL DISTRICT (Ventura County, California) MATURITY SCHEDULE $2,775,000 Serial Certificates Maturity Date (March 1) Principal Amount Interest Rate Yield Price CUSIP 2016 $100, % 0.600% BB , BC , BD , BE , BF , BG , BH , BJ , BK , BL , BM , BN , BP , BQ , BR , BS , BT7 $1,175, % Term Certificate due March 1, 2037 Price: Yield: 4.100% - CUSIP BU4 $2,430, % Term Certificate due March 1, 2045 Price: Yield: 4.130% - CUSIP BY6 CUSIP is a registered trademark of the American Bankers Association. CUSIP Global Services (CGS) is managed on behalf of the American Bankers Association by S&P Capital IQ. Copyright 2015 CUSIP Global Services. All rights reserved. CUSIP numbers are provided for convenience of reference only. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database. Neither the Underwriter, the District, nor Special Counsel is responsible for the selection or correctness of the CUSIP numbers set forth above. Stabilization of and Changes to Offering Prices. The Underwriter may overallot or take other steps that stabilize or maintain the market price of the Certificates at a level above that which might otherwise prevail in the open market. If commenced, the Underwriter may discontinue such market stabilization at any time. The Underwriter may offer and sell the Certificates to certain dealers, dealer banks and banks acting as agent at prices lower than the public offering prices stated above, and those public offering prices may be changed from time to time by the Underwriter.

3 GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT Use of Official Statement. 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. This Official Statement is not a contract between any Certificate owner and the District or the Underwriter. No Offering Except by This Official Statement. No dealer, broker, salesperson or other person has been authorized by the District 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 representation must not be relied upon as having been authorized by the District or the Underwriter. No Unlawful Offers or Solicitations. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sale of the Certificates by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. Information in Official Statement. The information set forth in this Official Statement has been furnished by the District and other sources that are believed to be reliable, but it is not guaranteed as to accuracy or completeness. Estimates and Forecasts. When used in this Official Statement and in any press release and in any oral statement made with the approval of an authorized officer of the District, the words or phrases will likely result, are expected to, will continue, is anticipated, estimate, project, forecast, expect, intend and similar expressions identify forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material. Involvement of Underwriter. The Underwriter has reviewed the information in this Official Statement in accordance with, and as a 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 guarantee the accuracy or completeness of such information. Document Summaries. All summaries of documents referred to in this Official Statement are made subject to the provisions of such documents and qualified in their entirety to reference to such documents and do not purport to be complete statements of any or all of such provisions. No Securities Laws Registration. The Certificates have not been registered under the Securities Act of 1933, as amended, in reliance upon exceptions therein for the issuance and sale of municipal securities. The Certificates have not been registered or qualified under the securities laws of any state. Effective Date. This Official Statement speaks only as of its date, and the information and expressions of opinion contained in this Official Statement are subject to change without notice. Neither the delivery of this Official Statement nor any sale of the Certificates will, under any circumstances, give rise to any implication that there has been no change in the affairs of the District or other information contained herein since the date of this Official Statement. Website. The District maintains an Internet website, but the information on the website is not incorporated in this Official Statement. Insurer. 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 and Appendix G - Specimen Municipal Bond Insurance Policy.

4 RIO ELEMENTARY SCHOOL DISTRICT Ventura County, California DISTRICT GOVERNING BOARD Matthew Klinefelter, President Ramon Rodriguez, Clerk Edith Martinez-Cortes, Trustee Dr. Glade Eggett, Trustee Eleanor Torres, Trustee DISTRICT ADMINISTRATION John D. Puglisi, Ph.D., Superintendent Kristen Pifko, Assistant Superintendent, Business Services Marcia Nudd, Director of Fiscal Services SPECIAL COUNSEL & DISCLOSURE COUNSEL Kronick, Moskovitz, Tiedemann & Girard, A Professional Corporation Sacramento, California FINANCIAL ADVISOR Isom Advisors, a Division of Urban Futures, Inc. Walnut Creek, California TRUSTEE U.S. Bank National Association Los Angeles, California UNDERWRITER Stifel, Nicolaus & Company, Incorporated Los Angeles, California UNDERWRITER S COUNSEL Nossaman LLP Irvine, California

5 TABLE OF CONTENTS Page INTRODUCTION... 1 The District... 1 Purpose of the Certificates... 1 Security and Sources of Payment for the Certificates... 1 Description of the Certificates... 2 Tax Exemption... 3 Continuing Disclosure... 3 Professionals Involved in the Offering... 3 Offering and Delivery of the Certificates... 3 Certificate Insurance... 3 Certificate Owners Risks... 4 Other Information... 4 THE CERTIFICATES... 4 Form and Registration... 4 Payment of Principal and Interest... 4 Redemption of Certificates... 4 ESTIMATED SOURCES AND USES OF FUNDS... 6 CERTIFICATE PAYMENT SCHEDULE... 7 SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES... 8 Nature of the Certificates... 8 Rental Payments... 8 Covenant to Appropriate Funds... 8 Rental Abatement... 8 The Facilities... 8 Certificate Reserve Fund... 9 Action on Default... 9 Covenants to Insure... 9 CERTIFICATE INSURANCE Certificate Insurance Policy Build America Mutual Assurance Company RISK FACTORS Limited Nature of the Obligation to Make Rental Payments Additional General Fund Obligations Abatement of Rental Payments i

6 Risk of Earthquake and Flood Limited Recourse on Default; No Acceleration on Default Loss of Tax Exemption Bankruptcy and Equitable Limitations Revenue Sources to Make Rental Payments THE CORPORATION THE DISTRICT General Information Governing Board Superintendent and Administrative Personnel Employees Employee Relations Retirement System Other Post-Employment Healthcare Benefits Insurance DISTRICT FINANCIAL INFORMATION District Financial Statements Accounting Practices District Budget Interim Reports on Financial and Budgetary Status Comparative Financial Statements Cap on School District Reserves Sources of Funding for Operations Property Taxation Property Tax Levy and Collection Federal Sources Other State Sources Other Local Sources Local Economy DISTRICT DEBT STRUCTURE Long-Term Borrowing General Obligation Bonds Lease Agreement Direct and Overlapping Debt CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Article XIIIA of the California Constitution ii

7 Article XIIIB of the California Constitution Articles XIIIC and XIIID Future Initiatives STATE FUNDING OF EDUCATION Propositions 98 and Minimum Funding Guarantee State Budget Process Fiscal Year Budget Proposed Fiscal Year Budget Additional Information on State Finances Future State Budgets TAX MATTERS LEGAL MATTERS LITIGATION No Litigation Other Litigation CONTINUING DISCLOSURE RATINGS UNDERWRITING AUTHORIZATION Appendix A: Audited Financial Statements of the District for Fiscal Year Ended June 30, A-1 Appendix B: Summary of Principal Legal Documents... B-1 Appendix C: Form of Opinion of Special Counsel... C-1 Appendix D: Form of Continuing Disclosure Certificate... D-1 Appendix E: County Economic Profile... E-1 Appendix F: Book-Entry Only System... F-1 Appendix G: Specimen Municipal Bond Insurance Policy... G-1 iii

8 [THIS PAGE INTENTIONALLY LEFT BLANK]

9 OFFICIAL STATEMENT $6,380, CERTIFICATES OF PARTICIPATION Evidencing Undivided Proportionate Interests in Rental Payments Made by the RIO ELEMENTARY SCHOOL DISTRICT INTRODUCTION This Official Statement provides certain information concerning the sale and delivery of $6,380,000 principal amount of Rio Elementary School District 2015 Certificates of Participation (the Certificates ). This introduction is not a summary of the Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page and appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Official Statement. No person is authorized to make offers to sell, or solicit offers to buy, the Certificates unless the entire Official Statement is delivered in connection with the offer or solicitation. The District The Rio Elementary School District (the District ), is an elementary school district established in The District covers approximately 15.5 square miles in Ventura County (the County ), including a portion of the City of Oxnard, and unincorporated County territory. The District provides K-8 public education to more than 4,600 students in six elementary and two middle schools. Annual average daily attendance in the District was 4,659 for fiscal year , and is projected to be 4,674 for fiscal year , and 4,723 for fiscal year The District is governed by a five-member Governing Board (the Board ), each member of which is elected to a four-year term. Elections for positions to the Board are held every two years, alternating between two and three available positions. The management and policies of the District are administered by a Superintendent, appointed by the Governing Board, who is responsible for day-to-day District operations, as well as the supervision of the District s other personnel. John D. Puglisi, Ph.D. is the District Superintendent. See The District herein. Purpose of the Certificates The District will use proceeds of the Certificates (i) to finance the remaining costs associated with the acquisition and construction of school facilities, (ii) to pay the premiums for policies of municipal bond insurance and debt service reserve insurance, and (iii) to pay certain costs of issuance. See Estimated Sources and Uses of Funds. Security and Sources of Payment for the Certificates The Certificates will be executed and delivered pursuant to the Trust Agreement dated June 1, 2015 (the Trust Agreement ), between the District, Public Property Financing Corporation of California (the Corporation ), and U.S. Bank National Association, as trustee (the Trustee ). The Certificates evidence undivided proportionate interests in the Rental Payments ( Rental Payments ) to be made by the District under the Facilities Lease dated June 1, 2015 (the Facilities Lease ), between the District and the Corporation. 1

10 The Corporation will acquire a leasehold interest in certain real property (the Facilities ) pursuant to the Ground Lease dated June 1, 2015 (the Ground Lease ), between the District and the Corporation. Pursuant to the Facilities Lease, the District will lease the Facilities back from the Corporation, in consideration for which the District will make Rental Payments. See Security and Sources of Payment for the Certificates - The Facilities. Under the Trust Agreement, the Corporation will assign its rights under the Facilities Lease and the Ground Lease to the Trustee for the benefit of the owners of the Certificates (the Owners ). The District covenants in the Facilities Lease to take such action as may be necessary to include all Rental Payments due in each fiscal year in its annual budget and to make the necessary annual appropriations for all such Rental Payments. The District, however, is not obligated to levy or pledge any form of taxation for the payment of Rental Payments, nor has the District covenanted to do so. The payment of Rental Payments is subject to abatement during any period in which, by reason of material damage, destruction, condemnation or title defect, there is substantial interference with the District s use and occupancy of the Facilities. See Security and Sources of Payment for the Certificates - Rental Abatement and Risk Factors - Abatement of Rental Payments. Abatement of Rental Payments under the Facilities Lease, to the extent payment is not made from alternative sources as described below, would result in all Owners receiving less than the full amount otherwise payable with respect to the Certificates. To the extent proceeds of insurance or other moneys in any of the funds and accounts established under the Trust Agreement (as described below) are available for the payment of Rental Payments, Rental Payments (or a portion thereof) may be made during periods of abatement. See Security and Sources of Payment for the Certificates. Description of the Certificates Authorized Denominations. The Certificates will be available to purchasers in denominations of $5,000 principal amount and integral multiples thereof. Registration, Transfers and Exchanges. The Certificates will be initially delivered in book-entry form only, registered to Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ), and will be available to purchasers of the Certificates (the Beneficial Owners ) in the denominations described above, under the book-entry system maintained by DTC, only through brokers and dealers who are or act through DTC Participants as described below. Beneficial Owners will not be entitled to receive physical delivery of the Certificates. If the book-entry only system is no longer used with respect to the Certificates, the Certificates will be registered and transferred in accordance with the provisions of the Trust Agreement. See Appendix F Book-Entry only System. Payments. Interest and principal evidenced by the Certificates are payable by the Trustee to DTC. Interest with respect to the Certificates will be payable on September 1, 2015, and thereafter on each March 1 and September 1 to maturity. Principal with respect to the Certificates is payable on March 1 in each of the years and in the amounts set forth on the inside cover of this Official Statement. Disbursement of such payments to DTC Participants is the responsibility of DTC, and disbursement of such payments to the Beneficial Owners is the responsibility of DTC Participants. If the book-entry only system is no longer used with respect to the Certificates, the Beneficial Owners will become the registered owners of the Certificates and will be paid principal and interest evidenced by the Certificates by the Trustee. See Appendix F Book- Entry Only System. Redemption. The Certificates are subject to redemption prior to maturity as described herein. See The Certificates Redemption of Certificates. 2

11 Tax Exemption In the opinion of Kronick, Moskovitz, Tiedemann & Girard, a Professional Corporation, Sacramento, California, Special Counsel, based upon an analysis of existing statutes, regulations, rulings, and court decisions and assuming, among other things, the accuracy of certain representations and compliance with certain covenants, the portion of the rental payments designated as and constituting interest paid by the District under the Facilities Lease and received by the Owners of the Certificates is excludable from gross income for federal income tax purposes and is exempt from State of California personal income taxes. In the further opinion of Special Counsel, such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals or corporations; however, such interest is taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on certain corporations. Special Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest with respect to, the Certificates. See Tax Matters. Continuing Disclosure The District has covenanted and agreed that it will comply with and carry out all of the provisions of the Continuing Disclosure Certificate. The form of the Continuing Disclosure Certificate is included in Appendix E hereto. Professionals Involved in the Offering U.S. Bank National Association, San Francisco, California, will act as Trustee with respect to the Certificates. Kronick, Moskovitz, Tiedemann & Girard, a Professional Corporation, Sacramento, California, is serving as Special Counsel and Disclosure Counsel to the District. Isom Advisors, a Division of Urban Futures, Inc., Walnut Creek, California, has served as financial advisor to the District in connection with the sale of the Certificates. Kronick, Moskovitz, Tiedemann & Girard, a Professional Corporation, and Isom Advisors, a Division of Urban Futures, Inc., will receive compensation from the District contingent upon the sale and delivery of the Certificates. Offering and Delivery of the Certificates The Certificates are offered when, as and if delivered and received by the Underwriter, subject to the approval as to their legality by Special Counsel and the satisfaction of certain other conditions. 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 June 4, Certificate Insurance The scheduled payment of principal and interest with respect to the Certificates when due will be guaranteed under a municipal bond insurance policy to be issued concurrently with the delivery of the Certificates by Build America Mutual Assurance Company ( BAM ). See Certificate Insurance and Appendix G Specimen Municipal Bond Insurance Policy. Changes Since Date of the Preliminary Official Statement Subsequent to the publication of the Preliminary Official Statement, the Governor released his May revision to the proposed State budget for fiscal year (the May Revision ). For a summary of the May Revision, see State Funding of Education Proposed Fiscal Year Budget May Revision herein. 3

12 Certificate Owners Risks Certain events could affect the ability of the District to make the Rental Payments when due. See Risk Factors for a discussion of certain factors that should be considered, in addition to other matters set forth herein, in evaluating an investment in the Certificates. Other Information This Official Statement contains brief descriptions of the Certificates, the Facilities Lease, the Trust Agreement, and other documents. Such descriptions are not comprehensive or definitive and are qualified in their entirety by reference to such documents. Copies of documents referred to herein and information concerning the Certificates are available from the District, 2500 Vineyard Avenue, Oxnard, California The District may impose a charge for copying, mailing and handling. Form and Registration THE CERTIFICATES The Certificates will be registered initially in the name of Cede & Co., as nominee of DTC. DTC will act as securities depository for the Certificates. Ownership interests in the Certificates may be purchased in book-entry form only, in integral multiples of $5,000 principal amount. No physical certificates will be made available to the Owners to represent their ownership interests in the Certificates. Payment of Principal and Interest So long as Cede & Co. is the registered owner of the Certificates, principal and interest with respect to the Certificates will be payable to Cede & Co., as nominee for DTC, which is obligated to remit such payments to the DTC Participants, as defined by DTC, for subsequent disbursement to the Beneficial Owners of the Certificates. If the book-entry only system is no longer used with respect to the Certificates, the Beneficial Owners will become the registered owners of the Certificates and will be paid principal and interest with respect to the Certificates by the Trustee. For information regarding the payment and transfer of the Certificates, see Appendix F Book-Entry Only System. Interest represented by the Certificates will accrue on the principal represented thereby, at the interest rates set forth on the inside cover page hereof, from the date of delivery thereof until maturity or prior redemption. Interest with respect to the Certificates will be payable on September 1, 2015, and thereafter on each March 1 and September 1 (each, an Interest Payment Date ). Interest will be paid to the Owner thereof as of the close of business on the fifteenth day of the month immediately preceding the relevant Interest Payment Date (the Record Date). Interest with respect to the Certificates will be calculated on the basis of a 360-day year comprising twelve 30-day months. Principal evidenced by the Certificates will be payable on March 1 in each of the years and in the amounts set forth on the inside cover page of this Official Statement. Redemption of Certificates Optional Redemption. The Certificates maturing on or after March 1, 2026, are subject to redemption prior to their respective stated maturities, at the option of the District, from any source of available funds, as a whole or in part (by such maturities as may be specified by the District and at random within a maturity) on any date on or after March 1, 2025, at a redemption price equal to the principal represented by the Certificate called for redemption, plus interest represented thereby accrued to the date fixed for redemption, without premium. 4

13 Extraordinary Mandatory Redemption. The Certificates are subject to redemption prior to their respective stated maturities as a whole on any date or in part (pro rata among maturities and at random within a maturity) on any Interest Payment Date, from prepaid Rental Payments made by the District from funds received by the District due to a casualty loss, material title defect, or governmental taking of the Facilities or portions thereof by eminent domain proceedings, under the circumstances and upon the conditions and terms prescribed in the Facilities Lease, at a redemption price equal to the principal amount represented by the Certificates to be redeemed plus accrued interest represented thereby to the date fixed for redemption, without premium. Extraordinary Optional Redemption. The Certificates are subject to redemption prior to their respective stated maturities, as a whole or in part on any date (pro rata among maturities and at random within a maturity) from all legally available funds of the District, at a redemption price equal to the principal amount represented by the Certificates to be redeemed plus accrued interest represented thereby to the date fixed for redemption, without premium. Mandatory Sinking Account Redemption. The Certificates maturing on March 1, 2037 and March 1, 2045 (each, a Term Bond ) are subject to redemption prior to their stated maturity, in part, at random, from Mandatory Sinking Account Payments in the following amounts and on the following dates, at the principal amount represented thereby, without premium: March 1, 2037 Term Bond Mandatory Redemption Dates (March 1) Principal Amount 2033 $215, , , , ,000 March 1, 2045 Term Bond Mandatory Redemption Dates (March 1) Principal Amount 2038 $265, , , , , , , ,000 Selection of Certificates for Redemption. Whenever less than all the Outstanding Certificates of any maturity are to be redeemed, the Trustee will select the particular Certificates to be redeemed (in whole or in part) from the Outstanding Certificates that have not previously been called for redemption, at random in any manner that the Trustee in its sole discretion deems appropriate and fair, in minimum denominations of $5,000 principal amount. For purposes of selection, each $5,000 of principal will be deemed to be a separate Certificate. 5

14 Notice of Redemption. Notice of any redemption of Certificates will be mailed (first class postage prepaid) by the Trustee, not fewer than 30 nor more than 60 days prior to the redemption date, to (i) the registered Owners of any Certificates designated for redemption, (ii) the Securities Depositories (if the Certificates are not then in book-entry form), and (iii) the Information Service. Each notice of redemption will specify (a) the Certificates or designated portions thereof that are to be redeemed, (b) the date of redemption, (c) the place or places where the redemption will be made, and (d) the redemption price. Each notice of redemption will either (a) explicitly state that the proposed redemption is conditioned on there being on deposit with the Trustee on the redemption date sufficient money to pay in full the redemption price of the Certificates or portions thereof to be redeemed or (b) be sent only if sufficient money to pay in full the redemption price of the Certificates or portions thereof to be redeemed is on deposit with the Trustee. Failure by the Trustee to give notice to the Information Service or one or more of the Securities Depositories or failure of any Owner to receive notice of any defect in any such notice shall not affect the sufficiency of the proceedings for redemption. Failure by the Trustee to mail notice to any one or more of the respective Owners of any Certificates designated for redemption shall not affect the sufficiency of the proceedings for redemption with respect to the Owner or Owners to whom such notice was mailed. Right to Rescind Notice. The District may rescind any optional redemption and notice thereof for any reason on any date prior to the date fixed for redemption by causing written notice of the rescission to be given to the Owners of the Certificates so called for redemption. Any optional redemption and notice thereof will be rescinded if for any reason sufficient monies are not available on the date fixed for redemption for such purpose. Notice of rescission of redemption will be given in the same manner in which notice of redemption was originally given. The actual receipt by the Owner of any Certificate of notice of such rescission is not a condition precedent to rescission, and failure to receive such notice or any defect in such notice does not affect the validity of the rescission. Effect of Notice of Redemption. If notice of redemption has been duly given and moneys for the payment of the redemption price of the Certificates to be redeemed are held by the Trustee, then, on the redemption date, the Certificates called for redemption will become payable at the redemption price. After the redemption date, interest evidenced by the redeemed Certificates will cease to accrue, the Certificates will cease to be entitled to any benefit or security under the Trust Agreement, and the Owners of the Certificates will have no rights in respect thereof except to receive payment of the redemption price thereof. ESTIMATED SOURCES AND USES OF FUNDS The proceeds to be received from the sale of the Certificates are estimated to be applied as set forth in the table below: Sources: Principal amount of Certificates $6,380, Less original issue discount (82,433.20) Total Sources: 6,297, Uses: (1) Project construction 6,002, Costs of issuance (1) 295, Total Uses: $6,297, Includes the Underwriter s discount, premiums for policies of municipal bond insurance and debt service reserve insurance, fees of the financial advisor, costs of printing, Trustee fees, legal fees, rating agency fees, and miscellaneous other costs of issuance. 6

15 CERTIFICATE PAYMENT SCHEDULE The following table sets forth the scheduled payments of principal and interest evidenced by the Certificates in each year ending March 1. Year Ending March 1 Principal Interest Total 2016 $100,000 $168, $268, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,000 97, , ,000 86, , ,000 75, , ,000 64, , ,000 52, , ,000 40, , ,000 27, , ,000 13, , TOTAL $6,380,000 $4,355, $10,735,

16 SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES Nature of the Certificates Each Certificate represents an undivided proportionate interest of the Owner thereof in the Rental Payments made under the Facilities Lease. The Corporation, pursuant to the Trust Agreement, will assign to the Trustee for the benefit of the Owners of the Certificates substantially all of the Corporation s rights under the Ground Lease and the Facilities Lease, including its right to receive Rental Payments, condemnation awards and insurance proceeds from the District as well as its right to enforce Rental Payments. The District will pay Rental Payments directly to the Trustee, as assignee of the Corporation. See Security and Sources of Payment for the Certificates - Rental Payments. Rental Payments The Facilities Lease requires that the District make Rental Payments for the use and possession of the Facilities. The obligation of the District to make 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 Rental Payments constitutes an indebtedness of the District, the State of California, or any of its political subdivisions within the meaning of any constitutional or statutory debt limitation or restriction. Covenant to Appropriate Funds The District has covenanted in the Facilities Lease to take all such action as may be necessary to include all Rental Payments due in each fiscal year in its annual budget and to make the necessary annual appropriations therefor (except to the extent such payments are abated as permitted under the Facilities Lease). Rental Abatement Except to the extent of (i) amounts available in the funds held by the Trustee under the Trust Agreement, (ii) amounts, if any, received in respect of rental abatement insurance, and (iii) amounts, if any, otherwise available to the Trustee for payments in respect of the Certificates, Rental Payments will be abated during any period in which, by reason of material damage, destruction or condemnation of the Facilities or any portion thereof or defects in title to the Facilities, there is substantial interference with the District s use and occupancy of the Facilities or any portion thereof. In that event, the amount abated will be such that the resulting total rental does not exceed the total fair rental value of the portion of the Facilities not damaged, destroyed, condemned or affected by title defect. Such abatement will continue until restoration of the Facilities or portion thereof to tenantable condition or correction of the title defect. Any resulting reduction in Rental Payments does not constitute a default under either the Trust Agreement or the Facilities Lease and, upon the depletion of all amounts held by the Trustee under the Trust Agreement, would result in a delay in, or inability of the Trustee to make, further payments on the Certificates. Notwithstanding any such damage, destruction, taking or title defect, the Facilities Lease will continue in full force and effect. See Risk Factors. The Facilities Description. The Facilities consist of the Rio Real Elementary School. The Facilities have an expected remaining useful life longer than the term of the Certificates. 8

17 Rio Real Elementary School is an elementary school serving grades K-6, located at 1140 Kenney Street, Oxnard, California. The school was built in The school comprises 41,435 square feet of buildings located on approximately 9.5 acres. The school has a capacity of 793 students. Substitution of Property. The District may substitute other District property for the Facilities, upon compliance with certain provisions of the Facilities Lease. See Appendix B - Summary of Principal Legal Documents Facilities Lease Substitution of Property. Certificate Reserve Fund The Trust Agreement establishes a reserve fund (the Certificate Reserve Fund ) and requires it to be funded in an amount equal to, as of the date of calculation, the least of (i) Maximum Annual Debt Service on all Certificates then Outstanding, (ii) 125% of average Annual Debt Service on all Certificates then Outstanding, and (iii) 10% of the aggregate principal amount of the Certificates executed and delivered on the closing date (or, if the Certificates were sold with more than a de minimis amount of original issue discount or premium, the issue price of the Certificates, as those terms are defined in the Internal Revenue Code (the Certificate Reserve Requirement ). Amounts in the Certificate Reserve Fund are to be used to make delinquent Rental Payments to the extent that the moneys available in the Interest Fund and Principal Fund do not equal the amount of the principal and interest evidenced by the Certificates then coming due. In addition, moneys, if any, on deposit in the Certificate Reserve Fund will be withdrawn and applied by the Trustee for the final Rental Payments. On the date of delivery of the Certificates, the District will deposit a debt service reserve insurance policy issued by BAM in the Certificate Reserve Fund in an amount equal to the Certificate Reserve Requirement. If at any time the balance in the Certificate Reserve Fund is reduced below the Certificate Reserve Requirement, the first payment of Rental Payments thereafter received from the District under the Facilities Lease and not needed to pay the interest or principal evidenced by Certificates payable to the Owners on the next Interest Payment Date or Principal Payment Date will be used to increase the balance in the Certificate Reserve Fund to the Certificate Reserve Requirement. Action on Default If the District defaults under the Facilities Lease, the Trustee, as assignee of the Corporation, may retain the Facilities Lease and hold the District liable for all Rental Payments thereunder on an annual basis and will have the right to re-enter and re-let the Facilities. If the Trustee re-lets the Facilities, the District would be liable for any resulting deficiency in Rental Payments. Alternatively, the Trustee may terminate the Facilities Lease and recover certain damages from the District. See Appendix B - Summary of Principal Legal Documents Facilities Lease Remedies on Default. Acceleration of future Rental Payments is not a remedy available under the Facilities Lease. See Risk Factors - Limited Recourse on Default; No Acceleration on Default. Covenants to Insure The Facilities Lease requires the District to maintain all risk property insurance (excluding earthquake and flood) for the Facilities against fire, lightning, and all other risks covered by an extended coverage endorsement, subject to a $50,000 loss deductible provision, in an amount equal to the full insurable value of the Facilities. The District currently maintains limited flood insurance through a joint powers agency. The District does not currently maintain earthquake insurance with a commercial carrier and has no plans to do so. See Risk Factors - Risk of Earthquake and Flood. 9

18 The Facilities Lease requires the District to maintain, throughout the term of the Facilities Lease, rental abatement insurance to cover the Corporation s loss, total or partial, of Rental Payments resulting from the loss of the use of any part of the Facilities as a result of any of the hazards covered in the casualty insurance required by the Facilities Lease, in an amount equal to the Rental Payments for the Facilities in the two-year period in which that amount is greatest. The Facilities Lease requires the District to obtain title insurance on the Facilities, in an amount equal to the aggregate amount of principal evidenced by the Certificates. Certificate Insurance Policy CERTIFICATE INSURANCE Concurrently with the issuance of the Certificates, Build America Mutual Assurance Company ( BAM ) will issue its Municipal Bond Insurance Policy for the Certificates (the Policy ). The Policy guarantees the scheduled payment of principal and interest with respect to the Certificates when due as set forth in the form of the Policy included as an appendix to this Official Statement. The 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 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 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: 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 Standard and Poor s Ratings Services, a Standard & Poor s Financial Services LLC business ( S&P ). An explanation of the significance of the rating and current reports may be obtained from S&P at The rating of BAM should be evaluated independently. The rating reflects S&P 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 S&P, 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 issuer of the Certificates 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 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 March 31, 2015 and as prepared in accordance with statutory accounting practices prescribed or permitted 10

19 by the New York State Department of Financial Services were $466.5 million, $22.2 million and $444.3 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 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. 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 buildamerica.com/creditinsights/. 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 buildamerica.com/obligor/. 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 issuer of or the underwriter for the Certificates, and the issuer and underwriter assume no 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 The following discussion sets forth some of the events that could affect the payment of Rental Payments. The following discussion of risks is not meant to be an exhaustive list of the risks associated with the purchase of the Certificates and does not necessarily reflect the relative importance of the various risks. Potential investors are advised to consider the following factors along with all other information contained in this 11

20 Official Statement in evaluating the Certificates. There can be no assurances that other risk factors will not become material in the future. Limited Nature of the Obligation to Make Rental Payments The obligation of the District to make 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 Rental Payments constitutes an indebtedness of the District, the State of California, or any of its political subdivisions within the meaning of any constitutional or statutory debt limitation or restriction. Although the Facilities Lease does not create a pledge, lien or encumbrance upon the funds of the District, the District is obligated under the Facilities Lease to make Rental Payments from any source of legally available funds, subject to abatement under certain circumstances (see Abatement of Rental Payments below), and the District has covenanted in the Facilities Lease to take such action as may be necessary to include all Rental Payments in its annual budget and annually to appropriate an amount necessary to make such Rental Payments. Additional General Fund Obligations The District is currently liable on other obligations payable from general revenues. See District Debt Structure. The District has the right and authority to enter into other obligations that constitute additional charges against its general revenues without obtaining the consent of the Owners or the beneficial owners of the Certificates. To the extent that additional obligations are incurred by the District, the funds available to make Rental Payments may be decreased. Abatement of Rental Payments The obligation of the District to make Rental Payments is in consideration for the right to use and occupy the Facilities. All or a portion of the Rental Payments due under the Facilities Lease will be abated during any period in which, by reason of material damage, destruction, condemnation or a title defect, there is substantial interference with the District s use and occupancy of any portion of the Facilities. If the damaged or destroyed portion of the Facilities cannot be replaced during the period of time in which proceeds of the District s rental abatement insurance will be available, plus the period for which other moneys in the funds held by the Trustee (including funds in the Certificate Reserve Fund) suffice to make Rental Payments, or if casualty insurance proceeds or condemnation proceeds are insufficient to provide for complete repair or replacement of the Facilities or redemption of the Certificates, there could be insufficient funds to make payments to Owners in full. Risk of Earthquake and Flood Under the Facilities Lease, the District is not required to maintain earthquake or flood insurance on the Facilities. See Security and Sources of Payment for the Certificates Covenants to Insure. Damage to the Facilities from future earthquakes or floods could result in an abatement of Rental Payments. The rental abatement insurance obtained by the District does not cover abatement of Rental Payments that is due to damage or destruction caused by an earthquake or a flood. 12

21 Limited Recourse on Default; No Acceleration on Default If the District defaults under the Facilities Lease, the Trustee, as assignee of the Corporation, may retain the Facilities Lease and hold the District liable for all Rental Payments on an annual basis and will have the right to re-enter and re-let the Facilities. If the Trustee re-lets the Facilities, the District would be liable for any resulting deficiency in Rental Payments. Alternatively, the Trustee may terminate the Facilities Lease and recover certain damages from the District. Owing to the specialized nature of the Facilities, no assurance can be given that the Trustee will be able to re-let any portion of the Facilities so as to provide rental income sufficient to make payments of principal and interest evidenced by the Certificates in a timely manner. The Trustee is not empowered to sell the Facilities for the benefit of the Owners. Furthermore, owing to the governmental function of the Facilities, 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 school districts in the State of California, including a limitation on the enforcement of judgments against funds needed to serve the public welfare and interest. Moreover, there can be no assurance that such re-letting will not adversely affect the exclusion of the interest evidenced by the Certificates from federal income taxation. Acceleration of future Rental Payments is not a remedy available under the Facilities Lease. The District will only be liable for Rental Payments on an annual basis, and the Trustee would be required to seek a separate judgment each year for that year s defaulted Rental Payments. Loss of Tax Exemption As discussed under the caption Tax Matters, interest evidenced by the Certificates could become includable in gross income for purposes of federal income taxation retroactive to the date of delivery of the Certificates as a result of acts or omissions of the District in violation of its covenants in the Trust Agreement. Should such an event of taxability occur, the Certificates are not subject to special redemption and will remain outstanding until maturity or until redeemed under one of the redemption provisions contained in the Trust Agreement. Bankruptcy and Equitable Limitations In addition to the limitations on remedies contained in the Facilities Lease and the Trust Agreement, the rights and remedies provided in the Facilities Lease and the Trust Agreement may be limited by, and are subject to, the provisions of federal bankruptcy laws, as now or hereinafter enacted, and to other laws or equitable principles that may affect the enforcement of creditors rights. The various legal opinions delivered concurrently with the delivery of the Certificates (including Special Counsel s approving legal opinion) will be qualified as to the enforceability of the Certificates, the Trust Agreement, the Facilities Lease and other related documents by bankruptcy, reorganization, moratorium, insolvency, fraudulent conveyance or other similar laws relating to or affecting the enforcement of creditors rights, to the application of equitable principles, to the exercise of judicial discretion and to the limitation on legal remedies against public agencies in the State. 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 of the Certificates, the Trustee and the Corporation could be prohibited from taking any steps to collect amounts due from the District under the Facilities Lease. 13

22 Revenue Sources to Make Rental Payments The District derives the majority of its revenues from or through the State of California. See District Financial Matters. Decreases in State revenues, or changes in the State s method of funding education, can significantly affect appropriations made by the legislature to school districts and, consequently, the funds available to the District to make Rental Payments. See State Funding of Education. THE CORPORATION The Corporation is a nonprofit public benefit corporation duly organized and existing under the laws of the State of California. The Corporation was formed for the specific purpose of benefiting California public agencies by participating with such agencies in projects to assist the activities of such agencies by acquiring, purchasing, selling, leasing or otherwise transferring real and personal property in connection with such projects, as well as assisting such agencies in financing, acquiring, and constructing such projects. The Corporation is not obligated in any manner whatsoever to make Rental Payments. General Information THE DISTRICT The Rio Elementary School District (the District ), is an elementary school district established in The District covers approximately 15.5 square miles in Ventura County (the County ), including a portion of the City of Oxnard, and unincorporated County territory. The District provides K-8 public education to more than 4,800 students in six elementary and two middle schools. Annual average daily attendance in the District was 4,659 for fiscal year , and is projected to be 4674 for fiscal year , and 4,723 for fiscal year Governing Board The District is governed by a five-member Governing Board, each member of which is elected to a four-year term. Elections for positions to the Board are held every two years, alternating between two and three available positions. Current members of the Board, their offices, and the expiration of their terms of office are shown below. There is currently one vacancy on the Board. RIO ELEMENTARY SCHOOL DISTRICT Governing Board Name Office Term Expires Matt Klinefelter President 2016 Ramon Rodriguez Clerk 2018 Edith Martinez-Cortes Member 2018 Glade Eggett Member 2016 Eleanor Torres Member 2018 Superintendent and Administrative Personnel The Superintendent of the District is appointed by and reports to the Governing Board. The Superintendent is responsible for management of the District s day-to-day operations and supervises the work of other District administrators. 14

23 John D. Puglisi, Ph.D., Superintendent. Dr. Puglisi joined the District in Prior to his appointment as Superintendent, Dr. Puglisi was Superintendent of the Mesa Union School District for eight years and the Warner Unified School District for eighteen months. Dr. Puglisi is now entering his 30th year in public education. He received a Bachelor of Fine Arts degree from West Virginia University, a Masters in Educational Leadership from San Jose State University and a Doctorate from the University of California at Santa Barbara. Kristen Pifko, Assistant Superintendent, Business Services. Ms. Pifko joined the District as Assistant Superintendent of Business Services in Prior to her appointment as Assistant Superintendent, Ms. Pifko was the Director of Accounting for six years in the Las Virgenes Unified School District. Ms. Pifko is now entering her 24th year in the accounting field, having served 17 years in the private sector, earning her California Certified Public Accountant status in 1994, before serving 7 years in school business. She received a Bachelor of Science degree in Business Economics from University of California at Santa Barbara. Ms. Pifko completed the FCMAT Chief Business Official Mentor Program and attained CASBO CBO certification in May Employees The following table sets forth the District s full-time equivalent employees in all categories for fiscal years through , as well as the projection for Fiscal Year In addition, the District employs 242 part-time faculty and staff. These employees, except management and some part-time employees, are represented by the two bargaining units as noted below. RIO ELEMENTARY SCHOOL DISTRICT District Employees Year Certificated Classified Total * * Projected Source: Rio Elementary School District. Employee Relations California law provides that employees of public school districts of the State are to be divided into appropriate bargaining units, which then are to be represented by an exclusive bargaining agent. The Certificated employees have assigned the Rio Teachers Association as their exclusive bargaining agent and are covered by a contract that expires on June 30, The Classified employees have assigned the California School Employees Association ( the CSEA ) as their exclusive bargaining agent and are covered by a contract that expires on June 30,

24 Retirement System The information set forth below regarding the STRS and PERS programs, other than the information provided by the District regarding its annual contributions thereto, has been obtained from publicly available sources which are believed to be reliable but are not guaranteed as to accuracy or completeness, and should not be construed as a representation by either the District or the Underwriter. Qualified employees are covered under multiple-employer defined benefit pension plans maintained by agencies of the State of California. Certificated employees are members of the State Teachers' Retirement System (STRS) and classified employees are members of the Public Employees' Retirement System (PERS). STRS. All full-time certificated employees participate in STRS, a cost-sharing, multiple-employer contributory public employee retirement system. The plan provides retirement and disability benefits and survivor benefits to beneficiaries. Benefit provisions are established by State statutes, as legislatively amended, within the State Teacher s Retirement Law. Both active plan members and the District are required to contribute at a statutorily established rate. PERS. All full-time and some part-time classified employees participate in PERS, an agent multipleemployer contributory public employee retirement system that acts as a common investment and administrative agent for participating public entities within the State of California. The District is part of the School Employer Pool, a cost-sharing pool for school employers within PERS. Active plan members are required to contribute 7.0% (or, for members added after 2012, at least half the normal cost of benefits, which is currently 6.0%) and the District is required to contribute an actuarially determined rate. One actuarial valuation is performed for those employers participating in the pool, and the same contribution rate applies to each participant. District Contributions. The District s retirement contributions for the fiscal year ended June 30, 2014, are as follows: RIO ELEMENTARY SCHOOL DISTRICT Retirement Contributions for Fiscal Year Actual Number of Employees Covered District s Fiscal Year Covered Payroll Employer Contribution as a Percentage of Covered Payroll Total Employer Contributions STRS 223 $1,336,135 $16,207, % PERS ,273 5,183, Source: Rio Elementary School District For the Fiscal Year the District has budgeted $1,498,308 for STRS (reflecting a contribution rate of 8.88% of annual payroll) and $571,070 for PERS (reflecting a contribution rate of % of annual payroll). State Pension Trusts. Each of STRS and PERS issues a separate comprehensive financial report that includes financial statements and required supplemental information. Copies of such financial reports may be obtained from each of STRS and PERS as follows: (i) STRS, P.O. Box 15275, Sacramento, California ; (ii) PERS, P.O. Box , Sacramento, California Moreover, each of STRS and PERS maintains a website, as follows: (i) STRS: (ii) PERS: However, the information presented in such financial reports or on such websites is not incorporated into this Official Statement by any reference. 16

25 Both STRS and PERS have substantial statewide unfunded liabilities. The amount of these unfunded liabilities will vary depending on actuarial assumptions, returns on investments, salary scales and participant contributions. The following table summarizes information regarding the actuarially-determined accrued liability for both STRS and PERS from their most recently released reports. FUNDED STATUS STRS (Defined Benefit Program) and PERS (Schools Plan) (Dollar Amounts in Millions) (1) Plan Accrued Liability Value of Trust Assets Unfunded Liability Public Employees Retirement Fund (PERS) $ 61,487 (2) $ 49,482 (3) $12,005 Schools Plan State Teachers Retirement Fund (STRS) 222,281 (2) 148,614 (4) 73,667 Defined Benefit Program (1) Amounts may not add due to rounding. (2) June 30, 2013 Valuation Date. (3) Reflects market value of assets as of June 30, (4) Reflects actuarial value of assets as of June 30, Source: PERS State & Schools Actuarial Valuation; STRS Defined Benefit Program Actuarial Valuation. Unlike PERS, STRS contribution rates for participant employers, employees and the State are set by statute and do not vary from year-to-year based on actuarial valuations. Moreover, the employee and employer contributions rates prior to Fiscal Year had been long fixed at 8% and 8.25% of salaries. In recent years, the combined employer, employee and State contributions to STRS have been significantly less than actuarially required amounts. As a result, and due in part to investment losses, the unfunded liability of STRS has increased significantly. Legislation adopted in June 2014 requires increased contributions phased in over the next several years. Employee contributions will increase to 8.15% of salary in and increase to 10.25% in and thereafter. District contributions increased to 8.88% of payroll in and will increase to 19.1% in and thereafter. The State's contribution rate increased from 3.454% in and will increase to 6.328% in and thereafter. In April 2013, the PERS Board of Administration adopted a new employer rate-smoothing methodology for local governments and school employer rates. The new methodology uses a five-year direct rate-smoothing period and amortizes gains and losses over a fixed, 30-year period with a five-year ramp-up period at the beginning and a five-year ramp-down at the end of the amortization period. The related PERS staff report states that the new methodology is expected to result in higher volatility in employer contribution rates in normal years but much less volatility in years where extreme events occur. It further states that the methodology will result in an increased likelihood of higher peak employer contribution levels in the future but not significantly increase average contribution levels. The changes will affect employer contribution rates for the schools plans starting in Fiscal Year In February 2014, the PERS Board adopted new assumptions as part of a regular review of demographic trends. Key assumption changes included longer post-retirement life expectancy and earlier retirement ages. The impact of the assumption changes will be phased in over three years, with a 20 year amortization, beginning in The District can provide no assurances that the District s required contributions to PERS will not increase in the future. PERS actuaries have estimated that recently adopted pension reform legislation may produce savings of between $8.6 and $10.8 million over the next 30 years for the schools plans; STRS' actuaries estimate 17

26 savings of about $22.7 million over that same period. The District cannot predict whether any of those projected savings will be realized by the District. Other Post-Employment Healthcare Benefits The District provides post-employment healthcare benefits to all employees who retire from the District on or after attaining age 55 with at least 15 years of service for certificated and management employees hired prior to July 1, 1997, and classified employees hired prior to July 1, Twenty years of service are required for all other employees. Currently, 41 retirees meet those eligibility requirements. The District contributes from 50% to 100% of the amount of premiums incurred by retirees and their dependents depending on employment classification, hire date, and years of service at retirement; the retiree contributes the remainder. Expenditures for postemployment benefits are recognized on a pay-as-you-go basis as premiums are paid. During the fiscal year, expenditures of $576,417 were recognized for retirees health care benefits. In July 2013, the District hired Demsey Filliger and Associates of Encino, California, to conduct an actuarial study. At the time, the District s unfunded liability for the post-employment healthcare plan was $22,741,315. Since that time the District has paid its current-year obligation and made transfers to a Special Reserve Fund in the amount of $0. No additional transfers are budgeted for the school year bringing the total reserve to $2,742,896. For additional information related to the District s post-employment healthcare benefits plan, see Notes 9 and 12 of the audited financial statements attached as Appendix B hereto. In compliance with GASB 45, the District anticipates completion of its follow-up actuarial study in July Insurance As of June 30, 2014, accrued vacation benefits amounted to approximately $261,396. The District is a member of the Ventura County Schools Self-Funding Authority ( VCSSFA ) and the Self-Insured Schools of California ( SISC ) public entity risk pools and the Ventura County Fast Action School Transit Authority ( VCFAST ) joint powers authority ( JPA ). The District pays an annual premium to VCSSFA for its workers compensation and property liability coverage, and to and SISC for its health benefits. Payments for courier services are paid to the VCFAST JPA. The relationships between the District, the pools, and the JPA are such that neither the pools nor the JPA are component units of the District for financial reporting purposes. The District s property damage coverage is in the amount of $10,000,000, subject to a deductible of $5,000. VCSSFA provides general liability insurance in the amount of $350,000 per occurrence, subject to a deductible of $5,000 to $10,000 per occurrence based on the type of claim. Excess liability coverage is provided by a private carrier, United Educators Insurers, in the amount of $5,000,000 per occurrence and Munich Reinsurance, in the amount of $10,000,000 per occurrence. District Financial Statements DISTRICT FINANCIAL INFORMATION The District s Audited Financial Statements with supplemental information for the fiscal year ended June 30, 2014, and the related statements of activities and cash flows for the year then ended, and the report 18

27 dated December 15, 2014 of Vavrinek, Trine, Day & Co., LLP (the Auditor ) are included in this Official Statement as Appendix B. The financial statements should be read in their entirety. The information set forth herein does not purport to be a summary of the District s financial statements. In connection with the inclusion of the financial statements and the report of the Auditor thereon in Appendix A to this Official Statement, the District did not request the Auditor to, and the Auditor has not undertaken to, update its report or to take any action intended or likely to elicit information concerning the accuracy, completeness or fairness of the statements made in this Official Statement, and no opinion is expressed by the Auditor with respect to any event subsequent to the date of its report. Accounting Practices The accounting practices of the District conform to generally accepted accounting principles in accordance with policies and procedures of the California School Accounting Manual. This manual, according to Section of the California Education Code, is to be followed by all California school districts. The financial resources of the District are divided into separate funds for which separate accounts are maintained for recording cash, other resources and all related liabilities, obligations and equities. The major fund classification is the general fund, which accounts for all financial resources not required to be accounted for in another fund. The District s fiscal year begins on July 1 and ends on June 30. All governmental funds are accounted for using the modified accrual basis of accounting. Revenue is recognized in the accounting period in which it becomes measurable and available for the current period; and expenditures are recognized in the period in which the liability is incurred, although debt service expenditures are recorded only when payment is due. For more information on the District s accounting method, see Appendix B Audited Financial Statements of the District for Fiscal Year Ended June 30, 2014, Note 1 Summary of Significant Accounting Policies. District Budget The District is required by provisions of the California Education Code to maintain each year a balanced budget in which the sum of expenditures plus the ending fund balance for each year cannot exceed the revenues plus the carry-over fund balance from the previous year. The California State Department of Education imposes a uniform budgeting format for each school district in the State. The budget is subject to review and approval by the County Superintendent of Schools. The County Superintendent examines the adopted budget for compliance with the standards and criteria adopted by the State Board of Education and identifies technical corrections necessary to bring the budget into compliance, determines if the budget allows the district to meet its current obligations and determines if the budget is consistent with a financial plan that will enable the district to meet its multi-year financial commitments. The County Superintendent will approve or disapprove the adopted budget for each school district. Budgets will be disapproved if they fail the above standards. The District has never had an adopted budget disapproved by the County Superintendent. Pursuant to State law, the District adopted on June 25, 2014, a fiscal line-item budget setting forth revenues and expenditures so that appropriations during Fiscal Year will not exceed the sum of revenues plus beginning fund balance. Interim Reports on Financial and Budgetary Status Every school district is required to file two interim certifications with the county superintendent (the first on December 15 for the period ended October 31 and the second by mid-march for the period ended 19

28 January 31) as to its ability to meet its financial obligations for the remainder of the then-current fiscal year and, based on current forecasts, for the subsequent fiscal year. The County Superintendent reviews the certifications and issues either a positive, negative, or qualified certification. A positive certification is assigned to any school district that will meet its financial obligations for the current fiscal year and subsequent two fiscal years. A negative certification is assigned to any school district that is deemed unable to meet its financial obligations for the remainder of the fiscal year or subsequent fiscal year. A qualified certification is assigned to any school district that may not meet its financial obligations for the current fiscal year or two subsequent fiscal years. A school district that receives a qualified or negative certification may not issue tax and revenue anticipation notes or certificates of participation without approval by the County Superintendent in that fiscal year or in the next succeeding year. 20

29 Comparative Financial Statements The following table shows the District s Statement of General Fund Revenues, Expenditures and Changes in Fund Balance for Fiscal Years through RIO ELEMENTARY SCHOOL DISTRICT Summary of General Fund Revenues, Expenditures and Changes in Fund Balances for Fiscal Years through (Audited), and Fiscal Year (Second Interim Report) Audited Audited Audited Audited Second Interim REVENUES Revenue Limit Sources: $22,006,799 $22,857,930 $23,162, Local Control Funding Formula $29,968,752 $34,923,311 Federal Revenue 3,638,272 2,860,132 2,073,466 2,128,106 2,351,918 Other State Revenue 5,905,462 6,173,345 6,637,393 3,882,554 2,251,574 Other Local Revenue 3,253,092 3,468,524 3,183,232 3,171,707 3,208,100 Total Revenues 34,803,625 35,359,931 35,056,548 39,151,119 42,734,903 EXPENDITURES Instruction 20,512,311 21,633,801 21,638,318 25,200,341 26,016,070 Instruction-Related Activities: Supervision of Instruction 1,085,979 1,129,113 1,083, ,919 1,052,963 Instructional library, media and 319, , , ,115 1,063,625 technology School Site Administration 2,344,823 2,340,068 2,281,099 2,539,292 2,379,278 Pupil Services: Home-to-school transportation 578, , , , ,199 Food services 1, All other pupil services 1,619,412 1,589,492 1,598,922 1,656,711 1,730,012 Administration: Data Processing 424, , , , ,229 All other administration 2,421,463 2,535,957 2,769,186 2,951,052 3,401,491 Plant Services 3,027,820 2,842,028 2,928,835 3,591,725 3,825,852 Facility acquisition and construction 839, ,426 26,942 71, ,140 Ancillary services 43,466 45,894 17,841 20,250 25,979 Community services 1,550 1,124 1,287 2,523 7,234 Other outgo 763,866 1,104,582 1,480,305 1,751,353 1,528,000 Debt Service: Principal 101, ,622 16, , ,949 Interest and other 107,507 52, , , Total Expenditures 34,193,263 34,754,909 35,351,447 40,652,062 42,518,021 Excess (Deficiency) of Revenues 610, ,022 (294,899) (1,500,943) 216,882 Over (under) Expenditures Other Financing Sources (Uses): Contributions Transfers In 60, Other sources capital lease Transfers Out (537,931) (586,105) (587,357) (589,352) (1,556,233) Net Financing Sources (Uses) (477,924) (586,105) (587,357) (589,352) (1,556,233) Net Change in Fund Balances 132,438 18,917 (882,256) (2,090,295) (1,339,351) Fund Balances Beginning 3,648,810 9,335,436 9,354,353 8,472,097 6,381,796 Restatement 5,554, Fund Balances Ending $9,335,436 $9,354,353 $8,472,097 $6,381,796 $5,042,445 Source: District s Audited Financial Statements for Fiscal Years through ; District s Second Interim Report dated March 18, 2015, for Fiscal Year

30 Cap on School District Reserves State regulations require school districts to budget a reserve for economic uncertainties. The recommended minimum amounts vary from 1% to 5% of total expenditures and other financing uses, depending on the district's ADA. SB 858, adopted in June 2014, modifies current law as it relates to ending fund balances for school districts. First, beginning in , a school district that proposes to adopt or revise a budget that includes an ending fund balance that is two to three times higher than the state s minimum recommended reserve for economic uncertainties must substantiate the need for the higher balance. Second, in a year immediately following a deposit into the Public School System Stabilization Account established in the State General Fund (see State Funding of Education Propositions 98 and 111 Minimum Funding Guarantee, below), a school district s adopted or revised budget may not contain an ending fund balance higher than two to three times higher than the state s minimum recommended reserve for economic uncertainties. A county superintendent could waive the prohibition, pursuant to specified conditions, for up to two consecutive years within a three-year period. If the cap is triggered, unless exempted, a school district would be required to increase expenditures in order to bring its ending fund balance down to the maximum level. The Public School System Stabilization Account appears to be intended to provide a substitute for local reserves in the event of a future economic downturn. However, there is no linkage between the sizes of the State and local reserves. The District is unable to predict what the effect on its budget will be following implementation of these new rules. Sources of Funding for Operations Funding for the District s operations is provided by a mix of (1) local property taxes, (2) State apportionments of general purpose and restricted purpose funds; (3) federal government grants; (4) development impact fees; (5) lottery funds, and (6) miscellaneous other revenues. Property Taxes. Under current law, local agencies are not permitted to levy directly any property tax (except ad valorem taxes to pay debt service on voter-approved bonds and voter-approved non-ad-valorem taxes for limited purposes). Instead, general purpose ad valorem property taxes are automatically levied by each county at the maximum 1% property tax rate permitted by Proposition 13, and property tax revenue is distributed by the county among all the local government taxing agencies (including school districts) within the county according to a statutory formula. See District Financial Information Property Taxes, below. State Funding. General Purpose Revenue. Beginning in Fiscal Year , the bulk of apportionments of State funding to school districts for general purposes will be allocated pursuant to a new system referred to as the local control funding formula ( LCFF ). Apportionment to school districts will be made on the basis of uniform, target base rates per unit of ADA for each of four grade spans, subject to several adjustments, as described below. The annual State general purpose apportionment received by a school district will amount to the difference between such district s total general purpose allocation and its share of the general purpose local property tax distributed to it by the county. The LCFF replaces a funding system that allocated State general purpose funds based on schooldistrict-specific (i.e., non-uniform) revenue limits per unit of ADA and allocated special purpose funds for specified programs, referred to as categorical programs. Under the LCFF, most, but not all, categorical program funding is eliminated. For Fiscal Year , the base rates per unit of ADA for each grade span are as follows: (i) $7,012 for grades K-3; (ii) $7,117 for grades 4-6; (iii) $7,328 for grades 7-8; and (iv) $8,491 for grades The base rates for grades K-3 and 9-12 are increased by 10.4% and 2.6%, respectively, to cover the costs of class size reduction in the early grades and to support college and career readiness programs in high schools. 22

31 (Under full implementation of the LCFF, as a condition of receiving the K-3 base-rate adjustment, districts must maintain a K-3 school-site average class size of 24 or fewer students, unless collectively bargained otherwise.) These target base rates are to be updated each year for cost-of-living adjustments (COLAs). The LCFF provides additional funds to school districts based on the three-year rolling average of enrollment of students of limited English proficiency, students from low income families that are eligible for free or reduced priced meals, and foster youth. Students who are in more than one category are counted only once. Under the formula, each qualifying student generates an additional 20% of the student s adjusted grade-span base rate. School districts whose qualifying student populations exceed 55% of their total enrollment will receive additional concentration funding equal to 50% of the applicable adjusted base rate multiplied by the percentage of such district s qualifying student enrollment above the 55% threshold. Funds for two existing categorical programs the Targeted Instructional Improvement Block Grant and the Home-to-School Transportation program are treated as add-ons to the LCFF. Districts that received funding from these programs in will continue to receive that same amount of funding in addition to what the LCFF provides each year. Had general purpose allocations under the revenue limit system been fully funded and categorical program funding been restored, the previous funding system would have generated greater levels of funding than the LCFF for approximately 230 school districts (about 20% of districts). To address this issue, the new funding system provides the Economic Recovery Target (ERT) add-on to a subset of these districts. The ERT add-on amount equals the difference between the amount a district would have received under the old system and the amount a district would receive based on the LCFF in Approximately 130 districts are eligible to receive the ERT add-on. The 100 remaining districts are not eligible for the add-on because of their exceptionally high per-pupil funding rates. Specifically, a provision disallows a district from receiving an ERT add-on if its funding exceeds the 90th percentile of per-pupil funding rates under the old system (estimated to be approximately $14,500 per pupil in ). The District does not qualify for the ERT add-on. The LCFF will be implemented over a span of eight fiscal years. School districts will receive annual funding increases based on the difference between their respective prior-year funding level and the target LCFF allocation following full implementation. In each year, every school district will see the same proportion of its gap closed. The following table shows the District s enrollment and ADA for each year from through and projected numbers for and and its Base Revenue Limit per unit of ADA for each year from through (Base Revenue Limits are not calculated for years in which the LCFF is in effect, and following.) There are no charter entities within the District boundaries. 23

32 (1) (2) RIO ELEMENTARY SCHOOL DISTRICT Enrollment, Average Daily Attendance, and Base Revenue Limit per ADA Fiscal Years to Fiscal Year Enrollment Average Daily Attendance Base Revenue Limit Per ADA Funded Base Revenue Limit Per ADA (1) $6, $5, , , , , , (2) , (2) , In years where the State Legislature failed to appropriate sufficient funds to fully fund school district general purpose allocations, the State budget reduced the revenue limit allocations by applying a deficit factor to the base revenue limit for that fiscal year. Projected Source: Rio Elementary School District The following table shows a breakdown of the District s Fiscal Years and ADA by grade span, total enrollment, and the percentage of students classified as English learners, low-income, or foster youth ( EL/LI ). RIO ELEMENTARY SCHOOL DISTRICT ADA by Grade Span, Total Enrollment, and EL/LI Enrollment Fiscal Years and Average Daily Attendance (1) (By Grade Span) Total District % EL/LI (2) Fiscal Year K Total District Enrollment Enrollment (3) (1) ADA is determined as of the second principal reporting period (P-2 ADA), ending on or before the last attendance month prior to April 15 of each school year. (2) For Fiscal Year , this percentage is calculated on the basis of enrollment for that year. The percentage calculated for Fiscal Year is based on the average of and enrollment. Thereafter, the percentage will be calculated on the basis of the average of the current fiscal year and the prior two fiscal years. (3) Projected. Source: Rio Elementary School District Restricted Purpose Revenue. Other State revenues allocated to school districts are restricted by the Legislature to particular uses (categorical programs). The LCFF eliminates approximately three-quarters of categorical programs. Under the new system, 14 categorical programs remain, including special education, after-school safety and education programs, nutrition, and State preschool. 24

33 Property Taxation Basis of Property Taxation. All property (real, personal, and intangible) is taxable unless an exemption is granted by the California Constitution or United States law. State law provides exemptions from ad valorem property taxation for real property owned by local governments, churches, colleges, non-profit hospitals, and charitable institutions, among others. State law also exempts $7,000 of the assessed valuation of an owner-occupied principal residence. This exemption does not result in any loss of revenue to local agencies because an amount equivalent to the taxes that would have been payable on such exempt values is paid by the State to local agencies. Property is assessed for tax purposes using full cash value, which is as defined by Article XIIIA of the State Constitution as the county assessor's valuation of the property as of March 1, 1975, and thereafter the appraised value of real property when purchased, newly constructed, or a change of ownership has occurred. Assessed value is also adjusted by not to exceed 2% per year to reflect inflation. Accordingly, the assessed valuation presented in this Official Statement may not be representative of the market value of certain property. Under California law, an owner of property may apply for a reduction in the assessed value of the property if the market value of the property has declined, including because of current market conditions (such as general declines in residential home prices), below its current assessed value. These market-driven appeals are known as Proposition 8 appeals. Any reduction in the assessment ultimately granted as a Proposition 8 appeal applies to the year for which application is made and during which the written application was filed. The assessed value increases to its pre-reduction level (escalated to the inflation rate of no more than two percent) following the year for which the reduction application is filed. However, the County Assessor has the power to grant a reduction not only for the year for which application was originally made, but also for the then current year and any intervening years as well. In practice, such a reduced assessment may and often does remain in effect beyond the year in which it is granted. For purposes of allocating each local agency's share of the County s 1% base property tax levy, future assessed valuation growth allowed under Article XIIIA (new construction, certain changes of ownership, up to 2% inflation) will be allocated on the basis of situs among the jurisdictions that serve the tax rate area within which the growth occurs. School districts and other local agencies 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. Assessment of Utility Property. The State Board of Equalization, rather than the County, assesses the property of regulated public utilities. The value of such property located in the County is then allocated by formula to local jurisdictions. Property assessed by the State Board of Equalization is commonly identified for purposes of presentation of taxation data as utility property. There is no utility property within the District in Fiscal Year Assessed Valuation of Property within the District. For assessment and collection purposes, property is classified either as secured or unsecured and is listed accordingly on separate parts of the assessment roll. The secured roll is the part of the assessment roll that contains property assessed by the County for which there is a lien on real property sufficient, in the opinion of the County Assessor, to secure payment of the taxes. The secured roll also contains utility property that is assessed by the State Board of Equalization (as described above). Other property is assessed on the unsecured roll. 25

34 Property within the District had a total assessed valuation for fiscal year of $4,854,024,434. Shown in the following table are the assessed valuations for the District since fiscal year RIO ELEMENTARY SCHOOL DISTRICT Assessed Valuation Fiscal Year through Fiscal Year Fiscal Year Local Secured Utility Unsecured Total $3,985,433,237 $154,876 $198,231,129 $4,183,819, ,969,910, , ,409,955 4,187,470, ,186,716, , ,072,831 4,383,939, ,232,789, , ,774,415 4,456,713, ,635,404, , ,470,557 4,854,024,434 Source: California Municipal Statistics, Inc. Property Tax Levy and Collection Taxes are levied for each fiscal year on taxable real and personal property located in the County as of the preceding January 1. Real property that changes ownership or is newly constructed is revalued at the time the change in ownership occurs or the new construction is completed and a supplemental tax bill is issued for that property. When a supplemental tax bill is issued, the current year property tax rate will be applied to the reassessment, and the taxes will then be adjusted by a proration factor to reflect the portion of the remaining tax year for which taxes are due. Property taxes on the secured roll are due in installments, on November 1 and February 1 of each fiscal year, and if unpaid become delinquent on December 10 and April 10, respectively. A penalty of 10% attaches immediately to all delinquent payments. Property on the secured roll with respect to which taxes are delinquent becomes tax defaulted on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of a penalty of 1.5% per month from the time of becoming tax delinquent to the time of redemption, plus costs and a redemption fee. If taxes are unpaid for a period of five years or more, the property is subject to sale by the Treasurer. Property taxes on the unsecured roll are due on January 1 and if unpaid become delinquent on August 31. A penalty of 10% attaches immediately to delinquent unsecured taxes. If unsecured taxes are unpaid at 5 p.m. on October 31, an additional penalty of 1.5% attaches to them on the first day of each month until paid. The County has four ways of collecting delinquent unsecured personal property taxes: (1) bringing a civil action against the taxpayer; (2) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a lien on certain property of the taxpayer; (3) 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 (4) seizing and selling personal property improvements or possessor s interests belonging or assessed to the delinquent taxpayer. Alternative Method of Tax Apportionment - Teeter Plan. The County has adopted the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the Teeter Plan ), as provided for in Section 4701 and following of the California Revenue and Taxation Code. Under the Teeter Plan, each participating local agency levying property taxes, including school districts, is credited the amount of uncollected taxes in the same manner as if the amount credited had been collected. In return, the County receives and retains delinquent payments, penalties and interest as collected, that otherwise would have been due the local agency. 26

35 The Teeter Plan is to remain in effect unless the Board of Supervisors of the County orders its discontinuance or unless, prior to the commencement of the County s fiscal year, the Board of Supervisors receives a petition for its discontinuance from two-thirds of the participating revenue districts in the County. The District is not aware of any plans by the County to discontinue the Teeter Plan. The Board of Supervisors may, after holding a public hearing on the matter, discontinue the procedures with respect to any tax levying agency or assessment levying agency in the County if the rate of secured tax delinquency in that agency in any year exceeds 3% of the total of all taxes and assessments levied on the secured rolls in that agency. Secured Tax Charges and Delinquencies. The following table shows the secured tax charges and delinquencies for the District for fiscal years through RIO ELEMENTARY SCHOOL DISTRICT Secured Tax Charges and Delinquencies Fiscal Years through Secured Tax Charge (1) Amount Delinquent June 30 % Delinquent June $1,149, $66, % ,225, , ,198, , ,142, , ,264, , (1) District s general bond debt service levy. Source: California Municipal Statistics, Inc. Tax Rates. The table below shows the tax rates on the secured roll during the past four fiscal years and current fiscal year for Tax Rate Area No , which is entirely within the District. RIO ELEMENTARY SCHOOL DISTRICT Typical Tax Rates per $100 of Assessed Valuation (TRA 3-335) Assessed Valuation: $573,442,830 (1) General Rio School District Oxnard High School District Ventura Community College District Metropolitan Water District City of Oxnard Total (1) 11.81% of District s assessed valuation. Source: California Municipal Statistics, Inc. Largest Property Owners. The more property (by assessed value) owned by a single taxpayer, the more tax collections are exposed to weakness in the taxpayer s financial situation, and their ability or willingness to pay property taxes. In , no single taxpayer owned more than 7.14% of the total taxable property in the District. Each taxpayer listed is a unique name on the tax rolls. The District cannot determine from assessment records whether individual persons, corporations or other organizations are liable for tax payments with 27

36 respect to multiple properties held in various names that in aggregate may be larger than is suggested by the table. The following table shows the 20 largest owners of taxable property in the District as determined by secured assessed valuation in fiscal year RIO ELEMENTARY SCHOOL DISTRICT Largest Local Secured Taxpayers Fiscal Year Property Owner Primary Land Use Assessed Valuation % of Total (1) 1. Proctor Gamble Paper Products Industrial $ 330,755, % 2. SOCM I LLC Shopping Center 141,719, Essex Arbors LP Apartments 96,008, Essex Tierra Vista LP Apartments 87,303, Capri/KW Serenade LLC Apartments 85,367, Duesenberg Investment Co. Office Building 68,767, Sunbelt Enterprises LLC Office Building 68,539, McGaelic Group Industrial 66,256, Centro Watt Prop Owner LLC Shopping Center 60,386, Peak/Vaca LLC Oil & Gas 54,508, Artisan Garden Apt LLC Apartments 50,395, Oxnard Dev Site I LLC Residential Land 42,646, MSWP the Palms LLC Shopping Center 33,624, Dignity Health Medical Offices 31,730,539 (2) PDN Retail Center LP, Lessor Shopping Center 31,483, Rancho Solana Apartments LLC Apartments 27,700, Wallace Properties Inc. Commercial 26,832, Corona Riverpark Promenade LLC Residential Development 23,846, Upside Oxnard Parcel 1, Lessor Commercial 23,566, HD Dev of Maryland Inc. Commercial 22,713, $1,374,151, % (1) (2) Local Secured Assessed Valuation: $4,635,404,001. Net taxable value. Source: California Municipal Statistics, Inc. 28

37 Assessed Valuation and Parcels by Land Use. The following table displays the distribution of assessed value by land use of property within the District. RIO ELEMENTARY SCHOOL DISTRICT Secured Roll Assessed Valuation and Parcels by Land Use Fiscal Year Non-Residential: Assessed Valuation (1) % of Total No. of Parcels % of Total Agricultural/Rural $177,365, % % Commercial/Office 986,660, Vacant Commercial 71,463, Industrial 788,736, Vacant Industrial 9,790, Recreational 23,694, Government/Social/Institutional 79,716, Miscellaneous 27,438, Subtotal Non-Residential $2,164,865, % % Residential: Single-Family Residence $1,236,506, % 4, % Condominium 577,953, , Mobile Home 11,223, Mobile Home Park 26,578, Hotel/Motel 60,460, Residential Units 44,871, Residential Units/Apartments 424,716, Vacant Residential 88,229, Subtotal Residential $2,470,538, % 7, % (1) Total $4,635,404, % 8, % Local Secured Assessed Valuation, excluding tax-exempt property. Source: California Municipal Statistics, Inc. Federal Sources The federal government provides funding for several District programs, including special education programs, programs under the Educational Consolidation and Improvement Act, and specialized programs such as Drug Free Schools. Revenues received from the federal government are restricted in their use, and are not available to pay debt service. Other State Sources In addition to State apportionments determined in accordance with the LCFF, the District receives substantial other State revenues ( Other State Sources ). These Other State Sources are primarily restricted revenues that fund items such as the Special Education Master Plan, home-to-school transportation, and 29

38 instructional materials. Also included are funds received from the State lottery. The LCFF eliminated most categorical programs and correspondingly increased general purpose funding. Other State Sources were 32.5% of General Fund revenues in Fiscal Year , were 16.5% (unaudited) of General Fund revenues in Fiscal Year , and are budgeted to be 13.7% of General Fund revenues in Fiscal Year Other Local Sources In addition to general purpose property taxes, the District receives additional local revenues from items such as the property tax levied to pay debt service on its general obligation bonds, a special parcel tax, developer fees, and interest earnings. The general obligation bond taxes are not available to pay debt service on the Certificates. The other major component of these other local revenues, the special parcel taxes, are also limited to purposes other than debt service, although they effectively augment the general fund. The parcel tax is expected to produce approximately $825,000 per year. The validity of the parcel tax has been challenged based on its different rates of tax for residential and non-residential property. A similar tax was invalidated by an appellate court in northern California. The litigation is pending. Local Economy For general background information on the economy of Ventura County, which may have effects on several of the District s revenue sources, see Appendix E County Economic Profile. Long-Term Borrowing DISTRICT DEBT STRUCTURE A schedule of changes in long-term debt payable from the District s general fund for the year ended June 30, 2014 is shown below: Balance at July 1, 2013 Increase Decrease Balance at June 30, 2014 General Obligation Bonds $14,675, $635,000 $14,040,000 General Obligation Bonds premium on issuance 552, , ,298 Certificates of Participation 7,420, ,000 7,145,000 Certificates of Participation premium on issuance 41, ,204 39,667 Lease Purchase Agreement 3,295, ,046 2,955,173 Capital Leases 14,501 $34,064 19,686 28,879 Accumulated vacation 213,096 48, ,396 Supplemental retirement payments 102,000 4, ,000 Legal settlement 93, ,631 78,156 Litigation 9,293,417 1,706, ,000,000 Other Post-Employment Benefits 3,100,433 1,778, ,417 4,302,068 Total $38,802,140 $3,570,999 $1,896,502 $40,476,637 Source: Rio Elementary School District, Annual Financial Report, June 30,

39 General Obligation Bonds On May 2, 2007, the District issued its 2007 General Obligation Refunding Bonds in the amount of $16,396,187, to refund portions of the 1997 General Obligation Bonds, Series A, B, and C. The District s outstanding general obligation debt as of June 30, 2014, is as follows: RIO ELEMENTARY SCHOOL DISTRICT General Obligation Bonds Outstanding Outstanding Issue Date Maturity Date Interest Rate Original Issue July 1, 2013 Redeemed June 30, 2014 May 2, 2007 August 1, % $16,396,187 $14,675,000 $635,000 $14,040,000 Source: Rio Elementary School District, Annual Financial Report, June 30, 2014 Lease Agreement The District has entered into a lease agreement for the purchase of its District office. The lease is divided into two parts. The tax-exempt part is for the portion of the building that the District occupies. The initial balance on the lease was $3,975,193, bearing interest at the rate of 4.35%. The second part is for the portion of the building that the District leases out. The initial balance on this lease was $2,025,000, bearing interest at the rate of 6.64%. Both parts of the lease are scheduled to be paid in full by October 1, The remaining balance at June 30, 2014, is $2,955,173. Direct and Overlapping Debt Set forth below is a statement of direct and overlapping bonded debt (the Debt Report ) prepared by California Municipal Statistics, Inc. and dated December 1, 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. The Debt Report generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the District in whole or in part. Such long-term obligations generally are not payable from revenues of the District (except as indicated) nor are they necessarily obligations secured by land within the District. In many cases, long-term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency. Selfsupporting revenue bonds, tax allocation bonds and non-bonded capital lease obligations are excluded from the Debt Report. 31

40 Assessed Valuation: $4,854,024,434 RIO ELEMENTARY SCHOOL DISTRICT Statement of Direct and Overlapping Bonded Debt Dated as of December 1, 2014 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 12/1/2014 Metropolitan Water District 0.181% $ 239,418 Ventura Community College District ,516,845 Oxnard Union High School District ,085,039 Rio School District ,360,000 Rio School District Community Facilities District No ,710,000 City of Oxnard Community Facilities Districts ,405,000 City of Oxnard 1915 Act Bonds (Estimate) ,999,762 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $119,316,064 (1) DIRECT AND OVERLAPPING GENERAL FUND DEBT: Ventura County General Fund Obligations 4.253% $16,394,252 Ventura County Superintendent of Schools Certificates of Participation ,111 Oxnard Union High School District Certificates of Participation ,025 Rio School District Certificates of Participation ,145,000 City of Oxnard General Fund Obligations ,234,959 Other City General Fund Obligations various 23,990 Pleasant Valley County Water District Certificates of Participation ,008 TOTAL DIRECT AND OVERLAPPING GENERAL FUND DEBT $44,116,345 OVERLAPPING TAX INCREMENT DEBT (Successor Agency) $9,967,868 COMBINED TOTAL DEBT: $173,400,277 (2) (1) Excludes general obligation bonds to be sold. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations Ratios to Assessed Valuation: Direct Debt ($13,360,000) % Total Direct and Overlapping Tax and Assessment Debt % Combined Direct Debt ($20,505,000) % Combined Total Debt % Ratio to Redevelopment Incremental Valuation ($761,835,265) Total Overlapping Tax Increment Debt % Source: California Municipal Statistics, Inc. 32

41 CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Article XIIIA of the California Constitution Basic Property Tax Levy. Article XIIIA of the State Constitution limits the amount of any ad valorem tax on real property to 1% of the full cash value thereof, except that additional ad valorem taxes may be levied to pay debt service on (i) indebtedness approved by the voters prior to July 1, 1978, (ii) bonded indebtedness for the acquisition or improvement of real property that has been approved by two-thirds of the votes cast on such indebtedness, and (iii) bonded indebtedness incurred by a school district or community college district for the construction, reconstruction, rehabilitation or replacement of school facilities, the furnishing and equipping of school facilities, or the acquisition or lease of real property for school facilities, approved by 55% of the votes cast on such indebtedness. Article XIIIA defines full cash value as the county assessor s valuation of real property as shown on the 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. This full cash value may be increased at a rate not to exceed 2% per year to account for inflation. Article XIIIA permits reduction of the full cash value base in the event of a decline in property value caused by damage, destruction, or other factors. The full cash value base is not increased upon reconstruction of property damaged or destroyed in a disaster, if the fair market value of the property as reconstructed is comparable to its fair market value before the disaster. If the full cash value has been reduced owing to a decline in market value, the full cash value is restored to the full cash value base as quickly as the market price increases (without regard to the 2% limit on increases that otherwise applies). Both the United States Supreme Court and the California State Supreme Court have upheld the general validity of Article XIIIA. Legislation Implementing Article XIIIA. Under current law, local agencies are no longer permitted to levy directly any property tax (except to pay voter-approved indebtedness). The 1% property tax is automatically levied by the County and distributed according to a formula among taxing agencies. The formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership, or from annual adjustments are allocated among the various jurisdictions in the taxing area based upon their respective situs. Any such allocation made to a local agency continues as part of its allocation in future years. Article XIIIB of the California Constitution Under Article XIIIB of the California Constitution, state and local governmental entities have an annual appropriations limit and are not permitted to spend certain monies that are called appropriations subject to limitation (consisting of tax revenues, state subventions and certain other funds) in an amount higher than the appropriations limit. Article XIIIB does not affect the appropriation of moneys that are excluded from the definition of appropriations subject to limitation, such as appropriations for voterapproved debt service, appropriations required to comply with certain mandates of the courts or the federal government, and appropriations for qualified capital outlay projects (as defined by the Legislature). The appropriations limit for each agency in each year is based on the agency s limit for the prior year, adjusted annually for changes in the cost of living and changes in population, and adjusted where applicable for transfer to or from another governmental entity of financial responsibility for providing services. With 33

42 respect to school districts, change in cost of living is defined as the change in percentage change in California per capita income from the preceding year and change in population means the percentage change in average daily attendance for the preceding year. The appropriations limit is tested over consecutive two-year periods. Any excess of the aggregate proceeds of taxes received by an agency over such two-year period above the combined appropriations limit for those two years is to be returned to taxpayers by reductions in tax rates or fee schedules over the subsequent two years. Under current statutory law, a school district that receives any proceeds of taxes in excess of the allowable limit need only notify the State Director of Finance and the District s appropriations limit is increased and the State s limit is correspondingly decreased by the amount of the excess. Articles XIIIC and XIIID Articles XIIIC and XIIID of the California Constitution, adopted by Proposition 218 in November 1996, impose certain vote requirements and other limitations on the imposition of new or increased taxes, assessments and property-related fees and charges. The District does not impose any such taxes, assessments, fees or charges; and, with the exception of the basic one percent ad valorem property tax levied and collected by the County under Article XIIIA of the California Constitution, a portion of which is allocated to the District, no such taxes, assessments, fees or charges are imposed on behalf of the District. Accordingly, while the provisions of Proposition 218 may have an indirect effect on the District, such as by limiting or reducing the revenues otherwise available to other local governments whose boundaries encompass property located within the District (thereby causing such local governments to reduce service levels and possibly adversely affecting the value of property within the District), the District does not believe that Proposition 218 will directly impact the revenues available to pay debt service on the Certificates. Future Initiatives Articles XIIIA, XIIIB, XIIIC, and XIIID were each adopted as measures that qualified for the ballot pursuant to California s initiative process. From time to time, other initiative measures could be adopted that would affect the amount of revenues available to the District or its ability to expend such revenues. STATE FUNDING OF EDUCATION As noted above, California school districts receive a significant portion of their general purpose funding from State appropriations. Variations in the level of State funding of school districts may affect this secondary source of security for payment of the Certificates. Propositions 98 and Minimum Funding Guarantee Proposition 98, a constitutional and statutory amendment adopted by California voters in 1988 and amended by Proposition 111 in 1990, guarantees a minimum level of funding for public education from kindergarten through community college (K-14). Proposition 98 guarantees a level of funding based on the greater of two amounts determined under three different methods of calculation. The first amount is based on a percentage of General Fund revenues. This amount is defined under Test 1 as the amount produced by applying the same percentage of General Fund revenues appropriated to K-14 education in , or about 40%. (This percentage has been adjusted to approximately 39% to account for subsequent redirection of local property taxes, since such property tax shifts affect the share of districts revenue limits that are to be provided by State General Fund revenues.) The second amount is determined under one of two methods, Test 2 or Test 3, the choice of which is determined based on the relative growth of per capita income and General Fund revenues. 34

43 In years of high or normal growth of General Fund revenues, Test 2 applies. Test 2 is designed to maintain prior-year service levels. The amount determined under Test 2 is the amount required to ensure that K-14 schools receive from State funds and local tax revenues the same amount received in the prior year, adjusted for changes in enrollment and for increases in per capita personal income. Test 3 is operative in years in which General Fund revenue growth per capita is more than 0.5% below growth in per capita personal income. The amount determined under Test 3 is the prior-year total level of funding from state and local sources, adjusted for enrollment growth and for growth in General Fund revenues per capita, plus 0.5% of the prior year level. If Test 3 is used in any year, the difference between the amount determined under Test 3 and Test 2 will become a credit (called the maintenance factor ) to be paid to K-14 schools in future years when State General Fund growth exceeds personal income growth. The State s estimate of the total guaranteed amount varies through the stages of the annual budgeting process, from the Governor s initial budget proposal to actual expenditures to post-year-end revisions, as various factors change. The guaranteed amount will increase as enrollment and per capita personal income grow. If, at year-end, the guaranteed amount is calculated to be higher than the amount actually appropriated in that year, the difference becomes an additional education funding obligation, referred to as settle-up. If the amount appropriated is higher than the guaranteed amount in any year, that higher funding level permanently increases the base guaranteed amount in future years. The Proposition 98 guaranteed amount may be suspended for one year at a time by enactment of an urgency statute. In subsequent years in which State General Fund revenues are growing faster than personal income (or sooner, as the Legislature may determine), the funding level must be restored to the guaranteed amount. In the last two decades, the State s response to fiscal difficulties has had a significant impact on Proposition 98 funding and settle-up treatment. In , , , and the State required counties, cities, and special districts to shift property tax revenues to school districts, thereby relieving the State General Fund of some of the burden of the Proposition 98 guarantee. Proposition 1A, adopted by the voters in November 2004, prohibits the State from shifting property taxes from other local governments to school or community college districts without a two-thirds vote of both houses of the State Legislature. Proposition 22, approved by the voters in November 2010, eliminated the State s authority to shift property taxes temporarily during a severe financial hardship of the State that had been permitted by Proposition 1A. Legislation enacted in June 2011 (and upheld by the California Supreme Court in December 2011) dissolved every redevelopment agency in the State effective February 1, 2012, which may make more property tax revenues available to school districts. The State has also sought to avoid or delay paying settle-up amounts when State revenues have lagged. The State has also sought to avoid increases in the base guaranteed amount through several devices: by treating any excess appropriations as advances (or loans) against subsequent years Proposition 98 minimum funding levels rather than current year increases; by temporarily or permanently deferring year-end apportionments of Proposition 98 funds from one fiscal year to the next to reduce the ending Fiscal Year s base; by suspending Proposition 98, as the State did in ; and by proposing to amend the Constitution s definition of the guaranteed amount and settle-up requirement under certain circumstances. The California Teachers Association, the State Superintendent and others sued the State or the Governor in 1995, 2005, 2009, and 2011 to force them to fund the full settle-up amounts. In January 2015, the Department of Finance estimated settle-up obligations to total about $1.5 billion. While legislation adopted to implement the settlements of these suits requires the State to pay down the obligation in annual installments, the repayments have also become part of annual budget negotiations, resulting in repeated adjustments and deferrals of the settle-up amounts. Proposition 2, approved at the November 4, 2014, statewide election, among other things, revises the operation of Proposition 98 in some years. The measure creates a new State budget stabilization fund known 35

44 as the Public School System Stabilization Account. In years where capital gains tax revenues exceed 8% of total General Fund revenues, if a number of conditions are satisfied (including that Test 1 is operative, all maintenance factor obligations have been satisfied, and the Proposition 98 funding level is higher than the previous year), that part of the excess capital gains tax revenues accruing to the Proposition 98 guarantee, instead of being appropriated, would be deposited in the Public School System Stabilization Account, provided that the amount spent on schools and community colleges grows along with the number of students and the cost of living. The State would spend money out of the reserve in order to maintain spending on schools and community colleges in budgetary years in which such spending would otherwise decline from the prior year's level (adjusted for student population and cost of living). Proposition 2 thus changes when the State would otherwise be required to spend money on schools and community colleges but not the total amount of State spending for schools and community colleges over the long run. State Budget Process The State Constitution requires the Governor to propose a budget to the State Legislature no later than January 10 of each year and requires the Legislature to adopt a final budget no later than June 15. The latter deadline was frequently missed when passage of the budget required a 2/3 majority of each house of the Legislature. The State s voters approved an amendment to the State Constitution in November 2010 that lowered the vote requirement to a simple majority of each house of the State Legislature. The lower vote requirement also applies to the budget trailer bills that specifically appropriate funds. The budget becomes law upon the signature of the Governor, who may veto specific items of expenditure. A two thirds vote of each house of the State Legislature is still required to override any veto by the Governor. School district budgets must be adopted by the district s governing board by July 1 and then revised within 45 days after the Governor signs the budget act to reflect any changes in budgeted revenues and expenditures made necessary by the adopted State budget. Possible Delays in Apportionments. If the State budget is not adopted on time, basic appropriations and the categorical funding portion of each school district s State funding may be treated differently. In 2002, a California Court of Appeal held in White v. Davis (also referred to as Jarvis v. Connell) that the State Controller cannot disburse State funds after the beginning of the fiscal year until the adoption of the budget bill or an emergency appropriation, unless the expenditure is (i) authorized by a continuing appropriation found in statute, (ii) mandated by the State constitution, such as appropriations for salaries of elected State officers, or (iii) required by federal law, such as payments to State workers (but at no more than minimum wage). The court specifically held that pre-budget disbursements of Proposition 98 funding for school districts are invalid. In 2003, the California Supreme Court upheld the decision of the Court of Appeal. During the State budget impasse, the State Controller nonetheless treated revenue limit (i.e., general purpose) apportionments to school districts as continuous legislative appropriations under statute. The State Controller did not disburse certain categorical and other funds to school districts until the Budget Act was enacted. Additional Delays in Apportionments. During the Great Recession, the Legislature authorized intrayear and inter-year deferrals of certain payments otherwise payable at earlier dates in the fiscal year to K-12 schools. The use of this cash-flow management device by the Legislature required some school districts to increase the size or frequency of their tax and revenue note borrowings. Fiscal Year Budget The Governor approved the Budget Act on June 20, The State Budget projects $109.4 billion in general fund revenues and adopts a $108 billion spending plan. The Budget includes total funding of $76.6 billion ($45.3 billion General Fund and $31.3 billion other funds) for all K-12 Education programs. The Budget includes Proposition 98 funding of $60.9 billion for , an increase of 36

45 $5.6 billion over the 2013 Budget Act level. The Budget includes, among others, these significant provisions relating to K-12 funding: Local Control Funding Formula: An increase of $4.75 billion Proposition 98 General Fund to continue the transition to the LCFF. The increase is projected to close the remaining funding implementation gap between fiscal year funding levels and the LCFF target funding levels by more than 29%. K-12 Deferrals: The Budget repays nearly $4.7 billion in Proposition 98 General Fund funding for K-12 expenses that had been deferred from one year to the next during the Great Recession, leaving an outstanding balance of less than $900 million in K-12 deferrals at the end of fiscal year The Budget also includes a trigger mechanism that will appropriate any additional funding resources attributable to the fiscal years and subsequent to the enactment of the Budget to retire the remaining deferral balance. K-12 Mandates: An increase of $400.5 million in one-time Proposition 98 General Fund funding to reimburse K-12 local educational agencies for the costs of state-mandated programs. K-12 High Speed Internet Access: An increase of $26.7 million in one-time Proposition 98 General Fund funding for the K-12 High Speed Network to provide technical assistance and grants to local educational agencies to address the technology requirements necessary for Common Core implementation. These funds will be targeted to those local educational agencies most in need of help with securing required internet connectivity and infrastructure to implement the new computer adaptive tests under Common Core. Career Technical Education Pathways Program: An increase of $250 million in one-time Proposition 98 General Fund funding to support competitive grants for participating K-14 local educational agencies to improve career technical programs and linkages between employers, schools, and community colleges. Proposed Fiscal Year Budget On January 9, 2015, the Governor released his proposed State budget for fiscal year (the Proposed Budget ). The administration s revised estimates for the and budgets, combined, include a decrease in the starting balance for of $165 million, an increase of $3 billion in revenues, and an increase in net spending of $2.9 billion from the figures shown in the Budget Act. These result in a minimal change to the projected ending balance in the Special Fund for Economic Uncertainties (the State s traditional budget reserve). The Proposed Budget projects $114.6 billion in general fund revenues, and the Governor s spending plan proposes $113.3 billion in General Fund expenditures. Based on these estimates, projections. and proposals, the State would end fiscal year with $3.4 billion in reserves, comprising $1.6 billion that was deposited in the Budget Stabilization Account before Proposition 2 passed, another $1.2 billion proposed to be added to that account from revenues, and a $534 million projected year-end balance in the Special Fund for Economic Uncertainties. The Proposed Budget includes total Proposition 98 funding of $65.7 billion for , an increase of $2.6 billion above the revised guarantee and $4.9 billion over the Budget Act level. Under the Proposed Budget, K-12 Proposition 98 spending increases from $8,931 per student in to $9,571 in , an increase of 7.2%. The Proposed Budget includes, among others, these significant provisions relating to K-12 funding: Local Control Funding Formula: The largest increase in funding in the Proposed Budget is an additional $4 billion for the LCFF, representing a year-over-year increase of 9%. The Governor estimates 37

46 that the increase will close more than 32% of the remaining funding implementation gap between fiscal year funding levels and the LCFF target funding levels. K-12 Deferrals: The Proposed Budget includes $897 million to eliminate all remaining outstanding deferral debt for K 12. Emergency Repair Program. An increase of $273.4 million in one time Proposition 98 general fund resources for the Emergency Repair Program. This funding will retire the state s facilities funding obligation under the terms of an existing lawsuit settlement agreement. Energy Efficiency. The Proposed Budget allocates $368 million for school district energy efficiency improvements pursuant to Proposition 39 (2012). Cost-of-Living Increases for non-lcff. An increase of $71.1 million to support a 1.58% cost of living adjustment for categorical programs that remain outside the LCFF, including Special Education, Child Nutrition, Foster Youth, Preschool, American Indian Education Centers, and the American Indian Early Childhood Education Program. Technology Infrastructure. The Proposed Budget calls for $100 million in Proposition 98 funding to support technology and internet connectivity. No Proposition 98 Reserve Fund Deposit. The Proposed Budget does not include any deposit into the Public School System Stabilization Account, and it does not anticipate that any such deposit will be needed before the budget year. If that prediction is correct, districts would not be restricted by Proposition 2 in setting aside reserve funds during the next two budget years. May Revision. On May 14, 2015, the Governor released the May Revision of the Proposed Budget. The May Revision projects a $6.7 billion increase in General Fund revenues when compared to the Proposed Budget. With respect to K-12 education, the May Revision includes an increase of $6.1 billion in Proposition 98 funding for the three year period of to , when compared to the Proposed Budget. The May Revision also calls for a one-time infusion of $3.5 billion in Proposition 98 funding for the implementation of the Common Core academic standards, an increase of $2.4 billion over the $1.1 billion in the Proposed Budget. Total funding for all K-12 education programs is projected to be $83 billion. The May Revision does not comment on the alternatives to finance school facilities construction that were announced in the Proposed Budget. On May 18, 2015, the Legislative Analyst s Office ( LAO ) issued its report on the Governor s May Revision. The LAO s report forecasts tax revenue higher than projected in the Governor s May Revision. As a result, the LAO forecasts Proposition 98 funding at $900 million above the $6.1 billion projected in the May Revision for the three year period of to Additional Information on State Finances The full text of proposed and adopted State budgets may be found at the internet website of the California Department of Finance, under the heading California Budget. The Legislative Analyst s Office budget overviews and other analyses may be found at under the heading Products. In addition, various State of California official statements, many of which contain a summary of the current and past State budgets and the impact of those budgets on school districts in the State, may be found at the website of the State Treasurer, or through the Municipal Securities Rulemaking Board s EMMA website at emma.msrb.org. 38

47 Periodic reports on revenues and/or expenditures during the Fiscal Year are issued by the Governor s Office, the State Controller s Office and the LAO. The Department of Finance issues a monthly Bulletin, which reports the most recent revenue receipts as reported by state departments, comparing them to Budget projections. The Governor s Office also formally updates its budget projections three times during each Fiscal Year, in January, May and at budget enactment. These bulletins and other reports are available on the Internet. The information referred to above is prepared by the respective State agency maintaining each website and not by the District, and the District can take no responsibility for the continued accuracy of these internet addresses or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated herein by these references. Future State Budgets The District cannot predict what actions will be taken in the future by the Legislature and the Governor to deal with changing State revenues and expenditures or 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 could result in a significant shortfall of revenue and cash, and could impair the State s ability to fund schools as budgeted. TAX MATTERS In the opinion of Kronick, Moskovitz, Tiedemann & Girard, a Professional Corporation, Sacramento, California, Special Counsel, based upon an analysis of existing statutes, regulations, rulings. and court decisions, and assuming, among other matters, compliance with certain covenants, interest evidenced by the Certificates is excludable from gross income for federal income tax purposes and is exempt from State of California personal income taxes. In the further opinion of Special Counsel, interest evidenced by the Certificates is not a specific item of tax preference for purposes of the federal individual or corporate alternative minimum taxes, however, such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. A complete copy of the proposed form of opinion of Special Counsel is set forth in Appendix C. Special Counsel s opinion as to the exclusion from gross income of interest evidenced by the Certificates is based upon certain representations of fact and certifications made by the District and others and is subject to the condition that the District complies with all requirements of the Internal Revenue Code of 1986 (the Code ) that must be satisfied subsequent to the execution and delivery of the Certificates to assure that such interest will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest evidenced by the Certificates to be included in gross income for federal income tax purposes retroactive to the date of execution and delivery of the Certificates. The District has covenanted to comply with all such requirements. Special Counsel s opinions may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. Special Counsel has not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. Although Special Counsel has rendered an opinion that interest evidenced by the Certificates is excludable from gross income for federal income tax purposes provided that the District continues to comply with certain requirements of the Code, the ownership or disposition of, or the accrual or receipt of interest evidenced by, the Certificates may otherwise affect an Owner s tax liability. The nature and extent of these 39

48 other tax consequences will depend on the particular tax status of the Owner or the Owner s other items of income or deduction. Special Counsel expresses no opinion regarding any such other tax consequences. No assurance can be given that any future legislation or clarification of the Code, if enacted into law, will not cause interest evidenced by the Certificates to be subject, directly or indirectly, to federal income taxation, or otherwise prevent Owners from realizing the full current benefit of the tax status of such interest. Further, no assurance can be given that the introduction or enactment of any such future legislation, or action of the Internal Revenue Service, including but not limited to selection of the Certificates for audit examination, or the course or result of any IRS examination of the Certificates, or bonds that present similar tax issues, will not affect the market price of the Certificates. Prospective purchasers of the Certificates should consult their own tax advisers regarding any pending or proposed federal tax legislation, as to which Special Counsel expresses no opinion. LEGAL MATTERS Kronick, Moskovitz, Tiedemann & Girard, a Professional Corporation, Sacramento, Special Counsel, will render an opinion with respect to the validity and enforceability of the Ground Lease, the Facilities Lease, and the Trust Agreement in connection with the Certificates, the form of which is set forth in Appendix C. Copies of the approving opinion will be available at the time of delivery of the Certificates. Payment of the fees and expenses of Special Counsel is contingent upon the sale and delivery of the Certificates. Special Counsel undertakes no responsibility for the accuracy, completeness, or fairness of this Official Statement. No Litigation LITIGATION No litigation is pending or threatened concerning the validity of the Certificates, and a certificate to that effect will be furnished to purchasers at the time of the original delivery of the Certificates. The District is not aware of any litigation pending or threatened that (i) that seeks to restrain or enjoin the execution or delivery of the Certificates, the Facilities Lease, the Ground Lease, or the Trust Agreement, (ii) contesting the validity of Certificates, the Facilities Lease, the Ground Lease, or the Trust Agreement, or the power of the District to perform its obligations thereunder, or (iii) that, if determined adversely to the District, would materially impair the District s ability to perform its obligations under the Facilities Lease or materially and adversely affect the District s financial condition. Other Litigation FTR International ( FTR ) and the District were involved in litigation arising from a breach of contract claim with regard to an elementary school construction project. The lawsuit resulted in a trial court judgment against the District in the amount of approximately $9.4 million. The District filed an appeal from the judgment. Oral argument was conducted in the matter before the California Court of Appeal (the Court ) on October 8, On January 27, 2015, the Court rendered its decision. FTR prevailed on certain issues but the Court remanded the case to the trial court as to other issues and provided instructions relating to those issues. Shortly thereafter, the Court ordered that East West Bank, who acquired FTR s interest in the judgment through a public foreclosure sale and a formal assignment, be substituted for FTR as the real party in interest in the lawsuit. Subsequently, East West Bank submitted a request for a rehearing in the matter. On April 1, 2015, the Court rendered its final decision making no substantive changes to its prior opinion. After substantial negotiations, the District and East West Bank agreed to settle the dispute. At its April 15, 2015 meeting, the District s Board of Trustees approved a settlement agreement between the District and East West Bank, pursuant to which the District will pay $6.5 million as full resolution of the lawsuit. However, five entities have filed notices of liens against FTR in the trial court. Therefore, the trial court must approve the 40

49 settlement agreement in accordance with California Code of Civil Procedure Section et seq. A portion of the proceeds to be used for the settlement, and completion of the school construction project, are being obtained by the District from the sale of the Certificates. The trial court s hearing in this matter is scheduled for June 9, The above-mentioned litigation will not affect or impair the ability of the District to make Rental Payments. The Corporation will acquire a leasehold interest in the Facilities pursuant to the Ground Lease. Pursuant to the Facilities Lease, the District will lease the Facilities back from the Corporation, in consideration for which the District will make Rental Payments. See Security and Sources of Payment for the Certificates - The Facilities. Under the Trust Agreement, the Corporation will assign its rights under the Facilities Lease and the Ground Lease to the Trustee for the benefit of the Owners of the Certificates. The District covenants in the Facilities Lease to take such action as may be necessary to include all Rental Payments due in each fiscal year in its annual budget and to make the necessary annual appropriations for all such Rental Payments. The District, however, is not obligated to levy or pledge any form of taxation for the payment of Rental Payments, nor has the District covenanted to do so. CONTINUING DISCLOSURE The District has covenanted for the benefit of holders and Beneficial Owners of the Certificates to provide certain financial information and operating data relating to the District (the Annual Report ) not later than nine months after the end of the District s fiscal year (which currently ends on June 30), commencing with the report for the fiscal year, and to provide notices of the occurrence of certain enumerated events. The Annual Report and event notices will be filed by the District with the MSRB through its EMMA website. The specific nature of the information to be contained in the Annual Report and in the event notices is described in Appendix E Form of Continuing Disclosure Certificate. These covenants have been made in order to assist the Underwriter in complying with S.E.C. Rule 15c2-12(b)(5) (the Rule ). The District has not, on occasion during the past five years, fully complied with its prior continuing disclosure undertakings under the Rule. For example: In July 2011, the District filed certain significant event notices late, relating to the November 8, 2010, Chapter 11 bankruptcy filing by Ambac Financial Group (insuring bonds as Ambac Assurance Corp.). The District believes it has established processes to ensure it will make required filings on a timely basis in the future. RATINGS Standard & Poor s Ratings Services, a division of the McGraw-Hill Companies, Inc. ( Standard & Poor s ) is expected to assign its rating of AA to the Certificates based upon the issuance by BAM of the Policy. Standard & Poor s has assigned its underlying rating of A to the Certificates. Such ratings reflect only the views of Standard & Poor s, and an explanation of the significance of such ratings may be obtained from Standard & Poor s. Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance the credit ratings given to the Certificates will be maintained for any period of time or that the ratings may not be lowered or withdrawn entirely by Standard & Poor s, if, in its judgment, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Certificates. 41

50 UNDERWRITING The Certificates are to be purchased for reoffering by Stifel, Nicolaus & Company, Incorporated (the Underwriter ). The Underwriter has agreed to purchase the Certificates at a purchase price of $6,233, (representing the aggregate principal amount evidenced by the Certificates of $6,380,000, less net original issue discount of $82,433.20, and less underwriter s discount of $63,800). The purchase agreement with the District provides that the Underwriter will purchase all of the Certificates if any are purchased. The obligation to make such purchase is subject to certain terms and conditions set forth in the purchase agreement. The Underwriter may offer and sell the Certificates to dealers and others at a price lower than the offering price stated on the cover page hereof. The offering price may be changed from time to time by the Underwriter. AUTHORIZATION The execution and delivery of this Official Statement has been duly authorized by the District. RIO ELEMENTARY SCHOOL DISTRICT By: /s/ John D. Puglisi John D. Puglisi, Ph.D. Superintendent 42

51 APPENDIX A AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR FISCAL YEAR ENDED JUNE 30, 2014 A-1

52 [THIS PAGE INTENTIONALLY LEFT BLANK]

53 RIO ELEMENTARY SCHOOL DISTRICT ANNUAL FINANCIAL REPORT JUNE 30, 2014

54 RIO ELEMENTARY SCHOOL DISTRICT TABLE OF CONTENTS JUNE 30, 2014 FINANCIAL SECTION Independent Auditor's Report 2 Management's Discussion and Analysis 5 Basic Financial Statements Government-Wide Financial Statements Statement of Net Position 14 Statement of Activities 15 Fund Financial Statements Governmental Funds - Balance Sheet 16 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position 17 Governmental Funds - Statement of Revenues, Expenditures, and Changes in Fund Balances 18 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities 19 Fiduciary Funds - Statement of Net Position 21 Notes to Financial Statements 22 REQUIRED SUPPLEMENTARY INFORMATION General Fund - Budgetary Comparison Schedule 53 Schedule of Other Postemployment Benefits (OPEB) Funding Progress 54 SUPPLEMENTARY INFORMATION Schedule of Expenditures of Federal Awards 56 Local Education Agency Organization Structure 57 Schedule of Average Daily Attendance 58 Schedule of Instructional Time 59 Reconciliation of Annual Financial and Budget Report With Audited Financial Statements 60 Schedule of Financial Trends and Analysis 61 Combining Statements - Non-Major Governmental Funds Combining Balance Sheet 62 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 63 General Fund Selected Financial Information 64 Note to Supplementary Information 65 INDEPENDENT AUDITOR'S REPORTS 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 68 Report on Compliance for Each Major Program and Report on Internal Control Over Compliance Required by the OMB Circular A Report on State Compliance 72 SCHEDULE OF FINDINGS AND QUESTIONED COSTS Summary of Auditor's Results 76 Financial Statement Findings 77 Federal Awards Findings and Questioned Costs 79 State Awards Findings and Questioned Costs 80 Summary Schedule of Prior Audit Findings 82 Management Letter 84

55 FINANCIAL SECTION 1

56 INDEPENDENT AUDITOR'S REPORT Governing Board Rio Elementary School District Oxnard, California Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the Rio Elementary School District (the 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 and 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 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. 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 District'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 District'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 opinions. 2

57 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the Rio Elementary School District, as of June 30, 2014, and the respective changes in financial position 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 required supplementary information, such as management's discussion and analysis on pages 5 through 13, and budgetary comparison and other postemployment benefit information on pages 53 and 54, respectively, 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. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Rio Elementary School District's basic financial statements. The accompanying supplementary information such as the Schedule of Expenditures of Federal Awards, as required by Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations and the other supplementary information as listed on the table of contents, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The accompanying 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 accompanying supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. 3

58 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 15, 2014, on our consideration of the Rio Elementary 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 Rio Elementary School District's internal control over financial reporting and compliance. Rancho Cucamonga, California December 15,

59 Board of Trustees Ramon Rodriguez, President Matt Klinefelter, Clerk Celia Robles Eleanor Torres Henrietta Macias Superintendent John Puglisi Ph.D 2500 Vineyard Avenue, Oxnard, CA ~ Telephone: (805) ~ Fax Number (805) ~www. rioschools.org This section of Rio Elementary School District's (the District) annual financial report presents our discussion and analysis of the District's financial performance during the fiscal year that ended on June 30, 2014, with comparative information for Please read it in conjunction with the District's financial statements, which immediately follow this section. OVERVIEW OF THE FINANCIAL STATEMENTS The Financial Statements The financial statements presented herein include all of the activities of the District and its component units using the integrated approach as prescribed by Governmental Accounting Standards Board (GASB) Statement No. 34. The Government-Wide Financial Statements present the financial picture of the District from the economic resources measurement focus using the accrual basis of accounting. They present governmental activities separately. These statements include all assets of the District (including capital assets) as well as all liabilities (including long-term obligations). Additionally, certain eliminations have occurred as prescribed by the statement in regards to interfund activity, payables, and receivables. The Fund Financial Statements include statements for each of the three categories of activities: governmental, proprietary and fiduciary. The Governmental Activities are prepared using the current financial resources measurement focus and modified accrual basis of accounting. The Fiduciary Activities are agency funds, which are prepared using the economic resources measurement focus and the accrual basis of accounting. Reconciliation of the Fund Financial Statements to the Government-Wide Financial Statements is provided to explain the differences created by the integrated approach. The Primary unit of the government is the Rio Elementary School District. 5 Business Services - Rio School District/ Educating minds for the 21 st Century

60 RIO ELEMENTARY SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2014 REPORTING THE DISTRICT AS A WHOLE The Statement of Net Position and the Statement of Activities The Statement of Net Position and the Statement of Activities report information about the District as a whole and about its activities. These statements include all assets and liabilities of the District using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year's revenues and expenses are taken into account regardless of when cash is received or paid. These two statements report the District's net position and changes in them. Net position is the difference between assets and liabilities, one way to measure the District's financial health, or financial position. Over time, increases or decreases in the District's net position are one indicator of whether its financial health is improving or deteriorating. Other factors to consider are changes in the District's property tax base and the condition of the District's facilities. The relationship between revenues and expenses is the District's operating results. Since the governing board's responsibility is to provide services to our students and not to generate profit as commercial entities do, one must consider other factors when evaluating the overall health of the District. The quality of the education and the safety of our schools will likely be an important component in this evaluation. In the Statement of Net Position and the Statement of Activities, we separate the District activities as follows: Governmental Activities - Most of the District's services are reported in this category. This includes the education of kindergarten through grade eight students and the on-going effort to improve and maintain buildings and sites. Property taxes, State income taxes, user fees, interest income, Federal, State and local grants, as well as general obligation bonds, finance these activities. REPORTING THE DISTRICT'S MOST SIGNIFICANT FUNDS Fund Financial Statements The fund financial statements provide detailed information about the most significant funds - not the District as a whole. Some funds are required to be established by State law and by bond covenants. However, management establishes many other funds to help it control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants, and other money that it receives from the U.S. Department of Education. 6

61 RIO ELEMENTARY SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2014 Governmental funds - Most of the District's basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the District's general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance the District's programs. The differences of results in the governmental fund financial statements to those in the government-wide financial statements are explained in a reconciliation following each governmental fund financial statement. Proprietary funds - When the District charges users for the services it provides, whether to outside customers or to other departments within the District, these services are generally reported in proprietary funds. Proprietary funds are reported in the same way that all activities are reported in the Statement of Net Position and the Statement of Revenues, Expenses, and Changes in Fund Net Position. In fact, the District's enterprise funds are the same as the business-type activities we report in the government-wide financial statements but provide more detail and additional information, such as cash flows, for proprietary funds. We use internal service funds (the other component of proprietary funds) to report activities that provide supplies and services for the District's other programs and activities. The District has no internal service funds. THE DISTRICT AS TRUSTEE Reporting the District's Fiduciary Responsibilities The District is the trustee, or fiduciary, for funds held on behalf of others, like our funds for associated student body activities and employee retiree benefits. The District's fiduciary activities are reported in the Statement of Fiduciary Net Position. We exclude these activities from the District's other financial statements because the District cannot use these assets to finance its operations. The District is responsible for ensuring that the assets reported in these funds are used for their intended purposes. 7

62 RIO ELEMENTARY SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2014 THE DISTRICT AS A WHOLE Net Position The District's net position was $92.0 million for the fiscal year ended June 30, Of this amount, $(13.1) million was unrestricted. Restricted net position is reported separately to show legal constraints from debt covenants and enabling legislation that limit the governing board's ability to use the net position for day-to-day operations. Our analysis below focuses on the net position (Table 1) and changes in the net position (Table 2) of the District's governmental activities. Table 1 (Amounts in millions) Governmental Activities Assets Current and other assets $ 18.5 $ 22.2 Capital assets Total Assets Liabilities Current liabilities Long-term obligations Total Liabilities Net Position Net investment in capital assets Restricted Unrestricted (Deficit) (13.1) (4.4) Total Net Position $ 92.0 $ 73.5 The $(13.1) million in unrestricted (deficit) net position of governmental activities represent the accumulated results of all past years' operations. It means that if we had to pay off all of our bills today, including all of our non-capital liabilities (bonds as an example); we would have a $(13.1) million deficit. 8

63 RIO ELEMENTARY SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2014 Changes in Net Position The results of this year's operations for the District as a whole are reported in the Statement of Activities on page 15. Table 2 takes the information from the Statement, rounds off the numbers, and rearranges them slightly so you can see our total revenues for the year. Table 2 (Amounts in millions) Governmental Activities Revenues Program revenues: Charges for services $ 0.2 $ 0.4 Operating grants and contributions Capital grants and contributions General revenues: Federal and State aid not restricted Property taxes Other general revenues Total Revenues Expenses Instruction-related Student support services Administration Plant services Other Total Expenses Change in Net Position $ 18.5 $ (2.4) Governmental Activities As reported in the Statement of Activities on page 15, the cost of all of our governmental activities this year was $51.4 million. However, the amount that our taxpayers ultimately financed for these activities through local taxes was only $13.4 million (levied for general purposes and for debt service) because the cost was paid by those who benefited from the programs was $0.2 million, and by other governments and organizations who subsidized certain programs with grants and contributions was $14.1 million. We paid for the remaining "public benefit" portion of our governmental activities with $22.7 million in unrestricted Federal and State funds, and $19.5 million in interest and investment earnings and other revenues. 9

64 RIO ELEMENTARY SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2014 In Table 3, we have presented the cost and net cost of each of the District's largest functions - instruction, instruction-related services, student support services, administration, plant services, and other. As discussed above, net cost shows the financial burden that was placed on the District's taxpayers by each of these functions. Providing this information allows our citizens to consider the cost of each function in comparison to the benefits they believe are provided by that function. Table 3 (Amounts in millions) Total Cost of Services Net Cost of Services Instruction $ 28.0 $ 23.7 $ 22.6 $ 18.9 Instruction-related activities Student support services Administration Plant services Other (0.7) 1.1 Total $ 51.4 $ 42.8 $ 37.1 $ 31.5 THE DISTRICT'S FUNDS As the District completed this year, our governmental funds reported a combined fund balance of $11.7 million, which is a decrease of $1.3 million over last year. Table 4 Balances and Activity July 1, 2013 Revenues Expenditures June 30, 2014 General Fund $ 8,472,097 $ 39,151,119 $ 41,241,420 $ 6,381,796 Capital Facilities Fund 1,768, ,605 1,124,080 1,537,761 County Schools Facilities Fund 1,060,204 2, , ,862 CFD Capital Projects 5,717 25,795,380 24,370,783 1,430,314 Cafeteria Fund 470,468 3,232,044 3,613,716 88,796 Building Fund 11,179 35, ,562 Bond Interest and Redemption Fund 1,190,805 1,402,346 1,303,581 1,289,570 Total $ 12,978,706 $ 70,512,616 $ 71,820,661 $ 11,670,661 10

65 RIO ELEMENTARY SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2014 General Fund Budgetary Highlights Over the course of the year, the District revises its budget as it attempts to deal with unexpected changes in revenues and expenditures. The final amendment to the budget was adopted on June 25, (A schedule showing the District's original and final budget amounts compared with amounts actually paid and received is provided in our annual report on page 53). 1. Local Control Funding Formula variances can be attributed to the inclusion of special education students served at Ventura Office of Education and higher daily student attendance than previously estimated. The increase in other State revenue is primarily attributable to recognizing CalSTRS on behalf payment of $790,148 in actual State revenues, but was not included in the budgeted amounts. 2. The majority of the variance in reporting employee benefits are attributable to recognizing CalSTRS onbehalf payment of $790,148 in actual revenues and expenditures, but were not included in the budgeted amounts. Overall actual year-end expenditures were less than budgeted. As a note, categorical program budgets which were not fully expended are reserved and carried over to the next fiscal year. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets As of June 30, 2014, the District had $121.2 million in a broad range of capital assets (net of depreciation), including land, buildings, and furniture and equipment. This amount represents a net increase (including additions, deductions, and depreciation) of $21.8 million, or 21.9 percent, from last year (Table 5). Table 5 (Amounts in millions) Governmental Activities Land $ 11.1 $ 11.1 Construction in progress Buildings and improvements Equipment Total $ $ 99.4 Due to the second issuance of Community Facilities District bonds, additional expenses related to the purchase of Rio Vista and Rio del Mar schools were capitalized in

66 RIO ELEMENTARY SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2014 Long-Term Obligations At the end of this year, the District had $40.5 million in long-term obligations outstanding versus $38.8 million last year, an increase of 4.4 percent. The long-term obligations consisted of: Table 6 (Amounts in millions) Governmental Activities General obligation bonds $ 14.0 $ 14.7 Premium on issuance Certificates of participation Lease purchase agreement Compensated absences Supplemental retirement payments Legal settlement Litigation Other postemployment benefits (OPEB) Total $ 40.5 $ 38.8 The District's general obligation bond rating for the last bond sale in August 2007 was "AAA". The State limits the amount of general obligation debt that districts can issue to 2.5 percent of the assessed value of all taxable property within the District's boundaries. The District's outstanding general obligation debt of $14.0 million is below the statutorily-imposed limit. Other obligations include compensated absences payable, postemployment benefits (other than health benefits), and other long-term obligations. Litigation obligations are a result of an adverse ruling on the payment opposing counsel's legal fees by the District in the on-going FTR lawsuit. The litigation obligations increased during due to interest and penalty charges. More detailed information regarding long-term obligations is reported in the financial statements. 12

67 RIO ELEMENTARY SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2014 ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES In considering the District budget for the year, the governing board and management used the following criteria: 1. Changes in the LCFF for include a significant increase for the District in the second year implementation of the LCFF plus a projected enrollment growth of 80 students. 2. As part of the District's Local Control Accountability Plan, the District implemented class size reduction for kindergarten students and a full day program for kindergarten students. Expenditures are based on the following forecasts: Staffing Ratio Enrollment Grade kindergarten 24:1 663 Grades first through third 30:1 2,507 Grades four through eight 32:1 1,711 CONTACTING THE DISTRICT'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, students, and 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 about this report or need any additional financial information, contact the Assistant Superintendent, Business Services, at Rio School District, 2500 Vineyard Avenue, Oxnard, California, 93036, or at kpifko@rioschools.org. 13

68 RIO ELEMENTARY SCHOOL DISTRICT STATEMENT OF NET POSITION JUNE 30, 2014 Governmental Activities ASSETS Deposits and investments $ 11,344,670 Receivables 7,074,459 Prepaid expenses 8,265 Stores inventories 59,992 Capital Assets Land and construction in process 11,342,862 Other capital assets 138,009,841 Less: accumulated depreciation (28,119,123) Total Capital Assets 121,233,580 Total Assets 139,720,966 LIABILITIES Accounts payable 4,940,690 Accrued interest payable 411,620 Unearned revenue 51,035 Current loans 1,825,000 Long-Term Obligations Current portion of long-term obligations 1,347,018 Noncurrent portion of long-term obligations 39,129,619 Total Long-Term Obligations 40,476,637 Total Liabilities 47,704,982 NET POSITION Net investment in capital assets 100,936,612 Restricted for: Debt service 877,950 Capital projects 2,433,623 Educational programs 829,115 Child Nutrition program 74,316 Unrestricted deficit(13,135,632) Total Net Position $ 92,015,984 The accompanying notes are an integral part of these financial statements. 14

69 RIO ELEMENTARY SCHOOL DISTRICT STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2014 Charges for Operating Capital Net (Expenses) Revenues and Changes Services and Grants and Grants and Governmental Functions/Programs Expenses Sales Contributions Contributions Activities Governmental Activities: Instruction $ 27,992,537 $ 523 $ 5,367,363 $ 2,648 $ (22,622,003) Instruction-related activities: Supervision of instruction 942, ,387 - (567,692) Instructional library, media, and technology 577,964-54,865 - (523,099) School site administration 2,789, ,508 - (2,707,955) Pupil services: Home-to-school transportation 782,790-13,475 - (769,315) Food services 3,344, ,699 2,568,843 - (625,185) All other pupil services 1,760, ,506 - (1,140,724) Administration: Program Revenues in Net Position Data processing 458,745-6,271 - (452,474) All other administration 4,951,922 5, ,079 - (4,635,202) Plant services 4,451, ,747 - (4,395,045) Ancillary services 21,044-14,029 - (7,015) Community services 9, (9,341) Interest on long-term obligations 1,600, (1,600,437) Other outgo 1,751,353 8,429 4,671,443-2,928,519 Total Governmental Activities $ 51,434,923 $ 165,791 $ 14,139,516 $ 2,648 (37,126,968) General Revenues and Subventions: Property taxes, levied for general purposes 8,077,723 Property taxes, levied for debt service 5,046,868 Taxes levied for other specific purposes 251,050 Federal and State aid not restricted to specific purposes 22,651,331 Interest and investment earnings 35,760 Miscellaneous 19,518,307 Subtotal, General Revenues 55,581,039 Change in Net Position 18,454,071 Net Position - Beginning 73,561,913 Net Position - Ending $ 92,015,984 The accompanying notes are an integral part of these financial statements. 15

70 RIO ELEMENTARY SCHOOL DISTRICT GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2014 Capital County School General Facilities Facilities Fund Fund Fund ASSETS Deposits and investments $ 4,655,524 $ 2,897,728 $ 896,091 Receivables 6,478,795 16,354 32,169 Due from other funds 348, ,105 1,956,515 Prepaid expenditures 8, Stores inventories 45, Total Assets $ 11,536,772 $ 3,857,187 $ 2,884,775 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 2,654,168 $ 125,911 $ 1,988,913 Due to other funds 624,773 2,193,515 - Other current liabilities 1,825, Unearned revenue 51, Total Liabilities 5,154,976 2,319,426 1,988,913 Fund Balances: Nonspendable 58, Restricted 829,115 1,537, ,862 Assigned 3,710, Unassigned 1,783, Total Fund Balances 6,381,796 1,537, ,862 Total Liabilities and Fund Balances $ 11,536,772 $ 3,857,187 $ 2,884,775 The accompanying notes are an integral part of these financial statements. 16

71 Capital Project Non-Major Total Component Unit Governmental Governmental Fund Funds Funds $ 1,492,291 $ 1,403,036 $ 11,344, ,141 7,074,459-38,668 3,286, ,265-14,480 59,992 $ 1,492,291 $ 2,003,325 $ 21,774,350 $ 61,977 $ 109,721 $ 4,940, ,676 3,286, ,825, ,035 61, ,397 10,103,689-14,480 73,257 1,430,314 1,363,886 6,056,938-46,562 3,756, ,783,869 1,430,314 1,424,928 11,670,661 $ 1,492,291 $ 2,003,325 $ 21,774,350 16

72 RIO ELEMENTARY SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION JUNE 30, 2014 Total Fund Balance - Governmental Funds $ 11,670,661 Amounts Reported for Governmental Activities in the Statement of Net Position are Different Because: Capital assets used in governmental activities are not financial resources and, therefore, they are not reported as assets in the governmental funds. The cost of capital assets is $ 149,352,703 Accumulated depreciation is (28,119,123) Net Capital Assets 121,233,580 In governmental funds, unmatured interest on long-term obligations is recognized in the period when it is due. On the government-wide financial statements, unmatured interest on long-term obligations is recognized when it is incurred. (411,620) Long-term obligations, including general obligation bonds, are not due and payable in the current period and, therefore, they are not reported as liabilities in the funds. However, long-term obligations are recognized in the government-wide financial statements. Long-term obligations at year-end consist of: General obligation bonds (14,040,000) Certificates of participation (7,145,000) Unamortized premium (559,965) Compensated absences (261,396) Capital lease obligation (28,879) Supplement retirement payments (106,000) Legal settlement (78,156) Litigation (11,000,000) Lease purchase agreement (2,955,173) Other postemployment benefits (4,302,068) Total Long-Term Obligations (40,476,637) Total Net Position - Governmental Activities $ 92,015,984 The accompanying notes are an integral part of these financial statements. 17

73 [THIS PAGE INTENTIONALLY LEFT BLANK]

74 RIO ELEMENTARY SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2014 Capital County School General Facilities Facilities Fund Fund Fund REVENUES Local Control Funding Formula $ 29,968,752 $ - $ - Federal sources 2,128, Other State sources 3,882, Other local sources 3,171, ,247 2,648 Total Revenues 39,151, ,247 2,648 EXPENDITURES Current Instruction 25,200, Instruction-related activities: Supervision of instruction 912, Instructional library, media and technology 558, School site administration 2,539, Pupil services: Home-to-school transportation 710, Food services All other pupil services 1,656, Administration: Data processing 426, All other administration 2,951, Plant services 3,591,725 37,546 35,366 Facility acquisition and construction 71, , ,624 Ancillary services 20, Community services 2, Other outgo 1,751, Debt service Principal 150, ,000 - Interest and other 108, ,358 - Total Expenditures 40,652,062 1,124, ,990 Excess (Deficiency) of Revenues Over Expenditures (1,500,943) (819,833) (164,342) Other Financing Sources (Uses) Transfers in - 589,358 - Other sources - capital lease Transfers out (589,358) - - Net Financing Sources (Uses) (589,358) 589,358 - NET CHANGE IN FUND BALANCES (2,090,301) (230,475) (164,342) Fund Balances - Beginning 8,472,097 1,768,236 1,060,204 Fund Balances - Ending $ 6,381,796 $ 1,537,761 $ 895,862 The accompanying notes are an integral part of these financial statements. 18

75 Capital Project Non-Major Total Component Unit Governmental Governmental Fund Funds Funds $ - $ - $ 29,968,752-2,842,032 4,970, ,757 4,070,311 25,795,380 1,606,011 30,879,993 25,795,380 4,635,800 69,889, ,200, , , ,539, ,876-3,290,076 3,290, ,656, , ,000 3,063, ,664,637 24,025, ,262 24,930, , , ,751, , ,185 1,269, , ,865 1,234,275 24,370,783 4,917,388 71,231,303 1,424,597 (281,588) (1,342,109) ,358-34,064 34, (589,358) - 34,064 34,064 1,424,597 (247,524) (1,308,045) 5,717 1,672,452 12,978,706 $ 1,430,314 $ 1,424,928 $ 11,670,661 18

76 [THIS PAGE INTENTIONALLY LEFT BLANK]

77 RIO ELEMENTARY SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2014 Total Net Change in Fund Balances - Governmental Funds $ (1,308,045) Amounts Reported for Governmental Activities in the Statement of Activities are Different Because: Capital outlays to purchase or build capital assets are reported in governmental funds as expenditures. However, for governmental activities those costs are shown in the Statement of Net Position and are allocated over their estimated useful lives as annual depreciation expenses in the Statement of Activities. This is the amount by which capital outlay exceeds depreciation expense in the period: Capital outlays $ 24,357,830 Depreciation expense (2,520,133) 21,837,697 Loss on disposal of capital assets is reported in the government-wide Statement of Net Position, but is not recorded in the governmental funds. (200) Some of the capital assets acquired this year were financed with capital leases. The amount financed by the leases is reported in the governmental funds as a source of financing. On the other hand, the capital leases are not revenues in the Statement of Activities, but rather constitute long-term liabilities in the Statement of Net Position. (34,064) In the Statement of Activities, certain operating expenses - compensated absences (vacations) and special termination benefits (cash in lieu of medical benefits) are measured by the amounts earned during the year. In the governmental funds, however, expenditures for these items are measured by the amount of financial resources used (essentially, the amounts actually paid). This year, compensated absences earned was more than amounts used by $48,300. Early retirement incentive Special termination benefits earned was more than the amount used by $4,000. (52,300) Repayment of long-term obligations is an expenditure in the governmental funds, but it reduces long-term obligations in the Statement of Net Position and does not affect the Statement of Activities: General obligation bonds 635,000 Capital lease obligation 19,686 Certificates of participation 275,000 Lease purchase agreement 340,046 Combined adjustment 1,269,732 Under the modified accrual basis of accounting used in the governmental funds, expenditures are not recognized for transactions that are not normally paid with expendable available financial resources. However, in the Statement of Activities, which is presented on the accrual basis, expenses and liabilities are reported when incurred, regardless of when financial resources are available. This adjustment combines the net changes of the following balances: Amortization of debt premium 34,722 Amortization of cost of issuance (421,648) Combined adjustment (386,926) The accompanying notes are an integral part of these financial statements. 19

78 RIO ELEMENTARY SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES (Continued) FOR THE YEAR ENDED JUNE 30, 2014 Interest on long-term obligations in the Statement of Activities differs from the amount reported in the governmental funds because interest is recorded as an expenditure in the funds when it is due, and thus requires the use of current financial resources. In the Statement of Activities, however, interest expense is recognized as the interest accrues, regardless of when it is due. The accrued interest on the general obligation bonds, certificates of participation, and municipal lease decreased by $20, ,764 Contributions for postemployment benefits are recorded as an expense in the governmental funds when paid. However, the difference between the annual required contribution and the actual contribution made, if less, is recorded in the government-wide financial statements as expense. The actual amount of the contribution was less than the annual required contribution. (1,201,635) Penalties and interests accrued on previously legal ruling against the District and opposing counsel fees were estimated to be an additional $1,706,583 for the current year. While the District is the process of appealing the prior court ruling, interest and penalties will continue to accrue. Under the modified basis of accounting used in governmental funds, expenditures are not recognized for transactions that are not normally paid with expendable available financial resources. In the government-wide financial statement, however, which are presented on the accrual basis, expenses and liabilities are reported when incurred, regardless of when financial resources are available. $ (1,706,583) The District reached a settlement agreement during the fiscal year. The agreement includes payments that will be made over a five-year period. Under the modified basis of accounting used in the governmental funds, expenditures are not recognized for transactions that are not normally paid with expendable available financial resources. In the government-wide financial statements, however, which are presented on the accrual basis, expenses and liabilities are reported when incurred, regardless of when financial resources are available. The amount of settlement paid in the current was more than the amount incurred by $15,631 15,631 Change in Net Position of Governmental Activities $ 18,454,071 The accompanying notes are an integral part of these financial statements. 20

79 RIO ELEMENTARY SCHOOL DISTRICT FIDUCIARY FUNDS STATEMENT OF NET POSITION FOR THE YEAR ENDED JUNE 30, 2014 CFD Debt Service ASB Fund Funds Total ASSETS Deposits and investments $ 5,973,587 $ 38,945 $ 6,012,532 LIABILITIES Due to student groups $ - $ 38,945 $ 38,945 Due to bond holders 5,973,587-5,973,587 Total Liabilities $ 5,973,587 $ 38,945 $ 6,012,532 The accompanying notes are an integral part of these financial statements. 21

80 RIO ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Financial Reporting Entity The Rio Elementary School District (the District) was organized in September 1885 under the laws of the State of California. The District operates under a locally-elected five-member board form of government and provides educational services to grades K - 8 as mandated by the State and/or Federal agencies. The District operates six elementary schools and two middle schools. A reporting entity is comprised of the primary government, component units, and other organizations that are included to ensure the financial statements are not misleading. The primary government of the District consists of all funds, departments, boards, and agencies that are not legally separate from the District. For Rio Elementary School District, this includes general operations, food services, and student-related activities of the District. Component Units Component units are legally separate organizations for which the District is financially accountable. Component units may include organizations that are fiscally dependent on the District in that the District approves their budget, the issuance of their debt or the levying of their taxes. In addition, component units are other legally separate organizations for which the District is not financially accountable but the nature and significance of the organization's relationship with the District is such that exclusion would cause the District's financial statements to be misleading or incomplete. For financial reporting purposes, the component unit has a financial and operational relationship which meets the reporting entity definition criteria of the Governmental Accounting Standards Board (GASB) Statement No. 14, The Financial Reporting Entity, and thus is included in the financial statements of the District. The component unit, although a legally separate entity, is reported in the financial statements using the blended presentation method as if it were part of the District's operations because the governing board of the component unit is essentially the same as the governing board of the District and because its purpose is to finance the construction of facilities to be used for the benefit of the District. The Rio Elementary School District Financing Corporation's (the Corporation) financial activity is presented in the financial statements within the Capital Facilities Fund. Certificates of participation issued by the Corporation are included as long-term liabilities in the government-wide financial statements. Individually prepared financial statements are not prepared for the Rio Elementary School District Financing Corporation. The Rio Elementary School District Community Facilities District No. 1's (CFD) capital outlay activity is presented in the financial statements as the CFD Capital Projects Fund. Special tax bonds issued by the CFD are not included as long-term liabilities in the government-wide financial statements as they are not obligations of the District. See Note 10 for additional information. Basis of Presentation - Fund Accounting The accounting system is organized and operated on a fund basis. A fund is defined as a fiscal and accounting entity with a self-balancing set of accounts, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. The District's funds are grouped into three broad fund categories: governmental, proprietary, and fiduciary. 22

81 RIO ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 Governmental Funds Governmental funds are those through which most governmental functions typically are financed. Governmental fund reporting focuses on the sources, uses, and balances of current financial resources. Expendable assets are assigned to the various governmental funds according to the purposes for which they may or must be used. Current liabilities are assigned to the fund from which they will be paid. The difference between governmental fund assets and liabilities is reported as fund balance. The following are the District's major and non-major governmental funds: Major Governmental Funds General Fund The General Fund is the chief operating fund for all districts. It is used to account for the ordinary operations of the District. All transactions except those accounted for in another fund are accounted for in this fund. One fund currently defined as a special revenue fund in the California State Accounting Manual (CSAM) does not meet the GASB Statement No. 54 special revenue fund definition. Specifically Fund 20, Special Reserve Fund for Postemployment Benefits, is not substantially composed of restricted or committed revenue sources. While this fund is authorized by statute and will remain open for internal reporting purposes, this fund functions effectively as an extension of the General Fund, and accordingly has been combined with the General Fund for presentation in these audited financial statements. In addition, under the flexibility provisions of current statute that allow certain formerly restricted revenues to be used for any educational purpose, Fund 14, Deferred Maintenance Fund does not currently meet the definition of special revenue funds as this fund is no longer primarily composed of restricted or committed revenue sources. As the District has not taken formal action to commit the flexed revenues formerly restricted to this program to the continued operation of the original programs, the revenue within this fund would be considered to be available for general educational purposes, resulting in Fund 14, Deferred Maintenance Fund being combined with the General Fund for presentation in these audited financial statements. As a result, the General Fund reflects an increase in assets, fund balance, revenues, and expenditures of $4,676,785, $3,710,035, $13,182, and $1,106,579, respectively. Capital Facilities Fund The Capital Facilities Fund is used primarily to account separately for monies received from fees levied on developers or other agencies as a condition of approving a development (Education Code Sections ). Expenditures are restricted to the purposes specified in Government Code Sections or to the items specified in agreements with the developer (Government Code Section 66006). County School Facilities Fund The County School Facilities Fund is established pursuant to Education Code Section to receive apportionments from the 1998 State School Facilities Fund (Proposition la), the 2002 State School Facilities Fund (Proposition 47), or the 2004 State School Facilities Fund (Proposition 55) authorized by the State Allocation Board for new school facility construction, modernization projects, and facility hardship grants, as provided in the Leroy F. Greene School Facilities Act of 1998 (Education Code Section et seq.). Capital Project Fund for Blended Component Units The Capital Project Fund for Blended Component Units is used to account for capital projects financed by Mello-Roos Community Facilities Districts and similar entities that are considered blended component units of the District under generally accepted accounting principles (GAAP). 23

82 RIO ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 Non-Major Governmental Funds Special Revenue Funds The Special Revenue funds are established to account for the proceeds from specific revenue sources (other than trusts, major capital projects, or debt service) that are restricted or committed to the financing of particular activities and that compose a substantial portion of the inflows of the fund. Additional resources that are restricted, committed, or assigned to the purpose of the fund may also be reported in the fund. Cafeteria Fund The Cafeteria Fund is used to account separately for Federal, State, and local resources to operate the food service program (Education Code Sections ) and is used only for those expenditures authorized by the governing board as necessary for the operation of the District's food service program (Education Code and 38100). Capital Project Funds The Capital Project funds are used to account for and report financial resources that are restricted, committed, or assigned to the acquisition or construction of major capital facilities and other capital assets (other than those financed by proprietary funds and trust funds). Building Fund The Building Fund exists primarily 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. Debt Service Funds The Debt Service funds are used to account for the accumulation of restricted, committed, or assigned resources for and the payment of principal and interest on general long-term obligations. Bond Interest and Redemption Fund The Bond Interest and Redemption Fund is used for the repayment of bonds issued for a District (Education Code Sections ). Fiduciary Funds Fiduciary fund reporting focuses on net position and changes in net position. The fiduciary fund category is split into four classifications: pension trust funds, investment trust funds, private-purpose trust funds, and agency funds. Trust funds are used to account for the assets held by the District under a trust agreement for individuals, private organizations, or other governments and are therefore not available to support the District's own programs. The District has no trust funds. Agency funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. Such funds have no equity accounts since all assets are due to individuals or entities at some future time. The District's agency fund accounts for the CFD Debt Service and the student body activities (ASB). Basis of Accounting - Measurement Focus Government-Wide Financial Statements The government-wide financial statements are prepared using the economic resources measurement focus and the accrual basis of accounting. This is the same approach used in the preparation of the proprietary fund financial statements, but differs from the manner in which governmental fund financial statements are prepared. 24

83 RIO ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 The government-wide financial statement of activities presents a comparison between direct expenses and program revenues for each governmental program, and excludes fiduciary activity. 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 the goods or services offered by the programs and 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. The comparison of program revenues and expenses identifies the extent to which each program or business segment is self-financing or draws from the general revenues of the District. Eliminations have been made to minimize the double counting of internal activities. Net position should be reported as restricted when constraints placed on net position are either externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or imposed by law through constitutional provisions or enabling legislation. The net position restricted for other activities result from special revenue funds and the restrictions on their use. 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 fund is presented in a separate column. Non-major funds are aggregated and presented in a single column. Governmental Funds All governmental funds are accounted for using a flow of current financial resources measurement focus and the modified accrual basis of accounting. With this measurement focus, only current assets and current liabilities generally are included on the balance sheet. The statement of revenues, expenditures, and changes in fund balance reports on the sources (revenues and other financing sources) and uses (expenditures and other financing uses) of current financial resources. This approach differs from the manner in which the governmental activities of the government-wide financial statements are prepared. Governmental fund financial statements therefore include reconciliation with brief explanations to better identify the relationship between the government-wide financial statements and the statements for the governmental funds on a modified accrual basis of accounting and the current financial resources measurement focus. Under this basis, revenues are recognized in the accounting period in which they become measurable and available. Expenditures are recognized in the accounting period in which the fund liability is incurred, if measurable. Fiduciary Funds Fiduciary funds are accounted for using the flow of economic resources measurement focus and the accrual basis of accounting. Fiduciary funds are excluded from the government-wide financial statements because they do not represent resources of the District. Revenues Exchange and Non-Exchange Transactions Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded on 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 that 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. Generally, available is defined as collectible within 90 days. However, to achieve comparability of reporting among California districts and so as not to distort normal revenue patterns, with specific respect to reimbursement grants and corrections to state-aid apportionments, the California Department of Education has defined available for districts as collectible within one year. The following revenue sources are considered to be both measurable and available at fiscal year-end: State apportionments, interest, certain grants, and other local sources. 25

84 RIO ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 Non-exchange transactions, in which the District receives value without directly giving equal value in return, include property taxes, certain grants, entitlements, and donations. Revenue from property taxes is recognized in the fiscal year in which the taxes are received. Revenue from certain grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. Eligibility requirements include time and purpose requirements. On a modified accrual basis, revenue from non-exchange transactions must also be available before it can be recognized. Unearned Revenue Unearned revenue arises when potential revenue does not meet both the "measurable" and "available" criteria for recognition in the current period or when resources are received by the District prior to the incurrence of qualifying expenditures. In subsequent periods, when both revenue recognition criteria are met, or when the District has a legal claim to the resources, the liability for unearned revenue is removed from the combined balance sheet and revenue is recognized. Certain grants received before the eligibility requirements are met are recorded as unearned revenue. On the governmental fund financial statements, receivables that will not be collected within the available period are also recorded as unearned revenue. Expenses/Expenditures On the accrual basis of accounting, expenses are recognized at the time they are incurred. The measurement focus of governmental fund accounting is on decreases in net financial resources (expenditures) rather than expenses. Expenditures are generally recognized in the accounting period in which the related fund liability is incurred, if measurable, and typically paid within 90 days. Principal and interest on longterm obligations, which has not matured, are recognized when paid in the governmental funds as expenditures. Allocations of costs, such as depreciation and amortization, are not recognized in the governmental funds but are recognized in the entity-wide statements. Cash and Cash Equivalents The District's cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. Investments Investments held at June 30, 2014, with original maturities greater than one year are stated at fair value. Fair value is estimated based on quoted market prices at year-end. All investments not required to be reported at fair value are stated at cost or amortized cost. Fair values of investments in county and State investment pools are determined by the program sponsor Prepaid Expenditures Prepaid expenditures (expenses) represent amounts paid in advance of receiving goods or services. The District has the option of reporting expenditures in governmental funds for prepaid items either when purchased or during the benefiting period. The District has chosen to report the expenditures when incurred. Stores Inventories Inventories consist of expendable food and supplies held for consumption. Inventories are stated at lower of cost or market, on the weighted average basis. The costs of inventory items are recorded as expenditures in the governmental-type funds. 26

85 RIO ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 Capital Assets and Depreciation The accounting and reporting treatment applied to the capital assets associated with a fund are determined by its measurement focus. General capital assets are long-lived assets of the District. The District maintains a capitalization threshold of $5,000. The District does not possess any infrastructure. Improvements are capitalized; the costs of normal maintenance and repairs that do not add to the value of the asset or materially extend an asset's life are not capitalized, but are expensed as incurred. Interest incurred during the construction of capital assets utilized by the enterprise fund is also capitalized. When purchased, such assets are recorded as expenditures in the governmental funds and capitalized in the government-wide financial Statement of Net Position. The valuation basis for general capital assets are historical cost, or where historical cost is not available, estimated historical cost based on replacement cost. Donated capital assets are capitalized at estimated fair market value on the date donated. Capital assets in the proprietary funds are capitalized in the fund in which they are utilized. The valuation basis for proprietary fund capital assets is the same as those used for the capital assets of governmental funds. Depreciation of capital assets is computed and recorded by the straight-line method. Estimated useful lives of the various classes of depreciable capital assets are as follows: buildings, 20 to 50 years; improvements, 5 to 50 years; equipment, 2 to 15 years. Interfund Balances On fund financial statements, receivables and payables resulting from short-term interfund loans are classified as "interfund receivables/payables". These amounts are eliminated in the Statement of Net Position. Compensated Absences Compensated absences are accrued as a liability as the benefits are earned. The entire compensated absence liability is reported on the government-wide Statement of Net Position. For governmental funds, the current portion of unpaid compensated absences is recognized upon the occurrence of relevant events such as employee resignations and retirements that occur prior to year-end that have not yet been paid with expendable available financial resources. These amounts are reported in the fund from which the employees who have accumulated leave are paid. Sick leave is accumulated without limit for each employee at the rate of one day for each month worked. Leave with pay is provided when employees are absent for health reasons; however, the employees do not gain a vested right to accumulated sick leave. Employees are never paid for any sick leave balance at termination of employment or any other time. Therefore, the value of accumulated sick leave is not recognized as a liability in the District's financial statements. However, retirement credit for unused sick leave is applicable to certain school employees who retire after January 1, At retirement, each member will receive.004 year of service credit for each day of unused sick leave. Credit for unused sick leave is applicable to all certificated employees and is determined by dividing the number of unused sick days by the number of base service days required to complete the last school year, if employed full-time. 27

86 RIO ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 Accrued Liabilities and Long-Term Obligations All payables, accrued liabilities, and long-term obligations are reported in the government-wide and proprietary fund financial statements. In general, governmental fund payables and accrued liabilities that, once incurred, are paid in a timely manner and in full from current financial resources are reported as obligations of the funds. However, claims and judgments, compensated absences, special termination benefits, and contractually required pension contributions that will be paid from governmental funds are reported as a liability in the fund financial statements only to the extent that they are due for payment during the current year. Bonds, certificates of participation, and capital leases are recognized as liabilities in the governmental fund financial statements when due. Debt Issuance Costs, Premiums, and Discounts In the government-wide financial statements and in the proprietary fund type financial statements, long-term obligations are reported as liabilities in the applicable governmental activities. Debt premiums and discounts, as well as issuance costs, related to prepaid insurance costs are amortized over the life of the bonds using the straight-line method. Current Loans Current loans consist of amounts outstanding at June 30, 2014, for Tax Revenue and Anticipation Notes. The notes were issued as short-term obligations to provide cash flow needs. Fund Balances - Governmental Funds As of June 30, 2014, fund balances of the governmental funds are classified as follows: Nonspendable - amounts that cannot be spent either because they are in nonspendable form or because they are legally or contractually required to be maintained intact. Restricted - amounts that can be spent only for specific purposes because of constitutional provisions or enabling legislation or because of constraints that are externally imposed by creditors, grantors, contributors, or the laws or regulations of other governments. Assigned - amounts that do not meet the criteria to be classified as restricted or committed but that are intended to be used for specific purposes. Under the District's adopted policy, only the governing board or chief business officer/assistant superintendent of business services may assign amounts for specific purposes. Unassigned - all other spendable amounts. 28

87 RIO ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 Spending Order Policy When an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available, the District considers restricted funds to have been spent first. When an expenditure is incurred for which committed, assigned, or unassigned fund balances are available, the District considers amounts to have been spent first out of committed funds, then assigned funds, and finally unassigned funds, as needed, unless the governing board has provided otherwise in its commitment or assignment actions. Minimum Fund Balance Policy The governing board adopted a minimum fund balance policy for the General Fund in order to protect the District against revenue shortfalls or unpredicted on-time expenditures. The policy requires a Reserve for Economic Uncertainties consisting of unassigned amounts equal to no less than three percent of General Fund expenditures and other financing uses. Net Position Net position represents the difference between assets and liabilities. Net position net investment in capital assets, consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for the acquisition, construction or improvement of those assets. Net position is reported as restricted when there are limitations imposed on their use either through the enabling legislation adopted by the District or through external restrictions imposed by creditors, grantors, or laws or regulations of other governments. The District first applies restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net position is available. The government-wide financial statements reports $4,215,004 of restricted net position. Interfund Activity Exchange transactions between funds are reported as revenues in the seller funds and as expenditures/expenses in the purchaser funds. Flows of cash or goods from one fund to another without a requirement for repayment are reported as interfund transfers. Interfund transfers are reported as other financing sources/uses in governmental funds. Repayments from funds responsible for particular expenditures/expenses to the funds that initially paid for them are not presented on the financial statements. Interfund transfers are eliminated in the governmental columns of the Statement of Activities. 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 amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. 29

88 RIO ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 Budgetary Data The budgetary process is prescribed by provisions of the California Education Code and requires the governing board to hold a public hearing and adopt an operating budget no later than July 1 of each year. The District governing board satisfied these requirements. The adopted budget is subject to amendment throughout the year to give consideration to unanticipated revenue and expenditures primarily resulting from events unknown at the time of budget adoption with the legal restriction that expenditures cannot exceed appropriations by major object account. The amounts reported as the original budgeted amounts in the budgetary statements reflect the amounts when the original appropriations were adopted. The amounts reported as the final budgeted amounts in the budgetary statements reflect the amounts after all budget amendments have been accounted for. For budget purposes, on behalf payments have not been included as revenue and expenditures as required under generally accepted accounting principles. Property Tax Secured property taxes attach as an enforceable lien on property as of January 1. Taxes are payable in two installments on November 1 and February 1 and become delinquent on December 11 and April 10, respectively. Unsecured property taxes are payable in one installment on or before August 31. The County of Ventura bills and collects the taxes on behalf of the District. Local property tax revenues are recorded when received. Changes in Accounting Principles In March 2012, the GASB issued Statement No. 65, Items Previously Reported as Assets and Liabilities. This Statement establishes accounting and financial reporting standards that reclassify, as deferred outflows of resources or deferred inflows of resources, certain items that were previously reported as assets and liabilities and recognizes, as outflows of resources or inflows of resources, certain items that were previously reported as assets and liabilities. Concepts Statement No. 4, Elements of Financial Statements, introduced and defined the elements included in financial statements, including deferred outflows of resources and deferred inflows of resources. In addition, Concepts Statement 4 provides that reporting a deferred outflow of resources or a deferred inflow of resources should be limited to those instances identified by the Board in authoritative pronouncements that are established after applicable due process. Prior to the issuance of this Statement, only two such pronouncements have been issued. Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, requires the reporting of a deferred outflow of resources or a deferred inflow of resources for the changes in fair value of hedging derivative instruments, and Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements, requires a deferred inflow of resources to be reported by a transferor government in a qualifying service concession arrangement. This Statement amends the financial statement element classification of certain items previously reported as assets and liabilities to be consistent with the definitions in Concepts Statement No. 4. This Statement also provides other financial reporting guidance related to the impact of the financial statement elements deferred outflows of resources and deferred inflows of resources, such as changes in the determination of the major fund calculations and limiting the use of the term deferred in financial statement presentations. The District has implemented the provisions of this Statement for the year ended June 30,

89 RIO ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 New Accounting Pronouncements In June 2012, the GASB issued Statement No. 68, Accounting and Financial Reporting for Pensions an amendment of GASB Statement No. 27. The primary objective of this Statement is to improve accounting and financial reporting by State and local governments for pensions. It also improves information provided by State and local governmental employers about financial support for pensions that is provided by other entities. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for pensions with regard to providing decision-useful information, supporting assessments of accountability and inter-period equity, and creating additional transparency. This Statement replaces the requirements of Statement No. 27, Accounting for Pensions by State and Local Governmental Employers, as well as the requirements of Statement No. 50, Pension Disclosures, as they relate to pensions that are provided through pension plans administered as trusts or equivalent arrangements (hereafter jointly referred to as trusts) that meet certain criteria. The requirements of Statements No. 27 and No. 50 remain applicable for pensions that are not covered by the scope of this Statement. The scope of this Statement 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 that have the following characteristics: Contributions from employers and non-employer 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 terms. Pension plan assets are legally protected from the creditors of employers, non-employer 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. This Statement establishes standards for measuring and recognizing liabilities, deferred outflows of resources, and deferred inflows of resources, and expense/expenditures. For defined benefit pensions, this Statement 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. Note disclosure and required supplementary information requirements about pensions also are addressed. Distinctions are made regarding the particular requirements for employers based on the number of employers whose employees are provided with pensions through the pension plan and whether pension obligations and pension plan assets are shared. Employers are classified in one of the following categories for purposes of this Statement: Single employers are those whose employees are provided with defined benefit pensions through singleemployer pension plans pension plans in which pensions are provided to the employees of only one employer (as defined in this Statement). 31

90 RIO ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 Agent employers are those whose employees are provided with defined benefit pensions through agent multiple-employer pension plans pension plans in which plan assets are pooled for investment purposes but separate accounts are maintained for each individual employer so that each employer's share of the pooled assets is legally available to pay the benefits of only its employees. Cost-sharing employers are those whose employees are provided with defined benefit pensions through cost-sharing multiple-employer pension plans pension plans in which the pension obligations to the employees of more than one employer are pooled and plan assets can be used to pay the benefits of the employees of any employer that provides pensions through the pension plan. In addition, this Statement details the recognition and disclosure requirements for employers with liabilities (payables) to a defined benefit pension plan and for employers whose employees are provided with defined contribution pensions. This Statement also addresses circumstances in which a non-employer entity has a legal requirement to make contributions directly to a pension plan. This Statement is effective for fiscal years beginning after June 15, Early implementation is encouraged. In November 2013, the GASB issued Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date An Amendment of GASB Statement No. 68. The objective of this Statement is to address an issue regarding application of the transition provisions of Statement No. 68, Accounting and Financial Reporting for Pensions. The issue relates to amounts associated with contributions, if any, made by a State or local government employer or nonemployer contributing entity to a defined benefit pension plan after the measurement date of the government's beginning net pension liability. Statement No. 68 requires a State or local government employer (or nonemployer contributing entity in a special funding situation) to recognize a net pension liability measured as of a date (the measurement date) no earlier than the end of its prior fiscal year. If a State or local government employer or nonemployer contributing entity makes a contribution to a defined benefit pension plan between the measurement date of the reported net pension liability and the end of the government's reporting period, Statement No. 68 requires that the government recognize its contribution as a deferred outflow of resources. In addition, Statement No. 68 requires recognition of deferred outflows of resources and deferred inflows of resources for changes in the net pension liability of a State or local government employer or nonemployer contributing entity that arise from other types of events. At transition to Statement No. 68, if it is not practical for an employer or nonemployer contributing entity to determine the amounts of all deferred outflows of resources and deferred inflows of resources related to pensions, paragraph 137 of Statement No. 68 required that beginning balances for deferred outflows of resources and deferred inflows of resources not be reported. Consequently, if it is not practical to determine the amounts of all deferred outflows of resources and deferred inflows of resources related to pensions, contributions made after the measurement date of the beginning net pension liability could not have been reported as deferred outflows of resources at transition. This could have resulted in a significant understatement of an employer or nonemployer contributing entity's beginning net position and expense in the initial period of implementation. 32

91 RIO ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 This Statement amends paragraph 137 of Statement No. 68 to require that, at transition, a government recognize a beginning deferred outflow of resources for its pension contributions, if any, made subsequent to the measurement date of the beginning net pension liability. Statement No. 68, as amended, continues to require that beginning balances for other deferred outflows of resources and deferred inflows of resources related to pensions be reported at transition only if it is practical to determine all such amounts. The provisions of this Statement are required to be applied simultaneously with the provisions of Statement No. 68. NOTE 2 - DEPOSITS AND INVESTMENTS Summary of Deposits and Investments Deposits and investments as of June 30, 2014, are classified in the accompanying financial statements as follows: Governmental activities $ 11,344,670 Fiduciary funds 6,012,532 Total Deposits and Investments $ 17,357,202 Deposits and investments as of June 30, 2014, consist of the following: Cash on hand and in$ banks 45,539 Cash in revolving 5,000 Investments 17,306,663 Total Deposits and Investments $ 17,357,202 Policies and Practices The District is authorized under California Government Code to make direct investments in local agency bonds, notes, or warrants within the State; U.S. Treasury instruments; registered State warrants or treasury notes; securities of the U.S. Government, or its agencies; bankers acceptances; commercial paper; certificates of deposit placed with commercial banks and/or savings and loan companies; repurchase or reverse repurchase agreements; medium term corporate notes; shares of beneficial interest issued by diversified management companies, certificates of participation, obligations with first priority security; and collateralized mortgage obligations. Investment in County Treasury - The District is considered to be an involuntary participant in an external investment pool as the District is required to deposit all receipts and collections of monies with their County Treasurer (Education Code Section 41001). The fair value of the District's investment in the pool is reported in the accounting financial statements at amounts based upon the District's pro-rata share of the fair value provided by the County Treasurer for the entire portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by the County Treasurer, which is recorded on the amortized cost basis. 33

92 RIO ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 General Authorizations Limitations as they relate to interest rate risk, credit risk, and concentration of credit risk are indicated in the schedules below: Maximum Maximum Maximum Authorized Remaining Percentage Investment Investment Type Maturity of Portfolio in One Issuer Local Agency Bonds, Notes, Warrants 5 years None None Registered State Bonds, Notes, Warrants 5 years None None U.S. Treasury Obligations 5 years None None U.S. Agency Securities 5 years None None Banker's Acceptance 180 days 40% 30% Commercial Paper 270 days 25% 10% Negotiable Certificates of Deposit 5 years 30% None Repurchase Agreements 1 year None None Reverse Repurchase Agreements 92 days 20% of base None Medium-Term Corporate Notes 5 years 30% None Mutual Funds N/A 20% 10% Money Market Mutual Funds N/A 20% 10% Mortgage Pass-Through Securities 5 years 20% None County Pooled Investment Funds N/A None None Local Agency Investment Fund (LAIF) N/A None None Joint Powers Authority Pools N/A None None 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. The District does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. The District manages its exposure to interest rate risk by investing in the County pool to provide the cash flow and liquidity needed for operations, and by purchasing a combination of shorter term and longer term investments and timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow necessary for debt service requirements. 34

93 RIO ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 The District monitors the interest rate risk inherent in its portfolio by measuring the weighted average maturity of its portfolio. Information about the weighted average maturity of the District's portfolio is presented in the following schedule: Weighted Average Reported Fair Maturity Investment Type Amount Value in Days Ventura County Investment Pool $ 8,418,036 $ 8,399, Fidelity Institutional Money Market Treasury Portfolio - Class I 1,788,749 1,788, Invesco Short-Term Treasury Portfolio 7,099,878 7,099, Total $ 17,306,663 $ 17,288,605 Credit Risk 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. The District's investments in the Ventura County Investment Pool, Fidelity Institutional Money Market, and Invesco Short-Term Treasury Portfolio are rated AAA by Standard and Poor's rating services. Custodial Credit Risk - Deposits This is the risk that in the event of a bank failure, the District's deposits may not be returned to it. The District does not have a policy for custodial credit risk for deposits. However, 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 percent of the total amount deposited by the public agency. California law also allows financial institutions to secure public deposits by pledging first trust deed mortgage notes having a value of 150 percent of the secured public deposits and letters of credit issued by the Federal Home Loan Bank of San Francisco having a value of 105 percent of the secured deposits. As of June 30, 2014, the District's bank deposits were not exposed to custodial credit risk because they were fully insured. 35

94 RIO ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 3 - RECEIVABLES Receivables at June 30, 2014, consisted of intergovernmental grants, entitlements, interest, and other local sources. All receivables are considered collectible in full. County Capital School Non-Major General Facilities Facilities Governmental Fund Fund Fund Funds Total Federal Government Categorical aid $ 898,783 $ - $ - $ 440,051 $ 1,338,834 State Government State principal apportionment 200, , ,795 Categorical aid 3,720, ,720,698 Lottery 358, ,288 Special education 424, ,563 Local Sources Ventura county 418, ,816 Other 457,408 16,354 32, ,465 Total $ 6,478,795 $ 16,354 $ 32,169 $ 547,141 $ 7,074,459 36

95 RIO ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 4 - CAPITAL ASSETS Capital asset activity for the fiscal year ended June 30, 2014, was as follows: Balance Balance July 1, 2013 Additions Deductions June 30, 2014 Governmental Activities Capital Assets Not Being Depreciated Land $ 11,107,629 $ - $ - $ 11,107,629 Construction in process 1,862, ,754 2,180, ,233 Total Capital Assets Not Being Depreciated 12,970, ,754 2,180,296 11,342,862 Capital Assets Being Depreciated Land improvements 2,755, ,449-3,074,022 Buildings and improvements 104,834,606 25,576, ,411,030 Furniture and equipment 4,455,614 90,499 21,324 4,524,789 Total Capital Assets Being Depreciated 112,045,793 25,985,372 21, ,009,841 Less Accumulated Depreciation Land improvements 2,188, ,599-2,330,110 Buildings and improvements 19,937,276 2,150,631-22,087,907 Furniture and equipment 3,494, ,903 21,124 3,701,106 Total Accumulated Depreciation 25,620,114 2,520,133 21,124 28,119,123 Governmental Activities Capital Assets, Net $ 99,396,083 $ 24,017,993 $ 2,180,496 $ 121,233,580 Depreciation expense was charged to governmental functions as follows: Governmental Activities Instruction $ 1,965,742 School site administration 151,211 Home-to-school transportation 50,404 All other pupil services 50,404 Data processing 25,151 All other general administration 126,010 Plant services 151,211 Total Depreciation Expenses Governmental Activities $ 2,520,133 37

96 RIO ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 5 - INTERFUND TRANSACTIONS Interfund Receivables/Payables (Due To/Due From) Interfund receivable and payable balances arise from interfund transactions and are recorded by all funds affected in the period in which transactions are executed. Interfund receivable and payable balances at June 30, 2014, between major and non-major governmental funds are as follows: Due From Capital Non-Major Total General Facilities Governmental Governmental Due To Fund Fund Funds Funds General Fund $ - $ 237,000 $ 111,676 $ 348,676 Capital Facilities Fund 586, , ,105 County School Facilities Fund - 1,956,515-1,956,515 Non-Major Governmental Funds 38, ,668 Total $ 624,773 $ 2,193,515 $ 468,676 $ 3,286,964 A balance of $586,105 is due to the Capital Facilities Fund from the General Fund for required debt service payment related to the District's certificates of participation. A balance of $1,956,515 is due to the County School Facilities Fund from the Capital Facilities Fund for payment of District's matching funds for capital outlay projects. A balance of $357,000 is due to the Capital Facilities Fund from the Cafeteria Fund for operating contributions to sustain cash flow. The remaining balances resulted from the time lag between the date that (1) interfund goods and services are provided or reimbursable expenditures occur, (2) transactions are recorded in the accounting system, and (3) payments between funds are made. Operating Transfers Interfund transfers for the year ended June 30, 2014, consisted of the following: Transfer To Capital Facilities Fund $ 589,358 Transfer From General Funds The General Fund transferred to the Capital Facilities Fund for the required debt service payment related to the District's outstanding certificates of participation. $ 589,358 38

97 RIO ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 6 - ACCOUNTS PAYABLE Accounts payable at June 30, 2014, consisted of the following: Capital County School Capital Project Non-Major Total General Facilities Facilities Component Unit Governmental Governmental Fund Fund Fund Fund Funds Funds Materials and supplies $ 252,172 $ - $ - $ - $ 99,118 $ 351,290 Services 1,590,438 45,213 20, ,048 1,658,817 State principal apportionment 577, ,991 Salaries and benefits 233, , ,122 Construction - 80,698-61, ,203 Legal settlement - - 1,968, ,968,267 Total $ 2,654,168 $ 125,911 $ 1,988,913 $ 61,977 $ 109,721 $ 4,940,690 NOTE 7 - UNEARNED REVENUE Unearned revenue at June 30, 2014, consists of the following: Federal financial assistance12,941 $ State categorical aid 38,094 Total $ 51,035 General Fund NOTE 8 TAX AND REVENUE ANTICIPATION NOTES (TRANS) The District issued $3,975,000 of Tax Revenue Anticipation Notes dated February 20, 2013, through the California School Cash Reserve Program Authority. The notes mature on October 1, 2013, with an interest rate of percent. The notes were sold to supplement cash flow. Repayments terms stipulate that 100 percent of principal and interest are due on the account to a designated fiscal agent by the notes' maturity date. As of June 30, 2014, the District has defeased the debt. The District issued $1,825,000 of Tax Revenue Anticipation Notes dated February 22, 2014, through the California School Cash Reserve Program Authority. The notes mature on October 1, 2014, with an interest rate of percent. The notes were sold to supplement cash flow. Repayments terms stipulate that 100 percent of principal and interest are due on the account to a designated fiscal agent by the notes' maturity date. As of June 30, 2014, the District had an outstanding Tax and Revenue Anticipate Note in the amount of $1,825,

98 RIO ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 Change in the outstanding liability for the Tax and Revenue Anticipation Notes is as follows: Maturity Outstanding Outstanding Issue Date Rate Date July 1, 2013 Additions Payments June 30, /20/ % 10/1/2013 $ 3,474,000 $ - $ 3,474,000 $ - 2/25/ % 10/1/2014-1,825,000-1,825,000 $ 3,474,000 $ 1,825,000 $ 3,474,000 $ 1,825,000 NOTE 9 - LONG-TERM OBLIGATIONS Summary Payments on the general obligation bonds are made by the Bond Interest and Redemption Fund with local revenues. Payments for the Certificates of Participation are made by the Capital Facilities Fund. Payments for the lease purchase agreement are made by the General Fund. Capital leases are paid by the General Fund, the Cafeteria Fund, and the Capital Facilities Fund. The accrued vacation is paid by the fund for which the employee worked. Supplemental retirement payments are paid by the General Fund. The legal settlement and litigation is paid by the General Fund. Other postemployment benefits are paid by the General Fund. The changes in the District's long-term obligations during the year consisted of the following: Balance Balance Due in July 1, 2013 Additions Deductions June 30, 2014 One Year General obligation bonds $ 14,675,000 $ - $ 635,000 $ 14,040,000 $ 680,000 General obligation bonds premium on issuance 552,816-32, ,298 - Certificates of participation 7,420, ,000 7,145, ,000 Certificates of participation premium on issuance 41,871-2,204 39,667 - Lease purchase agreement 3,295, ,046 2,955, ,041 Capital leases 14,501 34,064 19,686 28,879 6,346 Accumulated vacation 213,096 48, ,396 - Supplemental retirement payments 102,000 4, ,000 - Legal settlement 93,787-15,631 78,156 15,631 Litigation 9,293,417 1,706,583-11,000,000 - Other postemployment benefits 3,100,433 1,778, ,417 4,302,068 - Total $ 38,802,140 $ 3,570,999 $ 1,896,502 $ 40,476,637 $ 1,347,018 40

99 RIO ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 General Obligation Bonds The outstanding general obligation bonded debt is as follows: Bonds Bonds Issue Maturity Interest Original Outstanding Outstanding Date Date Rate Issue July 1, 2013 Redeemed June 30, /2/2007 8/1/ % $ 16,396,187 $ 14,675,000 $ 635,000 $ 14,040,000 On May 2, 2007, the District issued the 2007 General Obligation Refunding Bonds (the Refunding Bonds) in the amount of $16,396,187, to refund the portions of the 1997 General Obligation Bonds, Series A, B, and C (the Refunded Bonds), as noted above. The Refunding Bonds were issued as both current interest ($15,690,000) and capital appreciation bonds ($706,187), with the value of the capital appreciation bonds accreting $263,813, with an aggregate principal debt service balance of $970,000. The District received net proceeds of $16,880,288 (including premium of $780,442 and after payment of $296,341 in underwriter fees, insurance, and other issuance costs). At June 30, 2014, Refunding Bonds in the amount of $14,040,000, including accreted interest, were outstanding. The unamortized premium was $520,298 at June 30, The proceeds of the Refunding Bonds were deposited in an escrow fund to pay the debt service on the Refunding Bonds due on August 1, 2007, and the redemption prices of the Refunded Bonds on the optional redemption date for the Refunded Bonds on August 1, Debt Service Requirements to Maturity The bonds mature through 2030 as follows: Fiscal Year Principal Interest Total 2015 $ 680,000 $ 635,706 $ 1,315, , ,831 1,315, , ,331 1,309, , ,082 1,311, , ,082 1,301, ,685,000 1,833,667 6,518, ,965, ,645 5,737, ,000 16, ,250 Total $ 14,040,000 $ 5,435,594 $ 19,475,594 41

100 RIO ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 Certificates of Participation Financing Project On March 14, 2007, the District, under the California School Boards Association Financing Corporation, issued $8,335,000 in Certificates of Participation. The Certificates mature March 1, 2032, and bear interest rates from 3.5 to 5.5 percent. The District received net proceeds of $8,102,541 (including premium of $57,299 and after payment of $289,758 in underwriter fees and other issuance costs). A portion of the proceeds, $1,305,000, was used to prepay the District's Capital Appreciation Certificates of Participation. The remainder is being used to finance costs associated with the completion of the construction of Rio Rosales Elementary School and other District facilities, to fund the Debt Service Reserve Fund, and to pay the costs related to the issuance of the Certificates of participation. A balance of $7,145,000 remains outstanding at June 30, The certificates mature through September 1, 2032, as follows: Year Ending June 30, Principal Interest Total 2015 $ 285,000 $ 304,732 $ 589, , , , , , , , , , , , , ,915,000 1,022,716 2,937, ,335, ,910 2,928, ,335, ,530 1,451,530 Total $ 7,145,000 $ 3,116,068 $ 10,261,068 Lease Purchase Agreement The District has entered into a lease agreement for the purchase of its District Office. The lease is divided into two parts. The tax-exempt part is for the portion of the building that the District occupies. The initial balance on this lease was $3,975,193 and it bears interest at 4.35 percent. The other is for the portion of the building that the District leases out. The initial balance on this lease was $2,025,000, and it bears interest at 6.64 percent. Both parts of the lease are scheduled to be paid in full by October 1, The remaining balance at June 30, 2014, is $2,955,

101 RIO ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 The lease payments are as follows: Interest to Fiscal Year Principal Maturity Total 2015 $ 360,041 $ 143,125 $ 503, , , , , , , ,026 83, , ,020 61, , ,019 50,830 1,005,849 Total $ 2,559,173 $ 566,896 $ 3,126,069 Capital Leases The District has entered into an agreement to lease a dump truck. Such an agreement is, in substance, a purchase (capital lease) and is reported as a capital lease obligation. The District's liability on the lease agreement with an option to purchase is summarized below: Balance, July 1, 2013 $ 15,326 Additions 38,816 Payments (21,795) Balance, June 30, 2014 $ 32,347 The capital leases have minimum lease payments as follows: Year Ending Lease June 30, Payment 2015 $ 7, , , , ,295 Total 32,347 Less: Amount Representing Interest (3,468) Present Value of Minimum Lease Payments $ 28,879 Accumulated Unpaid Employee Vacation The long-term portion of accumulated unpaid employee vacation for the District at June 30, 2014, amounted to $261,

102 RIO ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 Supplemental Retirement Payments For all employees hired prior to July 1, 1992, the District will provide family medical, dental, and vision from retirement until age 65 if the employee has completed a minimum of 15 years with the District. The District will also provide the employee with supplemental retirement payments for every year of service with the District upon retirement. Employees have the option of receiving a lump-sum payment or payments in installments. As of June 30, 2014, there were a total of four employees eligible to receive the supplemental retirement payments. The current outstanding liability to the District is $106,000. Legal Settlement During the fiscal year, the District reached a settlement agreement with the former superintendent. The original agreement stipulated that the District will make five annual payments to the former superintendent and two annual payments for attorney fees. The total liability to the District was $1,484,540, including accrued interest. Since the original agreement, the District renegotiated the terms of the settlement numerous times to allow financial flexibility. During the fiscal year, the District has renegotiated the terms of the settlement in accordance to the following schedule: Fiscal Year Total 2015 $ 15, , , , ,632 Total $ 78,156 Litigation The District was a defendant in a lawsuit brought by a general contractor company (the contractor) which was retained by the District to construct a school. The contractor filed a suit for breach of contract for unpaid retention, work outside the contract, delay, disruption, and related damages. The District filed a separate action for violation of the California False Claims Act. However, during the prior and current fiscal years the court issued a ruling in favor of the contractor and awarded them an amount of $5,443,417, plus an estimated $3,850,000 for opposing counsel fees and an estimated $1,706,583 in penalties and interest. The District has accrued a liability for this amount, but intends to aggressively defend itself against the lawsuit. The court of appeals has heard the District's appeal of this case and is expected to issue a decision by January

103 RIO ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 Other Postemployment Benefits (OPEB) Obligation The District's annual required contribution for the year ended June 30, 2014, was $1,833,333, and contributions made by the District during the year were $576,417. Interest on the net OPEB obligation and adjustments to the annual required contribution were $124,017 and ($179,298), respectively, which resulted in an increase to the net OPEB obligation of $1,201,635. As of June 30, 2014, the net OPEB obligation was $4,302,068. See Note 12 for additional information regarding the OPEB obligation and the postemployment benefits plan. NOTE 10 - COMMUNITY FACILITIES DISTRICT BONDS (NON-OBLIGATORY DEBT) These bonds are authorized to the Mello-Roos Community Facilities Act of 1982 as amended, and are payable from special taxes levied on property within the Community Facilities Districts according to a methodology approved by the voters within the Community Facilities District. Neither the faith and credit nor taxing power of the Rio Elementary School District is pledged to the payment of the bonds. Reserves have been established from the bond proceeds to meet delinquencies should they occur. If delinquencies occur beyond the amounts held in those reserves, the Rio Elementary School District has no duty to pay the delinquency out of any available funds of the District. The Rio Elementary School District acts solely as an agent for those paying taxes levied and the bondholders. The Rio Elementary School District Community Facilities District No. 1 Special Tax Bonds, Series 2005, and Series 2013 have remaining balances as of June 30, 2014, of $56,880,

104 RIO ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 11 - FUND BALANCES Fund balances are composed of the following elements: Capital County School Capital Project General Facilities Facilities Component Unit Fund Fund Fund Fund Nonspendable Revolving cash $ 5,000 $ - $ - $ - Stores inventories 45, Prepaid expenditures 8, Total Nonspendable 58, Restricted Legally restricted 829, Capital projects - 1,537, ,862 1,430,314 Debt services Total Restricted 829,115 1,537, ,862 1,430,314 Assigned Postemployment benefits 3,697, Deferred maintenance 12, Capital projects Total Assigned 3,710, Unassigned uncertainties 1,207, Remaining unassigned 576, Total Unassigned 1,783, Total $ 6,381,796 $ 1,537,761 $ 895,862 $ 1,430,314 46

105 Non-Major Governmental Funds Total $ - $ 5,000 14,480 59,992-8,265 14,480 73,257 74, ,431-3,863,937 1,289,570 1,289,570 1,363,886 6,056,938-3,697,096-12,939 46,562 46,562 46,562 3,756,597-1,207, ,589-1,783,869 $ 1,424,928 $ 11,670,661 46

106 RIO ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 12 - POSTEMPLOYMENT HEALTH CARE PLAN AND OTHER POSTEMPLOYMENT BENEFITS (OPEB) OBLIGATION Plan Description The Plan is a single-employer defined benefit health care plan administered by the Rio Elementary School District. The District provides postemployment health care benefits, in accordance with District employment contracts, to all employees who retire from the District on or after attaining age 55 with at least 15 years of service for certificated and management employees hired prior to July 1, 1997, and classified employees hired prior to July 1, Twenty years of service are required for all other employees. The District contributes from 50 percent to 100 percent of the amount of premiums incurred by retirees and their dependents depending on employment classification, hire date, and years of service at retirement. Membership of the Plan consists of 41 retirees and beneficiaries currently receiving benefits; one terminated Plan member entitled to, but not yet receiving benefits and 302 active Plan members. Contribution Information The contribution requirements of Plan members and the District are established and may be amended by the District and the Teachers Association (RTA), the local California Service Employees Association (CSEA), and unrepresented groups. The required contribution is based on projected pay-as-you-go financing requirements. For fiscal year , the District contributed $576,417 to the Plan, all of which was used for current premiums. Annual OPEB Cost and Net OPEB Obligation The District's annual 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 No. 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 accrued liabilities (UAAL) (or funding excess) over a period not to exceed 30 years. 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 $ 1,833,333 Interest on net OPEB obligation 124,017 Adjustment to annual required contribution (179,298) Annual OPEB cost (expense) 1,778,052 Contributions made (576,417) Increase in net OPEB obligation 1,201,635 Net OPEB obligation, beginning of year 3,100,433 Net OPEB obligation, end of year $ 4,302,068 47

107 RIO ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 Trend Information Trend information for annual OPEB cost, the percentage of annual OPEB cost contributed to the Plan, and the net OPEB obligation is as follows: Year Ended Annual OPEB Actual Percentage Net OPEB June 30, Cost Contribution Contributed Obligation 2012 $ 1,472,023 $ 759,160 52% $ 2,345, ,461, ,555 48% 3,100, ,778, ,417 32% 4,302,068 Funded Status and Funding Progress A schedule of funding progress as of the most recent actuarial valuation is as follow: Actuarial Accrued Liability Unfunded UAAL as a Actuarial Actuarial (AAL) - AAL Funded Percentage of Valuation Value of Unprojected (UAAL) Ratio Covered Covered Payroll Date Assets (a) Unit Credit (b) (b - a) (a / b) Payroll (c) ([b - a] / c) July 1, 2013 $ - $ 22,741,315 $ 22,741,315 0% $ 22,221, % 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 short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the July 1, 2013, actuarial valuation, the unprojected unit credit method was used. The actuarial assumptions included a five percent investment rate of return (net of administrative expenses), based on the plan being funded in an irrevocable employee benefit trust invested in a combined equity and fixed income portfolio. Healthcare cost trend rates ranged from an initial five percent to an ultimate rate of eight percent. The cost trend rate used for the Dental and Vision programs was four percent. The UAAL is being amortized at a level dollar method. The remaining amortization period at July 1, 2014, was 25 years. The actuarial value of assets was not determined in this actuarial valuation as there were none. 48

108 RIO ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 13 - RISK MANAGEMENT Description The Rio Elementary School District's risk management activities are recorded in the General Fund. Employee health programs are administered by the General Fund through payments made to Self-Insured Schools of California (SISC), a public entity risk pool. The District also participates in the Ventura County Schools Self- Funding Authority public entity risk pool for the workers' compensation, property, and liability programs. Refer to Note 16 for additional information regarding the public entity risk pools. For insured programs, there have been no significant reductions in insurance coverage. Settlement amounts have not exceeded insurance coverage for the current year or the three prior years. Employee Medical Benefits The District has contracted with the SISC to provide employee health benefits. SISC is a shared risk pool comprised of numerous members in California. Rates are set through an annual calculation process. The District pays a monthly contribution, which is placed in a common fund from which claim payments are made for all participating entities. Claims are paid for all participants regardless of claims flow. The Board of Directors has a right to return monies to a district subsequent to the settlement of all expenses and claims if a district withdraws from the pool. NOTE 14 - EMPLOYEE RETIREMENT SYSTEMS Qualified employees are covered under multiple-employer retirement plans maintained by agencies of the State of California. Certificated employees are members of the California State Teachers' Retirement System (CalSTRS) and classified employees are members of the California Public Employees' Retirement System (CalPERS). CalSTRS Plan Description The District contributes to CalSTRS, a cost-sharing multiple-employer public employee retirement system defined benefit pension plan administered by CalSTRS. The plan provides retirement and disability benefits, annual cost-of-living adjustments, and survivor benefits to beneficiaries. As a result of the Public Employee Pension Reform Act of 2013 (PEPRA), changes have been made to the defined benefit pension plan effective January 1, Benefit provisions are established by State statutes, as legislatively amended, within the State Teachers' Retirement Law. CalSTRS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the CalSTRS annual financial report may be obtained from CalSTRS, 100 Waterfront Place, West Sacramento, California

109 RIO ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 Funding Policy Due to the implementation of the Public Employee Pension Reform Act of 2013 (PEPRA), new members must pay at least 50 percent of the normal costs of the plan, which can fluctuate from year to year. For , the required contribution rate for new members is 8.0 percent. "Classic" plan members are also required to contribute 8.0 percent of their salary. The District is required to contribute an actuarially determined rate. The actuarial methods and assumptions used for determining the rate are those adopted by CalSTRS Teachers' Retirement Board. The required employer contribution rate for fiscal year was 8.25 percent of annual payroll. The contribution requirements of the plan members are established by State statute. The District's contributions to CalSTRS for the fiscal years ending June 30, 2014, 2013, and 2012, were $1,336,735, $1,201,686, and $1,176,457, respectively, and equal 100 percent of the required contributions for each year. CalPERS Plan Description The District contributes to the School Employer Pool under 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 survivor benefits to plan members and beneficiaries. As a result of the Public Employee Pension Reform Act of 2013 (PEPRA), changes have been made to the defined benefit pension plan effective January 1, Benefit provisions are established by State statutes, as legislatively amended, within the Public Employees' Retirement Laws. 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 As a result of the implementation of the Public Employee Pension Reform Act of 2013 (PEPRA), new members must pay at least 50 percent of the normal costs of the plan, which can fluctuate from year to year. For , the normal cost is percent, which rounds to a 6.0 percent contribution rate. "Classic" plan members continue to contribute 7.0 percent. 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 percent of covered 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 $593,083, $529,085, and $496,362, respectively, and equal 100 percent of the required contributions for each year. Social Security As established by Federal law, all public sector employees who are not members of their employer's existing retirement system (CalSTRS or CalPERS) must be covered by Social Security or an alternative plan. The District has elected to use Social Security as its alternative plan. District and employee contributions are determined by statute. 50

110 RIO ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 On Behalf Payments The State of California makes contributions to CalSTRS on behalf of the District. These payments consist of State General Fund contributions to CalSTRS in the amount of $790,148 (5.541 percent of annual payroll). Contributions are no longer appropriated in the annual Budget Act for the legislatively mandated benefits to CalPERS. Therefore, there is no on behalf contribution rate for CalPERS.). Under accounting principles generally accepted in the United States of America, these amounts are to be reported as revenues and expenditures. Accordingly, these amounts have been recorded in these financial statements. On behalf payments have been excluded from the calculation of available reserves, and have not been included in the budget amounts reported in the General Fund - Budgetary Comparison Schedule. NOTE 15 - COMMITMENTS AND CONTINGENCIES Grants The District received financial assistance from Federal and State agencies in the form of grants. The disbursement of funds received under these programs generally requires compliance with terms and conditions specified in the grant agreements and are subject to audit by the grantor agencies. Any disallowed claims resulting from such audits could become a liability of the General Fund or other applicable funds. However, in the opinion of management, any such disallowed claims will not have a material adverse effect on the overall financial position of the District at June 30, Litigation The District is involved in various litigation arising from the normal course of business. In the opinion of management and legal counsel, the disposition of all litigation pending may have a material adverse effect on the overall financial position of the District at June 30, See also Note 9, regarding litigation. NOTE 16 - PARTICIPATION IN PUBLIC ENTITY RISK POOLS AND JOINT POWER AUTHORITIES The District is a member of the Ventura County Schools Self-Funding Authority (VCSSFA) and the Self-Insured Schools of California (SISC) public entity risk pools and the Ventura County Fast Action School Transit Authority (VCFAST) a joint powers authority (JPA). The District pays an annual premium to VCSSFA and CSEBO for its workers' compensation and property liability coverage, and health benefits, respectively. Payments for courier services are paid to the VCFAST. The relationships between the District, the pools, and the JPA are such that they are not component units of the District for financial reporting purposes. These entities have budgeting and financial reporting requirements independent of member units and their financial statements are not presented in these financial statements; however, fund transactions between the entities and the District are included in these statements. Audited financial statements are available from the respective entities. During the year ended June 30, 2014, the District made payments of $789,970, $4,873,020, and $4,108, to VCSSFA, SISC, and VCFAST, respectively, for services received. 51

111 REQUIRED SUPPLEMENTARY INFORMATION 52

112 RIO ELEMENTARY SCHOOL DISTRICT GENERAL FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30, 2014 Variances - Positive (Negative) Budgeted Amounts Actual Final Original Final (GAAP Basis) to Actual REVENUES Local Control Funding Formula $ 23,668,106 $ 29,684,383 $ 29,968,752 $ 284,369 Federal sources 2,185,985 2,304,955 2,128,106 (176,849) Other State sources 5,985,848 3,022,457 3,882, ,097 Other local sources 3,155,495 3,193,505 3,171,707 (21,798) Total Revenues 1 34,995,434 38,205,300 39,151, ,819 EXPENDITURES Current Certificated salaries 15,108,959 16,419,379 16,846,217 (426,838) Classified salaries 3,817,198 4,318,702 4,508,430 (189,728) Employee benefits 8,665,027 8,922,770 9,504,777 (582,007) Books and supplies 1,673,323 2,979,971 2,392, ,279 Services and operating expenditures 5,440,199 6,048,983 5,397, ,064 Other outgo 1,310,451 1,387,707 1,596,105 (208,398) Capital outlay 10,000 85, ,938 (61,924) Debt service - principal 136, , ,520 - Debt service - interest 64,393 64, ,464 (44,071) Total Expenditures 1 36,225,568 40,377,439 40,652,062 (274,623) Excess (Deficiency) of Revenues Over Expenditures (1,230,134) (2,172,139) (1,500,943) 671,196 Other Financing Sources (Uses) Transfers in 1,451,500 1,051,500 - (1,051,500) Transfers out (587,358) (589,358) (589,358) - Net Financing Sources (Uses) 864, ,142 (589,358) (1,051,500) NET CHANGE IN FUND BALANCE (365,992) (1,709,997) (2,090,301) (380,304) Fund Balance - Beginning 8,472,097 8,472,097 8,472,097 - Fund Balance - Ending $ 8,106,105 $ 6,762,100 $ 6,381,796 $ (380,304) 1 On behalf payments of $790,148 are included in the actual revenues and expenditures, but have not been included in the budgeted amounts. In addition, due to the consolidation of Fund 14, Deferred Maintenance Fund, and Fund 20, Special Reserve Fund for Postemployment Benefits for reporting purposes into the General Fund, additional revenues and expenditures pertaining to these other funds are included in the Actual (GAAP Basis) revenues and expenditures, however are not included in the original and final General Fund budgets. 53

113 RIO ELEMENTARY SCHOOL DISTRICT SCHEDULE OF OTHER POSTEMPLOYMENT BENEFITS (OPEB) FUNDING PROGRESS FOR THE YEAR ENDED JUNE 30, 2014 Actuarial Accrued Liability Unfunded UAAL as a Actuarial Actuarial (AAL) - AAL Funded Percentage of Valuation Value of Unprojected (UAAL) Ratio Covered Covered Payroll Date Assets (a) Unit Credit (b) (b - a) (a / b) Payroll (c) ([b - a] / c) July 1, 2009 $ - $ 14,905,016 $ 14,905,016 0% $ 19,307,432 77% July 1, ,637,914 16,637,914 0% 19,796,975 84% July 1, ,741,315 22,741,315 0% 22,221, % 54

114 SUPPLEMENTARY INFORMATION 55

115 RIO ELEMENTARY SCHOOL DISTRICT SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2014 Pass-Through Entity Federal Grantor/Pass-Through CFDA Identifying Program Grantor/Program Number Number Expenditures U.S. DEPARTMENT OF EDUCATION Passed through California Department of Education No Child Left Behind Act (NCLB) Title I, Part A - Low Income and Neglected $ 667,683 Migrant Education Program Title I, Part C - Migrant Education Regular ,894 Title I, Part C - Migrant Education Summer ,526 Title I, Part C - Even Start Migrant Education ,000 Subtotal Migrant Education Program 229,420 Title II, Part A - Improving Teacher Quality ,204 Title III, Part A - Limited English Proficient Student Program ,449 Passed through Ventura County Office of Education SELPA Individuals with Disabilities Education Act Special Education (IDEA) Cluster: Local Assistance Entitlement ,528 Preschool Grant, Part B ,314 Preschool Local Entitlement A ,107 Subtotal Special Education (IDEA) Cluster 814,949 Total U.S. Department of Education 2,051,705 U. S. DEPARTMENT OF HEALTH AND HUMAN SERVICES Passed through California Department of Health Services Medi-Cal Billing Option ,002 U.S. DEPARTMENT OF AGRICULTURE Passed through California Department of Education Child Nutrition Cluster: National School Lunch Program ,586,303 Meal Supplements ,209 Especially Needy Breakfast Program ,141 Commodities ,083 Summer Food Service Program ,548 Subtotal Child Nutrition Cluster 2,293,284 Child and Adult Care Food Program ,748 Total U.S. Department of Agriculture 2,842,032 Total Federal Programs $ 4,931,739 See accompanying note to supplementary information. 56

116 RIO ELEMENTARY SCHOOL DISTRICT LOCAL EDUCATION AGENCY ORGANIZATION STRUCTURE JUNE 30, 2014 ORGANIZATION The Rio Elementary School District was established in 1885 and consists of an area comprising approximately 40 square miles. The District operates six elementary schools and two middle schools. There were no boundary changes during the year. GOVERNING BOARD MEMBER OFFICE TERM EXPIRES Ramon Rodriguez President 2014 Matt Klinefelter Clerk 2016 Henrietta Macias Member 2014 Celia Robles Member 2016 Eleanor Torres Member 2014 ADMINISTRATION Dr. John Puglisi Jeff Turner Kristen Pifko Superintendent Assistant Superintendent, Educational Services Assistant Superintendent, Business Services See accompanying note to supplementary information. 57

117 RIO ELEMENTARY SCHOOL DISTRICT SCHEDULE OF AVERAGE DAILY ATTENDANCE FOR THE YEAR ENDED JUNE 30, 2014 Final Report Second Period Annual Report Report Regular ADA Transitional kindergarten through third 2, , Fourth through sixth 1, , Seventh and eighth Total Regular ADA 4, , Extended Year Special Education Transitional kindergarten through third Fourth through sixth Seventh and eighth Total Extended Year Special Education Special Education, Nonpublic, Nonsectarian Schools Transitional kindergarten through third Fourth through sixth Seventh and eighth Total Special Education, Nonpublic, Nonsectarian Schools Total ADA 4, , See accompanying note to supplementary information. 58

118 RIO ELEMENTARY SCHOOL DISTRICT SCHEDULE OF INSTRUCTIONAL TIME FOR THE YEAR ENDED JUNE 30, 2014 Reduced Number of Days Minutes Minutes Actual Traditional Multitrack Grade Level Requirement Requirement Minutes Calendar Calendar Status Kindergarten 36,000 35,000 40, Complied Grades ,400 49,000 Grade 1 52, Complied Grade 2 52, Complied Grade 3 52, Complied Grades ,000 52,500 Grade 4 55, Complied Grade 5 55, Complied Grade 6 62, Complied Grades ,000 52,500 Grade 7 62, Complied Grade 8 62, Complied See accompanying note to supplementary information. 59

119 RIO ELEMENTARY SCHOOL DISTRICT RECONCILIATION OF ANNUAL FINANCIAL AND BUDGET REPORT WITH AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014 There were no adjustments to the Unaudited Actual Financial Report, which required reconciliation to the audited financial statements at June 30, See accompanying note to supplementary information. 60

120 RIO ELEMENTARY SCHOOL DISTRICT SCHEDULE OF FINANCIAL TRENDS AND ANALYSIS FOR THE YEAR ENDED JUNE 30, 2014 (Budget) GENERAL FUND 4 Revenues $ 41,161,383 $ 39,051,786 $ 34,809,669 $ 35,241,237 Other sources and transfers in 1,051,500 1,052,901 1,049,556 84,462 Total Revenues and Other Sources 42,212,883 40,104,687 35,859,225 35,325,699 Expenditures 40,696,931 40,512,233 35,348,830 34,665,184 Other uses and transfers out 589, , , ,105 Total Expenditures and Other Uses 41,286,664 41,099,590 35,936,188 35,251,289 INCREASE (DECREASE) IN FUND BALANCE $ 926,219 $ (994,903) $ (76,963) $ 74,410 ENDING FUND BALANCE $ 3,599,980 $ 2,673,761 $ 3,668,664 $ 3,745,627 AVAILABLE RESERVES 2 $ 2,738,865 $ 1,783,869 $ 2,812,849 $ 2,771,169 AVAILABLE RESERVES AS A PERCENTAGE OF TOTAL OUTGO % 4.43% 7.99% 8.03% LONG-TERM OBLIGATIONS N/A $ 40,476,637 $ 38,802,140 $ 39,387,849 K-12 AVERAGE DAILY ATTENDANCE AT P-2 4,674 4,658 4,537 4,480 The General Fund balance has decreased by $1,071,866 over the past two years. The fiscal year budget projects an increase of $926,219 (34.6 percent). For a district this size, the State recommends available reserves of at least three percent of total General Fund expenditures, transfers out, and other uses (total outgo). The District has incurred operating deficits in two of the past three years but anticipates incurring an operating surplus during the fiscal year. Total long-term obligations have increased by $1,088,788 over the past two years. Average daily attendance has increased by 178 over the past two years. Additional growth of 16 ADA is anticipated during fiscal year Budget 2015 is included for analytical purposes only and has not been subjected to audit. 2 Available reserves consist of all unassigned fund balances including all amounts reserved for economic uncertainties contained with the General Fund. 3 On behalf payments of $790,148, $735,141, and $733,208, has been excluded from the calculation of available reserves for the fiscal years ending June 30, 2014, 2013, and 2012, respectively. 4 General Fund amounts do not include activity related to the consolidation of the Deferred Maintenance Fund, and the Special Reserve Fund for Postemployment Benefits, as required by GASB Statement No. 54. See accompanying note to supplementary information. 61

121 RIO ELEMENTARY SCHOOL DISTRICT NON-MAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2014 Bond Interest Total Non-Major Cafeteria Building and Redemption Governmental Fund Fund Fund Funds ASSETS Deposits and investments $ 67,438 $ 46,562 $ 1,289,036 $ 1,403,036 Receivables 546, ,141 Due from other funds 38, ,668 Stores inventories 14, ,480 Total Assets $ 667,193 $ 46,562 $ 1,289,570 $ 2,003,325 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 109,721 $ - $ - $ 109,721 Due to other funds 468, ,676 Total Liabilities 578, ,397 Fund Balances: Nonspendable 14, ,480 Restricted 74,316-1,289,570 1,363,886 Assigned - 46,562-46,562 Total Fund Balances 88,796 46,562 1,289,570 1,424,928 Total Liabilities and Fund Balances $ 667,193 $ 46,562 $ 1,289,570 $ 2,003,325 See accompanying note to supplementary information. 62

122 RIO ELEMENTARY SCHOOL DISTRICT NON-MAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2014 Bond Interest Total Non-Major Cafeteria Building and Redemption Governmental Fund Fund Fund Funds REVENUES Federal sources $ 2,842,032 $ - $ - $ 2,842,032 Other State sources 179,669-8, ,757 Other local sources 176,279 35,474 1,394,258 1,606,011 Total Revenues 3,197,980 35,474 1,402,346 4,635,800 EXPENDITURES Current Pupil services: Food services 3,290, ,290,076 Administration: All other administration 112, ,000 Facility acquisition and construction 205, ,262 Debt service Principal 5, , ,185 Interest and other 1, , ,865 Total Expenditures 3,613, ,303,581 4,917,388 Excess (Deficiency) of Revenues Over (Under) Expenditures (415,736) 35,383 98,765 (281,588) Other Financing Sources Other sources - capital lease 34, ,064 NET CHANGE IN FUND BALANCES (381,672) 35,383 98,765 (247,524) Fund Balances - Beginning 470,468 11,179 1,190,805 1,672,452 Fund Balances - Ending $ 88,796 $ 46,562 $ 1,289,570 $ 1,424,928 See accompanying note to supplementary information. 63

123 RIO ELEMENTARY SCHOOL DISTRICT GENERAL FUND SELECTED FINANCIAL INFORMATION THREE-YEAR SUMMARY OF REVENUES, EXPENDITURES, AND CHANGES OF FUND BALANCE FOR THE YEAR ENDED JUNE 30, 2014 (Amounts in thousands) REVENUES Actual Results for the Years Percent of Percent of Percent of Amount Revenue Amount Revenue Amount Revenue Federal revenue $ 2, $ 2, $ 2, State and local revenue included in Local Control Funding Formula 29, , , Other State revenue 3, , , Other local revenue 3, , , EXPENDITURES Salaries and benefits Total Revenues 39, , , Certificated salaries 16, , , Classified salaries 4, , , Employee benefits 9, , , Total Salaries and Benefits 30, , , Books and supplies 2, , , Contracts and operating expenses 5, , , Capital outlay Other outgo 1, , Debt service Total Expenditures 40, , , EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (1,461) (3.8) (540) (1.5) OTHER FINANCING SOURCES (USES) Incoming transfers (Other sources) 1, , Outgoing transfers (Other uses) (589) (1.5) (587) (1.7) (586) (1.6) Total Other Sources (Uses) (502) (1.4) INCREASE (DECREASE) IN FUND BALANCE (997) (2.6) (77) (0.2) FUND BALANCE, BEGINNING 3,669 3,746 3,671 FUND BALANCE, ENDING $ 2,672 $ 3,669 $ 3,746 ENDING FUND BALANCE TO TOTAL REVENUES See accompanying note to supplementary information. 64

124 RIO ELEMENTARY SCHOOL DISTRICT NOTE TO SUPPLEMENTARY INFORMATION JUNE 30, 2014 NOTE 1 - PURPOSE OF SCHEDULES Schedule of Expenditures of Federal Awards The accompanying Schedule of Expenditures of Federal Awards includes the Federal grant activity of the District and is presented on the modified accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of the United States Office of Management and Budget 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. The following schedule provides reconciliation between revenues reported on the Statement of Revenues, Expenditures, and Changes in Fund Balances, and the related expenditures reported on the Schedule of Expenditures of Federal Awards. The reconciling amounts consist primarily of Medi-Cal Billing Option Funds that in the previous period were recorded as revenues but were unspent. These unspent balances have been expended in the current period. CFDA Number Amount Total Federal Revenues From the Statement of Revenues, Expenditures and Changes in Fund Balances: $ 4,970,138 Medi-Cal Billing Option (38,399) Total Schedule of Expenditures of Federal Awards $ 4,931,739 Local Education Agency Organization Structure This schedule provides information about the District's boundaries and schools operated members of the governing board, and members of the administration. Schedule of Average Daily Attendance (ADA) Average daily attendance (ADA) 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. Schedule of Instructional Time The District has received incentive funding for increasing instructional time as provided by the Incentives for Longer Instructional Day. The District neither met nor exceeded its target funding. This schedule presents information on the amount of instructional time offered by the District and whether the District complied with the provisions of Education Code Sections through Districts must maintain their instructional minutes at the requirements, as required by Education Code Section

125 RIO ELEMENTARY SCHOOL DISTRICT NOTE TO SUPPLEMENTARY INFORMATION JUNE 30, 2014 Reconciliation of Annual Financial and Budget Report With Audited Financial Statements This schedule provides the information necessary to reconcile the fund balance of all funds reported on the Unaudited Actual Financial Report to the audited financial statements. Schedule of Financial Trends and Analysis This schedule discloses the District's financial trends by displaying past years' 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. Non-Major Governmental Funds - Balance Sheet and Statement of Revenues, Expenditures, and Changes in Fund Balances The Non-Major Governmental Funds Combining Balance Sheet and Combining Statement of Revenues, Expenditures, and Changes in Fund Balances is included to provide information regarding the individual funds that have been included in the Non-Major Governmental Funds column on the Governmental Funds Balance Sheet and Statement of Revenues, Expenditures, and Changes in Fund Balances. General Fund Selected Financial Information This schedule provides a comparison of revenues and expenditures as a percentage of total revenue for the General Fund for the past three years. 66

126 INDEPENDENT AUDITOR'S REPORTS 67

127 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 Governing Board Rio Elementary School District Oxnard, 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, each major fund, and the aggregate remaining fund information of Rio Elementary School District (the District) as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise Rio Elementary School District's basic financial statements, and have issued our report thereon dated December 15, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Rio Elementary 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 Rio Elementary School District's internal control. Accordingly, we do not express an opinion on the effectiveness of Rio Elementary 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 District'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. 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. However, material weaknesses may exist that have not been identified. We did identify certain deficiencies in internal control, described in the accompanying schedule of financial statement findings as item that we consider to be significant deficiencies. 68

128 Compliance and Other Matters As part of obtaining reasonable assurance about whether Rio Elementary 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. We noted certain matters that we reported to management of Rio Elementary School District in a separate letter dated December 15, Rio Elementary School District's Response to Findings Rio Elementary School District's response to the findings identified in our audit is described in the accompanying financial finding schedule. Rio Elementary School District's response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. 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 result of that testing, and not to provide an opinion on the effectiveness of the District'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 District's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Rancho Cucamonga, California December 15,

129 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY OMB CIRCULAR A-133 Governing Board Rio Elementary School District Oxnard, California Report on Compliance for Each Major Federal Program We have audited Rio Elementary 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 Rio Elementary School District's (the District) major Federal programs for the year ended June 30, Rio Elementary 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 Rio Elementary 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 Rio Elementary 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 Rio Elementary School District's compliance. 70

130 Opinion on Each Major Federal Program In our opinion, Rio Elementary 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 Rio Elementary 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 Rio Elementary 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 Rio Elementary 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. 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. Rancho Cucamonga, California December 15,

131 INDEPENDENT AUDITOR'S REPORT ON STATE COMPLIANCE Governing Board Rio Elementary School District Oxnard, California Report on State Compliance We have audited Rio Elementary School District's compliance with the types of compliance requirements as identified in the Standards and Procedures for Audit of California K-12 Local Educational Agencies that could have a direct and material effect on each of the Rio Elementary 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's programs. Auditor's Responsibility Our responsibility is to express an opinion on compliance of each of the Rio Elementary 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. An audit includes examining, on a test basis, evidence about Rio Elementary 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 opinions. Our audit does not provide a legal determination of Rio Elementary School District's compliance with those requirements. Basis for Qualified Opinion for the After School Education and Safety Program As described in the accompanying schedule of findings and questioned costs, Rio Elementary School District did not comply with requirements regarding the After School Education and Safety Program as item Compliance with such requirements is necessary, in our opinion, for Rio Elementary School District to comply with the requirements applicable to that program. 72

132 Qualified Opinion for the After School Education and Safety Program In our opinion, except for the noncompliance described in the Basis for Qualified Opinion paragraph, Rio Elementary School District complied, in all material respects, with the types of compliance requirements referred to above for the year ended June 30, Unmodified Opinion on Each of the Other Programs In our opinion, Rio Elementary 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, 2014, except as described in the Schedule of State Awards Findings and Questioned Costs section of the accompanying Schedule of Findings and Questioned Costs. In connection with the audit referred to above, we selected and tested transactions and records to determine the Rio Elementary School District's compliance with the State laws and regulations applicable to the following items: Procedures in Audit Guide Procedures Performed Attendance Accounting: Attendance Reporting 6 Yes Teacher Certification and Misassignments 3 Yes Kindergarten Continuance 3 Yes Independent Study 23 No, See Below 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 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 No, See Below 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 Non Classroom-Based Instruction/Independent Study 15 Not Applicable Determination of Funding for Non Classroom-Based Instruction 3 Not Applicable Annual Instruction Minutes Classroom-Based 4 Not Applicable Charter School Facility Grant Program 1 Not Applicable 73

133 We did not perform testing for Independent Study because it was below the materiality threshold required for testing. Additionally we did not perform testing for the California Clean Energy Jobs Act because no expenditures were noted in the current year for the funds that were received. Rancho Cucamonga, California December 15,

134 SCHEDULE OF FINDINGS AND QUESTIONED COSTS 75

135 RIO ELEMENTARY SCHOOL DISTRICT SUMMARY OF AUDITOR'S RESULTS FOR THE YEAR ENDED JUNE 30, 2014 FINANCIAL STATEMENTS Type of auditor's report issued: Internal control over financial reporting: Material weaknesses identified? Significant deficiencies identified? Noncompliance material to financial statements noted? FEDERAL AWARDS Internal control over major Federal programs: Material weaknesses identified? Significant deficiencies identified? Type of auditor's report issued on compliance for major Federal programs: Any audit findings disclosed that are required to be reported in accordance with Section.510(a) of OMB Circular A-133? Identification of major Federal programs: CFDA Numbers Name of Federal Program or Cluster , A and Special Education (IDEA) Cluster Child and Adult Care Food Program Unmodified No Yes No No None reported Unmodified No Dollar threshold used to distinguish between Type A and Type B programs: Auditee qualified as low-risk auditee? $ 300,000 Yes STATE AWARDS Type of auditor's report issued on compliance for programs: Unmodified for all programs except for the following program which was qualified: Unmodified Name of Program After School Education and Safety 76

136 RIO ELEMENTARY SCHOOL DISTRICT FINANCIAL STATEMENT FINDINGS FOR THE YEAR ENDED JUNE 30, 2014 The following findings represent significant deficiencies and/or instances of noncompliance related to the financial statements that are required to be reported in accordance with Government Auditing Standards. The findings have been coded as follows: Criteria or Specific Requirements Five Digit Code AB 3627 Finding Type Internal Control Consistent with the Criteria and Standards for fiscal solvency adopted by the State Board of Education, it is recommended that the District maintain a Reserve for Economic Uncertainties to safeguard the District's financial stability. The minimum recommended reserve for a District of this size is a minimum of three percent of budgeted general fund expenditures and other financing uses. The District's policy is to maintain the reserve at three percent. If a fund balance drops below three percent, it shall be recovered at a rate of one percent (1%) minimally, each year. Condition The Schedule of Financial Trends on page 61 indicates that the District's available reserves in the General Fund for the year ended June 30, 2014, has decreased by approximately $1 million. In addition, as indicated on page 44, the District has incurred a cumulative liability relating to litigation of approximately $11 million. The District intends to appeal the court ruling. However, if the appeal is unsuccessful, the General fund balance would not be sufficient to pay the resulting liability. Questioned Costs There are no questioned costs associated with the condition identified. Context The condition was identified as a result of the evaluation of outstanding legal matters and their impact on the District's financial position and also through an analysis of current fiscal conditions impacting the District. Effect The effect of the condition may potentially lead the District to financial hardship which can result in fiscal insolvency. 77

137 RIO ELEMENTARY SCHOOL DISTRICT FINANCIAL STATEMENT FINDINGS FOR THE YEAR ENDED JUNE 30, 2014 Cause It appears that the condition materialized due to recent economic declines which resulted in a decrease in State funding and unanticipated litigation losses of $11.0 million dollars. Recommendation We recommend that the District closely monitor its budget in the next year fiscal year and beyond to insure that fiscal solvency is maintained. This should include efforts to reduce expenditures and maximize revenues to the greatest extent possible. Corrective Action Plan The District staff will closely monitor the budget for the current fiscal year, and for at least two additional years to ensure that a satisfactory fund balance reserve is maintained. Additionally, the District has appealed the lower court ruling. 78

138 RIO ELEMENTARY SCHOOL DISTRICT FEDERAL AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2014 None reported. 79

139 RIO ELEMENTARY SCHOOL DISTRICT STATE AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2014 The following findings represent instances of noncompliance and/or questioned costs relating to State program laws and regulations. The findings have been coded as follows: Five Digit Code AB 3627 Finding Type State Compliance After School Education and Safety Program Attendance and Reporting Criteria or Specific Requirements According to Education Code Section 8483(a)(1), elementary school pupils are to participate in the full day of the program every day during which pupils participate and pupils in middle or junior high schools are to attend the after school program a minimum of nine hours a week and three days a week, except as consistent with the established early release policy. Adequate documentation that supports attendance participation must be maintained by each site that documents that students are attending the program as consistent with the early release policy. Condition There appear to be instances in which students' departure times were not recorded on attendance sign out forms. The District's policy states that student sign outs require a signature and a departure time. However, during review of Rio Plaza Elementary School's sign out sheets, it was noted that there were 20 instances in which the student's departure time was not documented. Without sign out times, school sites cannot make a determination about a student's minimum weekly participation in after school programs. In addition, there were no signatures included on the sign out sheets for five students and there was one instance in which attendance was not summed correctly on the site's attendance roster. The aforementioned discrepancies amounted to a total of 26 students who were not properly signed out. Questioned Costs There are no questioned costs. 80

140 RIO ELEMENTARY SCHOOL DISTRICT STATE AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2014 Context The condition identified was determined through review of attendance records from two of the eight sites that operate an after school program. Attendance forms were reviewed for each child's sign out time in order to determine daily participation. The auditor selected two schools for the first semi-annual reporting period dated August to December The auditor reviewed attendance sheets for the month of October 2013, and noted exceptions in which Rio Plaza Elementary School did not have the appropriate written documentation to verify students were present for the whole program day. Sign-in sheets were to be signed by a student's parent or marked by the teacher leading that activity. The sign-in sheets were not consistently signed off on by a student's parent or other responsible parties and there were instances in which the student's departure time was not noted. Effect As a result of our testing, the District does not appear to be in compliance with Education Code Section 8483(a)(1). There is not sufficient documentation to support whether or not students participated in the full day of the program. In addition, the attendance forms are not consistently being signed off on by parents or other responsible parties, per the districts after school program policy. Cause It appears that the condition identified has materialized as a result of the site not having adequate documentation to show that students were present for the whole program day. Additionally, it appears that review procedures are not stringent enough to identify the incomplete submission of attendance forms. Recommendation The District should strive to improve implemented procedures requiring site personnel to document on the attendance form the time that students are released from the after school program. In addition, sites should ensure that students are being signed out on the attendance form. Stricter review procedures should be implemented in order to identify attendance forms that have not been completed. The District should communicate to the sites the importance of following the established procedures to ensure compliance with program requirements. Corrective Action Plan The District staff has improved procedures requiring site personnel to document on the attendance from the time that students are released from the after school program. Additionally, the District has communicated to sites the importance of following the established procedures to ensure compliance with program requirements. 81

141 RIO ELEMENTARY SCHOOL DISTRICT SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS FOR THE YEAR ENDED JUNE 30, 2014 Summarized below is the current status of all audit findings reported in the prior year's schedule of financial statement findings. Financial Statement Findings FISCAL SOLVENCY Finding Five Digit Code AB 3627 Finding Type Internal Control Consistent with the Criteria and Standards for fiscal solvency adopted by the State Board of Education, it is recommended that the District maintain a Reserve for Economic Uncertainties to safeguard the District's financial stability. The minimum recommended reserve for a District of this size is a minimum of three percent of budgeted General Fund expenditures and other financing uses. The District's policy is to maintain the reserve at three percent. If a fund balance drops below three percent, it shall be recovered at a rate of one percent minimally, each year. Although the Schedule of Financial Trends on page 61 indicates that the District has continued to increase its available reserves in the General Fund for the year ended June 30, 2013, by approximately $41,000, the District is projecting its available reserves as a percentage of total outgo as of June 30, 2014, to be approximately 89 percent of the available reserve reported for the year ended June 30, In addition, as indicated on page 45, the District has incurred a cumulative liability relating to litigation of approximately $9.3 million. The District intends to appeal the court ruling; however, if the appeal is unsuccessful, the General fund balance would not be sufficient to pay the resulting liability. Recommendation We recommend that the District closely monitor its budget in the next year fiscal year and beyond to insure that fiscal solvency is maintained. This should include efforts to reduce expenditures and maximize revenues to the greatest extent possible. Current Status Not implemented. See finding

142 RIO ELEMENTARY SCHOOL DISTRICT SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS FOR THE YEAR ENDED JUNE 30, MODIFIED ACCRUAL ACCOUNTING OF REVENUES AND EXPENDITURES Findings Under the modified basis of accounting used for governmental funds, revenues are recognized in the accounting period in which they become both measurable and available to finance expenditures of the fiscal period. Expenditures are recognized when a liability is incurred, regardless of when the receipt or payment of cash takes place. School District's operating in the State of California use the modified accrual basis of accounting in governmental funds. During the District's year-end closing process, the District excluded multiple accrual items pertaining to revenues that should have been recognized as well as included items that should not have been recognized as of June 30, Recommendation In light of the condition identified, the District should exercise care during its annual year-end closing process. The District should implement the following to prevent similar future occurrences: 1) Properly identify awarded amounts for various categorical programs. Accounting of revenues must coincide directly with amounts awarded to the District in a given fiscal year. 2) Review program budgets during year-end closing process to monitor obvious errors. Program budgets are generally established using award letters provided to the District by various State and Federal agencies. Using these award letters, revenue budgets are established to monitor program activities. Actual results and budgeted projections should be compared at year-end. Current Status Implemented. 83

143 Governing Board Rio Elementary School District Oxnard, California In planning and performing our audit of the basic financial statements of Rio Elementary School District for the year ending June 30, 2014, we considered its internal control structure in order to determine our auditing procedures for the purpose of expressing our opinion on the basic financial statements and not to provide assurance on the internal control structure. However, during our audit we noted matters that are opportunities for strengthening internal controls and operating efficiency. The following items represent conditions noted by our audit that we consider important enough to bring to your attention. This letter does not affect our report dated December 15, 2014, on the basic financial statements of Rio Elementary School District. INTERNAL CONTROLS Disbursements Observation Based on our review of the District's disbursements procedures, we noted that the Account Clerk II, the individual responsible for paying vendors after receiving the invoices and matching them with the purchase orders, also has access and ability to create vendors. This access increases the risk of having fictitious vendors in the system and, therefore, potentially allowing the account clerk to make payments to those vendors. Recommendation It is highly recommended that the Account Clerk II, who processes payments to vendors, should not be granted access and ability to create vendors. If implemented by the District, access control to the system decreases the risk of having fictitious vendors being created and the risk of making payments to them. Access and the ability to create vendors should only be given to an employee that is completely independent of accounts payable function and has no access to the accounts payable module. 84

144 Governing Board Rio Elementary School District ASSOCIATED STUDENT BODY (ASB) Rio Vista Middle School Cash Receipts Observation The following observations were made during our review of ASB procedures: 1. Pre-numbered receipts are not being used consistently for cash received. Out of 32 sample cash deposits reviewed, only 13 had an associated pre-numbered receipt. In addition, deposits are not being made in a timely manner. Out of 32 sample deposits reviewed, nine were not deposited within five days. 2. Out of 13 sample disbursements reviewed, one did not have supporting documentation present. The disbursement amounted to $2,110 and had no supporting purchase request form or expenditure preapproval. 3. A ticket roll was not available for our review and observation. There was no ticket control log to document beginning and ending ticket numbers for ticketed events. 4. The student store does not create a sales report for items sold within the store. Receipts are not issued for cash received within the store and perpetual inventory records are not maintained. Recommendation 1. All cash should be documented with pre-numbered receipts or similar documents in order allow the reconciliation of cash collected. The use of pre-numbered receipts allows the ASB to ensure that all cash receipts have been properly accounted for. Additionally, collected cash should be deposited within first couple of days of receipt. This will minimize the risk associated with theft, loss, or misappropriation associated with cash collections being held by the ASB. 2. ASB should ensure that supporting documents are available prior to making disbursements. Lack of supporting generally causes alarm for potential misappropriation and/or questionable activities that may be outside of the scope of ASB operations 3. All events that require tickets should be documented using ticket rolls that are available to the ASB. In conjunction, master ticket logs should be utilized to document each of the event's ticket activities and to reconcile the physical ticket sequences. Upon the completion of any ticketed events, sales reconciliation should be performed to determine if actual cash collected is consistent with the number of tickets sold. 4. Student store transactions should be accounted for by performing simple sales reconciliation of inventory sold. Beginning inventory should be taken at the beginning of the day and an ending inventory at the end of the school day. Based on beginning and inventory numbers, ASB should develop and anticipated revenue and compare the amount to actual cash receipts. We will review the status of the current year comments during our next audit engagement. Rancho Cucamonga, California December 15,

145 APPENDIX B SUMMARY OF PRINCIPAL LEGAL DOCUMENTS DEFINITIONS... B-2 GROUND LEASE... B-8 FACILITIES LEASE... B-9 General... B-9 Term... B-9 Substitution of Property... B-9 Rental Payments; Additional Payments... B-10 No Offsets; Net Lease... B-10 Abatement of Rental... B-10 Prepayments... B-11 Covenants of the District... B-11 Maintenance of the Facilities... B-11 Taxes and Other Governmental Charges; Utility Charges... B-11 Liens... B-11 Environmental Covenants... B-12 Assignment and Subleasing... B-12 Insurance... B-12 Fire and Extended Coverage Insurance... B-12 Public Liability and Property Damage Insurance... B-13 Rental Abatement Insurance... B-13 Workers Compensation Insurance... B-13 Title Insurance... B-14 Eminent Domain... B-14 Events of Default... B-14 Remedies on Default... B-15 TRUST AGREEMENT... B-15 General... B-15 Assignment... B-16 Establishment of Funds and Accounts... B-16 Certificate Fund... B-16 Allocation of Rental Payments... B-16 Application of Interest Fund... B-16 Application of Principal Fund... B-16 Application of Certificate Reserve Fund... B-17 Application of Redemption Fund... B-17 Investment of Moneys in Funds and Accounts... B-17 Events Of Default; Remedies of Owners... B-17 Events of Default... B-17 Remedies... B-17 Application of Money Collected... B-18 Trustee to Represent Owners... B-18 Amendment of Trust Agreement... B-19 Defeasance... B-20 B-1

146 The following are summaries of selected provisions of certain legal documents that are not described elsewhere in this Official Statement. These summaries do not purport to be comprehensive and reference should be made to the Ground Lease, the Facilities Lease, and the Trust Agreement for a full and complete statement of their provisions. All capitalized terms not defined in this Official Statement have the meanings set forth in the Trust Agreement. DEFINITIONS Additional Payments are additional payments made by the District pursuant to the Facilities Lease. Applicable Environmental Laws means and shall include, but shall not be limited to, the Comprehensive Environmental Response, Compensation, and Liability Act ( CERCLA ), 42 USC Sections 9601 et seq.; the Resource Conservation and Recovery Act ( RCRA ), 42 USC Sections 6901 et seq.; the Federal Water Pollution Control Act, 33 USC Sections 1251 et seq.; the Clean Air Act, 42 USC Sections 7401 et seq.; the Hazardous Materials Transportation Act ( HMTA ), 49 USC Sections 1801 et seq.; the California Hazardous Waste Control Law ( HWCL ), California Health & Safety Code Sections et seq.; the Hazardous Substance Account Act ( HSAA ), California Health & Safety Code Sections et seq.; the Porter-Cologne Water Quality Control Act (the Porter-Cologne Act ), California Water Code Sections 1300 et seq.; the Air Resources Act, California Health & Safety Code Sections 3900 et seq.; the Safe Drinking Water & Toxic Enforcement Act, California Health & Safety Code Sections et seq.; and the regulations under each thereof; and any other local, state, and/or federal laws or regulations, whether currently in existence or hereafter enacted, that govern: (1) the existence, cleanup, and/or remedy of contamination on property; (2) the protection of the environment from spilled, deposited, or otherwise emplaced contamination; (3) the control of hazardous wastes; or (4) the use, generation, transport, treatment, removal, or recovery of Hazardous Substances, including building materials. Board means the governing board of the District. Bond Year or Year means the period ending on March 1 of each year. Business Day means any day other than a Saturday, Sunday, or a day on which banking institutions in the State or the state in which the Global Corporate Trust Office is located are authorized or obligated by law or executive order to be closed Certificate Reserve Requirement means, as of any date of calculation, an amount equal to the least of (i) Maximum Annual Debt Service on all Certificates then Outstanding, (ii) 125% of average Annual Debt Service on all Certificates then Outstanding, and (iii) 10% of the aggregate principal amount of the Certificates executed and delivered on the closing date (or, if the Certificates were sold with more than a de minimis amount of original issue discount or premium, the issue price of the Certificates (excluding pre-issuance accrued interest), as those terms are defined in the Internal Revenue Code). Defeasance Securities means (a) non-callable direct obligations of the United States of America ( U.S. Treasury Obligations ), (b) evidences of ownership of proportionate interests in future interest and principal payments on U.S. Treasury Obligations 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 U.S. Treasury Obligations are not available to any person claiming through the custodian or to whom the custodian may be obligated, (c) subject to the prior written consent of the Insurer, pre-refunded municipal obligations rated AAA and Aaa by Standard & Poor s and Moody's, respectively, (d) subject to the prior written consent of the Insurer, securities eligible for AAA defeasance under then existing criteria of Standard & Poor s, (e) any combination of the foregoing, or (f) any other securities the Insurer approves. B-2

147 Facilities means the real property described in Exhibit A attached to the Facilities Lease and all improvements located thereon (excluding any relocatable buildings emplaced thereon that are not owned by the District or that are subject to a purchase money security interest). Hazardous Substance means any substance that shall, at any time, be listed as hazardous or toxic in any Applicable Environmental Law or that has been or shall be determined at any time by any agency or court to be a hazardous or toxic substance regulated under Applicable Environmental Laws; and also means, without limitation, any flammable explosives, radioactive materials, hazardous materials, hazardous wastes, hazardous or toxic substances, or related materials defined in CERCLA, HMTA, RCRA, and in the regulations adopted and publications promulgated pursuant thereto, or any other federal, State or local environmental law, ordinance, rule, or regulation Interest Payment Date means March 1 and September 1 in each year, commencing September 1, Investment Securities means the following: 1. (a) Direct obligations (other than an obligation subject to variation in principal repayment) of the United States of America ( U.S. Treasury Obligations ), (b) obligations fully and unconditionally guaranteed as to timely payment of principal and interest by the United States of America, (c) obligations fully and unconditionally guaranteed as to timely payment of principal and interest by any agency or instrumentality of the United States of America when such obligations are backed by the full faith and credit of the United States of America, or (d) evidences of ownership of proportionate interests in future interest and principal payments on obligations described above 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 government obligations are not available to any person claiming through the custodian or to whom the custodian may be obligated. 2. Federal Housing Administration debentures. 3. The listed obligations of government-sponsored agencies, which are not backed by the full faith and credit of the United States of America: (a) Federal Home Loan Mortgage Corporation (FHLMC) senior debt obligations and participation certificates (excluded are stripped mortgage securities that are purchased at prices exceeding their principal amounts); (b) Farm Credit System (formerly Federal Land Banks, Federal Intermediate Credit Banks and Banks for Cooperatives) consolidated system-wide bonds and notes; (c) Federal Home Loan Banks (FHL Banks) consolidated debt obligations; or (d) Federal National Mortgage Association (FNMA) senior debt obligations and mortgage-backed securities (excluded are stripped mortgage securities that are purchased at prices exceeding their principal amounts). 4. Unsecured certificates of deposit, time deposits, and bankers' acceptances (having maturities of not more than 180 days or no more than 40% of the District s money invested under this Trust Agreement) of any bank the short-term obligations of which are rated A-1+ or better by Standard & Poor s and Prime- 1 by Moody s. Additionally, no more that 30% of the District s money invested under this Trust Agreement may be invested in bankers acceptances of any one commercial bank. B-3

148 5. Deposits the aggregate amount of which is fully insured by the Federal Deposit Insurance Corporation, in banks which have capital and surplus of at least $15,000, Commercial paper (having original maturities of not more than 270 days) rated A-1+ by Standard & Poor s and Prime-1 by Moody's. Entities that may issue commercial paper shall be consistent with California Government Code Section or its equivalent. 7. Money market funds rated Aam or AAm-G by Standard & Poor s, or better and if rated by Moody s rated Aa2 or better. 8. The Local Agency Investment Fund referred to in Section of the California Government Code. 9. State Obligations, which means: (a) Direct general obligations of any state of the United States of America or any subdivision or agency thereof to which is pledged the full faith and credit of a state the unsecured general obligation debt of which is rated at least A3 by Moody's and at least A- by Standard & Poor s, or any obligation fully and unconditionally guaranteed by any state, subdivision or agency whose unsecured general obligation debt is so rated. (b) Direct general short-term obligations of any state agency or subdivision or agency thereof described in (a) above and rated A-1+ by Standard & Poor s and MIG-1 by Moody's. (c) Special Revenue Bonds (as defined in the United States Bankruptcy Code) of any state or state agency described in (b) above and rated AA- or better by Standard & Poor s and Aa3 or better by Moody's. 10. Pre-refunded municipal obligations rated AAA by Standard & Poor s and Aaa by Moody's meeting the following requirements: (a) the municipal obligations are (1) not subject to redemption prior to maturity or (2) the trustee for the municipal obligations has been given irrevocable instructions concerning their call and redemption and the issuer of the municipal obligations has covenanted not to redeem such municipal obligations other than as set forth in such instructions; (b) the municipal obligations are secured by cash or U.S. Treasury Obligations that may be applied only to payment of the principal of, interest and premium on such municipal obligations; (c) the principal of and interest on the U.S. Treasury Obligations (plus any cash in the escrow) has been verified by the report of independent certified public accountants to be sufficient to pay in full all principal of, interest, and premium, if any, due and to become due on the municipal obligations ( Verification Report ); (d) the cash or U.S. Treasury Obligations serving as security for the municipal obligations are held by an escrow agent or trustee in trust for owners of the municipal obligations; (e) no substitution of a U.S. Treasury Obligation shall be permitted except with another U.S. Treasury Obligation and upon delivery of a new Verification Report; and B-4

149 (f) the cash or U.S. Treasury Obligations are not available to satisfy any other claims, including those by or against the trustee or escrow agent. 11. Repurchase agreements: with (1) any domestic bank, or domestic branch of a foreign bank, the long-term debt of which is rated at least A- by Standard & Poor s and A3 by Moody's; or (2) any broker-dealer with retail customers or a related affiliate thereof which broker-dealer has, or the parent company (that guarantees the provider) of which has, long-term debt rated at least A- by Standard & Poor s and A3 by Moody's, which broker-dealer falls under the jurisdiction of the Securities Investors Protection Corporation; or (3) any other entity rated at least A- by Standard & Poor s and A3 by Moody's and acceptable to the Insurer (each an Eligible Provider ), provided that: (a) (i) permitted collateral shall include U.S. Treasury Obligations, or senior debt obligations of GNMA, FNMA or FHLMC (no collateralized mortgage obligations shall be permitted for these providers), and (ii) collateral levels must be at least 102% of the total principal when the collateral type is U.S. Treasury Obligations, 103% of the total principal when the collateral type is GNMA s and 104% of the total principal when the collateral type is FNMA and FHLMC ( Eligible Collateral ); (b) the Trustee or a third party acting solely as agent therefor or for the District (the Custodian") has possession of the collateral or the collateral has been transferred to the Custodian in accordance with applicable state and federal laws (other than by means of entries on the transferor's books) and such collateral shall be marked to market; (c) the collateral shall be marked to market on a daily basis and the provider or the Custodian shall send monthly reports to the Trustee, the District, and the Insurer setting forth the type of collateral, the collateral percentage required for that collateral type, the market value of the collateral on the valuation date and the name of the Custodian holding the collateral; (d) the repurchase agreement (or guaranty, if applicable) may not be assigned or amended without the prior written consent of the Insurer; (e) the repurchase agreement shall state and an opinion of counsel shall be rendered at the time such collateral is delivered that the Custodian has a perfected first priority security interest in the collateral, any substituted collateral and all proceeds thereof; (f) the repurchase agreement shall provide that if during its term the provider's rating by either Moody's or Standard & Poor s is withdrawn or suspended or falls below A- by Standard & Poor s or A3 by Moody's, as appropriate, the provider must, notify the District, the Trustee and the Insurer within five (5) days of receipt of such notice. Within ten (10) days of receipt of such notice, the provider shall either: (i) provide a written guarantee acceptable to the Insurer, (ii) post Eligible Collateral, or (iii) assign the agreement to an Eligible Provider. If the provider does not perform a remedy within ten (10) business days, the provider shall, at the direction of the Trustee (who shall give such direction if so directed by the Insurer) repurchase all collateral and terminate the repurchase agreement, with no penalty or premium to the District or the Trustee. 12. Investment agreements: with a domestic or foreign bank or corporation the long-term debt of which, or, in the case of a guaranteed corporation the long-term debt, or, in the case of a monoline financial guaranty insurance company, claims-paying ability, of the guarantor is rated at least AA- by Standard & Poor s and Aa3 by Moody's, and acceptable to the Insurer (each an Eligible Provider ); provided that: B-5

150 (a) interest payments are to be made to the Trustee at times and in amounts as necessary to pay debt service (or, if the investment agreement is for the Project Fund, costs of the Project) on the Certificates; (b) the invested funds are available for withdrawal without penalty or premium, at any time upon not more than seven (7) days' prior notice; the District and the Trustee hereby agree to give or cause to be given notice in accordance with the terms of the investment agreement so as to receive funds thereunder with no penalty or premium paid; (c) the provider shall send monthly reports to the Trustee, the District and the Insurer setting forth the balance the District or the Trustee has invested with the provider and the amounts and dates of interest accrued and paid by the provider; (d) the investment agreement shall state that it is an unconditional and general obligation of the provider, and is not subordinated to any other obligation of the provider thereof or, if the provider is a bank, the agreement or the opinion of counsel shall state that the obligation of the provider to make payments thereunder ranks pari passu with the obligations of the provider to its other depositors and its other unsecured and unsubordinated creditors; (e) the investment agreement (or guaranty, if applicable) may not be assigned or amended without the prior written consent of the Insurer; (f) the District, the Trustee and the Insurer shall receive an opinion of domestic counsel to the provider that such investment agreement is legal, valid, binding and enforceable against the provider in accordance with its terms; (g) the District, the Trustee and the Insurer shall receive an opinion of foreign counsel to the provider (if applicable) that (i) the investment agreement has been duly authorized, executed and delivered by the provider and constitutes the legal, valid and binding obligation of the provider, enforceable against the provider in accordance with its terms, (ii) the choice of law of the state set forth in the investment agreement is valid under that country s laws and a court in such country would uphold such choice of law, and (iii) any judgment rendered by a court in the United States would be recognized and enforceable in such country; (h) the investment agreement shall provide that if during its term: (i) the provider's rating by either Standard & Poor s or Moody's falls below AA- or Aa3, the provider shall, at its option, within ten (10) days of receipt of publication of such downgrade, either (i) provide a written guarantee acceptable to the Insurer, (ii) post Eligible Collateral with the District, the Trustee or a third party acting solely as agent therefore (the Custodian ) free and clear of any third party liens or claims, or (iii) assign the agreement to an Eligible Provider, or (iv) repay the principal of and accrued but unpaid interest on the investment; (ii) the provider's rating by either Standard & Poor s or Moody's is withdrawn or suspended or falls below A- or A3, the provider must, at the direction of the District or the Trustee (who shall give such direction if so directed by the Insurer), within ten (10) days of receipt of such direction, repay the principal of and accrued but unpaid interest on the investment, in either case with no penalty or premium to the District or the Trustee. B-6

151 (i) if the provider is required to collateralize, permitted collateral shall include U.S. Treasury Obligations, or senior debt obligations of GNMA, FNMA or FHLMC (no collateralized mortgage obligations shall be permitted for these providers) and collateral levels must be 102% of the total principal when the collateral type is U.S. Treasury Obligations, 103% of the total principal when the collateral type is GNMA s and 104% of the total principal when the collateral type is FNMA and FHLMC ( Eligible Collateral ). In addition, the collateral shall be marked to market on a daily basis and the provider or Custodian shall send monthly reports to the Trustee, the District and the Insurer setting forth the type of collateral, the collateral percentage required for that collateral type, the market value of the collateral on the valuation date and the name of the Custodian holding the collateral; (j) the investment agreement shall state and an opinion of counsel shall be rendered, in the event collateral is required to be pledged by the provider under the terms of the investment agreement, at the time such collateral is delivered, that the Custodian has a perfected first priority security interest in the collateral, any substituted collateral and all proceeds thereof; (k) the investment agreement must provide that if during its term: (i) the provider shall default in its payment obligations, the provider's obligations under the investment agreement shall, at the direction of the District or the Trustee (who shall give such direction if so directed by the Insurer), be accelerated and amounts invested and accrued but unpaid interest thereon shall be repaid to the District or the Trustee, as appropriate, and (ii) the provider shall become insolvent, not pay its debts as they become due, be declared or petition to be declared bankrupt, etc. ( event of insolvency ), the provider's obligations shall automatically be accelerated and amounts invested and accrued but unpaid interest thereon shall be repaid to the District or the Trustee, as appropriate. 13. Any other form of investments approved in writing by the Insurer. Mandatory Sinking Account Payment means, with respect to Certificates of any maturity, the amount required by the Trust Agreement to be deposited by the District in a Sinking Account for the payment of Term Certificates of such maturity. Maximum Annual Debt Service shall mean the greatest amount of principal and interest becoming due and payable with respect to all Certificates in any Bond Year including the Bond Year in which the calculation is made or any subsequent Bond Year. Net Proceeds means the amount remaining from the gross proceeds of any insurance claim or condemnation award made in connection with the Facilities, after deducting all expenses (including attorneys fees) incurred in the collection of such claim or award. Outstanding, when used as of any particular time with reference to Certificates, means all Certificates theretofore, or thereupon being, executed and delivered by the Trustee under the Trust Agreement except (1) Certificates theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation; (2) Certificates with respect to which all liability of the District shall have been discharged, including Certificates (or portions of Certificates) for which money is held in trust by the Trustee; and (3) Certificates for the transfer or exchange of or in lieu of or in substitution for which other Certificates shall have been executed and delivered by the Trustee pursuant to the Trust Agreement. Permitted Encumbrances means (1) liens for general ad valorem taxes and assessment, if any, not then delinquent, or that the District may, pursuant to the Facilities Lease, permit to remain unpaid, (2) easements, rights of way, mineral rights, drilling rights, and other rights, reservations, covenants, B-7

152 conditions, or restrictions that exist of record as of the date of recordation of the Facilities Lease and that the District certifies in writing will not materially impair the use of the Facilities, (3) the Ground Lease, as it may be amended from time to time, (4) the Trust Agreement, as it may be amended from time to time, (5) any right or claim of any mechanic, laborer, materialman, supplier, or vendor not filed or perfected in the manner prescribed by law, (6) easements, rights of way, mineral rights, drilling rights, and other rights, reservations, covenants, conditions, or restrictions established following the date of recordation of the Facilities Lease and to which the Corporation consents in writing, and (7) liens relating to special assessments levied with respect to the Facilities. Person means an individual, a corporation, firm, association, partnership, trust, or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof. Principal Payment Date means a date on which principal evidenced by the Certificates becomes due and payable whether by maturity or redemption from a Mandatory Sinking Account Payment. Redemption Price means, with respect to any Certificate (or portion thereof) the principal with respect thereto, plus interest represented thereby accrued to the date fixed for redemption, plus the applicable premium, if any, payable upon redemption thereof pursuant to the provisions of such Certificate and the Trust Agreement. Rental Payments means the Rental Payments payable by the District pursuant to the provisions of the Facilities Lease. Reserve Facility means any letter of credit, insurance policy, surety bond or other credit source deposited with the Trustee to satisfy the Certificate Reserve Requirement. Serial Certificates means the Certificates, maturing in specified years, for which no Mandatory Sinking Account Payments are provided. Sinking Accounts means the accounts in the Principal Fund so designated in the Trust Agreement and established for the payment of the Term Certificates. State means the State of California. Term Certificates means the Certificates payable at or before their specified maturity date or dates from Mandatory Sinking Account Payments established for that purpose and calculated to retire such Certificates on or before their specified maturity date or dates. GROUND LEASE Under the Ground Lease, the District will lease the Facilities to the Corporation for an advance rental equal to the proceeds of the sale of the Certificates. The term of the Ground Lease will commence on the date of delivery of the Certificates and will terminate on March 1, 2045, unless extended because of rental abatement or sooner terminated because of redemption of the Certificates. B-8

153 FACILITIES LEASE General Simultaneously with the delivery of the Ground Lease, the Corporation will sublease the Facilities to the District pursuant to the Facilities Lease. Certain of the provisions of the Facilities Lease are summarized below; this summary does not purport to be complete or definitive and is qualified in its entirety by reference to the full terms of the Facilities Lease. Term The term of the Facilities Lease shall commence on the date of delivery of the Certificates and shall end on March 1, 2045, unless such term is extended or sooner terminated. If on March 1, 2045, the Certificates have not been fully paid, or if the rental payable under the Facilities Lease has been abated at any time and for any reason, then the term of the Facilities Lease will be extended for a period of 10 years. If the Certificates have been fully paid, or provision therefor made, the term of the Facilities Lease shall end 10 days thereafter. Substitution of Property The District and the Corporation may substitute alternate property for any property that constitutes the Facilities for purposes of the Ground Lease and the Facilities Lease, but only after the District shall have filed with the Trustee all of the following: Documents. Executed copies of the amended Ground Lease and Facilities Lease containing the amended description of the Facilities. Recording. A Statement of the District certifying that the amended Ground Lease and Facilities Lease, or memoranda thereof and an amended memorandum of the Trust Agreement, have been duly recorded in the official records of the county in which the real property is located; Replacement Value; Rental Value. An MAI fair market appraisal demonstrating that the value of the property that will constitute the Facilities after the substitution will be at least equal to the value of the Facilities originally leased under the Facilities Lease. Title Insurance. A California Land Title Association lender s policy or policies or a commitment for such policy or policies or an amendment or endorsement to an existing policy or policies in an amount or amounts such that the amount of title insurance coverage with respect to the Facilities after the substitution, addition or deletion is at least equal to the amount of such insurance with respect to the Facilities prior to the substitution. Each such policy or endorsement, when issued, shall name the Trustee as the insured and shall insure the leasehold estate of the District in such substituted property, subject only to the following exceptions: (i) Permitted Encumbrances, (ii) other exceptions that do not substantially interfere with the District s right to use and occupy the substituted property and that will not result in an abatement of Rental Payments. No Effect on Occupancy; Useful Life. A Statement of the District certifying that such substitution does not adversely affect the District s use and occupancy of the Facilities and that the Facilities, as amended, have a useful life extending at least to the date of termination of the Facilities Lease. No Prior Liens. A Statement of the District certifying that the property that will constitute the Facilities after the substitution is not subject to any liens securing monetary obligations (other than Permitted B-9

154 Encumbrances) unless such liens are subordinate to the interests of the Corporation created by the Facilities Lease. Essential Facilities. A Statement of the District certifying that the property that will constitute the Facilities after the substitution, addition or deletion is essential to the fulfillment of the District s governmental purposes. Opinion of Counsel. An Opinion of Counsel stating that such amendments are authorized or permitted by and comply with the Constitution and laws of the State of California and the Trust Agreement; upon execution and delivery will be valid obligations of the District and the Corporation; and will not cause the interest component of the Rental Payments to be included in gross income for federal income tax purposes. Notice to Rating Agencies. Evidence of delivery of written notice of the proposed substitution or release to each Rating Agency then rating the Certificates. Consent of Insurer. So long as the Policy is in effect and the Insurer is not in default with respect to its payment obligations thereunder, the written consent of the Insurer to the substitution. Rental Payments; Additional Payments Under the Facilities Lease, the District will pay the Rental Payments for the use of the Facilities. A portion of the Rental Payments will constitute principal components and an portion will constitute interest components. Rental Payments are due on the dates specified on the schedule attached to the Facilities Lease. The District also promises to pay Additional Payments, which include (i) all costs and expenses incurred by the Corporation or the Trustee in connection with the execution, performance, or enforcement of the Facilities Lease and the Trust Agreement, (ii) amounts required to be paid to the Trustee for deposit in the Certificate Reserve Fund, (iii) reimbursement to the issuer of a Reserve Facility delivered by the District to satisfy the Certificate Reserve Requirement, and (iv) all other amounts payable by the District under the terms of the Facilities Lease and the Trust Agreement. No Offsets; Net Lease The District promises to make all Rental Payments and Additional Payments when due without deduction or offset of any kind, notwithstanding any dispute between the Corporation and the District, and not to withhold any Rental Payments and Additional Payments pending the final resolution of any such dispute. The Facilities Lease will be deemed and construed to be a triple-net lease and the District agrees that the Rental Payments shall be an absolute net return to the Corporation, free and clear of any expenses, charges, or setoffs whatsoever. Abatement of Rental Except to the extent of amounts held by the Trustee in the Certificate Reserve Fund or in any other funds established under the Trust Agreement otherwise available to the Trustee for payments in respect of the Certificates, Rental Payments and Additional Payments shall be abated proportionately during any period in which, by reason of damage to, destruction of, taking under the power of eminent domain (or sale to any entity threatening the use of such power) of, or title defect with respect to any portion of the Facilities, there is substantial interference with the use and possession of the Facilities or a portion thereof. The amount of abatement shall be such that the resulting Rental Payments and Additional Payments represent fair consideration for the use and possession of the portion of the Facilities not so interfered with. Such abatement shall commence with the date of such interference and shall end only with the cure thereof. Any B-10

155 determination of remaining fair rental value will be made with reference to the greater of the District s fair rental value certification as of the date of execution and delivery of the Certificates and the fair rental value on the date of determination. Prepayments Casualty/Condemnation. The District will prepay from net insurance proceeds and eminent domain proceeds, to the extent described below, all or a proportionate amount of the principal components of the Rental Payments then unpaid, at a prepayment amount equal to the sum of the principal components prepaid plus the interest component of such Rental Payments accrued to the date of prepayment. Optional Prepayment. The District may prepay, from any source of available funds, all or such part of the Rental Payments as specified by the District by depositing with the Trustee moneys or securities as provided in the Trust Agreement sufficient to make such Rental Payments when due. The District agrees that, if following such prepayment the Facilities are damaged or destroyed or taken by eminent domain, it is not entitled to, and by such prepayment waives the right of, abatement of such prepaid Rental Payments and shall not be entitled to any reimbursement of such Rental Payments. Any such prepayment shall be applied by the Trustee to pay the principal and interest components of the Certificates and to prepay Certificates if such Certificates are subject to redemption pursuant to the terms of the Trust Agreement. Covenants of the District Maintenance of the Facilities. The District agrees that, at all times during the term of the Facilities Lease, the District will, at the District s own cost and expense, maintain, preserve, and keep the Facilities and every portion thereof in good repair, working order, and condition and that the District will from time to time make or cause to be made all necessary and proper repairs, replacements, and renewals. Taxes and other Governmental Charges; Utility Charges. If the use, possession, or acquisition by the District or the Corporation of the Facilities is found to be subject to taxation in any form (except for income or franchise taxes of the Corporation), the District will pay during the term of the Facilities Lease, as the same respectively become due, all taxes and governmental charges of any kind whatsoever that may at any time be lawfully assessed or levied against or with respect to the Facilities, and any equipment or other property acquired by the District in substitution for, as a renewal or replacement of, or a modification, improvement or addition to the Facilities; provided that, with respect to any governmental charges or taxes that may lawfully be paid in installments over a period of years, the District shall be obligated to pay only such installments as are accrued during such time as the Facilities Lease is in effect. The District shall pay or cause to be paid all gas, water, steam, electricity, heat, power, air conditioning, telephone, utility, and other charges incurred in the operation, maintenance, use, occupancy, and upkeep of the Facilities. Liens. In the event the District shall at any time during the term of the Facilities Lease cause any changes, alterations, additions, improvements, or other work to be done or performed or materials to be supplied, in or upon the Facilities, the District shall pay, when due, all sums of money that may become due for, or purporting to be for, any labor, services, materials, supplies, or equipment furnished or alleged to have been furnished to or for the District in, upon or about the Facilities and shall keep the Facilities free of any and all mechanics or materialmen s liens or other liens against the Facilities or the Corporation s interest therein. In the event any such lien attaches to or is filed against the Facilities or the Corporation s interest therein, the District shall cause each such lien to be fully discharged and released at the time the performance of any obligation secured by any such lien matures or becomes due, except that if the District desires to contest any such lien it may do so in good faith. If any such lien is reduced to final judgment and such judgment or such process as may be issued for the enforcement thereof is not promptly stayed, or if so stayed and said stay thereafter expires, the District shall forthwith pay and discharge such judgment. B-11

156 Environmental Covenants. The District will comply with all Applicable Environmental Laws with respect to the Facilities and will not use, store, generate, treat, transport, manufacture, refine, handle, transfer, produce, process, or dispose of any Hazardous Substance thereon or in a manner that would cause any Hazardous Substance to later flow, migrate, leak, leach, or otherwise come to rest on or in the Facilities. Assignment and Subleasing. Neither the Facilities Lease nor any interest of the District thereunder shall be mortgaged, pledged, assigned, sublet, encumbered (except for Permitted Encumbrances) or transferred by the District by voluntary act or by operation of law or otherwise, except with the prior written consent of the Corporation and the Insurer, which, in the case of subletting, shall not be unreasonably withheld; provided such subletting shall not affect the tax-exempt status of the interest components of the Rental Payments payable by the District thereunder. No such mortgage, pledge, assignment, sublease or transfer shall in any event affect or reduce the obligation of the District to make the Rental Payments and Additional Payments required under the Facilities Lease. Insurance Fire and Extended Coverage Insurance 1. Coverage. The District shall maintain throughout the term of the Facilities Lease insurance against loss or damage to any structures constituting any part of the Facilities by fire and lightning, with extended coverage insurance, vandalism and malicious mischief insurance and sprinkler system leakage insurance. Said extended coverage insurance shall, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, vehicle damage, smoke, and such other hazards as are normally covered by such insurance. Full payment of proceeds of the insurance up to the policy limit shall not be contingent on the degree of damage sustained at other facilities owned or leased by the District; provided, however, that such insurance may be subject to a limit of $100,000,000 per occurrence. 2. Amount. Such insurance shall be in an amount equal to the replacement cost (without deduction for depreciation) of all structures constituting any part of the Facilities, excluding the cost of excavations, of grading and filling, and of the land (except that such insurance may be subject to deductible clauses for any one loss of not to exceed $5,000 or $6,000 depending on the type of claim), or, in the alternative, shall be in an amount and in a form sufficient, in the event of total or partial loss, to enable all Certificates then Outstanding to be redeemed. The policy shall explicitly waive any co-insurance penalty. 3. Application of Net Proceeds. (a) Repair or Replacement of Facilities. In the event of any damage to or destruction of any part of the Facilities caused by the perils covered by such insurance, the District, except as described below, shall cause the proceeds of such insurance to be utilized for the repair, reconstruction, or replacement of the damaged or destroyed item or items to at least the same good order, repair, and condition as they were in prior to the damage or destruction, insofar as the same may be accomplished by the use of said proceeds. (b) Prepayment of Facilities Lease. Alternatively, the District, at its option, and if the proceeds of such insurance together with any other moneys then available for the purpose are at least sufficient to prepay an aggregate principal amount represented by the Outstanding Certificates of Participation plus interest accrued to the prepayment date, equal to the amount of the Outstanding Certificates of Participation attributable to the item or items of the Facilities so destroyed or damaged (determined by reference to the proportion that the acquisition and construction cost of such portion of the Facilities bears to the acquisition costs of the Facilities), may elect not to repair, reconstruct, or replace the damaged or destroyed portion of the Facilities and thereupon shall cause said proceeds to B-12

157 be used for the redemption of outstanding Certificates. If, however, the District has elected to acquire casualty insurance only in an amount sufficient to redeem all the Certificates Outstanding, the District shall use the proceeds of such insurance (together with amounts available in the Certificate Reserve Fund) to redeem the Outstanding Certificates, unless such insurance proceeds are sufficient to fully rebuild or repair the Facilities. Self-Insurance. As an alternative to providing a policy of fire and extended coverage insurance, the District may adopt an alternative risk management program, including, without limitation, (i) a self-insurance method or plan of protection, (ii) a program involving captive insurance companies, (iii) participation in state or federal insurance programs, (iv) participation with other public agencies in mutual or other cooperative insurance or other risk management programs, including those made available through joint exercise of powers agencies, or (v) establishment or participation in other alternative risk management programs; if and to the extent such alternative risk management program shall afford reasonable coverage for the risks required to be insured against, in light of all circumstances, giving consideration to cost, availability, and similar programs, plans, or methods of protection adopted by public entities in the State of California other than the District. So long as the Policy is in effect and the Insurer is not in default with respect to its payment obligations thereunder, the District shall not self-insure for this risk beyond any pooled insurance program in existence as of the date of delivery of the Certificates, unless the Insurer approves such self-insurance in writing. Public Liability and Property Damage Insurance. Except as described below, the District shall maintain throughout the term of the Facilities Lease a standard comprehensive general liability insurance policy or policies insuring against all direct or contingent loss or liability for damages for personal injury, death, or property damage occasioned by reason of the operation of the Facilities. The minimum liability limits of such insurance shall be $1,000,000 for personal injury or death of each person and $3,000,000 for personal injury or deaths of two or more persons in each accident or event and shall be $1,000,000 (subject to a deductible clause of not to exceed $10,000) for damage to property resulting from each accident or event. Such public liability and property damage insurance may, however, be in the form of a single limit policy in the amount of $3,000,000 covering all such risks. As an alternative to providing a policy of public liability and property damage insurance, the District may provide a self-insurance method or plan of protection if and to the extent such self-insurance method or plan of protection shall afford reasonable coverage for the risks required to be insured against, in light of all circumstances, giving consideration to cost, availability, and similar plans or methods of protection adopted by public entities in the State of California other than the District. So long as the Policy is in effect and the Insurer is not in default with respect to its payment obligations thereunder, the District shall not self-insure for this risk, unless the Insurer approves such self-insurance in writing. Rental Abatement Insurance. The District shall maintain throughout the term of the Facilities Lease rental abatement insurance to cover loss, total or partial, of the Rental Payments due thereunder owing to an abatement of rental as the result of any of the hazards covered by fire and extended coverage insurance. Such insurance shall be maintained in an amount sufficient to pay the Rental Payments during the two-year period in which the total of such Rental Payments is greatest. Workers Compensation Insurance. The District shall maintain workers compensation insurance covering all employees working at the Facilities in the amounts as required by law. Such insurance may be maintained by the District as part of or in conjunction with any other insurance maintained by the District. As an alternative to providing such insurance, the District may file a resolution with the State Department of Industrial Relations, Division of Self-Insurance Plans, declaring the District to be legally uninsured against workers compensation claims and may maintain that status; provided that the District shall annually confer with its insurance advisor concerning the District s workers compensation claims experience and project future claims exposure. The District covenants to budget the amounts and comply with the other actions B-13

158 recommended by the insurance advisor. The District further agrees to comply with any requirements made by the Division of Self-Insurance Plans as a result of any audit performed by that office. Title Insurance. The District shall provide title insurance policies in an amount equal to the aggregate principal amount represented by the Certificates. Such title insurance policy shall be payable to the Trustee for the use and benefit of the Owners of the Certificates. Such policies shall be in the form of a CLTA owner s and a leasehold title policy issued by a company of recognized standing duly authorized to issue the same, subject only to Permitted Encumbrances. All proceeds received by the Trustee under said policy shall be applied and disbursed by the Trustee in the same order and priority and for the same purposes as proceeds received in eminent domain proceedings. Eminent Domain So long as any of the Certificates shall be outstanding, any award made in eminent domain proceedings for taking the Facilities or any portion thereof shall be applied to the prepayment of Rental Payments. Any such award made after all of the Certificates have been fully paid and retired shall be paid to the District. If the whole of the Facilities, or so much thereof as to render the remainder unusable for the purposes for which it was used by the District, shall be taken under the power of eminent domain, the term of the Facilities Lease shall cease as of the day that possession shall be so taken. If the award on a partial or complete taking, together with other funds available therefor, is insufficient to redeem all of the Outstanding Certificates, the District shall use all reasonable efforts to appeal such award to obtain an award that will be sufficient in amount to redeem the Certificates in full for a complete taking, or, in the event of a partial taking, an amount sufficient such that remaining Rental Payments will be sufficient to pay the remaining Outstanding Certificates. If less than the whole of the Facilities shall be taken under the power of eminent domain and the remainder is usable for the purposes for which it was used by the District at the time of such taking, then the Facilities Lease shall continue in full force and effect as to such remainder, and the parties waive the benefits of any law to the contrary, and in such event there shall be a partial abatement of rental. Events of Default The following events shall be Events of Default: Payment Default. Failure of the District to pay any Rental Payments payable under the Facilities Lease when the same become due and payable, time being expressly declared to be of the essence of the Facilities Lease; Breach of Covenant. Failure of the District to keep, observe, or perform any other term, covenant or condition contained in the Facilities Lease or in the Trust Agreement to be kept or performed by the District for a period of 30 days after notice of the same has been given to the District by the Corporation or the Trustee; Transfer of District s Interest. Assignment or transfer of the District s interest in the Facilities Lease or any part thereof without the written consent of the Corporation, either voluntarily or by operation of law or otherwise; Bankruptcy or Insolvency. Institution of any proceeding under the United States Bankruptcy Code or any federal or State bankruptcy, insolvency, or similar law or any law providing for the appointment of a receiver, liquidator, trustee, or similar official of the District or of all or substantially all of its assets, by or with the consent of the District, or institution of any such proceeding without its consent that is not B-14

159 permanently stayed or dismissed within 60 days, or agreement by the District with the District s creditors to effect a composition or extension of time to pay the District s debts, or request by the District for a reorganization or to effect a plan of reorganization, or for a readjustment of the District s debts, or a general or any assignment by the District for the benefit of the District s creditors; Abandonment of the Facilities. Abandonment by the District of any part of the Facilities (except any portion thereof for which a substitution of property has been made). Remedies on Default Upon the occurrence and during the continuance of an Event of Default, it shall be lawful for the Corporation to exercise any and all remedies available pursuant to law or the following remedies granted pursuant to the Facilities Lease (provided that, so long as the Insurer is not in default in its payment obligations under the Policy, the Corporation shall take such actions at the direction, or with the prior consent, of the Insurer): Termination of Facilities Lease. By written notice to the District to terminate the Facilities Lease and to re-enter the Facilities and remove all persons in possession thereof and all personal property whatsoever situated upon the Facilities and place such personal property in storage in any warehouse or other suitable place in the county in which the District is located. In the event of such termination, the District agrees to surrender immediately possession of the Facilities, without let or hindrance, and to 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 Facilities and removal or storage of such property by the Corporation or its duly authorized agents. Continuation of Facilities Lease; Re-letting. Without terminating the Facilities Lease, (a) to collect each installment of rent as it becomes due and enforce any other term or provision thereof to be kept or performed by the District, regardless of whether or not the District has abandoned the Facilities, and/or (b) to enter, retake possession of, and re-let the Facilities. If the Corporation does not elect to terminate the Facilities Lease in the manner described in the preceding paragraph, the District agrees to keep or perform all covenants and conditions contained in the Facilities Lease. If the Facilities are not re-let, the District agrees to pay the full amount of the rent to the end of the term of the Facilities Lease; if the Facilities are re-let, the District agrees to pay any deficiency in rent that results therefrom. The District further agrees to pay said rent punctually at the same time and in the same manner as for the payment of rent under the Facilities Lease (without acceleration), notwithstanding the fact 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 Facilities Lease and notwithstanding any entry or re-entry by the Corporation or proceeding brought by the Corporation to recover possession of the Facilities. No Acceleration. Notwithstanding anything in the Facilities Lease or in the Trust Agreement to the contrary, there shall be no right under any circumstance to accelerate the Rental Payments or otherwise declare any Rental Payments not yet due to be immediately due and payable. Remedies Limited. If any statute or rule of law validly shall limit the remedies given to the Corporation under the Facilities Lease, the Corporation nevertheless shall be entitled to whatever remedies are allowable under any statute or rule of law. B-15

160 TRUST AGREEMENT General The Trust Agreement sets forth the terms of the Certificates, the application of the proceeds of the sale of the Certificates, the nature and extent of the security for the Certificates, various rights of the Owners, and the rights, duties, and immunities of the Trustee. Certain provisions of the Trust Agreement are summarized below. Other provisions are summarized in this Official Statement under the caption The Certificates. This summary does not purport to be complete or definitive and is qualified in its entirety by reference to the full terms of the Trust Agreement. Assignment Under the Trust Agreement, the Corporation assigns to the Trustee, for the benefit of the Owners, certain of its rights and interests under the Facilities Lease, including its right to receive the Rental Payments and the right to enforce the payment of Rental Payments. Establishment of Funds and Accounts The Trust Agreement establishes the Certificate Fund, the Interest Fund, the Principal Fund, the Certificate Reserve Fund, and the Redemption Fund, which are to be held by the Trustee. Certificate Fund. All Rental Payments will be deposited by the Trustee upon receipt in the Certificate Fund, which fund the Trustee will maintain and apply in accordance with the Trust Agreement. Allocation of Rental Payments. The Trustee will transfer from the Certificate Fund and deposit in the following respective funds the following amounts on the dates described. The requirements of each such fund at the time of deposit to be satisfied before any deposit is made to any fund subsequent in priority: First: On each Interest Payment Date, the Trustee shall set aside in the Interest Fund an amount equal to the aggregate amount of interest becoming due and payable with respect to the Outstanding Certificates on such Interest Payment Date. Second: On each Principal Payment Date, the Trustee shall deposit in the Principal Fund an amount equal to (a) the aggregate amount of principal becoming due and payable with respect to the outstanding Serial Certificates plus (b) the aggregate amount of the Mandatory Sinking Account Payments to be paid on such date into the respective Sinking Account for the Term Certificates. Third: The Trustee, on the date specified in a Written Request of the District filed with the Trustee, at the time that any prepaid Rental Payment is paid to the Trustee, shall deposit in the Redemption Fund that amount of moneys representing the portion of the Rental Payments designated as prepaid Rental Payments. Any moneys remaining in the Certificate Fund after the foregoing transfers shall be transferred, in order of priority, (i) into the Certificate Reserve Fund to the extent that the amount therein is less than the Certificate Reserve Requirement, (ii) into the Rebate Fund if so directed by the District, and (iii) to the District. Application of Interest Fund. All amounts in the Interest Fund shall be used and withdrawn by the Trustee solely for the purpose of paying interest represented by the Certificates as it shall become due and B-16

161 payable (including accrued interest represented by any Certificates purchased or redeemed prior to maturity pursuant to the Trust Agreement). Application of Principal Fund. All amounts in the Principal Fund shall be used and withdrawn by the Trustee solely for the purposes of paying the principal represented by the Certificates when due and payable except that all amounts in the Sinking Accounts shall be used and withdrawn by the Trustee solely to purchase or redeem or pay at maturity Term Certificates. Application of Certificate Reserve Fund. If on any Interest Payment Date or Principal Payment Date the amount on deposit in the Interest Fund or the Principal Fund is insufficient to pay the interest or principal, respectively, evidenced by the Certificates payable on such Interest Payment Date or Principal Payment Date, the Trustee shall transfer from the Certificate Reserve Fund and deposit in the Interest Fund or the Principal Fund, as appropriate, an amount sufficient to make up such deficiency. If the amount on deposit in the Certificate Reserve Fund is not sufficient to make such transfer, the Trustee shall make a claim under any available Reserve Facility, in accordance with the provisions thereof, in order to obtain an amount sufficient to allow the Trustee to make such transfer as and when required. Application of Redemption Fund. All amounts deposited in the Redemption Fund shall be used and withdrawn by the Trustee solely for the purpose of redeeming Certificates in the manner, at the times and upon the terms and conditions specified in the Trust Agreement. Investment of Moneys in Funds and Accounts. All moneys in any of the funds and accounts held by the Trustee and established pursuant to the Trust Agreement shall be invested solely as directed by the District, solely in Investment Securities. Moneys in the Certificate Reserve Fund shall be invested in Investment Securities maturing within 5 years of the date of such investment, but in no event later than the final maturity of the Certificates. All interest, profits, and other income received from the investment of moneys in any fund or account held by the Trustee, other than the Rebate Fund, shall be transferred to the Certificate Fund. Transfers from the Certificate Reserve Fund shall be made only if, after the transfer, the amount on deposit in the Certificate Reserve Fund is at least equal to the Certificate Reserve Requirement. Events of Default; Remedies of Owners Events of Default. The following events shall be Events of Default: Payment Default. Default in the due and punctual payment of any Rental Payment when and as the same shall become due and payable; Breach of Covenant. Default by the District in the observance or performance of any covenant, condition, agreement, or provision in the Trust Agreement on its part to be observed or performed, for a period of 30 days after written notice, specifying such failure and requesting that it be remedied, has been given to the District by the Trustee; and Facilities Lease Default. An event of default as defined under the Facilities Lease. Remedies. If an Event of Default shall occur, then, and in each and every such case during the continuance of such Event of Default, the Trustee or the Owners of not less than a majority in aggregate principal amount represented by the Certificates at the time Outstanding may, upon notice in writing to the District, exercise the remedies provided to the Corporation in the Facilities Lease; provided that nothing shall affect or impair the right of action of any Owner to institute suit directly against the District to enforce B-17

162 payment of the obligation evidenced and represented by such Owner s Certificate. If an Event of Default shall occur, the Trustee shall have the right: Mandamus; Specific Performance. By mandamus or other action or proceeding or suit at law or in equity to enforce its rights against the Corporation or the District or any director, member, officer or employee thereof, and to compel the Corporation or the District or any such director, member, officer or employee to perform or carry out its or his or her duties under law and the agreements required to be performed by it or him or her contained in the Trust Agreement; Injunction. By suit in equity to enjoin any acts or things that are unlawful or violate the rights of the Trustee or any Owner; or Accounting. By suit in equity upon the happening of any event under the Trust Agreement to require the Corporation and the District and any directors, members, officers and employees thereof to account as the trustee of an express trust. Application of Money Collected. If an Event of Default shall occur and be continuing, the Trustee shall apply all funds then held or thereafter received by the Trustee under any of the provisions of the Trust Agreement (except as otherwise provided in the Trust Agreement) as follows and in the following order: 1. To the payment of any expenses necessary in the opinion of the Trustee to protect the interests of the Owners of the Certificates, including the costs and expenses of the Trustee and the Owners in declaring such Event of Default, and payment of reasonable fees and expenses of the Trustee (including reasonable fees and disbursements of its counsel and other agents) incurred in and about the performance of its powers and duties under the Trust Agreement; 2. To the payment of the whole amount of principal then due with respect to the Certificates (upon presentation of the Certificates to be paid, and stamping thereon of the payment if only partially paid, or surrender thereof if fully paid) subject to the provisions of the Trust Agreement, with interest on such principal, at the rate or rates of interest with respect to the respective Certificates as follows: (a) Unless the principal represented by all of the Certificates shall have become due and payable, First: to the payment to the persons entitled thereto of all installments of interest then due in the order of their due dates, and, if the amount available shall not be sufficient to pay in full any installment or installments due on the same date, then to the payment thereof ratably, according to the amounts of principal or interest due on such date, to the persons entitled thereto, without any discrimination or preference; and Second: to the payment to the persons entitled thereto of all unpaid principal represented by or Redemption Price of any Certificates that shall have become due, whether at maturity or by call for redemption, in the order of their due dates, and, if the amount available shall not be sufficient to pay in full all the principal represented by the Certificates due on any date, then to the payment thereof ratably, according to the amounts of principal or interest due on such date, to the persons entitled thereto, without any discrimination or preference. (b) If the principal represented by all of the Certificates shall have become due and payable, to the payment of the principal and interest then due and unpaid with respect to the Certificates, and, if the amount available shall not be sufficient to pay in full the whole amount so due and unpaid, then to the payment thereof ratably, without preference or priority of principal over interest, or of interest over principal, or of any installment of interest over any other installment of interest, or of any Certificate over any other Certificate, according to the amounts due respectively for principal and interest, to the persons entitled thereto without any discrimination or preference. B-18

163 Trustee to Represent Owners. Upon the occurrence and continuance of an Event of Default, the Trustee in its discretion may, and upon the written request of the Owners of not less than 25% in aggregate amount of principal represented by the Certificates then Outstanding (provided that, if more than one such request is received by the Trustee from Owners, the Trustee shall follow the written request executed by the Owners of the greatest percentage of principal represented by the Certificates then Outstanding in excess of 25%), and upon being indemnified to its satisfaction therefor, shall, proceed to protect or enforce its rights or the rights of such Owners by such appropriate action, suit, mandamus, or other proceedings as it shall deem most effectual to protect and enforce any such right, at law or in equity, either for the specific performance of any covenant or agreement contained in the Trust Agreement, or in aid of the execution of any power granted in the Trust Agreement, or for the enforcement of any other appropriate legal or equitable right or remedy vested in the Trustee or in such Owners under the Trust Agreement or any applicable law. Amendment of Trust Agreement Supplemental Trust Agreements without Consent of Owners. The Trust Agreement and the rights and obligations of the District, of the Trustee, and of the Owners of the Certificates may also be modified or amended from time to time and at any time by a Supplemental Trust Agreement, which the District may adopt without the consent of any Owners but only to the extent permitted by law and only for any one or more of the following purposes: 1. to add to the covenants and agreements of the District contained in the Trust Agreement other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Certificates (or any portion thereof), or to surrender any right or power reserved to or conferred upon the District in the Trust Agreement; 2. to make such provisions for the purpose of curing any ambiguity, inconsistency, or omission, or of curing or correcting any defective provision, contained in the Trust Agreement, or in regard to matters or questions arising under the Trust Agreement, as the District may deem necessary or desirable, and that shall not materially and adversely affect the interests of the Owners of the Certificates; 3. to modify, amend, or supplement the Trust Agreement in such manner as to permit the qualification thereof under the Trust Agreement Act of 1939, as amended, or any similar federal statute hereafter in effect, and to add such other terms, conditions, and provisions as may be permitted by said act or similar federal statute, and that shall not materially and adversely affect the interests of the Owners of the Certificates; 4. to modify or supplement the procedures for giving notice of redemption of Certificates in order to comply with regulations promulgated by the United States Securities and Exchange Commission; 5. to make modifications or adjustments necessary, appropriate, or desirable to accommodate credit enhancements including letters of credit and insurance policies delivered with respect to the Certificate Reserve Fund; 6. to amend, modify, or eliminate the book-entry registration system for the Certificates; 7. to make such provisions as are necessary or appropriate to ensure the exclusion of interest represented by the Certificates from gross income for purposes of federal income taxation; and 8. for any other purpose that does not materially and adversely affect the interests of the Owners of the Certificates. B-19

164 Supplemental Trust Agreements with Consent of Owners or Credit Enhancers. The Trust Agreement and the rights and obligations of the District, the Owners of the Certificates, and the Trustee may be modified or amended from time to time and at any time by a Supplemental Trust Agreement, which the District and the Trustee may enter into if the written consents of the Owners of a majority in aggregate amount of principal represented by the Certificates then Outstanding shall have been filed with the Trustee; provided that, if such modification or amendment will, by its terms, not take effect so long as any Certificates of any particular maturity remain Outstanding, the consent of the Owners of such Certificates shall not be required and such Certificates shall not be deemed to be Outstanding for the purpose of any calculation of Certificates Outstanding. The Trust Agreement and the rights and obligations of the District and of the Owners of the Certificates and of the Trustee may also be modified or amended at any time by a Supplemental Trust Agreement entered into by the District and the Trustee, which shall become binding when the written consents of each provider of a letter of credit or a policy of bond insurance for the Certificates shall have been filed with the Trustee, provided that at such time the payment of all the principal and interest represented by all Outstanding Certificates shall be insured by a policy or policies of municipal bond insurance or payable under a letter of credit the provider of which shall be a financial institution or association having unsecured debt obligations rated, or insuring or securing other debt obligations rated on the basis of such insurance or letters of credit, in one of the two highest Rating Categories of Moody s and Standard and Poor s. No such modification or amendment shall (1) extend the fixed maturity of any Certificate, or reduce the amount of principal represented thereby, or extend the time of payment or reduce the amount of any Mandatory Sinking Account Payment provided for the payment of any Certificate, or reduce the rate of interest with respect thereto, or extend the time of payment of interest represented thereby, or reduce any premium payable upon the redemption thereof, without the consent of the Owner of each Certificate so affected, or (2) reduce the aforesaid percentage of principal the consent of the Owners of which is required to effect any such modification or amendment, or permit the creation of any lien on the Rental Payments and other assets pledged under the Trust Agreement prior to or on a parity with the lien created by the Trust Agreement, or deprive the Owners of the Certificates of the lien created by the Trust Agreement on such assets (in each case, except as expressly provided in the Trust Agreement), without the consent of the Owners of all of the Certificates then Outstanding. Defeasance ways: Discharge of Trust Agreement. Any Certificate may be paid by the District in any of the following 1. by paying or causing to be paid the principal and interest represented by the Certificate, as and when the same become due and payable; 2. by depositing with the Trustee, an escrow agent or other fiduciary, in trust, at or before maturity, money or Defeasance Securities in the necessary amount to pay or redeem the Certificate; or 3. by delivering the Certificate to the Trustee for cancellation. If the District shall pay all Certificates that are Outstanding and also pay or cause to be paid all other sums payable by the District under the Trust Agreement and the Facilities Lease, then and in that case, at the election of the District, evidenced by a Statement of the District filed with the Trustee signifying the intention of the District to discharge all such indebtedness and the Trust Agreement, and notwithstanding that any Certificates shall not have been surrendered for payment, the Trust Agreement, the pledge of assets made thereunder, all covenants and agreements and other obligations of the District under the Trust Agreement, and B-20

165 the rights and interests created thereby (except as to any surviving rights of transfer or exchange of Certificates and rights to payment from moneys deposited with the Trustee) shall cease, terminate, become void, and be completely discharged and satisfied. In the event of defeasance of the Trust Agreement, upon Request of the District, the Trustee shall cause an accounting for such period or periods as may be requested by the District to be prepared and filed with the District and shall execute and deliver to the District all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee shall pay over, transfer, assign, or deliver to the District all moneys or securities or other property held by it pursuant to the Trust Agreement that, as evidenced by a verification report (upon which the Trustee may conclusively rely) from a firm of certified public accountants, are not required for the payment or redemption of Certificates not theretofore surrendered for such payment or redemption. Discharge of Liability on Certificates. Upon the deposit with the Trustee, escrow agent, or other fiduciary, in trust, at or before maturity, of money or Investment Securities in the necessary amount to pay or redeem any Outstanding Certificate (whether upon or prior to its maturity or the redemption date of such Certificate), then all liability of the District in respect of such Certificate shall cease, terminate, and be completely discharged, except that thereafter (i) the Owner thereof shall be entitled to payment of the principal, premium, if any, and interest represented by such Certificate by the District, and the District shall remain liable for such payment, but only out of such money or securities deposited with the Trustee as aforesaid for their payment, and (ii) the Owner thereof shall retain its rights of transfer or exchange of Certificates. The District may at any time surrender to the Trustee for cancellation by it any Certificates previously executed and delivered, which the District may have acquired in any manner whatsoever, and such Certificates, upon such surrender and cancellation, shall be deemed to be paid and retired. B-21

166 [THIS PAGE INTENTIONALLY LEFT BLANK]

167 APPENDIX C FORM OF OPINION OF SPECIAL COUNSEL Board of Trustees Rio Elementary School District 2500 E. Vineyard Avenue, Suite 100 Oxnard, CA KRONICK, MOSKOVITZ, TIEDEMANN & GIRARD A Professional Corporation 400 Capitol Mall, 27th Floor Sacramento, CA [CLOSING DATE] Re: Rio Elementary School District 2015 Certificates of Participation Members of the Board of Trustees: We have acted as special counsel in connection with the execution and delivery of $6,380,000 aggregate principal amount of 2015 Certificates of Participation (the Certificates ) evidencing fractional interests of the owners thereof in rental payments to be made by the Rio Elementary School District (the District ) pursuant to a facilities lease dated June 1, 2015 (the Facilities Lease ), between the District and the Public Property Financing Corporation of California (the Corporation ). The Certificates have been executed and delivered pursuant to a trust agreement dated June 1, 2015 (the Trust Agreement ), between U.S. Bank National Association, as trustee (the Trustee ), the District, and the Corporation. In connection therewith, the District and the Corporation have also executed and entered into a ground lease dated June 1, 2015 (the Ground Lease ). Capitalized terms used herein and not otherwise defined have the meanings ascribed thereto in the Trust Agreement. We have examined the law and such certified proceedings and other papers as we deem necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon the representations of the District contained in the Facilities Lease, the Trust Agreement, and the certified proceedings and other certifications of public officials furnished to us. In the course of our representation, nothing has come to our attention that caused us to believe that any of the factual representations upon which we have relied are untrue, but we have made no other factual investigations. Based upon the foregoing, we are of the opinion, under existing law, as follows: 1. The District is duly created and validly existing as a school district under and by virtue of the laws of the State of California with the power to enter into the Ground Lease, the Facilities Lease, and the Trust Agreement and to perform the agreements on its part contained therein. 2. The Ground Lease, the Facilities Lease, and the Trust Agreement have been duly authorized, executed, and delivered by the District and, assuming due authorization, execution, and delivery by and enforceability against the other parties thereto, constitute valid and binding obligations of the District, enforceable in accordance with their respective terms, except as enforcement may be limited by bankruptcy, C-1

168 insolvency, reorganization, arrangement, fraudulent conveyance, moratorium, or other laws affecting the enforceability of creditors rights generally, by the application of equitable principles, by the possible unavailability of specific performance or injunctive relief, and by the limitations on legal remedies against public agencies in the State of California. 3. Subject to the terms and provisions of the Facilities Lease, the Rental Payments are payable solely from the sources provided therefor in the Facilities Lease and the Trust Agreement. The obligation of the District to make Rental Payments pursuant to the Facilities Lease does not constitute a debt of the District or of the State of California or of 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 is obligated to levy or pledge any form of taxation or for which the District has levied or pledged any form of taxation. 4. The Trust Agreement creates a valid pledge, to secure the payment of principal and interest represented by the Certificates, of the Rental Payments and all other amounts held in any fund or account (other than the Rebate Fund) established pursuant to the Trust Agreement, to the extent set forth in the Trust Agreement and subject to the provisions of the Trust Agreement that permit the Trustee to apply the Rental Payment and other amounts for the purposes and on the terms and conditions set forth in the Trust Agreement. The Trust Agreement also creates a valid assignment to the Trustee, for the benefit of the Owners, of the right, title and interest of the Corporation in the Facilities Lease and the Ground Lease, to the extent more particularly described in the Trust Agreement. 5. The portion of the Rental Payments designated as and constituting interest paid by the District and received by the Owners of the Certificates is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, such interest is taken into account in determining adjusted current earnings for purposes of computing the alternative minimum tax imposed on certain corporations. The opinions set forth in the preceding sentence are subject to the condition that the District comply with all requirements of the Internal Revenue Code of 1986 that must be satisfied subsequent to the delivery of the Certificates in order that such interest be, or continue to be, excludable from gross income for federal income tax purposes. The District has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of such interest in gross income for federal income tax purposes to be retroactive to the date of delivery of the Certificates. We express no opinion regarding other federal tax consequences arising with respect to the accrual or receipt of such interest or the ownership or disposition of the Certificates. 6. The portion of the Rental Payments designated as and constituting interest paid by the District and received by the owners of the Certificates is exempt from State of California personal income taxes. The opinions set forth above are further qualified as follows: a. Our opinions are limited to the matters expressly set forth herein, and no opinion is to be implied or may be inferred beyond the matters expressly so stated; b. We are licensed to practice law in the State of California; accordingly, the foregoing opinions only apply insofar as the laws of the State of California and the United States may be concerned, and we express no opinion with respect to the laws of any other jurisdiction; c. We express no opinion as to the state or quality of title to any of the real or personal property described in the Ground Lease or the Facilities Lease, nor do we express any opinion as to the accuracy or sufficiency of the description of any such property contained therein; C-2

169 d. We express no opinion as to the enforceability under certain circumstances of contractual provisions respecting various summary remedies without notice or opportunity for hearing or correction, especially if their operation would work a substantial forfeiture or impose a substantial penalty upon the burdened party; e. We express no opinion as to the effect or availability of any specific remedy provided for in any agreement under particular circumstances, except that we believe such remedies are, in general, sufficient for the practical realization of the rights intended thereby; f. We express no opinion as to the enforceability of any remedies under the Facilities Lease with respect to environmental matters to the extent that the exercise or application of such remedies is inconsistent with or in violation of California Code of Civil Procedure section or 736 or of California Civil Code section ; g. We express no opinion as to the enforceability of any indemnification, contribution, choice of law, choice of forum, or waiver provisions contained in the Ground Lease, the Facilities Lease, or the Trust Agreement; h. We undertake no responsibility for the accuracy, completeness, or fairness of the Official Statement or any other offering materials relating to the Certificates, and express no opinion herein with respect thereto; i. We disclaim any obligation to update this opinion for events occurring after the date hereof. Very truly yours, KRONICK, MOSKOVITZ, TIEDEMANN & GIRARD, A Professional Corporation C-3

170 [THIS PAGE INTENTIONALLY LEFT BLANK]

171 APPENDIX D FORM OF CONTINUING DISCLOSURE CERTIFICATE $6,380,000 RIO ELEMENTARY SCHOOL DISTRICT 2015 CERTIFICATES OF PARTICIPATION CONTINUING DISCLOSURE CERTIFICATE Dated: June 4, 2015 This Continuing Disclosure Certificate (this Disclosure Certificate ) is delivered by the Rio Elementary School District (the District ) in connection with the execution and delivery of $6,380,000 aggregate principal amount of the Rio Elementary School District, 2015 Certificates of Participation (the Certificates ), pursuant to a Trust Agreement dated June 1, 2015 (the Trust Agreement ), by and among U.S. Bank National Association, as trustee (the Trustee ), the District, and Public Property Financing Corporation of California (the Corporation ). In connection therewith, the District 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 Certificateholders and Beneficial Owners of the Certificates, and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5). Section 2. Definitions. In addition to the definitions set forth in the Trust Agreement, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following additional capitalized terms shall have the following meanings: Annual Report means any report provided by the District pursuant to, and as described in, Sections 3 (Provision of Annual Reports) and 4 (Content of Annual Reports) of this Disclosure Certificate. Beneficial Owner means any person who (a) has or shares the power, directly or indirectly, to make investment decisions concerning 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. Certificateholders means either the registered owners of the Certificates, or, if the Certificates are registered in the name of The Depository Trust Company or another recognized depository, any Beneficial Owner or applicable participant in its depository system. Dissemination Agent means the District, or any successor Dissemination Agent designated in writing by the District, and which has filed with the District a written acceptance of such designation. EMMA or Electronic Municipal Market Access means the centralized online repository for documents filed with the MSRB, such as official statements and disclosure information relating to municipal bonds, notes and other securities as issued by state and local governments. D-1

172 Listed Events means any of the events listed in Section 5(a) (Reporting of Significant Events Significant Events) of this Disclosure Certificate. MSRB means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule, or any other repository of disclosure information, which may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future. Official Statement means the final Official Statement dated May 21, 2015, relating to the Certificates. Opinion of Counsel means a written opinion of a law firm or attorney experienced in matters relating to obligations the interest on which is excludable from gross income for federal income tax purposes. Participating Underwriter means the original underwriter of the Certificates required to comply with the Rule in connection with the offering of the Certificates. Repository means MSRB or any other repository of disclosure information that may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future. Rule means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. State means the State of California. Section 3. Provision of Annual Reports. a. Delivery of Annual Report to Repository. The District shall, or shall cause the Dissemination Agent to, not later than nine (9) months after the end of each fiscal year, commencing with the report for the Fiscal Year, due March 31, 2016, provide to the Repository an Annual Report that is consistent with the requirements of Section 4 (Content of Annual Reports) of this Disclosure Certificate. The Annual Report may be submitted as a single document or as a package of separate documents and may include by cross-reference other information as provided in Section 4 (Content of Annual Reports) of this Disclosure Certificate; provided that the audited financial statements of the District may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. If the District s Fiscal Year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(d) (Notice of Listed Events). b. Change of Fiscal Year. If the District does not provide, or cause the Dissemination Agent to provide, an Annual Report by the date required above, the Dissemination Agent shall provide to the MSRB, in an electronic format as prescribed by the MSRB, a notice in substantially the form attached as Exhibit A. c. Delivery of Annual Report to Dissemination Agent. Not later than fifteen (15) Business Days prior to the date specified in Subsection (a) (Delivery of Annual Report to Repository) for providing the Annual Report to the Repository, the District shall provide the Annual Report to the Dissemination Agent (if other than the District). If by such date, the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall notify the District. D-2

173 d. Report of Non-Compliance. If the District does not provide (or cause the Dissemination Agent to provide) an Annual Report by the Annual Report date required in Subsection (a) above, the Dissemination Agent shall provide in a timely manner to the MSRB, in an electronic format as prescribed by the MSRB, a notice in substantially the form attached as Exhibit A. e. Annual Compliance Certificate. The Dissemination Agent shall, if the Dissemination Agent is other than the District, (1) determine each year prior to the Annual Report Date the then-applicable rules and electronic format prescribed by the MSRB for the filing of annual continuing disclosure reports; and (2) file a report with the District certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, and stating the date it was provided. Section 4. Content of Annual Reports. The District s Annual Report shall contain or include by reference the following: a. Financial Statements. Audited financial statements prepared in accordance with the generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the District s audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. b. Material financial information and operating data with respect to the District of the type included in the Official Statement in the following categories (to the extent not included in the District s audited financial statements): (1) State funding received by the District for the last completed fiscal year; (2) Enrollment of the District for the last completed fiscal year; (3) Summary financial information on revenues, expenditures, and fund balances for the District s general fund for the last completed fiscal year, and summary financial information on any adopted budget for the current fiscal year; (4) The average daily attendance in District schools on an aggregate basis for the preceding fiscal year and for the current budgeted year; (5) Pension plan contributions made by the District for the preceding fiscal year and for the current budgeted year; (6) Aggregate principal amount of short-term borrowings, lease obligations, and other long-term borrowings of the District, as of the end of the preceding fiscal year; (7) Description of amount of general fund revenues and expenditures which have been budgeted for the current fiscal year, together with audited actual budget figures for the preceding fiscal year; D-3

174 current budget year; (8) The District s total revenue limit for the preceding fiscal year and for the (9) Prior fiscal year total secured property tax levy and collections, showing current collections as a percentage of the total levy; and (10) Current fiscal year assessed valuation of taxable properties in the District, including assessed valuation of the top ten properties. 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. 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, which are available to the public on the MSRB s internet website or filed with the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the MSRB. The District shall clearly identify each such other document so included by reference. Section 5. Reporting of Significant Events. a. Significant Events. Pursuant to the provisions of this Section, the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Certificates: (1) principal and interest payment delinquencies; (2) non-payment related defaults, if material; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) the issuance by the Internal Revenue Service of proposed or final determinations of taxability, or Notices of Proposed Issue (IRS Form 5701-TEB); (7) unless described in subsection (a)(6) above, adverse tax opinions or other material notices or determinations by the Internal Revenue Service with respect to the tax status of the Certificates or other material events affecting the tax-exempt status of the Certificates; (8) modifications to rights of Certificateholders, if material; (9) Certificate calls, if material; (10) tender offers; D-4

175 (11) defeasances; (12) release, substitution, or sale of property securing repayment of the Certificates, if material; (13) rating changes; (14) bankruptcy, insolvency, receivership or similar event of the District; (15) the consummation of a merger, consolidation, or acquisition, or certain asset sales, involving the District, or entry into or termination of a definitive agreement relating to the foregoing, if material; and (16) appointment of a successor or additional trustee or paying agent, or the change of name of the trustee or paying agent, if material. b. Determination of Materiality. Whenever the District obtains knowledge of one of the foregoing events notice of which must be given only if material, the District shall immediately determine if such event would be material under applicable federal securities laws. c. Notice to Dissemination Agent. If the District has determined an occurrence of a Listed Event under applicable federal securities laws, the District shall promptly notify the Dissemination Agent (if other than the District) in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (d) (Notice of Listed Events). d. Notice of Listed Events. The District shall file, or cause the Dissemination Agent to file, with the MSRB, in an electronic format prescribed by the MSRB, a notice of the occurrence of a Listed Event to provide notice of specified events in a timely manner not in excess of ten (10) business days after the event s occurrence. Notwithstanding the foregoing, notice of Listed Events described in subsection (a)(9) (Certificate calls) need not be given under this subsection any earlier than the notice (if any) given to Certificateholders of affected Certificates pursuant to the Trust Agreement. Section 6. Identifying Information for Filings with MSRB. All documents provided to the MSRB under this Disclosure Certificate shall be filed in a readable PDF or other electronic format as prescribed by the MSRB and shall be accompanied by identifying information as prescribed by the MSRB. Section 7. Termination of Reporting Obligation. The District s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption, 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(d) (Notice of Listed Events). Section 8. Dissemination Agent. a. Appointment of 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 agent, with or without appointing a successor Dissemination Agent. If the Dissemination Agent is not the District, the Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the District pursuant to this Disclosure Certificate. The initial Dissemination Agent shall be the District. D-5

176 b. Compensation of Dissemination Agent. The Dissemination Agent shall be paid compensation by the District for its services provided hereunder in accordance with its schedule of fees as agreed to between the Dissemination Agent and the District from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent may at any time resign by giving written notice of such resignation to the District. c. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate. The District agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense, and liability 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 reasonable attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent s negligence or willful misconduct. The Dissemination Agent shall not be deemed to be acting in any fiduciary capacity for the District, the Certificateholders, or any other party. The Dissemination Agent may rely and shall be protected in acting or refraining from acting upon any direction from the District or an Opinion of Counsel. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Certificates. No person shall have any right to commence any action against the Dissemination Agent seeking any remedy other than to compel specific performance of this Disclosure Certificate. Section 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the District may amend this Disclosure Certificate (and the Dissemination Agent shall agree to any amendment so requested by the District that does not impose any greater duties or risk of liability on the Dissemination Agent), and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: a. Change in Circumstances. If the amendment or waiver relates to the provisions of Section 3(a) (Delivery of Annual Report to Repository), Section 4 (Content of Annual Reports), or Section 5(a) (Significant Events), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Certificates, or the type of business conducted; b. Compliance as of Issue Date. The undertaking, as amended or taking into account such waiver, would have complied with the requirements of the Rule at the time of the original execution and delivery of the Certificates, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances, and the District obtains an Opinion of Counsel to that effect; and the proposed amendment or waiver either (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 Paying Agent or nationally recognized bond counsel, materially impair the interests of the holders or Beneficial Owners of the Certificates. c. Consent of Certificateholders; Non-impairment Opinion. The amendment or waiver either (i) is approved by the Certificateholders in the same manner as provided in the Trust Agreement for amendments to the Trust Agreement with the consent of Certificateholders, or (ii) does not materially impair the interests of the Certificateholders and the District obtains an Opinion of Counsel to that effect. If this Disclosure Certificate is amended or any provision of this Disclosure Certificate is waived, the District shall describe such amendment or waiver in the next following Annual Report and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact D-6

177 on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the District. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 5(d) (Notice of Listed Events), and (ii) the Annual Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. Section 10. 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 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 11. Default. If the District fails to comply with any provision of this Disclosure Certificate, any Certificateholder 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 an Event of Default under the Trust Agreement, and the sole remedy under this Disclosure Certificate if the District fails to comply with this Disclosure Certificate shall be an action to compel performance. Section 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, the Dissemination Agent, 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. IN WITNESS WHEREOF, the District has caused this Continuing Disclosure Certificate to be executed by its authorized officer. RIO ELEMENTARY SCHOOL DISTRICT By: John D. Puglisi, Ph.D., Superintendent D-7

178 EXHIBIT A FORM OF NOTICE TO REPOSITORY OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Name of Securities: Rio Elementary School District Rio Elementary School District 2015 Certificates of Participation Date of Delivery June 4, 2015 NOTICE IS HEREBY GIVEN that the Rio Elementary School District (the District ) has not provided an Annual Report with respect to the above-named Certificates as required by a Continuing Disclosure Certificate executed on June 4, 2015, with respect to the above-captioned securities. The District anticipates that the Annual Report will be filed by. Dated: RIO ELEMENTARY SCHOOL DISTRICT [SAMPLE ONLY] D-8

179 APPENDIX E COUNTY ECONOMIC PROFILE The information in this appendix concerning the economy of Ventura County (the County ) is provided as supplementary information only. The Certificates are not a debt of the County, the State or any of its political subdivisions, and neither the County, the State, nor any of its political subdivisions is liable therefor. See Security and Sources of Payment for the Certificates. General Information The County was incorporated as a general law county on March 22, 1872, with the City of Ventura (legally, San Buenaventura) as the County seat. The county covers 1,873 square miles and ranks 26 th in size among the State s 58 counties. It is bounded on the northwest by Santa Barbara County, on the north by Kern County, on the east and south by Los Angeles County, and on the southwest by 42 miles of Pacific Ocean shoreline. The County is a growing area closely allied with the economy of Southern California. According to the U.S. Department of Commerce Bureau of Economic Analysis, in 2013, the latest year for which this data is available, the County had per capita personal income of $50,507. This figure was % of the state average. Based on data compiled by the California Association of Realtors, the median price of existing single-family homes sold in the County was $582,630, as of January Population The following table lists population figures for the County and the State for calendar years 2010 through COUNTY OF VENTURA Population Estimates Calendar Years 2010 through 2014 Area 2010 (1) State of California 37,253,956 37,427,946 37,668,804 37,984,138 38,340,074 Total County (2) 823, , , , ,967 Camarillo 65,201 66,140 66,095 66,485 66,752 Fillmore 15,002 15,085 15,074 15,188 15,339 Moorpark 34,421 34,629 34,661 34,934 35,172 Ojai 7,461 7,494 7,500 7,554 7,594 Oxnard 197, , , , ,645 Port Hueneme 21,723 21,554 21,583 22,043 22,399 San Buenaventura 106, , , , ,961 Santa Paula 29,321 29,464 29,742 29,979 30,448 Simi Valley 124, , , , ,305 Thousand Oaks 126, , , , ,039 Balance of County 94,937 96,013 96,147 96,635 97,313 (1) (2) Decennial Census. Figures may not add due to independent rounding. Source: State of California, Department of Finance, E-4 Population Estimates for Cities, Counties and the State, , with 2010 Census Benchmark. E-1

180 Industry and Employment Ventura County s civilian labor force reached an annual level of 434,900 in 2013, a decrease of 0.69% from Employment increased by approximately 0.73% and unemployment decreased by 14.86% during that time period. As a result, the County s unemployment rate decreased to 7.8% in The following two tables show historical labor force data and major private sector employers for the County. The table below provides information about employment rates and employment by industry type for the County for calendar years 2009 through Unemployment rates are not available for the District. OXNARD-THOUSAND OAKS-VENTURA METROPOLITAN STATISTICAL AREA (Ventura County) Civilian Labor Force, Employment and Unemployment Calendar Years 2009 through 2013 Annual Averages Civilian Labor Force (1) 430, , , , ,900 Employment 38, , , , ,100 Unemployment 42,400 47,000 44,300 39,700 33,800 Unemployment Rate (2) 9.9% 10.9% 10.2% 9.1% 7.8% Wage and Salary Employment: (3) Farm 24,000 24,400 25,200 27,100 27,700 Mining and Logging 1,200 1,200 1,300 1,300 1,200 Construction 13,200 11,300 11,300 11,800 12,400 Manufacturing 32,600 31,500 30,600 29,900 29,800 Wholesale Trade 12,000 12,300 12,400 12,600 12,800 Retail Trade 35,100 35,500 36,300 37,300 38,500 Transportation, Warehousing, Utilities 5,400 5,300 5,500 5,700 5,800 Information 5,300 5,100 4,900 5,100 5,100 Financial Activities 20,500 20,300 20,400 19,600 18,900 Professional and Business Services 35,100 33,600 33,200 34,800 36,200 Educational and Health Services 34,300 34,700 35,500 37,500 39,000 Leisure and Hospitality 29,800 30,300 31,400 32,700 33,700 Other Services 9,300 9,200 9,200 9,400 9,600 Federal Government 7,300 7,800 7,400 7,200 7,000 State Government 2,600 2,600 2,700 2,700 2,700 Local Government 33,000 33,900 34,300 33,700 33,900 Total all Industries (4) 300, , , , ,300 (1) Labor force data is by place of residence; includes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. (2) The unemployment rate is calculated using unrounded data. (3) Industry employment is by place of work; excludes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. (4) Data may not add due to rounding. Source: State of California Employment Development Department; Industry Employment & Labor Force by Annual Average. March 2013 Benchmark. E-3 E-2

181 Largest Employers The following tables list the largest manufacturing and non-manufacturing employers within the County: COUNTY OF VENTURA Largest Employers Employer Name Location Employer Size Industry Air National Guard Port Hueneme 1,000-4,999 State Government National Security Amgen Inc Thousand Oaks 5,000 9,999 Biological Specimens Manufacturers Baxter Healthcare Westlake Village 1,000-4,999 Physicians & Surgeons Equip & Suppls - Mfrs Boskovich Farms Inc Oxnard 1,000-4,999 Fruits & Vegetables Growers and Shippers California State University Ventura Schools Universities & Colleges Academic Coleman Welding Ventura 1,000-4,999 Steel Structural (Mfrs) Community Memorial Health Syst Ventura 1,000 4,999 Pharmacies Community Memorial Hospital Ventura 1,000-4,999 Hospitals Embassy Suites Mandalay Oxnard Resorts Haas Automation Inc. Oxnard Machinery Manufacturers Harbor Freight Tools USA Inc Camarillo 1,000-4,999 Tools New & Used Hossein Tarani Oak Park 5,000 9,999 Oils Fuel (Wholesale) Iyogi Computer Support Oak Park 5,000 9,999 Computers Service & Repair Los Robles Hospital & Med Ctr Thousand Oaks 1,000-4,999 Hospitals Moorpark College Moorpark Schools Universities & Colleges Academic Nancy Reagan Breast Ctr Simi Valley Diagnostic Imaging Centers Naval Air Warfare Ctr Weapons Port Mugu NAWC 5,000 9,999 Federal Government National Security Naval Base Ventura County Port Mugu NAWC 1,000-4,999 Military Bases Naval Construction Battalion Port Mugu NAWC 5,000 9,999 Federal Government National Security Oxnard College Oxnard Schools Universities & Colleges Academic Penny Mac Mortgage Investment Moorpark Real Estate Investment Trusts Sheriff s Department Jails Ventura 1,000-4,999 Sheriff Simi Valley Hospital Simi Valley Hospitals St John s Regional Medical Ctr Oxnard 1,000-4,999 Hospitals Technicolor Inc Camarillo 1,000-4,999 Motion Picture Producers & Studios Source: State of California Employment Development Department, extracted from The America s Labor Market Information System (ALMIS) Employer Database, st Edition. E-4 E-3

182 [THIS PAGE INTENTIONALLY LEFT BLANK]

183 APPENDIX F BOOK-ENTRY ONLY SYSTEM The information in this Appendix has been provided by The Depository Trust Company ( DTC ), New York, New York, for use in securities offering documents, and the District takes no responsibility for the accuracy or completeness thereof. The District cannot and does not give any assurances that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners either (a) payments of debt service on or the redemption price of the Certificates or (b) certificates representing ownership interest in or other confirmation of ownership interest in the Certificates, or that they will so do on a timely basis or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Official Statement. The current Rules applicable to DTC are on file with the Securities and Exchange Commission and the current Procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. DTC s Book-Entry System DTC will act as securities depository for the Certificates. The Certificates will be issued as fullyregistered 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 Standard & Poor s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at and 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 F-1

184 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 the Certificates, except in the event that use of the book-entry system for the Certificates is discontinued. 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 the 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. Redemption notices will be sent to DTC. If less than all of the Certificates within an issue 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 the 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). Debt service payments on 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 or the Trustee, on 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, the Trustee, or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of debt service on or redemption price of the Certificates to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the District or the Trustee, 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 or the Trustee, or the District may decide to discontinue use of the system of book-entry transfers through DTC. Under such circumstances, in the event that a successor depository is not obtained, Certificates are required to be printed and delivered. F-2

185 Transfer and Exchange of Certificates Upon Discontinuation of Book-Entry Only System; If the book-entry system described above is no longer used with respect to the Certificates, the following provisions will govern the transfer and exchange of the Certificates. Any Certificate may, in accordance with its terms, be transferred, upon the registration books, by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Certificate for cancellation at the principal office of the Trustee, accompanied by delivery of a written instrument of transfer in a form approved by the Trustee, duly executed. Certificates may also be exchanged at the principal office of the Trustee for a like aggregate principal amount of Certificates of authorized denominations and of the same maturity. Whenever any Certificate is surrendered for transfer or exchange, the Trustee will execute and deliver a new Certificate or Certificates of the same maturity and for an equivalent aggregate principal amount. The District may charge a reasonable sum for each new Certificate delivered upon any transfer or exchange. The Trustee will not be required to transfer or exchange (i) Certificates of any series during the period established by the Trustee for the selection of Certificates of such series for redemption or (ii) any Certificate that has been selected for redemption in whole or in part, except the unredeemed portion of such Certificate selected for redemption in part, from and after the day that such Certificate has been selected for redemption in whole or in part. F-3

186 [THIS PAGE INTENTIONALLY LEFT BLANK]

187 APPENDIX G SPECIMEN MUNICIPAL BOND INSURANCE POLICY G-1

188 [THIS PAGE INTENTIONALLY LEFT BLANK]

189 ! 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.!