MATURITY SCHEDULES (See inside cover)

Transcription

1 NEW ISSUE - FULL BOOK-ENTRY BANK QUALIFIED RATING: Standard & Poor s: AA- See RATING herein. In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however to certain qualifications described herein, under existing law, the interest on the Bonds is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, although for the purpose of computing the alternative minimum tax imposed on certain corporations, such interest is taken into account in determining certain income and earnings, and the Bonds are qualified tax-exempt obligations within the meaning of section 265(b)(3) of the Internal Revenue Code of In the further opinion of Bond Counsel, such interest is exempt from California personal income taxes. See "TAX MATTERS." Dated: Date of Delivery $5,000,000 LEMON GROVE SCHOOL DISTRICT (San Diego County, California) General Obligation Bonds 2014 Election, Series A (GO Reauthorization Bonds ) $1,000,000 LEMON GROVE SCHOOL DISTRICT (San Diego County, California) General Obligation Ed-Tech Bonds 2014 Election, Series B (GO Reauthorization Bonds ) Due: August 1, as shown on inside front cover Authority and Purpose. The captioned General Obligation Bonds (the Series A Bonds and the Series B Bonds, together referred to herein as the Bonds ) are being issued by the Lemon Grove School District (the District ) pursuant to certain provisions of the California Government Code and resolutions of the Governing Board of the District adopted on April 14, 2015 (together referred to herein as the Bond Resolution ). The Bonds were authorized at an election of the registered voters of the District held on November 4, 2014, which authorized the issuance of $10,000,000 principal amount of general obligation bonds for the purpose of financing the renovation, construction and improvement of school facilities and increasing student computer/technology access. (the 2014 Reauthorization ). The Bonds are the first two series of bonds to be issued under the 2014 Reauthorization. See THE BONDS Authority for Issuance and THE FINANCING PLAN herein. Security. The Bonds are general obligations of the District, payable solely from ad valorem property taxes levied and collected by San Diego County (the County ). The County Board of Supervisors is empowered and is obligated to annually levy ad valorem taxes for the payment of interest on, and principal of, the Bonds upon all property subject to taxation by the District, without limitation of rate or amount (except certain personal property which is taxable at limited rates). See SECURITY FOR THE BONDS. Book-Entry Only. The Bonds will be issued in book-entry form only, and will be initially issued and registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York ( DTC ). Purchasers will not receive physical certificates representing their interests in the Bonds. See THE BONDS and APPENDIX F - DTC AND THE BOOK-ENTRY ONLY SYSTEM. Payments. The Bonds are dated the date of delivery and are being issued as current interest bonds. The Bonds bear interest at the rates set forth on the inside cover page hereof, payable semiannually on each February 1 and August 1 until maturity, commencing February 1, Payments of principal of and interest on the Bonds will be paid by the Treasurer- Tax Collector of San Diego County, San Diego, California, as Paying Agent for the Bonds, to DTC for subsequent disbursement to DTC Participants who will remit such payments to the beneficial owners of the Bonds. See THE BONDS - Description of the Bonds. Redemption. The Series A Bonds are subject to redemption prior to maturity as described herein. See THE BONDS Optional Redemption and Mandatory Sinking Fund Redemption. The Series B Bonds are not subject to redemption prior to maturity. MATURITY SCHEDULES (See inside cover) Cover Page. This cover page contains certain information for general reference only. It is not a summary of all the provisions of the Bonds. Prospective investors must read the entire Official Statement to obtain information essential to making an informed investment decision. The Bonds were sold and awarded pursuant to two separate competitive bidding processes held on Wednesday, May 20, 2015, as set forth in two separate Official Notices of Sale with respect to the Bonds. The Bonds will be offered when, as and if issued and accepted by the respective Purchasers, subject to the approval as to legality by Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel to the District, and subject to certain other conditions. Jones Hall, A Professional Law Corporation, is also serving as Disclosure Counsel to the District. It is anticipated that the Bonds, in book-entry form, will be available for delivery through the facilities of DTC in New York, New York, on or about June 9, The date of this Official Statement is May 20, 2015.

2 MATURITY SCHEDULES LEMON GROVE SCHOOL DISTRICT (San Diego County, California) General Obligation Bonds 2014 Election, Series A (GO Reauthorization Bonds ) BASE CUSIP : $780,000 Serial Series A Bonds Maturity Date (August 1) Principal Amount Interest Rate Yield Price CUSIP 2016 $50, % 0.600% % ES , ET , EY , EZ , FA , FB6 $850, % Term Bonds due August 1, 2030; Yield 3.000%; Price C ; CUSIP FG5 $1,005, % Term Bonds due August 1, 2035; Yield 3.250%; Price C ; CUSIP FM2 $1,195, % Term Bonds due August 1, 2040; Yield 3.750%; Price C ; CUSIP FS9 $1,170, % Term Bonds due August 1, 2044; Yield 3.800%; Price C ; CUSIP FW0 LEMON GROVE SCHOOL DISTRICT (San Diego County, California) 2014 Election, Series B General Obligation Ed-Tech Bonds (GO Reauthorization Bonds ) $1,000,000 Serial Series B Bonds Maturity Date (August 1) Principal Amount Interest Rate Yield Price CUSIP 2016 $315, % 0.800% % FX , FY , FZ3 Copyright 2015, American Bankers Association. CUSIP data herein are provided by Standard & Poor's CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc., and are provided for convenience of reference only. Neither the District nor the Purchasers assume any responsibility for the accuracy of these CUSIP data. C: Priced to first par call date of August 1, 2025.

3 LEMON GROVE SCHOOL DISTRICT (San Diego County, California) GOVERNING BOARD OF THE DISTRICT Katie Dexter, President Jay Bass, Vice President Larry Loschen, Clerk Blanca Brown, Member Timothy Shaw, Member DISTRICT ADMINISTRATION Ernest Anastos, Superintendent Gina Potter, Ed.D, Deputy Superintendent PROFESSIONAL SERVICES FINANCIAL ADVISOR Dale Scott & Company, Inc. San Francisco, California BOND AND DISCLOSURE COUNSEL Jones Hall, A Professional Law Corporation San Francisco, California BOND REGISTRAR, TRANSFER AGENT AND PAYING AGENT Treasurer-Tax Collector of San Diego County San Diego, California

4 GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT Use of Official Statement. This Official Statement is submitted in connection with the sale of the Bonds 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 bond owner and the District or the Purchasers. No Offering Except by This Official Statement. No dealer, broker, salesperson or other person has been authorized by the District or the Purchasers 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 Purchasers. 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 Bonds 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 which 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 continuing disclosure by the District in any press release and in any oral statement made with the approval of an authorized officer of the District or any other entity described or referenced herein, 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 within the meaning of the Private Securities Litigation Reform Act of 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. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, give rise to any implication that there has been no change in the affairs of the District or any other entity described or referenced herein since the date hereof. Involvement of Purchasers. The following statement has been included in this Official Statement on behalf of the Purchasers of the Bonds: The Purchasers have reviewed the information in this Official Statement in accordance with, and as a part of, their responsibilities to investors under the Federal Securities Laws as applied to the facts and circumstances of this transaction, but the Purchasers do not guarantee the accuracy or completeness of such information. Stabilization of and Changes to Offering Prices. The Purchasers may overallot or take other steps that stabilize or maintain the market prices of the Bonds at levels above that which might otherwise prevail in the open market. If commenced, the Purchaser may discontinue such market stabilization at any time. The Purchasers may offer and sell the Bonds to certain securities dealers, dealer banks and banks acting as agent at prices lower than the public offering prices stated on the inside cover page of this Official Statement, and those public offering prices may be changed from time to time by the Purchasers. Document Summaries. All summaries of the Bond Resolutions or other 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 Bonds 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 Bonds 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 Bonds will, under any circumstances, give rise to any implication that there has been no change in the affairs of the District, the County, the other parties described in this Official Statement, or the condition of the property within the District since the date of this Official Statement. Website. The District maintains a website. However, the information presented on the website is not a part of this Official Statement and should not be relied upon in making an investment decision with respect to the Bonds.

5 TABLE OF CONTENTS Page INTRODUCTION... 2 THE FINANCING PLAN... 4 SOURCES AND USES OF FUNDS... 5 THE BONDS... 6 Authority for Issuance... 6 Description of the Bonds... 6 Payment of the Bonds... 6 Book-Entry Only Form... 7 Optional Redemption... 7 Mandatory Sinking Fund Redemption... 8 Notice of Redemption... 9 Partial Redemption of Bonds... 9 Right to Rescind Notice of Redemption... 9 Registration, Transfer and Exchange of Bonds... 9 Defeasance APPLICATION OF PROCEEDS OF THE BONDS Building Funds Debt Service Funds Investment of Proceeds of Bonds Debt Service ScheduleS SECURITY FOR THE BONDS Ad Valorem Taxes Debt Service Funds Not a County Obligation PROPERTY TAXATION Property Tax Collection Procedures Taxation of State-Assessed Utility Property Assessed Valuation Reassessments and Appeals of Assessed Value Tax Rates Tax Levies and Delinquencies Major Taxpayers Direct and Overlapping Debt TAX MATTERS Tax Exemption Other Tax Considerations CERTAIN LEGAL MATTERS Legality for Investment Absence of Litigation Compensation of Certain Professionals CONTINUING DISCLOSURE RATING COMPETITIVE SALE OF BONDS ADDITIONAL INFORMATION APPENDIX A - LEMON GROVE SCHOOL DISTRICT AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR A-1 APPENDIX B - GENERAL AND FINANCIAL INFORMATION FOR LEMON GROVE SCHOOL DISTRICT... B-1 APPENDIX C - GENERAL INFORMATION ABOUT THE CITY OF LEMON GROVE AND THE COUNTY OF SAN DIEGO... C-1 APPENDIX D - PROPOSED FORMS OF OPINIONS OF BOND COUNSEL... D-1 APPENDIX E - FORM OF CONTINUING DISCLOSURE CERTIFICATE... E-1 APPENDIX F - DTC AND THE BOOK-ENTRY ONLY SYSTEM... F-1 APPENDIX G - SAN DIEGO COUNTY INVESTMENT POLICY AND QUARTERLY INVESTMENT REPORT... G-1 -i-

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7 $5,000,000 LEMON GROVE SCHOOL DISTRICT (San Diego County, California) General Obligation Bonds 2014 Election, Series A (GO Reauthorization Bonds ) $1,000,000 LEMON GROVE SCHOOL DISTRICT (San Diego County, California) General Obligation Ed-Tech Bonds 2014 Election, Series B (GO Reauthorization Bonds ) The purpose of this Official Statement, which includes the cover page, inside cover page and attached appendices, is to set forth certain information concerning the sale and delivery of the general obligation bonds captioned above (the Series A Bonds and the Series B Bonds, and together, the Bonds ) by the Lemon Grove School District (the District ). INTRODUCTION This Introduction is not a summary of this 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 and the documents summarized or described in this Official Statement. A full review should be made of the entire Official Statement. The offering of Bonds to potential investors is made only by means of the entire Official Statement. The District. The District was established in 1893, and currently operates six elementary schools and two middle schools, as well as preschool classes at five school locations. Encompassing approximately 5.5 square miles, the District serves the City of Lemon Grove and the communities of La Mesa, Spring Valley and San Diego. Total enrollment for the school year is 3,922 students. For general and financial information regarding the District, see Appendix B attached hereto. See also Appendix C hereto for demographic and other statistical information regarding the City and the County. Purposes. The net proceeds of the Bonds will be used to finance school construction and improvements to District facilities as approved by the voters at an election held in the District on November 4, 2014 (the 2014 Reauthorization Election ). The proceeds of the Series A Bonds are expected be applied to the acquisition and construction of voter-approved capital facilities in the District, and the proceeds of the Series B Bonds are expected to be applied to the acquisition of technology equipment. See THE FINANCING PLAN and APPLICATION OF PROCEEDS OF THE BONDS herein. Authority for Issuance of the Bonds. Issuance of the Bonds was approved by the requisite 55% of the voters of the District voting at the 2014 Reauthorization Election and will be issued pursuant to certain provisions of the Government Code of the State, commencing with Section thereof (the Bond Law ), and pursuant to resolutions adopted by the Governing Board of the District on April 14, 2015 (together, referred to herein as the Bond Resolution ). See THE BONDS - Authority for Issuance herein. Payment and Registration of the Bonds. The Bonds are being issued as current interest bonds. The Bonds mature in the years and in the amounts as set forth on the inside cover page hereof. The Bonds will be issued in book-entry form only, and will be initially issued and registered in the name of Cede & Co. as nominee for DTC. Purchasers will not receive physical certificates representing their interest in the Bonds. See THE BONDS and APPENDIX F - DTC AND THE BOOK-ENTRY ONLY SYSTEM. -2-

8 Redemption. The Bonds are subject to redemption prior to maturity as described herein. See THE BONDS Optional Redemption and Mandatory Sinking Fund Redemption. Security and Sources of Payment for the Bonds. The Bonds are general obligation bonds of the District payable solely from ad valorem property taxes levied and collected by the County. The County is empowered and is obligated to annually levy ad valorem taxes for the payment of interest on, and principal of, the Bonds upon all property subject to taxation by the District, without limitation of rate or amount (except with respect to certain personal property which is taxable at limited rates). See SECURITY FOR THE BONDS. Tax Matters; Bank Qualified Status. Assuming compliance with certain covenants and provisions of the Internal Revenue Code of 1986, in the opinion of Bond Counsel, interest on the Bonds will not be includable in gross income for federal income tax purposes although it may be includable in the calculation for certain taxes. The Bonds are qualified tax-exempt obligations within the meaning of Section 265(b)(3) of the Internal Revenue Code of Also in the opinion of Bond Counsel, interest on the Bonds will be exempt from State of California (the State ) personal income taxes. See TAX MATTERS herein. 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. See CERTAIN LEGAL MATTERS - Continuing Disclosure herein. Other Information. This Official Statement speaks only as of its date, and the information contained in this Official Statement is subject to change. Copies of documents referred to in this Official Statement and information concerning the Bonds are available from the District from the Superintendent s Office at 8025 Lincoln Street, Lemon Grove, California, 91945, Telephone: (619) The District may impose a charge for copying, mailing and handling. END OF INTRODUCTION -3-

9 THE FINANCING PLAN The Bonds are being issued pursuant to the Bond Resolution and the 2014 Reauthorization Election. The proceeds of the Series A Bonds are expected be applied to the acquisition and construction of voter-approved capital facilities in the District, and the proceeds of the Series B Bonds are expected to be applied to the acquisition of technology equipment. The abbreviated form of the ballot measure presented to voters at the 2014 Reauthorization Election is as follows: To repair and replace leaky roofs; renovate and modernize educational facilities; provide additional classrooms; and increase student access to classroom computers; shall $10,000,000 of Lemon Grove School District bonds, previously approved by voters in November 2008, be reauthorized through issuance of new bonds, with no increase in total authorized District debt, reduced borrowing costs, interest rates below legal limits, independent citizen oversight, and no money taken by the State and spent elsewhere or used for administrator salaries? At the 2014 Reauthorization Election, voters in the District reauthorized $10 million principal amount of the general obligation bond authorization which had been provided by voters at an election held in the District on November 4, 2008 (the 2008 Authorization ), at which time $28 million principal amount of general obligation bonds was authorized. At the time of the 2014 Reauthorization Election, approximately $10 million was authorized but unissued under the 2008 Authorization. The Bonds will be issued pursuant to the 2014 Reauthorization Election and represent the first two series of bonds issued pursuant to the 2014 Reauthorization Election. In order to ensure that the issuance of the Bonds will not result in an increase in total voter authorized District debt pursuant to the 2008 Bond Authorization, the District has covenanted that it will take all actions which are required in order to cancel a like aggregate amount of the 2008 Bond Authorization upon the issuance of the Bonds. [Remainder Of This Page Intentionally Left Blank] -4-

10 SOURCES AND USES OF FUNDS The estimated sources and uses of funds with respect to the Bonds are as follows: Sources of Funds Series A Series B Principal Amount of Bonds $5,000, $1,000, Net Original Issue Premium 222, , Total Sources $5,222, $1,056, Uses of Funds Deposit to Building Fund $5,000, $1,000, Debt Service Fund 14, Costs of Issuance (1) 207, , Total Uses $5,222, $1,056, (1) All estimated costs of issuance including, but not limited to, Purchasers discount, printing costs, and fees of Bond Counsel, Disclosure Counsel, Financial Advisor, Paying Agent, and the rating agencies. See also APPLICATION OF PROCEEDS OF THE BONDS herein. [Remainder Of This Page Intentionally Left Blank] -5-

11 THE BONDS Authority for Issuance The Bonds will be issued under the Bond Law and the Bond Resolution pursuant to the 2014 Authorization, which authorized the issuance of $10,000,000 principal amount of general obligation bonds for the purpose of financing the acquisition, renovation, construction, improvement and equipping of school facilities. After the issuance of the Bonds, $4,000,000 of authorization will remain under the 2014 Authorization. Description of the Bonds The Bonds mature in the years and in the amounts as set forth on the inside cover page hereof. The Bonds will be issued in book-entry form only, and will be initially issued and registered in the name of Cede & Co. as nominee for DTC. Purchasers will not receive physical certificates representing their interest in the Bonds. See Book-Entry Only System below and APPENDIX F DTC and the Book-Entry Only System. The Bonds shall be issued in the denomination of $5,000 principal amount each or any integral multiple thereof. Interest on the Bonds is payable semiannually on each February 1 and August 1, commencing February 1, 2016 (each, an Interest Payment Date ). Each Bond will bear interest from the Interest Payment Date next preceding the date of registration and authentication thereof unless (i) it is authenticated as of an Interest Payment Date, in which event it will bear interest from such date, or (ii) it is authenticated prior to an Interest Payment Date and after the close of business on the fifteenth (15 th ) day of the month preceding the Interest Payment Date (the Record Date ), in which event it will bear interest from such Interest Payment Date, or (iii) it is authenticated prior to January 15, 2016, in which event it will bear interest from the date of delivery identified on the cover page hereof. Notwithstanding the foregoing, if interest on any Bond is in default at the time of authentication thereof, such Bond will bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon. Payments of principal of and interest on the Bonds will be paid by the Paying Agent (as defined below) to DTC for subsequent disbursement to DTC Participants who will remit such payments to the beneficial owners of the Bonds. See the maturity schedules on the inside cover page of this Official Statement and DEBT SERVICE SCHEDULE herein. Payment of the Bonds Interest on the Bonds (including the final interest payment upon maturity or redemption) is payable by check, draft or wire of the Paying Agent mailed to the person in whose name the ownership of such Bond is registered on the Registration Books (the Owner ) (which will be DTC so long as the Bonds are held in the book-entry system of DTC) at such Owner s address as it appears on the Registration Books at the close of business on the preceding Record Date; except that at the written request of the Owner of at least $1,000,000 aggregate principal amount of the Bonds, which written request is on file with the Paying Agent as of any Record Date, interest on such Bonds will be paid by wire payment on the succeeding Interest Payment Date to such account as will be specified in such written request. Principal of and premium (if any) on the Bonds is payable in lawful money of the United States of America upon presentation and surrender at the Office of the Paying Agent. -6-

12 Book-Entry Only System The Bonds will be issued in book-entry form only, and will be initially issued and registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York ( DTC ). Purchasers of the Bonds (the Beneficial Owners ) will not receive physical certificates representing their interest in the Bonds. Payments of principal of and interest on the Bonds will be paid by the Treasurer-Tax Collector of San Diego County, San Diego, California, as the designated paying agent, registrar and transfer agent (the Paying Agent ) to DTC for subsequent disbursement to DTC Participants which will remit such payments to the Beneficial Owners of the Bonds. As long as DTC s book-entry method is used for the Bonds, the Paying Agent will send any notice of redemption or other notices to owners only to DTC. Any failure of DTC to advise any DTC Participant, or of any DTC Participant to notify any Beneficial Owner, of any such notice and its content or effect will not affect the validity or sufficiency of the proceedings relating to the redemption of the Bonds called for redemption or of any other action premised on such notice. See APPENDIX F - DTC AND THE BOOK-ENTRY ONLY SYSTEM. The Paying Agent, the District, and the Purchasers of the Bonds have no responsibility or liability for any aspects of the records relating to or payments made on account of beneficial ownership, or for maintaining, supervising or reviewing any records relating to beneficial ownership, of interests in the Bonds. Optional Redemption The Series A Bonds maturing on or before August 1, 2025, are not subject to redemption prior to their respective stated maturities. The Series A Bonds maturing on or after August 1, 2026, are subject to redemption prior to maturity, at the option of the District, in whole or in part among maturities on such basis as shall be designated by the District and by lot within a maturity, from any available source of funds, on August 1, 2025, and on any date thereafter, at a redemption price equal to 100% of the principal amount of the Series A Bonds to be redeemed together with accrued interest thereon to the date fixed for redemption, without premium. The Series B Bonds are not subject to optional redemption prior to maturity. For the purpose of selection for optional redemption, Series A Bonds will be deemed to consist of $5,000 principal amounts, and any such portion may be separately redeemed among maturities on such basis as shall be designated by the District and by lot within a maturity. Whenever less than all of the outstanding Series A Bonds of any one maturity are designated for redemption, the Paying Agent shall select the outstanding Series A Bonds of such maturity to be redeemed by lot in any manner deemed fair by the Paying Agent. -7-

13 Mandatory Sinking Fund Redemption The Series A Bonds maturing on August 1, 2030, August 1, 2035, August 1, 2040, and August 1, 2044 (together, the Term Bonds ), are subject to mandatory sinking fund redemption on August 1 of each years in accordance with the respective schedules set forth below. The Term Bonds so called for mandatory sinking fund redemption shall be redeemed in the sinking fund payments amounts and on the dates set forth below, without premium. $850,000 Term Bonds Maturing August 1, 2030 Redemption Date (August 1) Sinking Fund Redemption 2026 $160, , , , (Maturity) 180,000 $1,005,000 Term Bonds Maturing August 1, 2035 Redemption Date (August 1) Sinking Fund Redemption 2031 $190, , , , (Maturity) 215,000 $1,195,000 Term Bonds Maturing August 1, 2040 Redemption Date (August 1) Sinking Fund Redemption 2036 $220, , , , (Maturity) 260,000 $1,170,000 Term Bonds Maturing August 1, 2044 Redemption Date (August 1) Sinking Fund Redemption 2041 $270, , , (Maturity) 315,000 If any Term Bonds are redeemed pursuant to optional redemption, the total amount of all future sinking fund payments with respect to such Term Bonds shall be reduced by the aggregate principal amount of such Term Bonds so redeemed, to be allocated among such payments on a pro rata basis in integral multiples of $5,000 principal amount (or on such other basis as the District may determined) as set forth in written notice given by the District to the Paying Agent. -8-

14 Notice of Redemption The Paying Agent will cause notice of any redemption to be mailed, first class mail, postage prepaid, at least 30 days but not more than 60 days prior to the date fixed for redemption, to the respective owners of any Bonds designated for redemption, at their addresses appearing on the registration books. Such notice may be a conditional notice of redemption and subject to rescission as described below. Such mailing is not a condition precedent to such redemption and the failure to mail or to receive any such notice will not affect the validity of the proceedings for the redemption of such Bonds. In addition, the Paying Agent will give notice of redemption by telecopy or certified, registered or overnight mail to the Municipal Securities Rulemaking Board and each of the Securities Depositories (as such terms are defined in the Bond Resolution) at least two days prior to such mailing to the Bond owners. Such notice shall state the redemption date and the redemption price and, if less than all of the then outstanding Bonds are to be called for redemption, shall designate the serial numbers of the Bonds to be redeemed by giving the individual number of each Bond or by stating that all Bonds between two stated numbers, both inclusive, or by stating that all of the Bonds of one or more maturities have been called for redemption, and shall require that such Bonds be then surrendered at the office of the Paying Agent for redemption at the said redemption price, giving notice also that further interest on such Bonds will not accrue from and after the redemption date. Partial Redemption of Bonds Upon the surrender of any Bond redeemed in part only, the Paying Agent shall execute and deliver to the Owner thereof a new Bond or Bonds of like tenor and maturity and of authorized denominations equal in transfer amounts to the unredeemed portion of the Bond surrendered. Such partial redemption shall be valid upon payment of the amount required to be paid to such Owner, and the County and the District shall be released and discharged thereupon from all liability to the extent of such payment. Right to Rescind Notice of Redemption The District has the right to rescind any notice of the optional redemption of Bonds by written notice to the Paying Agent on or prior to the date fixed for redemption. Any notice of redemption shall be cancelled and annulled if for any reason funds will not be or are not available on the date fixed for redemption for the payment in full of the Bonds then called for redemption. The District and the Paying Agent have no liability to the Bond owners or any other party related to or arising from such rescission of redemption. The Paying Agent shall mail notice of such rescission of redemption in the same manner as the original notice of redemption was sent under the Bond Resolution. Registration, Transfer and Exchange of Bonds If the book entry system is discontinued, the District shall cause the Paying Agent to maintain and keep at its principal office all books and records necessary for the registration, exchange and transfer of the Bonds (the Registration Books ). If the book entry system is discontinued, the person in whose name a Bond is registered on the Bond Register shall be regarded as the absolute owner of that Bond. Payment of the -9-

15 principal of and interest on any Bond shall be made only to or upon the order of that person; neither the District, the County nor the Paying Agent shall be affected by any notice to the contrary, but the registration may be changed as provided the Bond Resolution. Bonds may be exchanged at the principal office of the Paying Agent in San Francisco, California for a like aggregate principal amount of Bonds of authorized denominations and of the same series and maturity. If the District determines to no longer maintain the book entry only status of the Bonds, (ii) DTC determines to discontinue providing such services and no successor securities depository is named or if DTC requests the District to deliver Bond certificates to particular DTC Participants, any Bond may be transferred on the Registration Books by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Bond for cancellation at the office of the Paying Agent, accompanied by delivery of a written instrument of transfer in a form approved by the Paying Agent, duly executed. No transfers or exchanges of Series A Bonds shall be required to be made (a) fifteen days prior to an Interest Payment Date or the date established by the Paying Agent for selection of Series A Bonds for redemption until the close of business on the Interest Payment Date or day on which the applicable notice of redemption is given or (b) with respect to a Series A Bond after such Series A Bond has been selected or called for redemption in whole or in part. Defeasance The Bonds may be paid by the District, in whole or in part, in any one or more of the following ways: (a) (b) (c) by paying or causing to be paid the principal or redemption price of and interest on such Bonds, as and when the same become due and payable; by irrevocably depositing, in trust, at or before maturity, money or securities in the necessary amount (as provided in the Bond Resolution) to pay or redeem such Bonds; or by delivering such Bonds to the Paying Agent for cancellation by it. Whenever in the Bond Resolution it is provided or permitted that there be deposited with or held in trust by the Paying Agent money or securities in the necessary amount to pay any Bonds, the money or securities so to be deposited or held may include money or securities held by the Paying Agent in the funds and accounts established under the Bond Resolution and shall be: (i) (ii) lawful money of the United States of America in an amount equal to the principal amount of such Series B Bonds and all unpaid interest thereon to maturity; or Federal Securities (not callable by the issuer thereof prior to maturity) the principal of and interest on which when due, in the opinion of a certified public accountant delivered to the District, will provide money sufficient to pay the principal of and all unpaid interest to maturity on the Bonds to be paid, as such principal and interest become due. -10-

16 Upon the deposit, in trust, at or before maturity, of money or securities in the necessary amount (as described above) to pay or redeem any outstanding Bond (whether upon or prior to its maturity or the redemption date of such Bond), then all liability of the County and the District in respect of such Bond will cease and be completely discharged, except only that thereafter the owner thereof will be entitled only to payment of the principal of and interest on such Bond by the District, and the District will remain liable for such payment, but only out of such money or securities deposited with the Paying Agent for such payment. As used in the foregoing provisions, the term Federal Securities (a) any direct general obligations of the United States of America (including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America), for which the full faith and credit of the United States of America are pledged; (b) obligations of any agency, department or instrumentality of the United States of America, the timely payment of principal and interest on which are directly or indirectly secured or guaranteed by the full faith and credit of the United States of America. Building Funds APPLICATION OF PROCEEDS OF THE BONDS Pursuant to the Bond Resolution, the net proceeds from the sale of the Bonds will be paid and credited to funds established and held by the San Diego County Treasurer (the County Treasurer ) and designated as the Lemon Grove School District, 2014 Election, Series A Building Fund, and the Lemon Grove School District, 2014 Election, Series B Building Fund, respectively (together, the Building Funds ). Amounts credited to the Building Funds will be expended by the District for the purpose of financing any of the projects for which the Bond proceeds are authorized to be expended under the 2014 Authorization, including the capital facility and technology projects described therein, and further including all incidental expenses and related costs of issuance. All interest and other gain arising from the investment of proceeds of the Bonds will be retained in the respective Building Fund and used for the purposes thereof. All moneys held in the Building Funds will be invested in Authorized Investments (as defined in the Bond Resolutions) in accordance with the investment policies of the County, as such policies exist at the time of investment. Pursuant to the Bond Resolutions and applicable provisions of the Education Code, a portion of the proceeds of the Bonds may be deposited with a fiscal agent for the purpose of paying costs of issuance. See also APPENDIX G - SAN DIEGO COUNTY INVESTMENT POLICY herein. Debt Service Funds Pursuant to the Bond Resolution, the premium, if any, received by the County from the sale of the Bonds will be deposited and kept separate and apart in the respective funds established and held by the County Treasurer and designated as the Lemon Grove School District 2014 Election, Series A General Obligation Bonds Debt Service Fund and the Lemon Grove School District 2014 Election, Series B General Obligation Bonds Debt Service Fund, respectively (together, the Debt Service Funds ), which are pledged for the payment of the principal of and interest on the applicable series of Bonds when and as the same become due. All taxes levied by the County for the payment of the principal of and interest and premium (if -11-

17 any) on the respective series of Bonds will be deposited in the applicable Debt Service Fund by the County promptly upon apportionment of said levy. Any moneys remaining in the Debt Service Funds after such series of Bonds and the interest thereon have been paid, shall be transferred to any other interest and sinking fund or account for general obligation bond indebtedness of the District, including refunding bonds, and in the event there is no such debt outstanding, shall be transferred to the District s general fund upon the order of the County Auditor, as provided in Section of the Education Code. Investment of Proceeds of Bonds All moneys held in any of the funds or accounts established with the County under the Bond Resolution will be invested in Authorized Investments (as defined in the Bond Resolution) in accordance with the investment policies of the County, as such policies exist at the time of investment. Obligations purchased as an investment of moneys in any fund or account will be deemed to be part of such fund or account. All interest or gain derived from the investment of amounts in any of the funds or accounts established under the Bond Resolution will be deposited in the fund or account from which such investment was made, and will be expended for the purposes thereof. In accordance with Government Code Section et seq., the County Treasurer manages funds deposited with it by the District. The County is required to invest such funds in accordance with California Government Code Sections et seq. In addition, counties are required to establish their own investment policies which may impose limitations beyond those required by the Government Code. See APPENDIX G - SAN DIEGO COUNTY INVESTMENT POLICY AND QUARTERLY INVESTMENT REPORT. [Remainder Of This Page Intentionally Left Blank] -12-

18 DEBT SERVICE SCHEDULES Debt Service for the Bonds. The following table shows the debt service schedule with respect to the Bonds, assuming no optional redemptions. LEMON GROVE SCHOOL DISTRICT Bonds Debt Service Schedule Bond Year Ending August 1 Series A Principal Series A Interest Series B Principal Series B Interest Total Debt Service 2016 $50,000 $217, $315,000 $43, $626, , , ,000 27, , , ,000 14, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,000 94, , ,000 85, , ,000 76, , ,000 67, , ,000 57, , ,000 46, , ,000 36, , ,000 24, , ,000 12, , Total $5,000,000 $3,748, $1,000,000 $85, $9,833,

19 Combined General Obligation Bonds Debt Service. The following table shows the combined debt service schedule with respect to the District s outstanding general obligation bonds issued prior to 2008 (the Pre-2008 Bonds ), the Election of 2008, Series A, B and Series C Bonds and the Bonds, each assuming no optional redemptions. See Appendix B District General and Financial Information Existing Debt Obligations for additional information on the District s outstanding indebtedness. LEMON GROVE SCHOOL DISTRICT Combined Debt Service Schedule Period Ending (Aug. 1) Pre-2008 Bonds Debt Service (1) Election of 2008, Series A, B, and C Bonds Debt Service 2014 Election, Series A 2014 Election, Series B Aggregate Annual Debt Service 2015 $725, $632, $1,357, ,014, , $267, $358, ,303, ,105, , , , ,482, ,230, , , , ,494, ,310, , , ,239, ,370, , , ,336, ,443, , , ,448, ,529, , , ,718, ,611, , , ,843, ,264, , , ,541, ,325, ,006, , ,659, ,390, ,066, , ,785, ,045, ,134, , ,507, ,201, , ,526, ,369, , ,693, ,453, , ,775, ,535, , ,860, ,617, , ,940, ,712, , ,031, ,771, , ,088, ,876, , ,195, ,991, , ,306, ,111, , ,427, ,236, , ,553, ,371, , ,683, ,511, , ,829, ,664, , ,981, ,823, , ,144, ,996, , ,320, ,174, , ,502, ,363, ,363, ,564, ,564, ,777, ,777, ,007, ,007, ,246, ,246, ,500, ,500, TOTAL $19,363, $69,842, $8,748, $1,085, $98,808, (1) 1998 Election Series B Bonds have May 1 and November 1 interest payments. -14-

20 SECURITY FOR THE BONDS Ad Valorem Taxes Bonds Payable from Ad Valorem Property Taxes. The Bonds are general obligations of the District, payable solely from ad valorem property taxes levied and collected by the County. The County is empowered and is obligated to annually levy ad valorem taxes for the payment of the Bonds and the interest thereon upon all property within the District subject to taxation by the District, without limitation of rate or amount (except certain personal property which is taxable at limited rates). Other Bonds Payable from Ad Valorem Property Taxes. In addition to the Bonds being issued by the District, there is other debt issued by entities with jurisdiction in the District, which is payable from ad valorem taxes levied on parcels in the District, as well as other outstanding voter-approved general obligation bond indebtedness of the District. See PROPERTY TAXATION Tax Rates and - Direct and Overlapping Debt below. Levy and Collection. The County will levy and collect such ad valorem taxes in such amounts and at such times as is necessary to ensure the timely payment of debt service. Such taxes, when collected, will be deposited into a debt service fund for the Bonds, which is maintained by the County and which is irrevocably pledged for the payment of principal of and interest on the Bonds when due. District property taxes are assessed and collected by the County in the same manner and at the same time, and in the same installments as other ad valorem taxes on real property, and will have the same priority, become delinquent at the same times and in the same proportionate amounts, and bear the same proportionate penalties and interest after delinquency, as do the other ad valorem taxes on real property. Annual Tax Rates. The amount of the annual ad valorem tax levied by the County to repay the Bonds will be determined by the relationship between the assessed valuation of taxable property in the District and the amount of debt service due on the Bonds. Fluctuations in the annual debt service on the Bonds and the assessed value of taxable property in the District may cause the annual tax rate to fluctuate. Economic and other factors beyond the District s control, such as economic recession, deflation of land values, a relocation out of the District or financial difficulty or bankruptcy by one or more major property taxpayers, or the complete or partial destruction of taxable property caused by, among other eventualities, earthquake, flood, fire or other natural disaster, could cause a reduction in the assessed value within the District and necessitate a corresponding increase in the annual tax rate. Debt Service Funds As described herein under the heading APPLICATION OF PROCEEDS OF THE BONDS, the County will establish the Debt Service Funds for each series of the Bonds, which, pursuant to the Bond Resolution, will be established as separate funds to be maintained distinct from all other funds of the County. All taxes levied by the County for the payment of the principal of and interest and premium (if any) on each series of the Bonds will be deposited in the applicable Debt Service Fund by the County promptly upon the receipt. The Debt Service -15-

21 Funds are pledged for the payment of the principal of and interest and premium (if any) on the applicable series of the Bonds when and as the same become due. Pursuant to the Bond Resolution, the County will transfer amounts in the Debt Service Funds to the Paying Agent to the extent necessary to pay the principal of and interest and premium (if any) on the applicable series of the Bonds as the same becomes due and payable. Not a County Obligation The Bonds are payable solely from the proceeds of an ad valorem tax levied and collected by the County, for the payment of principal and interest on the Bonds. Although the County is obligated to collect the ad valorem tax for the payment of the Bonds, the Bonds are not a debt of the County. [Remainder Of This Page Intentionally Left Blank] -16-

22 Property Tax Collection Procedures PROPERTY TAXATION In California, property which is subject to ad valorem taxes is classified as secured or unsecured. The secured roll is that part of the assessment roll containing state assessed public utilities property and real property, the taxes on which create a lien on such property sufficient, in the opinion of the county assessor, to secure payment of the taxes. A tax levied on unsecured property does not become a lien against such unsecured property, but may become a lien on certain other property owned by the taxpayer. Every tax which becomes a lien on secured property has priority over all other liens arising pursuant to State law on such secured property, regardless of the time of the creation of the other liens. Secured and unsecured property are entered separately on the assessment roll maintained by the county assessor. The method of collecting delinquent taxes is substantially different for the two classifications of property. Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each fiscal year. If unpaid, such taxes become delinquent after December 10 and April 10, respectively, and a 10% penalty attaches to any delinquent payment. In addition, property on the secured roll with respect to which taxes are delinquent is declared tax defaulted on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of the delinquent taxes and a delinquency penalty, plus a redemption penalty of 1-1/2% per month to the time of redemption. If taxes are unpaid for a period of five years or more, the property is subject to sale by the County. Property taxes are levied for each fiscal year on taxable real and personal property situated in the taxing jurisdiction as of the preceding January 1. A bill enacted in 1983, SB813 (Statutes of 1983, Chapter 498), however, provided for the supplemental assessment and taxation of property as of the occurrence of a change of ownership or completion of new construction. Thus, this legislation eliminated delays in the realization of increased property taxes from new assessments. As amended, SB813 provided increased revenue to taxing jurisdictions to the extent that supplemental assessments of new construction or changes of ownership occur subsequent to the January 1 lien date and result in increased assessed value. Property taxes on the unsecured roll are due on the January 1 lien date and become delinquent, if unpaid on the following August 31. A 10% penalty is also attached to delinquent taxes in respect of property on the unsecured roll, and further, an additional penalty of 1-1/2% per month accrues with respect to such taxes beginning the first day of the third month following the delinquency date. The taxing authority has four ways of collecting unsecured personal property taxes: (1) 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 judgment 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) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the assessee. The exclusive means of enforcing the payment of delinquent taxes in respect of property on the secured roll is the sale of the property securing the taxes for the amount of taxes which are delinquent. -17-

23 Taxation of State-Assessed Utility Property The State Constitution provides that most classes of property owned or used by regulated utilities be assessed by the State Board of Equalization ( SBE ) and taxed locally. Property valued by the SBE as an operating unit in a primary function of the utility taxpayer is known as unitary property, a concept designed to permit assessment of the utility as a going concern rather than assessment of each individual element of real and personal property owned by the utility taxpayer. State-assessed unitary and operating nonunitary property (which excludes nonunitary property of regulated railways) is allocated to the counties based on the situs of the various components of the unitary property. Except for unitary property of regulated railways and certain other excepted property, all unitary and operating nonunitary property is taxed at special county-wide rates and tax proceeds are distributed to taxing jurisdictions according to statutory formulae generally based on the distribution of taxes in the prior year. Assessed Valuation Assessed Valuation History. The table below shows a recent history of the District s assessed valuation. LEMON GROVE SCHOOL DISTRICT Assessed Valuations of All Taxable Property Fiscal Years to Locally Secured Utility Unsecured Total % Change $ 1,867,317,763 $2,278,582 $ 51,253,190 $1,920,849, ,106,244,446 2,310,104 58,842,051 2,167,396, % ,299,757,641 2,185,698 61,427,359 2,363,370, ,323,739, ,698 63,373,376 2,387,298, ,129,526, ,698 66,965,355 2,196,677,551 (8.0) ,129,716, ,698 65,913,652 2,195,815, ,163,108, ,698 66,994,107 2,230,288, ,121,733, ,698 72,394,841 2,194,314,287 (1.6) ,188,952, ,698 71,966,173 2,261,104, ,297,445, ,698 71,690,055 2,369,321, Source: California Municipal Statistics, Inc. -18-

24 Assessed Valuation by Land Use. The following table shows the land use of property in the District, as measured by assessed valuation and the number of parcels for fiscal year As shown, the majority of the District s assessed valuation is represented by residential property. LEMON GROVE SCHOOL DISTRICT Assessed Valuation and Parcels by Land Use Fiscal Year % of No. of % of Non-Residential: Assessed Valuation (1) Total Parcels Total Commercial $338,622, % % Vacant Commercial 5,469, Industrial 42,208, Vacant Industrial 2,725, Government/Social/Institutional 1,017, Subtotal Non-Residential $390,043, % % Residential: Single Family Residence $1,418,640, % 3, % Condominium/Townhouse 86,678, Mobile Home 3,724, Mobile Home Park 3,434, Residential Units 207,786, Residential Units/Apartments 161,305, Miscellaneous Residential 1,201, Vacant Residential 24,632, Subtotal Residential $1,907,401, % 5, % Total $2,297,445, % 6, % (1) Local secured assessed valuation; excluding tax-exempt property. Source: California Municipal Statistics, Inc. Reassessments and Appeals of Assessed Value There are general means by which assessed values can be reassessed or appealed that could adversely impact property tax revenues within the District. Appeals may be based on Proposition 8 of November 1978, which requires that for each January 1 lien date, the taxable value of real property must be the lesser of its base year value, annually adjusted by the inflation factor pursuant to Article XIIIA of the State Constitution, or its full cash value, taking into account reductions in value due to damage, destruction, depreciation, obsolescence, removal of property or other factors causing a decline in value. See CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Article XIIIA of the California Constitution in Appendix B. Under California law, property owners may apply for a Proposition 8 reduction of their property tax assessment by filing a written application, in form prescribed by the State Board of Equalization, with the County board of equalization or assessment appeals board. In most cases, the appeal is filed because the applicant believes that present market conditions (such as residential home prices) cause the property to be worth less than its current assessed value. -19-

25 Any reduction in the assessment ultimately granted as a result of such appeal applies to the year for which application is made and during which the written application was filed. These reductions are subject to yearly reappraisals and are adjusted back to their original values, adjusted for inflation, when market conditions improve. Once the property has regained its prior value, adjusted for inflation, it once again is subject to the annual inflationary factor growth rate allowed under Article XIIIA. A second type of assessment appeal involves a challenge to the base year value of an assessed property. Appeals for reduction in the base year value of an assessment, if successful, reduce the assessment for the year in which the appeal is taken and prospectively thereafter. The base year is determined by the completion date of new construction or the date of change of ownership. Any base year appeal must be made within four years of the change of ownership or new construction date. Proposition 8 reductions may also be unilaterally applied by the County Assessor. The District cannot predict the changes in assessed values that might result from pending or future appeals by taxpayers or by reductions initiated by the county assessor. Any reduction in aggregate District assessed valuation due to appeals, as with any reduction in assessed valuation due to other causes, will cause the tax rate levied to repay the Bonds to increase accordingly, so that the fixed debt service on the Bonds (and other outstanding general obligation bonds, if any) may be paid. Tax Rates The table below summarizes the total ad valorem tax rates levied by all taxing entities in a representative tax rate area in the District during fiscal years through The fiscal year assessed valuation in Tax Rate Area of $635,479,104 represents 26.82% of the total assessed valuation in the District. LEMON GROVE SCHOOL DISTRICT Typical Tax Rates (TRA ) Dollars per $100 of Assessed Valuation Fiscal Years through Purpose General Lemon Grove School District Grossmont High School District Grossmont Community College District Grossmont Healthcare District Metropolitan Water District Total Source: California Municipal Statistics, Inc. -20-

26 Tax Levies and Delinquencies The Board of Supervisors of 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 et seq. of the California Revenue and Taxation Code. Under the Teeter Plan, each entity levying property taxes in the County may draw on the amount of uncollected secured taxes credited to its fund, in the same manner as if the amount credited had been collected. The District participates in the Teeter Plan, and thus receives 100% of secured property taxes levied in exchange for foregoing any interest and penalties collected on delinquent taxes. The District anticipates that the County will include the District s Bond levies in its Teeter Plan. So long as the Teeter Plan remains in effect and the County continues to include the District in the Teeter Plan, the District s receipt of revenues with respect to the levy of ad valorem property taxes on secured property will not be dependent upon actual collections of the ad valorem property taxes by the County. However, under the statute creating the Teeter Plan, the Board of Supervisors could under certain circumstances terminate the Teeter Plan in its entirety and, in addition, the Board of Supervisors could terminate the Teeter Plan with respect to the District if the delinquency rate for all ad valorem property taxes levied within the District in any year exceeds 3%. In the event that the Teeter Plan were terminated with regard to the secured tax roll, the amount of the levy of ad valorem property taxes in the District would depend upon the collections of the ad valorem property taxes and delinquency rates experienced with respect to the parcels within the District. -21-

27 Major Taxpayers The following table shows the 20 largest taxpayers in the District as determined by their secured assessed valuations in fiscal year Each taxpayer listed below is a unique name listed on the tax rolls. The District cannot determine from County assessment records whether individual persons, corporations or other organizations are liable for tax payments with respect to multiple properties held in various names that in aggregate may be larger than is suggested by the table below. A large concentration of ownership in a single individual or entity results in a greater amount of tax collections which are dependent upon that property owner s ability or willingness to pay property taxes. LEMON GROVE SCHOOL DISTRICT Largest Local Secured Taxpayers % of Property Owner Primary Land Use Assessed Valuation Total (1) 1. Ultimate Capital LLC Shopping Center $ 35,173, % 2. HD Development of Maryland Inc. Shopping Center 17,917, Sam s Real Estate Business Trust Shopping Center 17,121, Wal-Mart Real Estate Business Trust Shopping Center 17,049, Target Corporation Shopping Center 16,819, Retail Portfolio 30-1 LLC Apartments 14,851, TRCMM LLC Shopping Center 13,956, ABS CA-O LLC Commercial 13,059, Terrace Gardens LLC Apartments 12,548, William O. Kobusch Revocable Trust Auto Sales/Service 10,607, SD Landmark 1 LLC Apartments 10,587, San Diego Grove LP Commercial 8,972, Food 4 Less of California Inc. Commercial 8,840, Lemon Grove Holdings LLC Shopping Center 7,446, Rekab Properties Auto Sales/Service 7,379, Morelli Brothers Enterprises LLC Commercial 7,143, Immobilier Olive LLC Apartments 6,335, Walgreen Co CIF Holdings LP Commercial 6,007, Golden Grove Terrace Apartments LP Apartments 5,702, Cresta Loma Nursing Facility LLC Assisted Living Facility 5,698, $243,220, % (1) local secured assessed valuation: $2,297,445,339. Source: California Municipal Statistics, Inc. -22-

28 Direct and Overlapping Debt Set forth below is a direct and overlapping debt report (the Debt Report ) prepared by California Municipal Statistics, Inc. for debt issued as of March 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 Assessed Valuation: $2,369,321,092 LEMON GROVE SCHOOL DISTRICT Statement of Direct and Overlapping Bonded Debt (Debt Issued as of March 1, 2015) DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 3/1/15 Metropolitan Water District 0.102% $ 112,628 Grossmont-Cuyamaca Community College District ,243,263 Grossmont Union High School District ,674,536 Lemon Grove School District ,572,744 City of La Mesa ,369,963 Grossmont Healthcare District ,958,168 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $75,931,302 (1) OVERLAPPING GENERAL FUND DEBT: San Diego County General Fund Obligations 0.565% $1,986,936 San Diego County Pension Obligation Bonds ,856,776 San Diego County Superintendent of Schools Certificates of Participation ,239 Grossmont-Cuyamaca Community College District General Fund Obligations ,558 Grossmont Union High School District Certificates of Participation ,798 City of La Mesa General Fund Obligations ,137 City of San Diego General Fund Obligations ,640 San Miguel Consolidated Fire Protection District Certificates of Participation TOTAL OVERLAPPING GENERAL FUND DEBT $7,122,058 OVERLAPPING TAX INCREMENT DEBT (Successor Agency): $25,168,768 COMBINED TOTAL DEBT $108,222,128 (2) (1) Excludes issue 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 ($22,572,744) % Total Direct and Overlapping Tax and Assessment Debt % Combined Total Debt % Ratios to Redevelopment Incremental Valuation ($444,847,727): Total Overlapping Tax Increment Debt % Source: California Municipal Statistics, Inc. -23-

29 Tax Exemption TAX MATTERS Federal Tax Status. In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however to the qualifications set forth below, under existing law, the interest on the Bonds is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, provided, however, that, for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining certain income and earnings and the Bonds are "qualified tax-exempt obligations" within the meaning of section 265(b)(3) of the Internal Revenue Code of 1986, as amended (the "Tax Code"), such that, in the case of certain financial institutions (within the meaning of section 265(b)(5) of the Tax Code), a deduction for federal income tax purposes is allowed for 80% of that portion of such financial institution's interest expense allocable to interest payable on the Bonds. The opinions set forth in the preceding paragraph are subject to the condition that the District comply with all requirements of the Tax Code that must be satisfied subsequent to the issuance of the Bonds. 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 issuance of the Bonds, and may cause the Bonds to lose their status as "qualified tax-exempt obligations" within the meaning of Section 265(b)(3) of the Tax Code. Tax Treatment of Original Issue Discount and Premium. If the initial offering price to the public (excluding bond houses and brokers) at which a Bond is sold is less than the amount payable at maturity thereof, then such difference constitutes "original issue discount" for purposes of federal income taxes and State of California personal income taxes. If the initial offering price to the public (excluding bond houses and brokers) at which a Bond is sold is greater than the amount payable at maturity thereof, then such difference constitutes "original issue premium" for purposes of federal income taxes and State of California personal income taxes. De minimis original issue discount and original issue premium is disregarded. Under the Tax Code, original issue discount is treated as interest excluded from federal gross income and exempt from State of California personal income taxes to the extent properly allocable to each owner thereof subject to the limitations described in the first paragraph of this section. The original issue discount accrues over the term to maturity of the Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straightline interpolations between compounding dates). The amount of original issue discount accruing during each period is added to the adjusted basis of such Bonds to determine taxable gain upon disposition (including sale, redemption, or payment on maturity) of such Bond. The Tax Code contains certain provisions relating to the accrual of original issue discount in the case of purchasers of the Bonds who purchase the Bonds after the initial offering of a substantial amount of such maturity. Owners of such Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of purchasers who do not purchase in the original offering, the allowance of a deduction for any loss on a sale or other disposition, and the treatment of accrued original issue discount on such Bonds under federal individual and corporate alternative minimum taxes. -24-

30 Under the Tax Code, original issue premium is amortized on an annual basis over the term of the Bond (said term being the shorter of the Bond's maturity date or its call date). The amount of original issue premium amortized each year reduces the adjusted basis of the owner of the Bond for purposes of determining taxable gain or loss upon disposition. The amount of original issue premium on a Bond is amortized each year over the term to maturity of the Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). Amortized Bond premium is not deductible for federal income tax purposes. Owners of premium Bonds, including purchasers who do not purchase in the original offering, should consult their own tax advisors with respect to State of California personal income tax and federal income tax consequences of owning such Bonds. California Tax Status. In the further opinion of Bond Counsel, interest on the Bonds is exempt from California personal income taxes. Forms of Opinions. Copies of the proposed forms of opinions of Bond Counsel are attached hereto as Appendix D. Other Tax Considerations Owners of the Bonds should also be aware that the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may have federal or state tax consequences other than as described above. Bond Counsel expresses no opinion regarding any federal or state tax consequences arising with respect to the Bonds other than as expressly described above. Future legislation, if enacted into law, or clarification of the Tax Code may cause interest on the Bonds to be subject, directly or indirectly, to federal income taxation, or otherwise prevent owners of the Bonds from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such future legislation or clarification of the Tax Code may also affect the market price for, or marketability of, the Bonds. Prospective purchasers of the Bonds should consult their own tax advisors regarding any pending or proposed federal tax legislation, as to which Bond Counsel expresses no opinion. -25-

31 CERTAIN LEGAL MATTERS Legality for Investment Under provisions of the California Financial Code, the Bonds are legal investments for commercial banks in California to the extent that the Bonds, in the informed opinion of the bank, are prudent for the investment of funds of depositors, and under provisions of the California Government Code, the Bonds are eligible to secure deposits of public moneys in California. Absence of Litigation No litigation is pending or threatened concerning the validity of the Bonds, and a certificate to that effect, executed by an authorized officer of the District, will be furnished to purchasers at the time of the original delivery of the Bonds. The District is not aware of any litigation pending or threatened that (i) questions the political existence of the District, (ii) contests the District's ability to receive ad valorem taxes or to collect other revenues or (iii) contests the District's ability to issue and retire the Bonds. The District is routinely subject to lawsuits and claims. In the opinion of the District, the aggregate amount of the uninsured liabilities of the District under these lawsuits and claims will not materially affect the financial position or operations of the District. Compensation of Certain Professionals Payment of the fees and expenses of Jones Hall, A Professional Law Corporation, as Bond Counsel and Disclosure Counsel to the District, and Dale Scott & Company, Inc., as financial advisor to the District, is contingent upon issuance of the Bonds. CONTINUING DISCLOSURE The District will execute a Continuing Disclosure Certificate in connection with the issuance of the Bonds in the form attached hereto as Appendix E. The District has covenanted therein, for the benefit of holders and beneficial owners of the Bonds to provide certain financial information and operating data relating to the District to the Municipal Securities Rulemaking Board (an Annual Report ) not later than nine months after the end of the District s fiscal year (which currently would be by April 1), commencing March 31, 2016 with the report for the Fiscal Year, and to provide notices of the occurrence of certain enumerated events. Such notices will be filed by the District with the Municipal Securities Rulemaking Board. The specific nature of the information to be contained in an Annual Report or the notices of enumerated events is set forth in APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE. These covenants have been made in order to assist the Purchasers of the Bonds in complying with S.E.C. Rule 15c2-12(b)(5) (the Rule ). The District has made undertakings pursuant to the Rule in connection with other bond and debt issuances. In the previous five years, specific instances of non-compliance with existing undertakings were that certain significant event notices relating to insured and underlying rating changes were not made in a timely manner under the Rule. Additionally, the District s annual report and financial audit for fiscal year ending 2010 were filed late for the 1998 General Obligation Bonds, Series C. These event notices, as well as the referenced annual -26-

32 report and audit, have since been filed. Inclusion of these instances of non-compliance is not a representation that the District has determined that such non-compliance was material pursuant to the Rule. Initially, Dale Scott & Company will serve as dissemination agent. Neither the County nor any other entity other than the District shall have any obligation or incur any liability whatsoever with respect to the performance of the District s duties regarding continuing disclosure. RATING Standard & Poor s Ratings Services, a Standard & Poor s Financial Services LLC business ( S&P ) has assigned a rating of AA- to the Bonds. The District has provided certain additional information and materials to S&P (some of which may not appear in this Official Statement). Such rating reflects only the view of S&P and an explanation of the significance of such rating and outlooks may be obtained only from S&P. There is no assurance that any credit rating given to the Bonds will be maintained for any period of time or that the rating may not be lowered or withdrawn entirely by S&P if, in its judgment, circumstances so warrant. Any such downward revision or withdrawal of the rating may have an adverse effect on the market price of the Bonds. COMPETITIVE SALE OF BONDS The Bonds were sold following two separate competitive bidding processes, and were awarded to the separate purchasers identified in the following paragraphs, whose proposals represented the lowest true interest cost for the applicable Bonds as determined in accordance with the Official Notices of Sale. The following are the purchase prices for the Series A Bonds and Series B Bonds, respectively: Series A Bonds. Piper Jaffray & Co., (the Series A Bond Purchaser ), has agreed to purchase the Series A Bonds at a price of $5,014,915.15, which is equal to the initial principal amount of the Series A Bonds of $5,000, plus a net original issue premium of $222,077.65, less a Purchaser s discount of $41,162.50, less $166, to be applied by Series A Bond Purchaser to fulfill its obligation to pay a portion of costs of issuance of the Series A Bonds. Series B Bonds. Bernardi Securities, Inc., (the Series B Bond Purchaser, and with the Series A Bond Purchaser, the Bond Purchasers ), has agreed to purchase the Series B Bonds at a price of $1,000,000.00, which is equal to the initial principal amount of the Series B Bonds of $1,000, plus an original issue premium of $56,234.00, less a Purchaser s discount of $5,234.00, less $51, to be applied by Series B Bond Purchaser to fulfill its obligation to pay a portion of costs of issuance of the Series A Bonds. The Bond Purchasers intend to offer the respective series of Bonds to the public at the respective offering prices set forth on the inside cover page of this Official Statement. The Bond Purchasers may offer and sell to certain dealers and others at a price lower than the offering prices stated on the inside cover page hereof. The offering price may be changed from time to time by the Bond Purchasers. -27-

33 ADDITIONAL INFORMATION The discussions herein about the Bond Resolution and the Continuing Disclosure Certificate are brief outlines of certain provisions thereof. Such outlines do not purport to be complete and for full and complete statements of such provisions reference is made to such documents. Copies of these documents mentioned are available from the Purchasers and following delivery of the Bonds will be on file at the offices of the Paying Agent in San Francisco, California. References are also made herein to certain documents and reports relating to the District; such references are brief summaries and do not purport to be complete or definitive. Copies of such documents are available upon written request to the District. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the District and the purchasers or Owners of any of the Bonds. The execution and delivery of this Official Statement have been duly authorized by the District. LEMON GROVE SCHOOL DISTRICT By: /s/ Ernest Anastos Superintendent -28-

34 APPENDIX A LEMON GROVE SCHOOL DISTRICT AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR A-1

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126 APPENDIX B GENERAL AND FINANCIAL INFORMATION FOR LEMON GROVE SCHOOL DISTRICT The information in this and other sections concerning the District's operations and operating budget is provided as supplementary information only, and it should not be inferred from the inclusion of this information in this Official Statement that the principal of or interest on the Bonds is payable from the general fund of the District. The Bonds are payable from the proceeds of an ad valorem tax required to be levied by the County in an amount sufficient for the payment thereof. See "SECURITY FOR THE BONDS" in the front half of the Official Statement. General Information GENERAL DISTRICT INFORMATION The District, located in the City of San Jose (the City ) in San Diego County (the County ), covers an area of approximately 20 square miles. During the academic year, the District maintains sixteen elementary schools and three junior high schools. Enrollment in the District for the academic year is 3,922 students. Four out of nineteen schools receive Title I funds. Forty-five percent of the students qualify for the free and reducedprice school lunch. Ten percent of the students receive special education services. For demographic information regarding the City and the County, see Appendix C hereto. Administration 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 Governing Board, together with their office and the date their term expires, are listed below: GOVERNING BOARD Lemon Grove School District Name Office Term Expires Katie Dexter President December, 2018 Jay Bass Vice President/Clerk December, 2016 Larry Loschen Member December, 2018 Blanca Brown Member December, 2016 Timothy Shaw Member December, 2018 Superintendent and Administrative Personnel. The Superintendent of the District, appointed by the Board, is responsible for management of the day-to-day operations and supervises the work of other District administrators. B-1

127 Recent Enrollment Trends The following table shows recent and projected enrollment history for the District. Employee Relations ANNUAL ENROLLMENT Fiscal Years through Lemon Grove School District Fiscal Year Student Enrollment % Change , ,901 (3.2) , ,834 (1.9) ,813 (0.5) , , * 3,922 (0.8) * 3,879 (1.1) * 3,836 (1.1) * FY and Projected Enrollment. Source: California Department of Education for through ; District for through The certificated, classified and other employees of the District are represented by two bargaining units, as set forth in the following table. The District is currently in contract negotiations. Employee Group BARGAINING UNITS Lemon Grove School District Representation Number of Employees Represented Contract Expiration Date Certificated Lemon Grove Teacher s Association June 30, 2014 Classified California School Employees Association June 30, 2014 Source: Lemon Grove School District. [Remainder of page intentionally left blank.] B-2

128 DISTRICT FINANCIAL INFORMATION The information in this and other sections concerning the District's operations and operating budget is provided as supplementary information only, and it should not be inferred from the inclusion of this information in this Official Statement that the principal of or interest on the Series B Bonds is payable from the General Fund of the District. The Series B Bonds are payable from the proceeds of an ad valorem tax required to be levied by the County in an amount sufficient for the payment thereof. Education Funding Generally School districts in California receive operating income primarily from two sources: the State funded portion which is derived from the State s general fund, and a locally funded portion, being the district s share of the one percent general ad valorem tax levy authorized by the California Constitution. As a result, decreases or deferrals in education funding by the State could significantly affect a school district s revenues and operations. From to , California school districts operated under general purpose revenue limits established by the State Legislature. In general, revenue limits were calculated for each school district by multiplying (1) the average daily attendance ( ADA ) for such district by (2) a base revenue limit per unit of ADA. The revenue limit calculations were adjusted annually in accordance with a number of factors designated primarily to provide cost of living increases and to equalize revenues among all California school districts of the same type. Funding of the District's revenue limit was provided by a mix of local property taxes and State apportionments of basic and equalization aid. Generally, the State apportionments amounted to the difference between the District's revenue limit and its local property tax revenues. The fiscal year State budget package replaced the previous K-12 finance system with a new formula known as the Local Control Funding Formula (the LCFF ). Under the LCFF, revenue limits and most state categorical programs were eliminated. School districts instead receive funding based on the demographic profile of the students they serve and gain greater flexibility to use these funds to improve outcomes of students. The LCFF creates funding targets based on student characteristics. For school districts and charter schools, the LCFF funding targets consist of grade span-specific base grants plus supplemental and concentration grants that reflect student demographic factors. The LCFF includes the following components: A base grant for each local education agency per unit of ADA, which varies with respect to different grade spans. The base grant is $2,375 more than the average revenue limit provided prior to LCFF implementation. The base grants will be adjusted upward each year to reflect cost-of-living increases. In addition, grades K-3 and 9-12 are subject to adjustments of 10.4% and 2.6%, respectively, to cover the costs of class size reduction in grades K-3 and the provision of career technical education in grades A 20% supplemental grant for English learners, students from low-income families and foster youth to reflect increased costs associated with educating those students. An additional concentration grant of up to 50% of a local education agency s base grant, based on the number of English learners, students from low-income B-3

129 families and foster youth served by the local agency that comprise more than 55% of enrollment. An economic recovery target to ensure that almost every local education agency receives at least their pre-recession funding level, adjusted for inflation, at full implementation of the LCFF. The LCFF was implemented for fiscal year and will be phased in gradually. Beginning in fiscal year , an annual transition adjustment was required to be calculated for each school district, equal to each district s proportionate share of the appropriations included in the State budget (based on the percentage of each district s students who are low-income, English learners, and foster youth ( Targeted Students ), to close the gap between the prior-year funding level and the target allocation at full implementation of LCFF. In each year, districts will have the same proportion of their respective funding gaps closed, with dollar amounts varying depending on the size of a district s funding gap. Based on revenue projections, districts will reach what is referred to as full funding in eight years, being fiscal year This projection assumes that the State s economy will improve each year; if the economy falters it could take longer to reach full funding. The target LCFF amounts for State school districts and charter schools based on grade levels and Targeted Students is shown below. Grade Span Funding at Full LCFF Implementation (Target Amount) K-3 Class Size Reduction and 9-12 Adjustments Average Assuming 0% Targeted Students B-4 Average Assuming 25% Targeted Students Average Assuming 50% Targeted Students Average Assuming 100% Targeted Students Grade Span Base Grant (1) K-3 $6,845 $712 $7,557 $7,935 $8,313 $10, ,947 N/A 6,947 7,294 7,642 9, ,154 N/A 7,154 7,512 7,869 10, ,289 $216 8,505 8,930 9,355 12,119 (1) Does not include adjustments for cost of living. Source: California Department of Education. The new legislation included a hold harmless provision which provides that a district or charter school would maintain total revenue limit and categorical funding at least equal to its level, adjusted for changes in ADA. The LCFF includes an accountability component. Districts are required to increase or improve services for English language learners, low income, and foster youth students in proportion to supplemental and concentration grant funding received. All school districts, county offices of education, and charter schools are required to develop and adopt local control and accountability plans, which identify local goals in areas that are priorities for the State, including pupil achievement, parent engagement, and school climate. County superintendents review and provide support to the districts under their jurisdiction, and the Superintendent of Public Instruction performs a corresponding role for county offices of education. In addition, the Budget created the California Collaborative for Education Excellence to advise and assist school districts, county offices of education, and

130 charter schools in achieving the goals identified in their plans. Under the LCFF and related legislation, the State will continue to measure student achievement through statewide assessments, produce an Academic Performance Index for schools and subgroups of students, determine the contents of the school accountability report card, and establish policies to implement the federal accountability system. District 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. District accounting is organized on the basis of fund groups, with each group consisting of a separate set of self-balancing accounts containing assets, liabilities, fund balances, revenues and expenditures. The major fund classification is the general fund which accounts for all financial resources not requiring a special fund placement. The District's fiscal year begins on July 1 and ends on June 30. District expenditures are accrued at the end of the fiscal year to reflect the receipt of goods and services in that year. Revenues generally are recorded on a cash basis, except for items that are susceptible to accrual (measurable and/or available to finance operations). Current taxes are considered susceptible to accrual. Revenues from specific state and federally funded projects are recognized when qualified expenditures have been incurred. State block grant apportionments are accrued to the extent that they are measurable and predictable. The State Department of Education sends the District updated information from time to time explaining the acceptable accounting treatment of revenue and expenditure categories. The Governmental Accounting Standards Board ( GASB ) published its Statement No. 34 Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments on June 30, Statement No. 34 provides guidelines to auditors, state and local governments and special purpose governments such as school districts and public utilities, on new requirements for financial reporting for all governmental agencies in the United States. Generally, the basic financial statements and required supplementary information should include (i) Management s Discussion and Analysis; (ii) financial statements prepared using the economic measurement focus and the accrual basis of accounting, (iii) fund financial statements prepared using the current financial resources measurement focus and the modified accrual method of accounting and (iv) required supplementary information. Financial Statements General. The District's general fund finances the legally authorized activities of the District for which restricted funds are not provided. General fund revenues are derived from such sources as State school fund apportionments, taxes, use of money and property, and aid from other governmental agencies. The District's June 30, 2014 Audited Financial Statements were prepared by Wilkinson Hadley King & Co. LLP, EL Cajon, California and are attached hereto as Appendix A. Audited financial statements for the District for prior fiscal years are on file with the District and available for public inspection at the Office of the Assistant Superintendent, Business and Fiscal Services of the District, Lemon Grove School District, 8025 Lincoln Street, Lemon Grove, California, 91945, Telephone: (619) The District has not requested, and the auditor has not provided, any review or update of such Financial Statements in connection with inclusion in this Official Statement. Copies of such financial B-5

131 statements will be mailed to prospective investors and their representatives upon written request to the District. This District may impose a charge for copying, mailing and handling. General Fund Revenues, Expenditures and Changes in Fund Balance. The following table shows the audited income and expense statements for the District for the fiscal years through GENERAL FUND REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE Fiscal Years through (Audited) (1) Lemon Grove School District Audited Audited Audited Audited Audited Revenues Revenue limit/lcff (2) sources: State apportionments $13,541,689 $14,626,948 $14,455,382 $14,238,550 $16,053,915 Education protection account funds ,054,648 Local sources 4,329,888 4,172,881 4,269,080 4,692,847 4,756,049 Total Revenue limit 17,871,577 18,799,829 18,724,462 18,931,397 24,864,612 Federal revenues 3,205,232 2,833,438 3,707,142 2,595,451 2,934,847 Other state revenues 5,986,970 4,775,509 4,649,955 4,637,413 2,523,719 Other local revenues 2,735,065 4,317,071 3,577,037 3,633,816 3,690,858 Total Revenues 29,798,844 30,725,847 30,658,596 29,798,077 34,014,036 Expenditures Instruction 19,994,770 19,119,321 18,166,467 18,984,456 22,322,557 Instruction-related services 2,598,629 2,357,267 2,429,972 2,584,281 2,607,374 Pupil services 1,688,513 1,995,637 1,960,876 1,904,325 2,020,887 Ancillary services 963, , , , ,674 Community services 34, , General Administration 2,743,922 2,530,947 2,704,191 2,512,505 2,510,449 Plant services 2,103,120 2,038,915 2,128,700 2,339,856 3,265,171 Other outgo 127,751 80,427 40, , ,537 Debt service: principal 11, (150,882) Debt service: interest and other Total Expenditures 30,267,404 29,076,936 28,382,739 29,415,291 33,789,548 Excess of Revenues Over/(Under) Expenditures (468,560) 1,648,911 2,275, , ,488 Other Financing Sources (Uses) Operating transfers in , Operating transfers out (145,064) (4,829) (703,234) Total Other Fin. Source(Uses) (145,064) 119, (4,829) (703,234) Net change in fund balance (613,624) 1,768,383 2,275, ,957 (478,746) Fund Balance, July 1 8,790,380 8,176,756 9,945,140 12,220,997 12,598,954 Fund Balance, June 30 $8,176,756 9,945,140 $12,220,997 $12,598,954 $12,120,208 (1) Totals may not foot due to rounding. (2) LCFF commenced in Fiscal Year Source: Lemon Grove School District - Audited Financial Statements. B-6

132 District Budget and Interim Financial Reporting Budgeting and Interim Reporting Procedures. State law requires school districts to maintain a balanced budget in each fiscal year. The State Department of Education imposes a uniform budgeting and accounting format for school districts. Under current law, a school district governing board must adopt and file with the county superintendent of schools a tentative budget by July 1 in each fiscal year. The District is under the jurisdiction of the San Luis Obispo County Superintendent of Schools (the "County Superintendent"). The County Superintendent must review and approve or disapprove the budget no later than August 15. The County Superintendent is required to examine the adopted budget for compliance with the standards and criteria adopted by the State Board of Education and identify technical corrections necessary to bring the budget into compliance with the established standards. If the budget is disapproved, it is returned to the District with recommendations for revision. The District is then required to revise the budget, hold a public hearing thereon, adopt the revised budget and file it with the County Superintendent no later than September 8. Pursuant to State law, the County Superintendent has available various remedies by which to impose and enforce a budget that complies with State criteria, depending on the circumstances, if a budget is disapproved. After approval of an adopted budget, the school district's administration may submit budget revisions for governing board approval. Subsequent to approval, the County Superintendent will monitor each district under its jurisdiction throughout the fiscal year pursuant to its adopted budget to determine on an ongoing basis if the district can meet its current or subsequent year financial obligations. If the County Superintendent determines that a district cannot meet its current or subsequent year obligations, the County Superintendent will notify the district's governing board of the determination and may then do either or both of the following: (a) assign a fiscal advisor to enable the district to meet those obligations or (b) if a study and recommendations are made and a district fails to take appropriate action to meet its financial obligations, the County Superintendent will so notify the State Superintendent of Public Instruction, and then may do any or all of the following for the remainder of the fiscal year: (i) request additional information regarding the district's budget and operations; (ii) after also consulting with the district's board, develop and impose revisions to the budget that will enable the district to meet its financial obligations; and (iii) stay or rescind any action inconsistent with such revisions. However, the County Superintendent may not abrogate any provision of a collective bargaining agreement that was entered into prior to the date upon which the County Superintendent assumed authority. A State law adopted in 1991 ("A.B. 1200") imposed additional financial reporting requirements on school districts, and established guidelines for emergency State aid apportionments. Under the provisions of A.B. 1200, each school district is required to file interim certifications with the County Superintendent (on December 15, for the period ended October 31, and by mid-march for the period ended 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 certification 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 current fiscal year or the B-7

133 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. Under California law, any school district and office of education that has a qualified or negative certification in any fiscal year may not issue, in that fiscal year or in the next succeeding fiscal year, certificates of participation, tax anticipation notes, revenue bonds or any other debt instruments that do not require the approval of the voters of the district, unless the applicable county superintendent of schools determines that the district s repayment of indebtedness is probable. District s Budget Approval/Disapproval and Certification History. During the past five years, all of the District s 1 st and 2 nd Interim Reports have received a positive certification. Copies of the District s budget, interim reports and certifications may be obtained upon request from the District Office at Lemon Grove School District, 8025 Lincoln Street, Lemon Grove, California, 91945, Telephone: (619) The District may impose charges for copying, mailing and handling. [Remainder of page intentionally left blank.] B-8

134 District s Budget. Interim figures for fiscal year The following table shows the General Fund Second REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE Fiscal Year Second Interim (1) Lemon Grove School District Second Interim Fiscal Year Revenues LCFF Sources (2) $28,226,079 Federal revenues 2,664,274 Other state revenues 821,835 Other local revenues 3,188,235 Total Revenues 34,900,423 Expenditures Certificated salaries 16,029,866 Classified salaries 5,870,231 Employee benefits 7,446,845 Books and supplies 2,519,255 Services and operating expenditures 5,709,504 Other outgo 271,605 Capital outlay 90,000 Direct support/indirect costs (252,589) Total expenditures 37,684,717 Excess of revenues over/(under) expenditures (2,784,294) Total Other Financing Sources/Uses (254,000) Net change in fund balance (3,038,294) Fund balance, July 1 12,120,208 Fund balance, June 30 $9,081,914 (1) Totals may not foot due to rounding. (2) LCFF commenced in fiscal year (3) District attributes decrease to budgeted expenditures of funds on deposit in the General Fund at the beginning of Fiscal Year Source: Lemon Grove School District Second Interim Report for Fiscal Year District Reserves. The District s ending fund balance is the accumulation of surpluses from prior years. This fund balance is used to meet the State s minimum required reserve of 3% of expenditures, plus any other allocation or reserve which might be approved as an expenditure by the District in the future. The District maintains an unrestricted reserve which meets the State s minimum requirements. In connection with legislation adopted in connection with the State s fiscal year Budget ( SB 858 ), the Education Code was amended to provide that, beginning in fiscal year , if a district s proposed budget includes a local reserve above the minimum recommended level, the governing board must provide the information for review at the annual public hearing on its proposed budget. In addition, SB 858 included a provision which limits the amount of reserves which may be maintained at the District level. This proposed reserve fund cap was conditioned on the success of Proposition 2 on the November 4, 2014 statewide ballot, which was approved by voters. Under certain conditions, this provision may limit the District s ability to maintain reserves above a certain level. The District cannot predict how this B-9

135 legislation will impact its reserves and future spending. See STATE FUNDING OF EDUCATION; RECENT STATE BUDGETS State Budget. Attendance and LCFF Funding As described herein, prior to fiscal year , school districts in California derived most State funding based on a formula which considered a revenue limit per unit of average daily attendance ( ADA ). With the implementation of the LCFF, commencing in fiscal year , school districts receive base funding based on ADA, and may also be entitled to supplemental funding, concentration grants and funding based on an economic recovery target. The following table sets funding per ADA under LCFF from fiscal year through (Projected). AVERAGE DAILY ATTENDANCE AND LCFF Fiscal Years and Lemon Grove School District ADA and LCFF Funding Fiscal Years through (Budgeted) Fiscal Year ADA (1) LCFF Revenue ,641 $20,108, ,781 28,112, ,764 30,978,629 (1) P2- for FY ; Second Interim Report for FY through Source: Lemon Grove School District. In fiscal year , the District had 3,173 students (unduplicated count) who were Targeted Students under LCFF, entitling the District to both supplemental and concentration grant funding. The District expects to continue to qualify for supplemental and concentration grant funding in the near future. Revenue Sources The District categorizes its general fund revenues into four sources, being LCFF, Federal Revenues, Other State Revenues and Local Revenues. Each of these revenue sources is described below. LCFF Sources. District funding is provided by a mix of (1) local property taxes and (2) State apportionments of funding under the LCFF. Generally, the State apportionments will amount to the difference between the District's LCFF funding entitlement and its local property tax revenues. Beginning in , Proposition 13 and its implementing legislation provided for each county to levy (except for levies to support prior voter-approved indebtedness) and collect all property taxes, and prescribed how levies on county-wide property values are to be shared with local taxing entities within each county. The principal component of local revenues is the school district s property tax revenues, i.e., the district s share of the local 1% property tax, received pursuant to Sections 75 and following and Sections 95 and following of the California Revenue and Taxation Code. Education Code Section 42238(h) itemizes the local revenues that are counted towards the B-10

136 base revenue limit before calculating how much the State must provide in equalization aid. Historically, the more local property taxes a district received, the less State equalization aid it is entitled to. Federal Revenues. The federal government provides funding for several District programs, including special education programs, programs under No Child Left Behind, the Individuals With Disabilities Education Act, and specialized programs such as Drug Free Schools. Other State Revenues. As discussed above, the District receives State apportionment of basic and equalization aid in an amount equal to the difference between the District's revenue limit and its property tax revenues. In addition to such apportionment revenue, the District receives other State revenues. The District receives State aid from the California State Lottery (the "Lottery"), which was established by a constitutional amendment approved in the November 1984 general election. Lottery revenues must be used for the education of students and cannot be used for non-instructional purposes such as real property acquisition, facility construction, or the financing of research. Moreover, State Proposition 20 approved in March 2000 requires that 50% of the increase in Lottery revenues over levels must be restricted to use on instruction material. For additional discussion of State aid to school districts, see -State Funding of Education. Other Local Revenues. In addition to local property taxes, the District receives additional local revenues from items such as interest earnings and other local sources. District Retirement Systems 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, multipleemployer 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. Due to the implementation of the Public Employee Pension Reform Act of 2013 ( PEPRA ) (see below summary), new members must pay at least 50% 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 the STRS 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 STRS for the past three and current budgeted fiscal years are set forth in the following table. These contributions represent 100%of the required contribution for each year. B-11

137 STRS Contributions Lemon Grove School District Fiscal Years through (Projected) Fiscal Year Amount $1,191, ,221, ,313, ,785,582 Projected in Second Interim Report. Source: Lemon Grove School District. New Legislation Regarding STRS Contributions Implemented in FY In connection with the State s adoption of its fiscal year Budget, the Governor signed into law Assembly Bill 1469 ( AB 1469 ), which represents a legislative effort to address the unfunded liabilities of the STRS pension plan (see below section entitled State Pension Trusts ). AB 1469 addresses the funding gap by increasing contributions of plan members, employers (including the District) and the State commencing in fiscal year Pursuant to AB 1469, employer contribution rates to the STRS plan will increase over the next seven years, from the contribution rate of 8.25% in fiscal year to 19.1% in fiscal year Thereafter, employer contribution rates will be determined by the STRS board to reflect the contribution required to eliminate unfunded liabilities by June 30, STRS employer contribution rates under AB 1469 for fiscal years through are summarized in the following table. AB 1469 STRS Employer Contribution Rates % Increase From FY Rate* Under AB 1469 Total Contribution Rate Fiscal Year % 8.88% *Fiscal year rate of 8.25%. PERS. All full-time and some part-time classified employees participate in PERS, an agent multiple-employer 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 a "cost-sharing" pool within PERS. As a result of the implementation of 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 PERS 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 PERS for the past three and current projected B-12

138 fiscal years are set forth in the following table. These contributions represent 100 percent of the required contribution for each year. PERS Contributions Lemon Grove School District Fiscal Years through (Projected) Fiscal Year Amount $500, , , ,279 Projected in Second Interim Report. Source: Lemon Grove School District. PERS Board Adopts New Employer Contribution Rates. On April 16, 2014, the Board of Administration of PERS approved new contribution rates beginning on July 1, School district employer contribution rates will reflect new demographic assumptions and other changes in actuarial assumptions which were adopted by the Board of Administration of PERS in February The new assumptions, which are aimed at eliminating the unfunded liability of PERS in approximately 30 years, will be implemented for school districts beginning in fiscal year , with the costs spread over twenty years and the increases phased in over the first five years. These new employer contribution rates continue to recognize asset losses from prior years. Projected employer contribution rates for school districts are as follows: Projected PERS Contribution Rates for School Districts % 12.6% 15.0% 16.6% 18.2% 19.9% 20.4% Source: California Public Employees Retirement System State Pensions Trusts. Both the PERS and STRS systems are operated on a statewide basis. District contribution rates to PERS can vary annually depending on changes in actuarial assumptions and other factors, such as liability. Contributions to STRS can only be changed legislatively. Both PERS and STRS have substantial State unfunded actuarial liabilities, being $49.5 billion for PERS as of June 30, 2013 (the date of the last actuarial valuation for PERS) and $73.7 billion for STRS as of June 30, 2013 (the date of the last actuarial valuation for STRS). As described above, AB 1469 was enacted in connection with the State s Budget in an attempt to reduce and eliminate the unfunded liability of the STRS pension plan, and the PERS Board has recently taken actions to increase contribution rates in order to address unfunded liabilities. Both STRS and PERS issue separate comprehensive financial reports that include financial statements and required supplemental information. Copies of such reports may be obtained from STRS and PERS, respectively, as follows: (i) STRS, P.O. Box 15275, Sacramento, California ; (ii) PERS, P.O. Box , Sacramento, California More information regarding STRS and PERS can also be obtained at their websites, and respectively. However, information in the financial reports and on the websites is not incorporated in this Official Statement by reference. See also the following paragraph on recent pension reform legislation. B-13

139 Pension Reform Act of 2013 (Assembly Bill 340). On September 12, 2012, Governor Brown signed AB 340, enacting the California Public Employees Pension Reform Act of 2013 ( PEPRA ) and amending various sections of the California Education and Government Codes. AB 340 (i) increased the retirement age for new State, school, and city and local agency employees depending on job function, (ii) capped the annual PERS and STRS pension benefit payouts, (iii) addressed numerous abuses of the system, and (iv) required State, school, and certain city and local agency employees to pay at least half of the costs of their PERS pension benefits. PEPRA applies to all public employers except the University of California, charter cities and charter counties (except to the extent they contract with PERS.) The provisions of AB 340 went into effect on January 1, 2013 with respect to new State, school, and city and local agency employees hired on that date and after; existing employees who are members of employee associations, including employee associations of the Districts, have a five-year window to negotiate compliance with AB 340 through collective bargaining. If no deal is reached by January 1, 2018, a city, public agency or school district could force employees to pay their half of the costs of PERS pension benefits, up to 8 percent of pay for civil workers and 11 percent or 12 percent for public safety workers. PERS has predicted that the impact of AB 340 on employees and employers, including the Districts and other employers in the STRS system, will vary, based on each employer s current level of benefits. To the extent that the new formulas lower retirement benefits, employer contribution rates could decrease over time as current employees retire and employees subject to the new formulas make up a larger percentage of the workforce. This change would, in some circumstances, result in a lower retirement benefit for employees than they currently earn. Additionally, PERS has noted that changes arising from AB 340 could ultimately have an adverse impact on public sector recruitment in areas that have historically experienced recruitment challenges due to higher pay for similar jobs in the private sector. With respect to STRS, the provisions of AB 1469 effective as of July 1, 2014 effectively addressed the contribution requirements of STRS members, employers and the State. More information about AB 340 can be accessed through the PERS web site at pca=st and through the STRS web site at AB340_detailed_impact_analysis.pdf. The references to these internet websites are shown for reference and convenience only; the information contained within the websites may not be current and has not been reviewed by the District and is not incorporated herein by reference. Other Post-Employment Retirement Benefits The Plan Generally. The District provides post-employment health care benefits, in accordance with District employment contracts. The Plan provides retiree health benefits to age 65 or 70 to approximately 342 active and 69 retired employees. To be eligible for retiree health benefits, an employee must retire from PERS/STRS on or after age 55 with at least 10 years of District eligible service. Coverage typically includes medical and dental coverage. Some employee groups also receive vision and/or life insurance coverage. Contribution Information. The contribution requirements of Plan members and the District are established and amended by the District and the California Teacher s Association and the California Service Employees Association, as the employees' labor unions. The required contribution is based on projected pay-as-you-go financing requirements. For fiscal year , the District contributed $869,306 to the Plan. B-14

140 Annual OPEB Cost and Net OPEB Obligation. The District's annual other postemployment benefit ( OPEB ) cost is calculated based on the annual required contribution of the employer ( ARC ), an amount actuarially determined in accordance with the parameters of Government Accounting Standards Board Statement No. 45 ( GASB 45 ). GASB 45 requires local government employers who provide OPEB as part of the compensation offered to employees to recognize the expense and related liabilities and assets in their financial statements. The District implemented GASB 45 for fiscal year ending June 30, 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 ) over a period not to exceed thirty years. The following table shows the components of the District's annual OPEB cost for the year, the amount actually contributed to the plan (which was 72.1% of ARC), and changes in the District's net OPEB obligation to the Plan: OPEB Components for Fiscal Year Lemon Grove School District Annual required contribution $1,035,000 Interest on net OPEB obligation 137,319 Adjustment to annual required contribution (195,768) Annual OPEB cost (expense) 976,551 Contributions made (869,306) Increase in net OPEB obligation 107,245 Net OPEB obligation, beginning of year 2,746,379 Net OPEB obligation, end of year $2,853,624 Source: Lemon Grove School District Audited Financial Statement for Fiscal Year OPEB Funded Status and Funding Progress. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, investment returns, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits: Actuarial Value of Assets Schedule of OPEB Funding Progress Lemon Grove School District Actuarial Accrued Liability Projected Unit Credit Unfunded Actuarial Accrued Liability UAAL as a % of Covered Payroll Actuarial Valuation Date Funded Ratio Covered Payroll 1/01/2008 $-- $7,113,998 $7,113, $22,794, % 1/01/ ,404,500 7,404, ,286, /01/ ,360,311 7,360, ,215, Source: Lemon Grove School District Audited Financial Statement for Fiscal Year B-15

141 Existing Debt Obligations The District has never defaulted on the payment of principal or interest on any of its indebtedness. As of June 30, 2014, the District had the following long-term debt outstanding (excluding the Series C Bonds being issued hereunder), each more particularly described below the table: Long Term Debt Beginning Balance Increases Decreases Ending Balance Amount due in One Year General obligation bonds $24,084, $930,766 $23,153,504 $580,760 Accreted interest 7,655,009 $1,330, ,985, Bond premium 1,150, ,265 1,087,551 63,265 Compensated absences 150,416 23, , ,673 Net OPEB Obligation 2,746, , ,853, General Obligation Bonded Indebtedness. The District has had three successful general obligation bond elections, being the 1998 Election, the 2008 Election, and the 2014 Reauthorization Election described herein under the heading THE FINANCING PLAN. Bonds have been issued pursuant to the 1998 Election and the 2008 Election, as described below. General Obligation Bonds Issue Pursuant to 1998 Election. In 1998, the District received voter approval to issue up to $12 million principal amount in general obligation bonds. The District caused the issuance of such authorization in three separate series, being Series A issued on March 17, 1999 in the original principal amount of $7,248,025.20, Series B issued on December 14, 2000 in the original principal amount of $2,560,587.05, and Series C issued on November 7, 2002 in the original principal amount of $2,191, (collectively, the 1998 Election Bonds ). The 1998 Election Bonds have various rates of interest and a final maturity of August 1, 2027, with respect to the Series C Bonds. General Obligation Bonds Issue Pursuant to 2008 Election. In 2008, the District received voter approval to issue up to $28 million principal amount in general obligation bonds. The District caused the issuance of three separate series of bonds under this authorization, being Series A issued on May 21, 2009 in the original principal amount of $5,000,000, Series B issued on October 14, 2010 in the original principal amount of $7,999,480, and Series C issued on March 30, 2011 in the original principal amount of $5,000,000 (collectively, the 2008 Election Bonds ). The 2008 Election Bonds have various rates of interest and a final maturity of August 1, 2050, with respect to the Series B Bonds. Investment of District Funds In accordance with Government Code Section et seq., the San Diego County Treasurer manages funds deposited with it by the District. The County is required to invest such funds in accordance with California Government Code Sections et seq. In addition, counties are required to establish their own investment policies which may impose limitations beyond those required by the Government Code. See APPENDIX G - SAN DIEGO COUNTY INVESTMENT POLICY AND QUARTERLY INVESTMENT REPORT. Effect of State Budget on Revenues Public school districts in California are dependent on revenues from the State for a large B-16

142 portion of their operating budgets. California school districts generally receive the majority of their operating revenues from various State sources. The primary source of funding for school districts is LCFF funding, which is derived from a combination of State funds and local property taxes (see State Funding of Education Revenue Limits above). State funds typically make up the majority of a district s LCFF funding. School districts also receive funding from the State for some specialized programs such as special education. The availability of State funds for public education is a function of constitutional provisions affecting school district revenues and expenditures (see CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS below), the condition of the State economy (which affects total revenue available to the State general fund), and the annual State budget process. The District cannot predict how education funding may further be changed in the future, or the state of the economy which in turn can impact the amounts of funds available from the State for education funding. See STATE FUNDING OF EDUCATION; RECENT STATE BUDGETS below. Remainder of page intentionally left blank B-17

143 STATE FUNDING OF EDUCATION; RECENT STATE BUDGETS State Funding of Education General. The State requires that from all State revenues there first shall be set apart the moneys to be applied for support of the public school system and public institutions of higher education. Public school districts in California are dependent on revenues from the State for a large portion of their operating budgets. California school districts receive an average of about 55% of their operating revenues from various State sources. The primary source of funding for school districts is funding under the LCFF, which is a combination of State funds and local property taxes (see DISTRICT FINANCIAL INFORMATION Education Funding Generally above). State funds typically make up the majority of a district s LCFF entitlement The availability of State funds for public education is a function of constitutional provisions affecting school district revenues and expenditures (see CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS below), the condition of the State economy (which affects total revenue available to the State general fund), and the annual State budget process. Decreases in State revenues may significantly affect appropriations made by the legislature to school districts. The following information concerning the State s budgets for the current and most recent preceding years has been compiled from publicly-available information provided by the State. Neither the District, the County, nor the Purchasers are responsible for the information relating to the State s budgets provided in this section. Further information is available from the Public Finance Division of the State Treasurer s Office. The Budget Process. The State s fiscal year begins on July 1 and ends on June 30. The annual budget is proposed by the Governor by January 10 of each year for the next fiscal year (the Governor s Budget ). Under State law, the annual proposed Governor s Budget cannot provide for projected expenditures in excess of projected revenues and balances available from prior fiscal years. Following the submission of the Governor s Budget, the Legislature takes up the proposal. Under the State Constitution, money may be drawn from the State Treasury only through an appropriation made by law. The primary source of the annual expenditure authorizations is the Budget Act as approved by the Legislature and signed by the Governor. The Budget Act must be approved by a majority vote of each house of the Legislature. The Governor may reduce or eliminate specific line items in the Budget Act or any other appropriations bill without vetoing the entire bill. Such individual line-item vetoes are subject to override by a two-thirds majority vote of each House of the Legislature. Appropriations also may be included in legislation other than the Budget Act. Bills containing appropriations (including for K-14 education) must be approved by a majority vote in each house of the Legislature, unless such appropriations require tax increases, in which case they must be approved by a two-thirds vote of each house of the Legislature, and be signed by the Governor. Continuing appropriations, available without regard to fiscal year, may also be provided by statute or the State Constitution. Funds necessary to meet an appropriation need not be in the State Treasury at the time such appropriation is enacted; revenues may be appropriated in anticipation of their receipt. B-18

144 Recent State Budgets Certain information about the State budgeting process and the State Budget is available through several State of California sources. A convenient source of information is the State s website, where recent official statements for State bonds are posted. The references to internet websites shown below are shown for reference and convenience only, the information contained within the websites may not be current and has not been reviewed by the District and is not incorporated herein by reference. The California Department of Finance s Internet home page at under the heading California Budget, includes the text of proposed and adopted State Budgets. The State Legislative Analyst s Office prepares analyses of the proposed and adopted State budgets. The analyses are accessible on the Legislative Analyst s Internet home page at under the heading Subject Area Budget (State). Prior Years Budgeting Techniques. Declining revenues and fiscal difficulties which arose in the State commencing in fiscal year led the State to undertake a number of budgeting strategies, which had subsequent impacts on local agencies within the State. These techniques included the issuance of IOUs in lieu of warrants (checks), the enactment of statutes deferring amounts owed to public schools, until a later date in the fiscal year, or even into the following fiscal year (known as statutory deferrals), trigger reductions, which were budget cutting measures which were implemented or could have been implemented if certain State budgeting goals were not met, among others, and the dissolution of local redevelopment agencies in part to make available additional funding for local agencies. Although the fiscal year State Budget is balanced and projects a balanced budget for the foreseeable future, largely attributable to the additional revenues generated due to the passage of Proposition 30 at the November 2, 2010 statewide election, there can be no certainty that budget-cutting strategies such as those used in recent years will not be used in the future should the State Budget again be stressed and if projections included in such budget do not materialize State Budget: Significant Change in Education Funding. As described previously herein, the State Budget and its related implementing legislation enacted significant reforms to the State s system of K-12 education finance with the enactment of the LCFF. Significant reforms such as the LCFF and other changes in law may have significant impacts on the District s finances Adopted State Budget On June 20, 2014, Governor Brown approved the Budget Act (the Budget ), projecting $108 billion in general fund revenues, which is $7.3 million more in general fund revenues than in fiscal year The Budget is balanced and projects paying down more than $10 billion in unprecedented amounts of budgetary debt from past years, including paying down deferral of payments to schools by $5 billion, paying off Economic Recovery Bonds, repaying various special fund loans, and funding $100 million in mandate claims that have been owed to local governments since The budgetary deficit is projected to be reduced to below $5 billion by the end of The fiscal year begins with a State Budget reserve of $2 billion dollars, including $1.6 billion in the State s Budget Stabilization Account, also known as the State s rainy day fund. Temporary revenues provided by the passage of Proposition 30 (Sales and Income Tax Revenue Increase approved by State B-19

145 voters at an election held on November 8, 2011) and spending cuts have allowed for continued economic growth in the State. The State Budget also contains triggers allowing for additional spending, if various revenue benchmarks are exceeded. If revenues surpass certain estimates, then the Budget calls for more funds to be applied to higher education and to pay down debt. Certain highlights of the Budget are described below. Plan for Reducing STRS Unfunded Liability. The California State Teachers Retirement System ( STRS ) has funded significant unfunded liability. Without changes to how the system is funded, STRS is expected to run out of money in about 33 years. To prevent this, the Budget sets forth a plan that shares responsibility among the school districts, the State, and teachers to better fund STRS. Increased contributions for the first year from all three of these sources will total $275 million. Contributions will increase in subsequent years, reaching more than $5 billion annually. This plan is projected to eliminate unfunded liability by Constitutional Amendment on November, 2014 Ballot: Rainy Day Fund. The State Budget included a proposed constitutional amendment which was placed before State voters on November 4, The measure was approved by voters, resulting in a change to the State s previously existing requirements for the Budget Stabilization Account, the State s existing rainy day account. This amendment: Requires deposits into the Rainy Day Fund whenever capital gains revenues rise to more than 8% of general fund tax revenues, and would set the maximum size of the Rainy Day Fund at 10% of State general fund revenues. Requires half of each year s deposit for the next 15 years be used for supplemental payments of debt or other long-term liabilities. Allows for withdrawal of funds only for a disaster or if spending remains at or below the highest level of spending from the past three years. The maximum amount that could be withdrawn in the first year of a recession would be limited to half of the Rainy Day Fund s balance. Requires that the State provide a multiyear budget forecast to better manage the State s long-term finances. Creates a Proposition 98 reserve, known as the Public School System Stabilization Account, where spikes in funding would be saved for future years. This is intended to smooth school spending and minimize future cuts to education funding. In addition, approval of this amendment had the effect of enacting a related trailer bill (Senate Bill 858), which imposes a cap on the amount school districts may maintain in reserves. Specifically, the legislation, among other things, enacts Education Code Section , operative December 15, 2014, and provides that in any fiscal year immediately after a fiscal year in which a transfer is made to the Public School System Stabilization Account (referenced in the last bullet point above), a school district may not adopt a budget that contains a reserve for economic uncertainties in excess of twice the applicable minimum recommended reserve for economic uncertainties established by the State Board (for school districts with ADA B-20

146 over 400,000, the limit is three times the amount). Exemptions can be granted by the County Superintendent under certain circumstances. AB 146 is currently pending in the California legislature, which would repeal Education Code Section K - 12 Budget Adjustments. The State 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. Proposition 98 funding has contributed $10 billion to the total funding amount and the State Budget provides $1,954 more per K-12 student in than was provided in The State Budget also provides $4.7 billion for the second year of implementing the LCFF and continues to commit most new funding to districts serving English language learners, students from low-income families, and youth in foster care. The Education Budget Trailer Bill ( SB 858 ) is included in the State Budget and contains two separate provisions that have the potential to affect district reserve funds. In addition, the State Budget includes the following: Local Control Funding Formula. The State Budget contains an increase of $4.75 billion in the Proposition 98 funding to continue the State s transition to the LCFF. This increase will close the remaining funding implementation gap by more than 29%. Additionally, the State Budget addresses an administrative problem related to the collection of income eligibility forms that are used to determine student eligibility for free or reduced-price meals. K-12 Deferrals. The State Budget repays nearly $4.7 billion in Proposition 98 funding for K-12 expenses that had been deferred from one year to the next during the past few years. This repayment will leave an outstanding balance of less than $900 million in K-12 deferrals. The State Budget also contains a trigger mechanism that will appropriate any additional funding resources attributable to the and fiscal years subsequent to the enactment of the State Budget for the purpose of retiring the remaining $900 million in K-12 deferrals. Independent Study. The State Budget reduces administrative burdens and frees up time for teachers to spend on student instruction and support, making it easier for schools to offer and expand instructional opportunities available to students through non-classroom based instruction. K-12 Mandates. The State Budget provides $400.5 million in one-time Proposition 98 funding to reimburse K-12 local educational agencies for the costs of state-mandated programs. These funds will make a significant down payment on outstanding mandate debt, while providing school districts, county offices of education, and charter schools with discretionary resources to support critical investments such as Common Core implementation. K-12 High-Speed Internet Access. The State Budget increases the onetime Proposition 98 funding for the K-12 High Speed Network by $26.7 million. This fund provides technical assistance and grants to local educational agencies to address the technology requirements necessary for Common Core implementation. Career Technical Education Pathways Program. The State Budget increases by $250 million the one-time Proposition 98 funding to support a B-21

147 second cohort of competitive grants for participating K-12 local educational agencies. Established in the 2013 Budget Act, the Career Pathways Trust Program provides grant awards to improve career technical programs and linkages between employers, schools and community colleges. Higher Education and Healthcare. The State Budget includes total funding of $26.2 billion ($14.7 billion general fund and local property tax and $11.5 billion other funds). It also provides for up to a 20% increase in general fund appropriations over a four-year period. The Budget includes a 5% increase in for each university system, which equals $284 million total. Regarding healthcare, the State s adoption of the optional expansion of Medi-Cal under the federal law known as the Affordable Care Act created major new spending commitments. The Budget assumes an additional Medi-Cal caseload of 2.5 million individuals and a rise in costs of $2.4 billion over fiscal year Emergency Drought Response. On January 17, 2014, Governor Brown proclaimed a state of emergency due to the severe drought conditions faced by the State. Legislation was enacted in February which provided $687.4 million to support drought relief. The State Budget includes additional one-time resources to continue immediate drought-related efforts started in 2014, such as an increase of $53.8 million from the State s general fund and $12.2 million other funds for firefighting efforts, and an increase of $18.1 million from the State s general fund to aid in assessing water conditions and provide public outreach regarding water conservation. Numerous Factors Affecting Budget and Projections. The execution of the State Budget may be affected by numerous factors, including but not limited to: (i) shifts of costs from the federal government to the State, (ii) national, State and international economic conditions, (iii) litigation risk associated with spending reductions, including the elimination of redevelopment agencies, (iv) rising health care costs (v) large unfunded liabilities for retired State employee s pensions and healthcare, (vi) deferred maintenance of State s critical infrastructure and (vii) other factors, all or any of which could cause the revenue and spending projections made in State Budget to be unattainable. The District cannot predict the impact that the State Budget, or subsequent budgets, will have on its own finances and operations. Additionally, the District cannot predict the accuracy of any projections made in the State s State Budget. The complete State Budget is available from the California Department of Finance website at The District can take no responsibility for the continued accuracy of this internet address or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated in this Official Statement by such reference. The information referred to above should not be relied upon in making an investment decision with respect to the Series B Bonds California Spending Plan. In October 2014 the Legislative Analyst s Office released its California Spending Plan (a publication summarizing the State s current spending plan, including legislative and gubernatorial action through October 2014). The California Spending Plan reports, among other things: The State s General Fund and Education Protection Fund are at a $107 billion level in (an increase of nearly 5% over the prior year s levels). The State s fiscal year is projected to end with $2.1 billion in total reserves. B-22

148 The Proposition 98 minimum guarantee is up $2.6 billion over the revised levels. In , $5.2 billion in outstanding K-14 deferrals and $450 million in outstanding education mandates are expected to be paid down. $4.7 billion in additional funding for LCFF implementation is expected in (12% higher than the level, and sufficient to close 29% of the remaining funding gap) Proposed State Budget On January 9, 2015, Governor Brown presented his proposed budget for the Fiscal Year (the Proposed State Budget ). The Proposed State Budget proposes a multiyear plan that is balanced, maintains a $3.4 billion reserve, and pays down budgetary debt from past years. Under the Proposed State Budget, funding levels for the K-12 [Local Control Funding Formula ( LCFF )] will increase by $4 billion to $13,462 per pupil, and funding levels for workforce education and training will increased by $876 million. Funding is also increased for the University of California and California State University higher education systems. The Proposed State Budget includes a $115 million allocation from the State s General Fund to address the drought, and addresses deferred maintenance issues with $500 million from the State s General Fund. The complete Proposed State Budget is available from the California Department of Finance website at The District can take no responsibility for the continued accuracy of this internet address or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated in this Official Statement by such reference. The information referred to above should not be relied upon in making an investment decision with respect to the Bonds. The execution of Proposed State Budget may be affected by numerous factors, including but not limited to: (i) shifts of costs from the federal government to the State, (ii) national, State and international economic conditions, (ii) litigation risk associated with proposed spending reductions, (iii) rising health care costs and (iv) other factors, all or any of which could cause the revenue and spending projections made in the Proposed State Budget to be unattainable. The District cannot predict the impact that the Proposed State Budget, or subsequent budgets, will have on its own finances and operations. Additionally, the District cannot predict the accuracy of any projections made in the Proposed State Budget. Disclaimer Regarding State Budgets. The State has not entered into any contractual commitment with the District, the County, or the Owners of the Bonds to provide State budget information to the District or the owners of the Bonds. Although they believe the State sources of information listed above are reliable, neither the District nor the Purchasers assume any responsibility for the accuracy of the State Budget information set forth or referred to in this Official Statement or incorporated herein. However, the Bonds are secured by ad valorem taxes levied and collected on taxable property in the District, without limit as to rate or amount, and are not secured by a pledge of revenues of the District or its general fund. B-23

149 Legal Challenges to State Funding of Education The application of Proposition 98 and other statutory regulations has been the subject of various legal challenges in recent years, and is likely to be further challenged in the future. For a discussion of how the provisions of Proposition 98 have been applied to school funding see - State Funding of Education" and "-Recent State Budgets above. CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Principal of and interest on the Bonds are payable from the proceeds of an ad valorem tax levied by the County for the payment thereof. Articles XIIIA, XIIIB, XIIIC, and XIIID of the State Constitution, Propositions 62, 98, 111 and 218, and certain other provisions of law discussed below, are included in this section to describe the potential effect of these Constitutional and statutory measures on the ability of the District to levy taxes and spend tax proceeds for operating and other purposes, and it should not be inferred from the inclusion of such materials that these laws impose any limitation on the ability of the District to levy taxes for payment of the Bonds. The tax levied by the County for payment of the Bonds was approved by the District's voters in compliance with Article XIIIA and all applicable laws. Constitutionally Required Funding of Education The State Constitution requires that from all State revenues, there shall be first set apart the moneys to be applied by the State for the support of the public school system and public institutions of higher education. School districts receive a significant portion of their funding from State appropriations. As a result, decreases and increases in State revenues can significantly affect appropriations made by the State Legislature to school districts. Article XIIIA of the California Constitution Basic Property Tax Levy. On June 6, 1978, California voters approved Proposition 13 ("Proposition 13"), which added Article XIIIA to the State Constitution ("Article XIIIA"). Article XIIIA 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) (as a result of an amendment to Article XIIIA approved by State voters on June 3, 1986) on bonded indebtedness for the acquisition or improvement of real property which has been approved on or after July 1, 1978 by two-thirds of the voters on such indebtedness (which provided the authority for the issuance of the Refunded Bonds), and (iii) (as a result of an amendment to Article XIIIA approved by State voters on November 7, 2000) bonded indebtedness incurred by a school district or community college district for the construction, reconstruction, rehabilitation or replacement of school facilities or the acquisition or lease of real property for school facilities, approved by 55% of the voters of the district, but only if certain accountability measures are included in the proposition. Article XIIIA defines full cash value to mean "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 have 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. B-24

150 Article XIIIA has subsequently been amended to permit reduction of the "full cash value" base in the event of declining property values caused by damage, destruction or other factors, to provide that there would be no increase in the "full cash value" base in the event of reconstruction of property damaged or destroyed in a disaster and in other minor or technical ways. Legislation Implementing Article XIIIA. Legislation has been enacted and amended a number of times since 1978 to implement 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 the annual adjustment not to exceed 2% 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. Inflationary Adjustment of Assessed Valuation. As described above, the assessed value of a property may be increased at a rate not to exceed 2% per year to account for inflation. On December 27, 2001, the Orange County Superior Court, in County of Orange v. Orange County Assessment Appeals Board No. 3, held that where a home s taxable value did not increase for two years, due to a flat real estate market, the Orange County assessor violated the 2% inflation adjustment provision of Article XIIIA, when the assessor tried to "recapture" the tax value of the property by increasing its assessed value by 4% in a single year. The assessors in most California counties, including the County, use a similar methodology in raising the taxable values of property beyond 2% in a single year. The State Board of Equalization has approved this methodology for increasing assessed values. On appeal, the Appellate Court held that the trial court erred in ruling that assessments are always limited to no more than 2% of the previous year s assessment. On May 10, 2004 a petition for review was filed with the California Supreme Court. The petition has been denied by the California Supreme Court. As a result of this litigation, the recapture provision described above may continue to be employed in determining the full cash value of property for property tax purposes. Article XIIIB of the California Constitution Article XIIIB ( Article XIIIB ) of the State Constitution, as subsequently amended by Propositions 98 and 111, respectively, limits the annual appropriations of the State and of any city, county, school district, authority or other political subdivision of the State to the level of appropriations of the particular governmental entity for the prior fiscal year, as adjusted for changes in the cost of living and in population and for transfers in the financial responsibility for providing services and for certain declared emergencies. For fiscal years beginning on or after July 1, 1990, the appropriations limit of each entity of government shall be the appropriations limit for the fiscal year adjusted for the changes made from that fiscal year under the provisions of Article XIIIB, as amended. The appropriations of an entity of local government subject to Article XIIIB limitations include the proceeds of taxes levied by or for that entity and the proceeds of certain state subventions to that entity. Proceeds of taxes include, but are not limited to, all tax revenues and the proceeds to the entity from (a) regulatory licenses, user charges and user fees (but only to the extent that these proceeds exceed the reasonable costs in providing the regulation, product or service), and (b) the investment of tax revenues. B-25

151 Appropriations subject to limitation do not include (a) refunds of taxes, (b) appropriations for debt service, (c) appropriations required to comply with certain mandates of the courts or the federal government, (d) appropriations of certain special districts, (e) appropriations for all qualified capital outlay projects as defined by the legislature, (f) appropriations derived from certain fuel and vehicle taxes and (g) appropriations derived from certain taxes on tobacco products. Article XIIIB includes a requirement that all revenues received by an entity of government other than the State in a fiscal year and in the fiscal year immediately following it in excess of the amount permitted to be appropriated during that fiscal year and the fiscal year immediately following it shall be returned by a revision of tax rates or fee schedules within the next two subsequent fiscal years. However, in the event that a school district s revenues exceed its spending limit, the district may in any fiscal year increase its appropriations limit to equal its spending by borrowing appropriations limit from the State. Article XIIIB also includes a requirement that 50% of all revenues received by the State in a fiscal year and in the fiscal year immediately following it in excess of the amount permitted to be appropriated during that fiscal year and the fiscal year immediately following it shall be transferred and allocated to the State School Fund under Section 8.5 of Article XVI of the State Constitution. Unitary Property Some amount of property tax revenue of the District is derived from utility property which is considered part of a utility system with components located in many taxing jurisdictions ( unitary property ). Under the State Constitution, such property is assessed by the State Board of Equalization ( SBE ) as part of a going concern rather than as individual pieces of real or personal property. State-assessed unitary and certain other property is allocated to the counties by SBE, taxed at special county-wide rates, and the tax revenues distributed to taxing jurisdictions (including the District) according to statutory formulae generally based on the distribution of taxes in the prior year. Articles XIIIC and XIIID On November 5, 1996, the voters of the State of California approved Proposition 218, popularly known as the Right to Vote on Taxes Act. Proposition 218 added to the California Constitution Articles XIIIC and XIIID (respectively, Article XIIIC and Article XIIID ), which contain a number of provisions affecting the ability of local agencies, including school districts, to levy and collect both existing and future taxes, assessments, fees and charges. According to the Title and Summary of Proposition 218 prepared by the California Attorney General, Proposition 218 limits the authority of local governments to impose taxes and property-related assessments, fees and charges. Among other things, Article XIIIC establishes that every tax is either a general tax (imposed for general governmental purposes) or a special tax (imposed for specific purposes), prohibits special purpose government agencies such as school districts from levying general taxes, and prohibits any local agency from imposing, extending or increasing any special tax beyond its maximum authorized rate without a two-thirds vote; and also provides that the initiative power will not be limited in matters of reducing or repealing local taxes, assessments, fees and charges. Article XIIIC further provides that no tax may be assessed on property other than ad valorem property taxes imposed in B-26

152 accordance with Articles XIII and XIIIA of the California Constitution and special taxes approved by a two-thirds vote under Article XIIIA, Section 4. On November 2, 2010, Proposition 26 was approved by State voters, which amended Article XIIIC to expand the definition of tax to include any levy, charge, or exaction of any kind imposed by a local government except the following: (1) a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege; (2) a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product; (3) a charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof; (4) a charge imposed for entrance to or use of local government property, or the purchase, rental, or lease of local government property; (5) a fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government, as a result of a violation of law; (6) a charge imposed as a condition of property development; and (7) assessments and property-related fees imposed in accordance with the provisions of Article XIIID. Proposition 26 provides that the local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor s burdens on, or benefits received from, the governmental activity. Article XIIID deals with assessments and property-related fees and charges, and explicitly provides that nothing in Article XIIIC or XIIID will be construed to affect existing laws relating to the imposition of fees or charges as a condition of property development. 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 Bonds. Proposition 98 On November 8, 1988, California voters approved Proposition 98, a combined initiative constitutional amendment and statute called the Classroom Instructional Improvement and Accountability Act (the Accountability Act ). Certain provisions of the Accountability Act have, however, been modified by Proposition 111, discussed below, the provisions of which became effective on July 1, The Accountability Act changes State funding of public education below the university level and the operation of the State s appropriations limit. The Accountability Act guarantees State funding for K-12 school districts and community college districts (hereinafter referred to collectively as K-14 school districts ) at a level equal to the greater of (a) the same percentage of general fund revenues as the percentage appropriated to such districts in , and (b) the amount actually appropriated to such districts from the general fund in the previous fiscal year, adjusted for increases in enrollment and changes in the cost of living. The Accountability Act permits the Legislature to suspend this formula for a oneyear period. B-27

153 The Accountability Act also changes how tax revenues in excess of the State appropriations limit are distributed. Any excess State tax revenues up to a specified amount would, instead of being returned to taxpayers, be transferred to K-14 school districts. Any such transfer to K-14 school districts would be excluded from the appropriations limit for K-14 school districts and the K-14 school district appropriations limit for the next year would automatically be increased by the amount of such transfer. These additional moneys would enter the base funding calculation for K 14 school districts for subsequent years, creating further pressure on other portions of the State budget, particularly if revenues decline in a year following an Article XIIIB surplus. The maximum amount of excess tax revenues which could be transferred to K 14 school districts is 4% of the minimum State spending for education mandated by the Accountability Act. Proposition 111 On June 5, 1990, the voters approved Proposition 111 (Senate Constitutional Amendment No. 1) called the Traffic Congestion Relief and Spending Limit Act of 1990 ( Proposition 111 ) which further modified Article XIIIB and Sections 8 and 8.5 of Article XVI of the State Constitution with respect to appropriations limitations and school funding priority and allocation. The most significant provisions of Proposition 111 are summarized as follows: Annual Adjustments to Spending Limit. The annual adjustments to the Article XIIIB spending limit were liberalized to be more closely linked to the rate of economic growth. Instead of being tied to the Consumer Price Index, the change in the cost of living is now measured by the change in California per capita personal income. The definition of change in population specifies that a portion of the State s spending limit is to be adjusted to reflect changes in school attendance. Treatment of Excess Tax Revenues. Excess tax revenues with respect to Article XIIIB are now determined based on a two-year cycle, so that the State can avoid having to return to taxpayers excess tax revenues in one year if its appropriations in the next fiscal year are under its limit. In addition, the Proposition 98 provision regarding excess tax revenues was modified. After any two-year period, if there are excess State tax revenues, 50% of the excess are to be transferred to K-14 school districts with the balance returned to taxpayers; under prior law, 100% of excess State tax revenues went to K-14 school districts, but only up to a maximum of 4% of the schools minimum funding level. Also, reversing prior law, any excess State tax revenues transferred to K-14 school districts are not built into the school districts base expenditures for calculating their entitlement for State aid in the next year, and the State s appropriations limit is not to be increased by this amount. Exclusions from Spending Limit. Two exceptions were added to the calculation of appropriations which are subject to the Article XIIIB spending limit. First, there are excluded all appropriations for qualified capital outlay projects as defined by the Legislature. Second, there are excluded any increases in gasoline taxes above the 1990 level (then nine cents per gallon), sales and use taxes on such increment in gasoline taxes, and increases in receipts from vehicle weight fees above the levels in effect on January 1, These latter provisions were necessary to make effective the transportation funding package approved by the Legislature and the Governor, which expected to raise over $15 billion in additional taxes from 1990 through 2000 to fund transportation programs. B-28

154 Recalculation of Appropriations Limit. The Article XIIIB appropriations limit for each unit of government, including the State, is to be recalculated beginning in fiscal year It is based on the actual limit for fiscal year , adjusted forward to as if Proposition 111 had been in effect. School Funding Guarantee. There is a complex adjustment in the formula enacted in Proposition 98 which guarantees K-14 school districts a certain amount of State general fund revenues. Under prior law, K-14 school districts were guaranteed the greater of (1) 40.9% of State general fund revenues (the first test ) or (2) the amount appropriated in the prior year adjusted for changes in the cost of living (measured as in Article XIIIB by reference to per capita personal income) and enrollment (the second test ). Under Proposition 111, schools will receive the greater of (1) the first test, (2) the second test, or (3) a third test, which will replace the second test in any year when growth in per capita State general fund revenues from the prior year is less than the annual growth in California per capita personal income (the third test ). Under the third test, schools will receive the amount appropriated in the prior year adjusted for change in enrollment and per capita State general fund revenues, plus an additional small adjustment factor. If the third test is used in any year, the difference between the third test and the second test will become a credit to schools which will be paid in future years when State general fund revenue growth exceeds personal income growth. Proposition 39 On November 7, 2000, California voters approved an amendment (commonly known as Proposition 39 ) to the California Constitution. This amendment (1) allows school facilities bond measures to be approved by 55 percent (rather than two-thirds) of the voters in local elections and permits property taxes to exceed the current 1 percent limit in order to repay the bonds and (2) changes existing statutory law regarding charter school facilities. As adopted, the constitutional amendments may be changed only with another Statewide vote of the people. The statutory provisions could be changed by a majority vote of both houses of the Legislature and approval by the Governor, but only to further the purposes of the proposition. The local school jurisdictions affected by this proposition are K-12 school districts, community college districts, including the District, and county offices of education. As noted above, the California Constitution previously limited property taxes to 1 percent of the value of property. Prior to the approval of Proposition 39, property taxes could only exceed this limit to pay for (1) any local government debts approved by the voters prior to July 1, 1978 or (2) bonds to acquire or improve real property that receive two-thirds voter approval after July 1, The 55% vote requirement authorized by Proposition 39 applies only if the local bond measure presented to the voters includes: (1) a requirement that the bond funds can be used only for construction, rehabilitation, equipping of school facilities, or the acquisition or lease of real property for school facilities; (2) a specific list of school projects to be funded and certification that the school board has evaluated safety, class size reduction, and information technology needs in developing the list; and (3) a requirement that the school board conduct annual, independent financial and performance audits until all bond funds have been spent to ensure that the bond funds have been used only for the projects listed in the measure. Legislation approved in June 2000 places certain limitations on local school bonds to be approved by 55 percent of the voters. These provisions require that the tax rate levied as the result of any single election be no more than $60 (for a unified school district), $30 (for an elementary school district or high school district), or $25 (for a community college district), per $100,000 of taxable property value. These requirements are not part of this proposition and can be changed with a majority vote of both houses of the Legislature and approval by the Governor. B-29

155 Proposition 30 Guaranteed Local Public Safety Funding, Initiative Constitutional Amendment (also known as Proposition 30 ), temporarily increases the State Sales and Use Tax and personal income tax rates on higher income earners. Proposition 30 temporarily imposes an additional tax on all retailers, at the rate of 0.25% of gross receipts from the sale of all tangible personal property sold in the State from January 1, 2013 to December 31, Proposition 30 also imposes an additional excise tax on the storage, use, or other consumption in the State of tangible personal property purchased from a retailer on and after January 1, 2013 and before January 1, This excise tax will be levied at a rate of 0.25% of the sales price of the property so purchased. For personal income taxes imposed beginning in the taxable year commencing January 1, 2012 and ending December 31, 2018, Proposition 30 increases the marginal personal income tax rate by: (i) 1% for taxable income over $250,000 but less than $300,000 for single filers (over $340,000 but less than $408,000 for joint filers), (ii) 2% for taxable income over $300,000 but less than $500,000 for single filers (over $408,000 but less than $680,000 for joint filers), and (iii) 3% for taxable income over $500,000 for single filers (over $680,000 for joint filers). The revenues generated from the temporary tax increases will be included in the calculation of the Proposition 98 minimum funding guarantee for school districts and community college districts. See Proposition 98 and Proposition 111 above. From an accounting perspective, the revenues generated from the temporary tax increases will be deposited into the State account created pursuant to Proposition 30 called the Education Protection Account (the EPA ). Pursuant to Proposition 30, funds in the EPA will be allocated quarterly, with 89% of such funds provided to schools districts and 11% provided to community college districts. The funds will be distributed to school districts and community college districts in the same manner as existing unrestricted per-student funding, except that no school district will receive less than $200 per unit of ADA and no community college district will receive less than $100 per full time equivalent student. The governing board of each school district and community college district is granted sole authority to determine how the moneys received from the EPA are spent, provided that, the appropriate governing board is required to make these spending determinations in open session at a public meeting and such local governing boards are prohibited from using any funds from the EPA for salaries or benefits of administrators or any other administrative costs. Proposition 1A and Proposition 22 On November 2, 2004, California voters approved Proposition 1A, which amended the State constitution to significantly reduce the State's authority over major local government revenue sources. Under Proposition 1A, the State cannot (i) reduce local sales tax rates or alter the method of allocating the revenue generated by such taxes, (ii) shift property taxes from local governments to schools or community colleges, (iii) change how property tax revenues are shared among local governments without two-thirds approval of both houses of the State Legislature or (iv) decrease Vehicle License Fee revenues without providing local governments with equal replacement funding. Under Proposition 1A, beginning, in , the State may shift to schools and community colleges a limited amount of local government property tax revenue if certain conditions are met, including: (i) a proclamation by the Governor that the shift is needed due to a severe financial hardship of the State, and (ii) approval of the shift by the State Legislature with a two-thirds vote of both houses. Under such a shift, the State must repay local governments for their property tax losses, with interest, within three years. Proposition 1A does allow the State to approve voluntary exchanges of local sales tax and B-30

156 property tax revenues among local governments within a county. Proposition 1A also amended the State Constitution to require the State to suspend certain State laws creating mandates in any year that the State does not fully reimburse local governments for their costs to comply with the mandates. This provision does not apply to mandates relating to schools or community colleges or to those mandates relating to employee rights. Proposition 22, a constitutional initiative entitled the Local Taxpayer, Public Safety, and Transportation Protection Act of 2010, approved on November 2, 2010, superseded many of the provisions of Proposition 1A. This initiative amends the State constitution to prohibit the legislature from diverting or shifting revenues that are dedicated to funding services provided by local government or funds dedicated to transportation improvement projects and services. Under this proposition, the State is not allowed to take revenue derived from locally imposed taxes, such as hotel taxes, parcel taxes, utility taxes and sales taxes, and local public transit and transportation funds. Further, in the event that a local governmental agency sues the State alleging a violation of these provisions and wins, then the State must automatically appropriate the funds needed to pay that local government. This Proposition was intended to, among other things, stabilize local government revenue sources by restricting the State s control over local property taxes. Proposition 22 did not prevent the California State Legislature from dissolving State redevelopment agencies pursuant to AB 1X26, as confirmed by the decision of the California Supreme Court decision in California Redevelopment Association v. Matosantos (2011). Because Proposition 22 reduces the State s authority to use or reallocate certain revenue sources, fees and taxes for State general fund purposes, the State will have to take other actions to balance its budget, such as reducing State spending or increasing State taxes, and school and college districts that receive Proposition 98 or other funding from the State will be more directly dependent upon the State s general fund. Future Initiatives Article XIIIA, Article XIIIB, Article XIIIC and Article XIIID of the California Constitution and Propositions 98, 111, 1A, 22, 26, 30 and 39 were each adopted as measures that qualified for the ballot under the State s initiative process. From time to time other initiative measures could be adopted further affecting District revenues or the District s ability to expend revenues. The nature and impact of these measures cannot be anticipated by the District. B-31

157 APPENDIX C GENERAL INFORMATION ABOUT THE CITY OF LEMON GROVE AND SAN DIEGO COUNTY The following information concerning the City of Lemon Grove (the City ) and San Diego County (the County ) is included only for the purpose of supplying general information regarding the area of the District. The Bonds are not a debt of the City, the County, the State of California (the State ) or any of its political subdivisions, and neither the City, the County, the State nor any of its political subdivisions is liable therefor. General The City. The community was settled in 1869 by its first known permanent resident, sheep rancher Robert Allison. From the 1860's to 1900 the area was known for sheep and poultry ranching and vegetable crops. In the early 1900's the community acquired its name when large citrus groves were planted and lemon and orange growing and shipping became the area's major industry. By World War II, most of the citrus groves had disappeared and suburbanization had begun. By 1960, most of the easily developable land was gone. The City was incorporated as a general law city in Now, approximately 26,000 people live in established neighborhoods including single-family homes, condominiums, and apartment buildings. Municipal parks provide recreational opportunities, and schools and churches are scattered throughout the city. The City enjoys warm, mild weather characteristic of Mediterranean climates. Summers are warm and dry, and winters are cooler with occasional rains. Cool ocean breezes enhance the temperate climate. Coastal mesas and drainages dominate, and elevations range from approximately 280 feet to 530 feet above sea level. The City is governed by a five-member City Council elected at large with four-year alternating terms. The Mayor is elected directly by the voters. Additionally, the positions of City Clerk, City Treasurer, City Manager, and City Attorney are filled by appointments of the City Council. The City contracts with the San Diego County Sheriff's Office for law enforcement. The County. The County is the southernmost major metropolitan area in the State. The County covers 4,255 square miles, extending 70 miles along the Pacific Coast from the border with Mexico to Orange County, and inland 75 miles to Imperial County. The County is approximately the size of the State of Connecticut. The County possesses a diverse economic base consisting of electronics manufacturing and shipbuilding, tourism, biotech and software development, and defense-related industries. The County is also growing as a center for culture and education. Over 30 recognized art organizations including the San Diego Opera, the Old Globe Theater productions, the La Jolla Chamber Orchestra, as well as museums and art galleries, are located in the County. The County was incorporated on February 18, 1850 and functions under a charter adopted in 1933, and is amended from time to time. The County is governed by a five-member Board of Supervisors elected to four-year terms in district nonpartisan elections. The Board of Supervisors appoints the Chief Administrative Officer and the County Counsel. Elected officials include the Assessor/County Clerk/Recorder, District Attorney, Sheriff and Treasurer/Tax Collector.

158 Population The following sets forth the City, the County and the State population estimates as of January 1 for the years 2010 to CITY OF LEMON GROVE AND SAN DIEGO COUNTY Population Estimates Calendar Years 2010 through Carlsbad 105, , , , ,169 Chula Vista 244, , , , ,139 Coronado 23,092 23,011 23,104 23,201 23,419 Del Mar 4,168 4,187 4,174 4,205 4,234 El Cajon 99, , , , ,256 Encinitas 59,628 59,910 60,057 60,568 61,204 Escondido 144, , , , ,102 Imperial Beach 26,367 26,459 26,483 26,533 26,675 La Mesa 57,184 58,041 58,018 58,328 58,769 Lemon Grove 25,370 25,478 25,481 25,590 25,928 National City 58,699 58,785 58,709 58,915 59,381 Oceanside 167, , , , ,183 Poway 47,903 48,155 48,151 48,628 48,979 San Diego 1,301,535 1,311,882 1,315,177 1,328,073 1,345,895 San Marcos 83,900 84,734 85,160 87,165 90,179 Santee 53,456 54,183 54,384 55,110 55,806 Solana Beach 12,896 12,945 12,938 13,006 13,099 Vista 94,020 94,431 94,587 95,398 96,122 Balance Of County 482, , , , ,823 County Total 3,091,579 3,118,876 3,128,749 3,154,574 3,194,362 Source: State of California Department of Finance, Demographic Research Unit (as of January 1). [Remainder of page intentionally left blank] C-2

159 Employment and Industry The District is included in the San Diego-Carlsbad-San Marcos Metropolitan Statistical Area ( MSA ), which includes all of the County. The unemployment rate in the County was 5.2 percent in December 2014, down from a revised 5.8 percent in November 2014, and below the year-ago estimate of 6.5 percent. This compares with an unadjusted unemployment rate of 6.7 percent for California and 5.4 percent for the nation during the same period. Set forth below is data from 2009 to 2013, reflecting the County's civilian labor force, employment and unemployment. Annual figures are not yet available for the calendar year SAN DIEGO-CARLSBAD-SAN MARCOS MSA (San Diego County) Annual Average Civilian Labor Force, Employment and Unemployment, Unemployment by Industry (March 2013 Benchmark) Civilian Labor Force (1) 1,555,200 1,567,900 1,577,200 1,594,900 1,590,000 Employment 1,405,800 1,401,900 1,418,200 1,452,500 1,470,000 Unemployment 149, , , , ,000 Unemployment Rate 9.6% 10.6% 10.1% 8.9% 7.5% Wage and Salary Employment: (2) Agriculture 10,400 10,500 9,800 9,800 9,800 Mining and Logging Construction 61,100 55,300 55,200 56,900 61,200 Manufacturing 95,300 92,900 93,100 94,300 94,600 Wholesale Trade 40,600 40,100 41,300 43,300 44,300 Retail Trade 131, , , , ,800 Transportation, Warehousing and Utilities 27,300 26,500 26,100 27,300 27,200 Information 28,200 25,100 24,200 24,500 24,100 Finance and Insurance 43,300 41,300 41,900 44,000 44,600 Real Estate and Rental and Leasing 26,500 25,900 25,600 26,100 26,800 Professional and Business Services 206, , , , ,600 Educational and Health Services 158, , , , ,300 Leisure and Hospitality 154, , , , ,500 Other Services 46,800 46,100 47,600 49,100 49,200 Federal Government 43,800 47,000 46,700 46,800 46,500 State Government 42,000 42,500 42,900 42,600 42,700 Local Government 138, , , , ,300 Total, All Industries (3) 1,255,600 1,246,900 1,255,700 1,289,000 1,321,800 (1) Labor force data is by place of residence; includes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. (2) Industry employment is by place of work; excludes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. (3) Totals may not add due to rounding. Source: State of California Employment Development Department. C-3

160 Major Employers The largest manufacturing and non-manufacturing employers as of February 2015 in the County are shown below, in alphabetical order. SAN DIEGO COUNTY Largest Employers February 2015 Employer Name Location Industry 32nd St Naval Station San Diego Federal Government-National Security Barona Resort Lakeside Resorts Barona Resort & Casino Lakeside Casinos General Dynamics Nassco San Diego Ship Builders & Repairers (Mfrs) Kaiser Foundation Hospitals San Diego Hospitals Kaiser Permanente San Diego Clinics Kaiser Permanente San Diego San Diego Hospitals Kyocera Communications Inc San Diego Electronic Equipment & Supplies-Mfrs Marine Corps Recruit Depot San Diego Military Bases Merchants Building Maintenance San Diego Janitor Service Palomar Health Escondido Hospitals Palomar Pomerado Health Rehab Escondido Rehabilitation Services San Diego County Sheriff Santee Police Departments San Diego Naval Medical Ctr San Diego Medical Centers Scripps Clinic La Jolla Clinics Seaworld San Diego San Diego Amusement & Theme Parks Sharp Grossmont Brier Patch La Mesa Rehabilitation Services Sharp Grossmont Hospital La Mesa Hospitals Sharp Mary Birch Hosp-Women San Diego Hospitals Sharp Memorial Hospital San Diego Hospitals Solar Turbines Inc San Diego Turbines-Manufacturers Sycuan Casino El Cajon Casinos Tyco Health Care San Diego Manufacturers Utc Aerospace Systems Chula Vista Aircraft Components-Manufacturers Viejas Casino & Resort Alpine Casinos Source: California State Employment Development Department, extracted from the America's Labor Market Information System (ALMIS) Employer Database, st Edition. [Remainder of page intentionally left blank] C-4

161 Effective Buying Income Effective Buying Income is defined as personal income less personal tax and nontax payments, a number often referred to as disposable or after-tax income. Personal income is the aggregate of wages and salaries, other labor-related income (such as employer contributions to private pension funds), proprietor's income, rental income (which includes imputed rental income of owner-occupants of non-farm dwellings), dividends paid by corporations, interest income from all sources, and transfer payments (such as pensions and welfare assistance). Deducted from this total are personal taxes (federal, state and local), nontax payments (fines, fees, penalties, etc.) and personal contributions to social insurance. According to U.S. government definitions, the resultant figure is commonly known as disposable personal income. The following table summarizes the total effective buying income for the City, the County, the State and the United States for 2009 through Annual figures are not yet available for calendar year CITY OF LEMON GROVE, SAN DIEGO COUNTY, STATE OF CALIFORNIA AND UNITED STATES Effective Buying Income 2009 through 2013 Year Area Total Effective Buying Income (000 s Omitted) Median Household Effective Buying Income 2009 City of Lemon Grove $423,510 $44,196 San Diego County 74,134,315 51,773 California 844,823,319 49,736 United States 6,571,536,768 43, City of Lemon Grove $398,158 $41,429 San Diego County 70,231,474 48,248 California 801,393,028 47,177 United States 6,365,020,076 41, City of Lemon Grove $401,770 $41,283 San Diego County 70,602,550 48,111 California 814,578,458 47,062 United States 6,438,704,664 41, City of Lemon Grove $416,890 $41,963 San Diego County 74,593,405 48,634 California 864,088,828 47,307 United States 6,737,867,730 41, City of Lemon Grove $429,718 $42,626 San Diego County 73,266,155 49,302 California 858,676,636 48,340 United States 6,982,757,379 43,715 Source: The Nielsen Company (US), Inc. C-5

162 Commercial Activity Total taxable sales reported during calendar year 2013 in the City were reported to be $387.7 million, an 11.9% increase over the total taxable sales of $346.5 million reported during calendar year CITY OF LEMON GROVE Taxable Retail Sales Number of Permits and Valuation of Taxable Transactions (Dollars in thousands) Retail Stores Total All Outlets Number of Permits Taxable Transactions Number of Permits Taxable Transactions $271, $307, , , , , , , , ,728 (1) Not comparable to prior years. Retail category now includes Food Services. Source: California State Board of Equalization, Taxable Sales in California (Sales & Use Tax). Total taxable sales reported during calendar year 2013 in the County were reported to be $36,979,017,000, a 4.9% increase over the total taxable sales of $35,165,934,000 reported during calendar year SAN DIEGO COUNTY Taxable Retail Sales Number of Permits and Valuation of Taxable Transactions (Dollars in thousands) Retail Stores Total All Outlets Number of Permits Taxable Transactions Number of Permits Taxable Transactions ,808 27,958,518 80,595 39,728, ,462 29,475,489 83,194 41,623, ,723 31,985,292 83,971 45,090, ,699 34,153,236 82,293 47,947, ,466 35,948,594 85,143 50,297,331 (1) Not comparable to prior years. Retail category now includes Food Services. Source: California State Board of Equalization, Taxable Sales in California (Sales & Use Tax). C-6

163 Construction Activity years. The tables below summarize building activity in the City and the County for the past five CITY OF LEMON GROVE Building Activity and Valuation Fiscal Years 2010 through 2014 (Dollars in thousands) Permit Valuation: New Single-family $532.3 $566.6 $6,329.3 New Multi-family 0.0 4, , Res. Alterations/Additions 1, , , , ,300.4 Total Residential 1, , , , ,629.7 New Commercial , , New Industrial New Other 1, Com. Alterations/Additions , , , ,959.2 Total Nonresidential 1, , , , ,289.0 New Dwelling Units: Single Family Multiple Family TOTAL Source: Construction Industry Research Board, Building Permit Summary. SAN DIEGO COUNTY Building Activity and Valuation Fiscal Years 2010 through 2014 (Dollars in thousands) Permit Valuation: New Single-family $648,573.3 $711,514.7 $773,429.6 $936,634.3 $860,232.6 New Multi-family 127, , , , ,730.7 Res. Alterations/Additions 198, , , , ,889.7 Total Residential 974, ,422, ,609, ,060, ,818,853.0 New Commercial 95, , , , ,182.3 New Industrial 7, , , , ,159.8 New Other 124, , , , ,997.8 Com. Alterations/Additions 431, , , , ,287.2 Total Nonresidential 658, , ,303, ,437, ,920,627.1 New Dwelling Units Single Family 2,254 2,242 2,100 2,539 2,276 Multiple Family 1,092 3,038 4,319 5,803 4,327 TOTAL 3,346 5,280 6,419 8,342 6,603 Source: Construction Industry Research Board, Building Permit Summary. C-7

164 Transportation Surface, sea and air transportation facilities serve the County residents and businesses. Interstate 5 parallels the coast from Mexico to the Los Angeles Area and points north. Interstate 15 runs inland, leading to Riverside-San Bernardino, Las Vegas, and Salt Lake City. Interstate 8 runs eastward through the southern United States. San Diego's International Airport (Lindbergh Field) is located approximately one mile west of the downtown area at the edge of San Diego Bay. The facilities are owned and maintained by the San Diego Airport Authority and are leased to commercial airlines and other tenants. The airport is California's third most active commercial airport, served by 20 major airlines. In addition to San Diego International Airport, there are several general aviation airports located in the County, including McClellan-Palomar Airport in Lemon Grove. Public transit in the metropolitan area is provided by the Metropolitan Transit Development Board and the North County Transit District ( NCTD ). The San Diego Trolley, developed by the Metropolitan Transit Development Board beginning in 1979, has been expanded. A total of 17.6 miles were added to the original 108 miles; construction was completed in Buses operated by NCTD carry passengers in the north San Diego County region, which includes the area south to and including Del Mar, east to Escondido, north to the Orange County and Riverside County lines, and includes Camp Pendleton. NCTD has 165 vehicles in its bus fleet. NCTD's bus fleet carries more than 11 million passengers every year. San Diego is the terminus of the Santa Fe Railway's main line from Los Angeles. Amtrak passenger service is available at San Diego, with stops at Solana Beach and Oceanside in the North County. San Diego's harbor is one of the world's largest natural harbors. The Port of San Diego is administered by the San Diego Unified Port District, which includes the cities of San Diego, National City, Chula Vista, Lemon Grove and Coronado. C-8

165 APPENDIX D PROPOSED FORMS OF OPINIONS OF BOND COUNSEL SERIES A BONDS [LETTERHEAD OF JONES HALL] June 9, 2015 Governing Board Lemon Grove School District 8025 Lincoln Street Lemon Grove, California OPINION: $5,000,000 Lemon Grove School District (San Diego County, California) General Obligation Bonds 2014 Election, Series A (GO Reauthorization Bonds ) Members of the Governing Board: We have acted as bond counsel to the Lemon Grove School District (the District ) in connection with the issuance by the District of $5,000,000 Lemon Grove School District (San Diego County, California) General Obligation Bonds 2014 Election, Series A (GO Reauthorization Bonds ), dated the date hereof (the Bonds ), under the provisions of Article 4.5 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code (the Act ), and a resolution of the Governing Board of the District (the Board ) adopted on April 14, 2015 (the Bond Resolution ). We have examined the law and such certified proceedings and other papers as we deemed necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon representations of the Board contained in the Bond Resolution and in the certified proceedings and other certifications furnished to us, without undertaking to verify such facts by independent investigation. Based upon our examination, we are of the opinion, under existing law, as follows: 1. The District is a duly created and validly existing school district with the power to issue the Bonds, and to perform its obligations under the Bond Resolution and the Bonds. 2. The Bond Resolution has been duly adopted by the Board, and constitutes a valid and binding obligation of the District enforceable upon the District in accordance with its terms. D-1

166 3. The Bonds have been duly authorized, executed and delivered by the District, and are valid and binding general obligations of the District. 4. The Board of Supervisors of San Diego County is required under the Act to levy an ad valorem tax upon the property in the District which is subject to taxation, unlimited as to rate or amount, for the payment of principal of and interest on the Bonds. 5. The interest on the Bonds is excluded 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; it should be noted, however, that for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining certain income and earnings certain income and earnings. The opinions set forth in the preceding sentence are subject to the condition that the District comply with all requirements of the Tax Code that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, or continue to be, excluded from gross income for federal 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 interest on the Bonds in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds, and may cause the Bonds to lose their status as "qualified tax-exempt obligations" within the meaning of Section 265(b)(3) of the Tax Code. We express no opinion regarding other federal tax consequences arising with respect to the Bonds. 6. The interest on the Bonds is exempt from personal income taxation imposed by the State of California. The rights of the owners of the Bonds and the enforceability of the Bonds and the Bond Resolution may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted and may also be subject to the exercise of judicial discretion in appropriate cases. Respectfully submitted, Jones Hall, A Professional Law Corporation D-2

167 SERIES B BONDS [LETTERHEAD OF JONES HALL] June 9, 2015 Governing Board Lemon Grove School District 8025 Lincoln Street Lemon Grove, California OPINION: $1,000,000 Lemon Grove School District (San Diego County, California) General Obligation Ed-Tech Bonds, 2014 Election, Series B (GO Reauthorization Bonds ) Members of the Governing Board: We have acted as bond counsel to the Lemon Grove School District (the District ) in connection with the issuance by the District of $1,000,000 Lemon Grove School District (San Diego County, California) General Obligation Ed-Tech Bonds, 2014 Election, Series B (GO Reauthorization Bonds ), dated the date hereof (the Bonds ), under the provisions of Article 4.5 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code (the Act ), and a resolution of the Governing Board of the District (the Board ) adopted on April 14, 2015 (the Bond Resolution ). We have examined the law and such certified proceedings and other papers as we deemed necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon representations of the Board contained in the Bond Resolution and in the certified proceedings and other certifications furnished to us, without undertaking to verify such facts by independent investigation. Based upon our examination, we are of the opinion, under existing law, as follows: 1. The District is a duly created and validly existing school district with the power to issue the Bonds, and to perform its obligations under the Bond Resolution and the Bonds. 2. The Bond Resolution has been duly adopted by the Board, and constitutes a valid and binding obligation of the District enforceable upon the District in accordance with its terms. 3. The Bonds have been duly authorized, executed and delivered by the District, and are valid and binding general obligations of the District. D-3

168 4. The Board of Supervisors of San Diego County is required under the Act to levy an ad valorem tax upon the property in the District which is subject to taxation, unlimited as to rate or amount, for the payment of principal of and interest on the Bonds. 5. The interest on the Bonds is excluded 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; it should be noted, however, that for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining certain income and earnings certain income and earnings. The opinions set forth in the preceding sentence are subject to the condition that the District comply with all requirements of the Tax Code that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, or continue to be, excluded from gross income for federal 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 interest on the Bonds in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds, and may cause the Bonds to lose their status as "qualified tax-exempt obligations" within the meaning of Section 265(b)(3) of the Tax Code. We express no opinion regarding other federal tax consequences arising with respect to the Bonds. 6. The interest on the Bonds is exempt from personal income taxation imposed by the State of California. The rights of the owners of the Bonds and the enforceability of the Bonds and the Bond Resolution may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted and may also be subject to the exercise of judicial discretion in appropriate cases. Respectfully submitted, Jones Hall, A Professional Law Corporation D-4

169 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE $5,000,000 LEMON GROVE SCHOOL DISTRICT (San Diego County, California) General Obligation Bonds 2014 Election, Series A (GO Reauthorization Bonds ) $1,000,000 LEMON GROVE SCHOOL DISTRICT (San Diego County, California) General Obligation Ed-Tech Bonds 2014 Election, Series B (GO Reauthorization Bonds ) CONTINUING DISCLOSURE CERTIFICATE This Continuing Disclosure Certificate (this Disclosure Certificate ) is executed and delivered by the Lemon Grove School District (the District ) in connection with the execution and delivery of the captioned bonds (together, the Bonds ). The Bonds are being executed and delivered pursuant to a resolution adopted by the Governing Board of the District on April 14, 2015 (the Resolution ). U.S. Bank National Association, is initially acting as paying agent for the Bonds (the Paying Agent ). The District hereby covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the District for the benefit of the holders and beneficial owners of the Bonds 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 above and in the Bond Resolution, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section 2, the following capitalized terms have the following meanings: Annual Report means any Annual Report provided by the District under and as described in Sections 3 and 4. Annual Report Date means the date not later than nine months after the end of each fiscal year of the District (currently June 30 th ), commencing by March 31, Dissemination Agent means, initially, the District, or any successor Dissemination Agent designated in writing by the District and which has filed with the District and the Paying Agent a written acceptance of such designation. Listed Events means any of the events listed in Section 5(a). 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. Official Statement means the final official statement executed by the District in connection with the issuance of the Bonds. E-1

170 Paying Agent means U.S. Bank National Association, or any successor thereto. Participating Underwriter means the original Underwriter of the Bonds required to comply with the Rule in connection with offering of the Bonds. 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. Section 3. Provision of Annual Reports. (a) The District shall, or shall cause the Dissemination Agent to, not later than the Annual Report Date, commencing not later than March 31, 2016 with the report for the fiscal year, provide to the MSRB in an electronic format as prescribed by the MSRB, an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than 15 Business Days prior to the Annual Report Date, the District shall provide the Annual Report to the Dissemination Agent (if other than the District). If by 15 Business Days prior to the Annual Report Date the Dissemination Agent (if other than the District) has not received a copy of the Annual Report, the Dissemination Agent shall contact the District to determine if the District is in compliance with the previous sentence. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4; provided that the audited financial statements of the District may be submitted separately from the balance of the Annual Report, and later than the Annual Report Date, if 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(c). The District shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by the District hereunder. (b) If the District does not provide (or cause the Dissemination Agent to provide) an Annual Report by the Annual Report Date, the District shall provide (or cause the Dissemination Agent to provide) to the MSRB, in an electronic format as prescribed by the MSRB, a notice in substantially the form attached as Exhibit A, with a copy to the Paying Agent and Participating Underwriter. (c) With respect to each Annual Report, the Dissemination Agent shall: (i) (ii) determine each year prior to the Annual Report Date the thenapplicable rules and electronic format prescribed by the MSRB for the filing of annual continuing disclosure reports; and if the Dissemination Agent is other than the District, file a report with the District certifying that the Annual Report has been provided under this Disclosure Certificate, and stating the date it was provided. E-2

171 Section 4. Content of Annual Reports. The District s Annual Report shall contain or incorporate by reference the following: (a) Audited financial statements prepared in accordance with 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 Annual Report Date, 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) Unless otherwise provided in the audited financial statements filed on or before the Annual Report Date, the following information shall be provided in the Annual Report: (i) (ii) (iii) (iv) (v) assessed valuation of taxable properties in the District for the most recently completed fiscal year; assessed valuation of properties of the top ten taxpayers for the most recently completed fiscal year; if the District is not a participant in a Teeter Plan, property tax collection delinquencies for the District for the most recently completed Fiscal Year or if not available at the time of the filing of the Annual Report for the prior fiscal year, if available at the time of filing the Annual Report, the Adopted Budget and First Interim Report for the fiscal year in which the Annual Report is filed, and 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. (c) 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 web site or filed with the Securities and Exchange Commission. The District shall clearly identify each such other document so included by reference. Section 5. Reporting of Significant Events. (a) The District shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to the Bonds: (1) Principal and interest payment delinquencies. (2) Non-payment related defaults, if material. (3) Unscheduled draws on debt service reserves reflecting financial difficulties. E-3

172 (4) Unscheduled draws on credit enhancements reflecting financial difficulties. (5) Substitution of credit or liquidity providers, or their failure to perform. (6) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security. (7) Modifications to rights of security holders, if material. (8) Bond calls, if material, and tender offers. (9) Defeasances. (10) Release, substitution, or sale of property securing repayment of the securities, if material. (11) Rating changes. (12) Bankruptcy, insolvency, receivership or similar event of the District. (13) The consummation of a merger, consolidation, or acquisition involving the District or the sale of all or substantially all of the assets of the District, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material. (14) Appointment of a successor or additional Member or the change of name of a Member, if material. (b) Whenever the District obtains knowledge of the occurrence of a Listed Event, the District shall, or shall cause the Dissemination Agent (if not the District) to, file a notice of such occurrence with the MSRB, in an electronic format as prescribed by the MSRB, in a timely manner not in excess of 10 business days after the occurrence of the Listed Event. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(8) and (9) above need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Bonds under the Bond Resolution. (c) The District acknowledges that the events described in subparagraphs (a)(2), (a)(7), (a)(8) (if the event is a bond call), (a)(10), (a)(13), and (a)(14) of this Section 5 contain the qualifier if material and that subparagraph (a)(6) also contains the qualifier "material" with respect to certain notices, determinations or other events affecting the tax status of the Bonds. The District shall cause a notice to be filed as set forth in paragraph (b) above with respect to any such event only to the extent that it determines the event s occurrence is material for purposes of U.S. federal securities law. Whenever the District obtains knowledge of the occurrence of any of these Listed Events, the District will as soon as possible determine if such event would be material under applicable federal securities law. If such event is determined to be material, the District will cause a notice to be filed as set forth in paragraph (b) above. (d) For purposes of this Disclosure Certificate, any event described in paragraph (a)(12) above is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the District in a proceeding under the United States E-4

173 Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the District, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the District. Section 6. Identifying Information for Filings with the MSRB. All documents provided to the MSRB under the Disclosure Certificate 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 Bonds. If such termination occurs prior to the final maturity of the Bonds, the District shall give notice of such termination in the same manner as for a Listed Event under Section 5(c). Section 8. 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 Dissemination Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be the District. Any Dissemination Agent may resign by providing 30 days written notice to the District and the Paying Agent. Section 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the District may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: (a) (b) (c) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), 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 Bonds, or type of business conducted; the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner provided in the Bond Resolution for amendments to the Bond Resolution with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds. If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual financial information filed E-5

174 pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the District to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be filed in the same manner as for a Listed Event under Section 5(c). 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, the Participating Underwriter or any holder or beneficial owner of the Bonds 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 Bond Resolution, and the sole remedy under this Disclosure Certificate in the event of any failure of the District to comply with this Disclosure Certificate shall be an action to compel performance. Section 12. Duties, Immunities and Liabilities of Dissemination Agent. (a) The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the District agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent s negligence or willful misconduct. The Dissemination Agent will have no duty or obligation to review any information provided to it by the District hereunder, and shall not be deemed to be acting in any fiduciary capacity for the District, the Bondholders or any other party. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. (b) The Dissemination Agent shall be paid compensation by the District for its services provided hereunder in accordance with its schedule of fees as amended from time to time, and E-6

175 shall be reimbursed for all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. Section 13. 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 Bonds, and shall create no rights in any other person or entity. Date: June 9, 2015 LEMON GROVE SCHOOL DISTRICT By Name: Title: E-7

176 EXHIBIT A NOTICE OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Name of Bond Issue: Lemon Grove School District (the District ) $5,000,000 Lemon Grove School District General Obligation Bonds, 2014 Election, Series A and $1,000,000 Lemon Grove School District General Obligation Bonds, 2014 Election, Series B Date of Issuance: June 9, 2015 NOTICE IS HEREBY GIVEN that the District has not provided an Annual Report with respect to the above-named Bonds as required by the Continuing Disclosure Certificate, dated as of June 9, The District anticipates that the Annual Report will be filed by. Dated: DISSEMINATION AGENT: cc: Paying Agent and Participating Underwriter By: Its: E-8

177 APPENDIX F DTC AND THE BOOK-ENTRY ONLY SYSTEM The following description of the Depository Trust Company ( DTC ), the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal, interest and other payments on the Bonds to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be. Neither the District nor the Paying Agent take any responsibility for the information contained in this Section. No assurances can be given that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Bonds, (b) Bonds representing ownership interest in or other confirmation or ownership interest in the Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Bonds, 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 Appendix. 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. 1. The Depository Trust Company ( DTC ), New York, NY, will act as securities depository for the securities (in this Appendix, the Bonds ). The Bonds 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 Bond will be issued for each maturity of the Bonds, in the aggregate principal amount of such maturity, and will be deposited with DTC. If, however, the aggregate principal amount of any maturity exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount and an additional certificate will be issued with respect to any remaining principal amount of such issue. 2. 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 F-1

178 a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has a Standard & Poor s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at The information contained on this Internet site is not incorporated herein by reference. 3. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC s records. The ownership interest of each actual purchaser of each Bond ( 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 Bonds 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 Bonds representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. 4. To facilitate subsequent transfers, all Bonds 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 Bonds with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Bonds 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. 5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of the notices be provided directly to them. 6. Redemption notices will be sent to DTC. If less than all of the Bonds 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. 7. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to District as soon as F-2

179 possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). 8. Redemption proceeds, distributions, and interest payments on the Bonds 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 District or Paying Agent 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 nor its nominee, Paying Agent, or District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of District or Paying Agent, 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. 9. DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to District or Paying Agent. Under such circumstances, in the event that a successor securities depository is not obtained, Bonds are required to be printed and delivered. 10. The District may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered to DTC. 11. The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that District believes to be reliable, but District takes no responsibility for the accuracy thereof. F-3

180 APPENDIX G SAN DIEGO COUNTY INVESTMENT POLICY AND QUARTERLY INVESTMENT REPORT G-1

181 APPENDIX G SAN DIEGO COUNTY INVESTMENT POLICY AND QUARTERLY INVESTMENT REPORT G-1

182 Q2 SAN DIEGO COUNTY TREASURER S POOLED MONEY FUND INVESTMENT POLICY January 1, 2015 The Investment Policy and practices of the County Treasurer are based on prudent money management principles and California State Law, specifically Government Code Sections , , and Section shall apply to a local agency that is a county, or other local agency that pools money in deposits or investments with other local agencies, including local agencies that have the same governing body. However, Section shall apply to all local agencies that pool money in deposits or investments exclusively with local agencies that have the same governing body. The practices of this office will always comply with the legal authority and limitations placed on it by the governing legislative bodies. The implementation of these laws, allowing for the dynamics of the money markets, will be the focus of this policy statement. All matters contained in this policy are to be read and applied pursuant to and consistent with state law. Where this Investment Policy specifies a percentage limitation, compliance will be measured as of the date of purchase. When investing, reinvesting, purchasing, acquiring, exchanging, selling and managing the Fund the objectives of this office shall be: 1. The primary objective shall be to safeguard the principal of the funds under the County Treasurer's control. 2. The secondary objective shall be to meet the liquidity needs of the participants. 3. The third objective shall be to achieve an investment return on the funds under control of the County Treasurer within the parameters of prudent risk management. The Fund is an actively managed portfolio. By this it is meant that the County Treasurer and his staff will observe, review, and react to changing conditions that affect the Fund; this shall be viewed as a full time responsibility by the County Treasurer and his staff. The authority to execute investment transactions that will affect the Fund will be limited to: County Treasurer Chief Deputy Treasurer Chief Investment Officer Investment Officers The County Treasurer and the above staff will meet on a regular basis to discuss current market conditions and future trends and how each of these affects the Fund.

183 TABLE OF CONTENTS SAN DIEGO COUNTY TREASURER INVESTMENT POLICY Pool Policy Security of Principal Policy 3 Liquidity Policy 3 Return Policy 3 Maturity Policy 3-4 Prohibited Securities 4 Credit Rating Policy 4-5 Internal Controls 5-6 Permissible Investments Permissible Investments 6 Government Obligations 6-7 Local Agency Obligations 7 Banker s Acceptance 7-8 Commercial Paper 8 Medium-Term Notes 8-9 Negotiable Certificates of Deposit 9-10 Repurchase Agreements Reverse Repurchase Agreements 11 Collateralized Certificates of Deposit Covered Call/Put Options Money Market Mutual Fund CalTRUST 14 Pass-through Securities When-issued Securities 15 Supranationals 15 Other Policy Topics Illiquidity Limitations Maximum Exposure for Any One Issuer 16 Qualified Brokers & Dealers Securities Lending 17 Delegation of Investment Authority to the County Treasurer 17 Safekeeping Authority County Treasury Oversight Committee 18 Rules Governing the Acceptance of Honoraria, Gifts and Gratuities Reporting Annual Audit 20 Cost and Earning Apportionment 20 Terms and Conditions for Depositing Funds by Voluntary Participants Criteria for Withdrawal of Funds from the County Pool (Voluntary Participants) Grandfathered Agencies 22 Glossary of Terms 23-26

184 2015 SAN DIEGO COUNTY TREASURER S POOLED MONEY FUND INVESTMENT POLICY The purpose of the County Treasurer's Investment Policy is to implement the legislated parameters of the investment authority of the Fund. As an elected official of the County of San Diego, the County Treasurer must manage public monies in a way that is consistent with investment oversight, and sound investment practices. To have a policy which only concerns itself with maximizing return is a very dangerous course. The basic concept of investment return is based on a risk/reward relationship. Therefore, the higher the return, the higher the risk. Risk management must be an integral part of any investment policy. Risk management must include adequate internal controls so that Fund depositors and the public have confidence that public monies are secure. The policy stated below will concern itself with risk management. 1. SECURITY OF PRINCIPAL POLICY - The policy issues directed to protecting the principal entrusted to this office are: A. Limiting the Fund's exposure to each type of security. B. Limiting the Fund's exposure to each issuer of debt. C. Determining the minimum credit requirement for each type of security. 2. LIQUIDITY POLICY - The policy issues directed to provide necessary liquidity to the participants are: A. Limiting the length of maturity for securities in the Fund. B. Limiting the Fund's exposure to Moderately Liquid and Illiquid securities. 3. RETURN POLICY - The policy issues directed to achieving a return are: A. Attaining a market rate of return taking into account the investment risk constraints and liquidity needs. B. A majority of the investments shall be limited to low risk securities in anticipation of earning a fair return relative to the risk being taken. 4. MATURITY POLICY A. The maximum maturity allowed by the California Government Code is 5 years with shorter limitations specified for certain types of securities. The mandatory minimum for the maturity structure of the Fund shall be to have 50% of the Fund in instruments with remaining maturities of one year or less. Furthermore, at least 25% of the Fund must mature within 90 days. 3

185 2015 San Diego County Treasurer s Pooled Money Fund Investment Policy The maximum effective duration for the Fund shall be 1.50 years. The following bullet points summarize these parameters: At least 50% of the Fund maturing within 1 year At least 25% of the Fund maturing within 90 days Maximum effective duration of 1.50 years B. The Fund will be considered in compliance with the maturity policy if it meets the maturity targets above. In the event that the Fund distribution does not comply with the table above, until such time as the Fund is within maturity targets, all securities purchased shall be of a maturity or duration that will lower the maturity and or duration of the Fund. In the event a compliance violation has occurred, a variance report shall be made to the Oversight Committee as part of the normal monthly reporting. 5. PROHIBITED SECURITIES The California Government Code prohibits a local agency to invest in any of the following derivative notes: Inverse Floater Range Notes Interest-only strips derived from a pool of mortgages Any security that could result in zero interest accrual 6. CREDIT RATING POLICY A. This Investment Policy sets forth minimum credit ratings for each type of security. These credit limits apply to the initial purchase of a security and does not automatically force the sale of a security if the credit ratings of the security fall below the policy limits. B. The monitoring of credit ratings consists of the following procedures: 1. When a credit rating downgrade occurs, the Investment Group will evaluate the downgrade on a case-by-case situation to determine whether to hold or sell the security after further analysis of the credit rating on an ongoing basis. 2. In the event a security in the Fund receives a credit rating downgrade, the Investment Group will report the rating change to the Oversight Committee in the monthly report. In the same manner, the Oversight Committee will be informed on the Investment Group s decision to hold or sell a downgraded security. 4

186 2015 San Diego County Treasurer s Pooled Money Fund Investment Policy 3. The Investment Group shall meet at least quarterly to review and update the approved list of securities and establish credit criteria for each category of security. C. To ensure that the Fund maintains an overall credit rating of AAAf / S1, the highest rating given by Standard & Poor s, the asset allocation with respect to credit quality will be provided to S&P on a monthly basis. Investments rated below A-1 (short term) or below the A category (long term), at the time of purchase, are prohibited in this policy. 7. INTERNAL CONTROLS A. The Chief Deputy Treasurer is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the entity are protected from loss, theft or misuse. The internal control structure shall be designed to provide reasonable assurance that these objectives are met. The concept of reasonable assurance recognizes that: 1. The cost of a control should not exceed the benefits likely to be derived; and 2. The valuation of costs and benefits requires estimates and judgments by management. B. Accordingly, the Chief Deputy Treasurer shall establish and maintain internal controls that shall address the following points: 1. Control of Collusion - Collusion is a situation where two or more employees are working in conjunction to defraud their employer. 2. Separation of Transaction Authority from Accounting and Record Keeping - By separating the person who authorizes the transaction from the people who record or otherwise account for the transaction, a separation of duties is achieved. 3. Custodial Safekeeping - Securities purchased from any bank or dealer including appropriate collateral (as defined by California State Law), not insured by FDIC, shall be placed with an independent third party for custodial safekeeping. 4. Avoidance of Physical Delivered Bearer Securities - Book entry securities are much easier to transfer and account for since actual delivery of a document never takes place. Bearer securities must be properly safeguarded against loss or destruction. The potential for fraud and loss increases with such securities. 5

187 2015 San Diego County Treasurer s Pooled Money Fund Investment Policy 5. Clear Delegation of Authority to Subordinate Staff Members - Subordinate staff members must have a clear understanding of their authority and responsibilities to avoid improper actions. Clear delegation of authority also preserves the internal control structure that is contingent on the various staff positions and their respective responsibilities. 6. Written Confirmation of Telephone Wire Transfers - Due to the potential for error and improprieties arising from telephone transactions, all telephone transactions should be supported by written or electronic communications and approved by the appropriate person. 7. Development of a Wire Transfer Agreement with the Lead Bank or Third Party Custodian - This agreement should outline the various controls, security provisions, and delineate responsibilities of each party making and receiving wire transfers. 8. Development of the Annual Treasurer s Investment Manual - Annually, Investment staff and Accounting staff will review and update internal control policies as stated in the manual. C. Provide for an annual independent review by an external auditor to assure compliance with policies and procedures. 8. PERMISSIBLE INVESTMENTS - Government Codes 53601, , , , 53635, 53637, 53638, 53651, 53652, and address permissible investments. These investment categories are addressed individually in sections 9-23 below. 9. GOVERNMENT OBLIGATIONS - The Fund invests in two categories of Government Obligations: U.S. Treasury and Agency obligations. Both are issued at the Federal level. U.S. Treasury obligations are bills, notes and bonds issued by the Treasury and are direct obligations of the Federal Government. Agency obligations are notes and bonds of federal agencies, and government sponsored enterprises. A. Maximum Maturity - The maximum maturity of an issue shall be the current 5-year issue or an issue, which, at the time of the investment, has a term remaining to maturity not in excess of 5 years. B. Maximum Exposure of Fund - The maximum exposure to the Fund for this category is unlimited. C. Maximum Exposure Per Issuer - The maximum exposure to the Fund for an individual issuer shall be: 6

188 2015 San Diego County Treasurer s Pooled Money Fund Investment Policy 1. Treasury - Unlimited 2. Agency - No more than 35% of the Fund value shall be invested in any single issuer. D. Minimum Credit Requirement - None E. Liquidity Category - Liquid 10. LOCAL AGENCY OBLIGATIONS - These are bonds, notes, warrants or other evidences of indebtedness of any local agency or by a department, board or authority of any local agency within this State. In addition, the Fund is further authorized to purchase bonds and notes of any of the fifty states in the United States. A. Maximum Maturity - The maximum maturity of an issue shall be 5 years. B. Maximum Exposure of Fund - The maximum exposure to the Fund for this category shall be 15%. C. Maximum Exposure Per Issuer - The maximum exposure to a single issuer shall be 10% of the Fund value. D. Minimum Credit Requirement - Issuers outside of the County must be at or above the following investment grade from one of these ratings firms: 1. Standard & Poor s - SP-1 or the A category (long-term when applicable) 2. Fitch - F-1 or the A category (long-term when applicable) 3. Moody's - MIG 1 or the A category (long-term when applicable) (For 1 year or less, use short-term rating) (For over 1 year, use long-term ratings) E. Liquidity Category - Moderately Liquid 11. BANKER'S ACCEPTANCE - This is a draft or bill of exchange, accepted by a bank or trust company and brokered to investors in a secondary market. The purpose of the Banker's Acceptance (BA) is to facilitate trade and provide liquidity to the import-export markets. Acceptances are collateralized by the pledge of documents such as invoices, trust receipts, and other documents evidencing ownership and insurance of the goods financed. Since its inception in 1914, there has been no known loss of principal to investors through the use of Banker's Acceptances. A. Maximum Maturity - the maximum maturity of an issue shall be 180 days. 7

189 2015 San Diego County Treasurer s Pooled Money Fund Investment Policy B. Maximum Exposure of Fund - The maximum exposure to the Fund for this category shall be 40%. C. Maximum Exposure Per Issuer - The maximum exposure to a single issuer shall be 5% of the Fund value. D. Minimum Credit Requirement The security must be at or above the following investment grade from one of these rating firms. If unrated by Standard & Poor s, security would need to be authorized by Standard & Poor s with a shadow rating prior to purchase. 1. Standard & Poor's - A-1 2. Moody's - P-1 3. Fitch - F-1 E. Liquidity Category Liquid 12. COMMERCIAL PAPER - These are short-term, unsecured, promissory notes issued by firms in the open market. Commercial paper (CP) is generally backed by a bank credit facility, guarantee/bond of indemnity, or some other support agreement. A. Maximum Maturity - The maximum maturity of an issue shall be 270 days. B. Maximum Exposure of Fund - The maximum exposure to the Fund for this category shall be 40%. C. Maximum Exposure Per Issuer - The maximum exposure to a single issuer shall be 5% of the Fund value. D. Minimum Credit Requirements - The security must have the following minimum investment grade rating from one of these rating firms. If unrated by Standard & Poor s, security would need to be authorized by Standard & Poor s with a shadow rating prior to purchase. 1. Standard & Poor s - A-1 or the A category (long-term when applicable) 2. Fitch - F-1 or the A category (long-term when applicable) 3. Moody s - P-1 or the A category (long-term when applicable) E. Liquidity Category - Liquid 13. MEDIUM-TERM NOTES ( MTN ) - These are corporate notes, deposit notes, and bank notes sold by an agent in the open market on a continually offered basis. Issuers include well recognized banks and bank holding companies, thrifts, 8

190 2015 San Diego County Treasurer s Pooled Money Fund Investment Policy finance companies, insurance companies, and industrial corporations. These medium term notes are debt obligations generally unsecured, although some issues come to market on a collateralized or secured basis. A. Maximum Maturity - The maximum maturity of an issue shall be 5 years. B. Maximum Exposure of Fund - The maximum exposure to the Fund for this category shall be 30%. C. Maximum Exposure Per Issuer - The maximum exposure to a single issuer shall be 5% of the Fund value. D. Minimum Credit Requirements - The security must have the following minimum investment grade rating from one of these rating firms. If unrated by Standard & Poor s, security would need to be authorized by Standard & Poor s with a shadow rating prior to purchase. 1. Standard & Poor s - A-1 or the A category (long-term when applicable) 2. Moody's - P-1 or the A category (long-term when applicable) 3. Fitch - F-1 or the A category (long-term when applicable) (MTN s 1 year or less, use short-term rating.) (For MTN s over 1 year, use long-term rating.) E. Liquidity Category - Liquid 14. NEGOTIABLE CERTIFICATES OF DEPOSIT - These are issued by commercial banks and thrift institutions against funds deposited for specified periods of time and earn specified or variable rates of interest. Negotiable certificates of deposit ( NCD ) differ from other certificates of deposit by their liquidity. NCD's are traded actively in secondary markets. In compliance with California Code , all FDIC insured CD s, whether directly placed or placed through a private sector entity, will be classified as a NCD. A. Maximum Maturity 1. The maximum maturity of a NCD issue shall be 5 years. 2. The maximum maturity of any FDIC insured CD s, whether directly placed or placed through a private sector entity, shall be 13 months. B. Maximum Exposure of Fund - The maximum exposure to the Fund for this category shall be 30%. D. Maximum Exposure Per Issuer - The maximum exposure to a single issuer shall be 5% of the Fund value. 9

191 2015 San Diego County Treasurer s Pooled Money Fund Investment Policy E. Minimum Credit Requirement 1. All NCD must have the following investment grade from one of these rating firms. If unrated by Standard & Poor s, security would need to be authorized by Standard & Poor s with a shadow rating prior to purchase. a) Standard & Poor s - A-1 or the A category (long-term when applicable) b) Moody's - P-1 or the A category (long-term when applicable) c) Fitch - F-1 or the A category (long-term when applicable) (For NCD s 1 year or less, use short-term rating) (For NCD s over 1 year, use long-term rating) 2. There is no minimum credit requirement for FDIC insured CD s, whether directly placed or placed through a private sector entity. F. Liquidity Category - Liquid 15. REPURCHASE AGREEMENT - A repurchase agreement (RP) consists of two simultaneous transactions. One is the purchase of securities by an investor (the Fund); the other is the commitment by the seller (i.e. a broker/dealer) to repurchase the securities at the same price, plus interest, at some mutually agreedupon future date. A. Maximum Maturity - The maximum maturity of repurchase agreements shall be one year. B. Maximum Exposure of Fund - The maximum exposure to the Fund for this category shall be 40%. C. Maximum Exposure Per Broker/Dealer - The maximum exposure to a single broker/dealer of RP shall be 10% of the Fund when the dollar weighted average maturity is greater than 5 days, 15% of the Fund when the dollar weighted average maturity is 5 days or less. D. Eligible Broker/Dealers - Broker/Dealers shall sign a PSA Master Repurchase Agreement or a Tri-Party Repurchase Agreement. The Agreement must specify a minimum margin percentage of 102% and also provide for daily mark-to-market of the collateral by the custodian bank. E. Eligible Collateral - The securities eligible for repurchase agreement transactions shall be a security authorized in Section of the California Government Code. Collateral eligible for repurchase agreements maturing 7 days to 1 year shall be Treasuries and Government Agencies. 10

192 2015 San Diego County Treasurer s Pooled Money Fund Investment Policy F. Delivery of Collateral - Broker/Dealers shall deliver the underlying securities to either the County s safekeeping bank or a mutually agreed upon third party custodian bank or a counterparty bank s customer book-entry account. When a third party custodian is used, it will be the custodian s responsibility to transfer funds and securities between the broker/dealer and the County Fund in accordance with the terms of the repurchase agreement. G. Liquidity Category - Liquid 16. REVERSE REPURCHASE AGREEMENT - Reverse repurchase agreements (RRPs) are essentially the mirror image of RPs. In this instance, the Fund is the seller of securities and the broker or bank is the investor. Due to the nature of RRPs, the policy regarding this instrument is different from the above RP policy. A. Maximum Maturity - The maximum maturity of a securities lending loan shall be 92 days unless the agreement includes a written guarantee of a minimum earning or spread for the entire period of the RRP. B. Maximum Exposure of Fund - No more than 20% of the Fund shall be invested in RRP s and/or securities lending at any one time. C. Maximum exposure Per Broker/Dealer - No more than 10% of the Fund shall be invested in RRP s with any one broker/dealer at any one time. D. Purpose of RRPs - The uses of RRPs shall be to invest the proceeds from the agreement into permissible securities that have the highest short-term credit ratings; to supplement the yield on securities owned; or to provide funds for the immediate payment of an obligation. The maturity of the RRP and the maturity of the security purchased shall be the same. E. Eligible Securities - A RRP may only be entered into with a security, authorized in California Government Code 53601, which has been owned and paid for 30 days prior to the settlement of the RRP. F. Eligible Broker/Dealer - Broker/Dealers shall be primary broker/dealers of the Federal Reserve Bank of New York. G. Liquidity Category - Liquid 17. COLLATERALIZED CERTIFICATES OF DEPOSIT - This is the deposit of funds made by the County Treasurer in state or national banks or state or federal savings and loan associations or federal credit unions or FDIC insured industrial loan companies in California per California Government Code Section The deposit of the funds will be made under the following conditions: 11

193 2015 San Diego County Treasurer s Pooled Money Fund Investment Policy A. The deposit may not exceed the total of the paid up capital and surplus of a depository. B. The depository must maintain securities with a market value of at least 10% in excess of the total amount of the County Treasurer's deposits. These securities will be placed in the institution's pooled collateral account and monitored by the State Treasurer of California or a mutually agreed upon third party custodian bank. C. The County Treasurer may waive the first $250,000 of collateral for each depository, so long as that amount is insured by an agency of the Federal Government. The documents listed below in D will not be required for deposits of $250,000 or less. D. Each institution which receives County deposits must provide the County Treasurer with an up-to-date Contract, Annual Report, Affirmative Action Policy, Community Reinvestment Act Statement and EEO-1 Form. E. Maximum maturity shall be 13 months. F. Maximum exposure to the Fund for collateralized Certificates of Deposit shall be 10%. G. Institutions at or above the following investment grade, as determined by the respective rating firms, may pledge mortgage based collateral for County deposits: 1. Fitch - F-1 2. Moody's - P-1 3. Standard & Poor s - A-1 H. Liquidity Category - Illiquid 18. COVERED CALL OPTION/PUT OPTION - An option is the right to buy or sell a specific security within a specific time period at a specific price. A. A covered call is when the County Treasurer sells the option to another party, giving them the right to buy an existing security in the Fund at a specific price within a specific time period. B. A put option is when the County Treasurer sells the option to another party, giving them the right to sell to the County Treasurer a security at a specific price within a specific time period. 12

194 2015 San Diego County Treasurer s Pooled Money Fund Investment Policy C. The seller of a covered call option/put option is paid at the time of the sale of the option. At the end of the option period, if the option is not exercised, the right to buy or sell the security is canceled. D. The County Treasurer will act only as a seller of covered call and put options with the following exception: County Treasurer may buy an option to offset an existing open option position. E. Securities subject to covered calls shall not be used for Reverse Repurchase Agreements. F. Cash sufficient to pay for outstanding puts shall be invested in securities maturing on or before the expiration date of the options. G. Maximum maturity - The maximum maturity of a covered call option/put option shall be 90 days. H. Maximum exposure - No more than 10% of the Fund may have options written against it at any given time. I. Credit risk - Options shall only be written with primary dealers. J. Liquidity Category - Liquid 19. MONEY MARKET MUTUAL FUND - Shares of beneficial interest issued by management companies. Such shares represent ownership of a diversified portfolio of securities, which are redeemable at their net asset value. The Government Code allows for purchases of mutual funds, but the Fund will limit use to money market mutual funds managed to maintain a $1.00 share price. A. Maximum exposure - The maximum exposure to the Fund for this category shall be 15%. B. Purchase price - The purchase price of the mutual fund shall not include any commission. C. Maximum exposure per fund - The maximum exposure to a single mutual fund shall be 10% of the Fund value. D. Minimum credit requirement - Mutual funds must have the following investment grade from at least one of these rating firms or retain an investment advisor registered or exempt from registration with the Securities and Exchange Commission with not less than five years of experience in managing money market mutual funds with assets under management in excess of five hundred million dollars: 13

195 2015 San Diego County Treasurer s Pooled Money Fund Investment Policy 1. Standard & Poor s - AAAm 2. Moody's - Aaa-mf 3. Fitch - AAAmmf E. Liquidity Category - Liquid 20. INVESTMENT TRUST OF CALIFORNIA (CalTRUST) is a pooled investment program through the CalTRUST Joint Powers Authority, authorized by Government Code Section 53601(p). CalTRUST provides two pooled account options (Short-Term Account provides daily liquidity and the Medium-Term Account permits monthly deposits and withdrawals). All of the accounts comply with the limitations and withdrawals. All of the accounts comply with the limitations and restrictions placed on local investments by the Government Code; and no leverage is permitted in any of the accounts. A. Maximum Exposure - The maximum exposure to the Fund for this category shall be 2.5%, subject to limitations placed upon deposits by CalTRUST. B. Liquidity Category - Illiquid 21. PASS-THROUGH SECURITIES - These will be limited to equipment leasebacked certificates, consumer receivable pass-through certificates or consumer receivable-backed bonds. A. Maximum maturity - The maximum maturity of an issue shall be 5 years. B. Maximum exposure - The maximum exposure to the Fund for this category shall be 20%. C. Maximum exposure per issuer - The maximum exposure to a single issuer shall be 5% of the Fund value. D. Minimum credit requirement issuer - Issuers, must have the following minimum rating from one of these rating firms: 1. Fitch - A 2. Moody's - A 3. Standard & Poor s - A E. Minimum credit requirement security - The security must have the following minimum category rating from one of these firms. If unrated by Standard & Poor s, security would need to be authorized by Standard & Poor s with a shadow rating prior to purchase. 14

196 2015 San Diego County Treasurer s Pooled Money Fund Investment Policy 1. Standard & Poor's - AA category 2. Moody's - Aa category 3. Fitch - AA category F. Liquidity Category - Liquid 22. WHEN-ISSUED SECURITIES - The Fund may invest in new issues of Government Obligations offered on a when-issued basis; that is, delivery and payment take place after the date of the commitment to purchase, normally within 15 days. Both price and interest rate are fixed at the time of commitment. This allows the Fund to lock in an interest rate that may not be available on the issue date. The Fund does not earn interest on the securities until settlement, and the market value of the securities may fluctuate between purchase and settlement. Such securities can be sold before settlement. 23. SUPRANATIONALS The fund may invest in United States dollar denominated senior unsecured unsubordinated obligations issued or unconditionally guaranteed by multi-national organizations. A. Issuers- International Bank for Reconstruction and Development (IBRD), International Finance Corporation (IFC), and Inter-American Development Bank (IADB) B. Maximum Maturity - The maximum maturity of an issue shall be 5 years. C. Maximum Exposure of Fund - The maximum exposure to the Fund for this category shall be 30%. D. Maximum Exposure Per Issuer - The maximum exposure to a single issuer shall be 10% of the Fund value. E. Minimum Credit Requirements - The security must have the following minimum investment grade rating from one of these rating firms. If unrated by Standard & Poor s, security would need to be authorized by Standard & Poor s with a shadow rating prior to purchase. 1. Standard & Poor s - A-1 or the AA category 2. Moody's - P-1 or the Aa category 3. Fitch - F-1 or the AA category F. Liquidity Category - Liquid 24. ILLIQUIDITY LIMITATIONS - The Fund may not invest more than 20% of the total Fund in combination of Local Agency Obligations, which are classified as Moderately Liquid, and Collateralized Certificates of Deposit, which are 15

197 2015 San Diego County Treasurer s Pooled Money Fund Investment Policy classified as Illiquid. All other Investment Policy sanctioned asset categories are classified as Liquid. 25. MAXIMUM EXPOSURE FOR ANY ONE ISSUER - Unless otherwise specified in this policy, if a single issuer is involved in more than one of the above listed investment categories, the exposure to the issuer is limited to 5% of the Fund. The aforementioned does not apply to repurchase agreements. The limits for repurchase agreements are set forth in the County Treasurer's Policy in section QUALIFIED BROKERS AND DEALERS - In order to eliminate risk in making investments under this Investment Policy, all investments will be made only through qualified dealers. A. A qualified dealer must be a bank, savings and loan association, or an investment securities dealer. Commercial Paper and Certificate of Deposit issuers may be considered qualified dealers for direct issuance of their paper. B. Any dealer entering into a new business relationship to conduct security transactions with the County Treasurer is required to make application and qualify for recommendations by the Investment Group to the County Treasurer. C. The dealer must ensure that its staff is aware of the County Treasurer's Investment Policy and the California Government Code Sections and D. Investment securities dealers for Reverse Repurchase Agreements must be primary dealers regularly reporting to the Federal Reserve Bank. E. The dealer is required to have a net capital in excess of $1 million with liquidity lines of $50 million or more. F. The dealer is required to maintain an active secondary market for securities sold to the County and must be competitive in price for bids and offers. G. The dealer will be monitored by the Investment Group to ensure the services the County requires are delivered in a timely and efficient manner. H. The primary account representative must be in the institutional or middle market fixed income division with 5 years or more experience covering large municipalities. I. A qualified dealer must not have made any political contributions to the County Treasurer, any member of the Board of Supervisors, or any candidate for these offices within any consecutive 48-month period following 16

198 2015 San Diego County Treasurer s Pooled Money Fund Investment Policy January The exception is if the broker/dealer is entitled to vote for any of these offices, the contributions shall not be in excess of $250 to each official per election. J. Each dealer every three years will be required to respond to the County s Request For Statement of Qualifications (RFSQ) providing the County with up to date financial and investment experience information. 27. SECURITIES LENDING - This is a program conducted by an agent authorized to execute securities lending under the guidelines listed under RRP's and as detailed in the Services for Securities Lending Agreement. A securities lending transaction is when the Fund transfers its securities to broker/dealers and other entities for collateral which may be cash or securities and simultaneously agrees to return the collateral for the same securities in the future. The loans must be secured continuously by cash collateral or securities and maintained at a value of at least equal to 102 % of the market value of the securities loaned. During the term of the loan, the Fund will continue to receive the equivalent of the interest paid by the issuer of the securities loaned. The Fund will have the right to call the loan and receive the securities loaned at any time with one day's notice. A. Maximum Maturity - The maximum maturity of a securities lending loan shall be 92 days. B. Maximum Exposure of Fund - No more than 20% of the Fund shall be exposed to securities lending and/or RRP's at any one time. C. Maximum Exposure Per Counterpart - No more than 10% of the Fund shall be on loan with any single counterpart at any one time. D. Reinvestment shall be limited to Government Code and the County s authorized investment list. 28. DELEGATION OF INVESTMENT AUTHORITY TO THE COUNTY TREASURER - The State of California gives the Board of Supervisors the ability to delegate the investment authority to the County Treasurer for a one-year period in accordance with Section of the California Government Code. The delegation will require renewal each year. 29. SAFEKEEPING AUTHORITY A. The State of California gives the Board of Supervisors the ability to delegate the deposit for safekeeping authority to the County Treasurer in accordance with Section of the California Government Code. Board Resolution 109 adopted September 29, 1959 delegated this authority to the County Treasurer. 17

199 2015 San Diego County Treasurer s Pooled Money Fund Investment Policy B. In exercising this safekeeping function, the County Treasurer will require depositories to provide evidence that they are taking reasonable measures to prevent unauthorized access to the depository's electronic data files. C. The County Treasurer s Manual addresses contingency plans in the event that a disaster, natural or otherwise, disrupts normal operations. Contingency plans vary depending upon the severity and expected longevity of the disruption. 30. COUNTY TREASURY OVERSIGHT COMMITTEE - The Board of Supervisors has established a County Treasury Oversight Committee pursuant to Sections of the California Government Code. The County Treasurer shall annually prepare an investment policy that will be reviewed and monitored by the County Treasury Oversight Committee and shall be reviewed and approved at a public hearing by the Board of Supervisors. 31. RULES GOVERNING THE ACCEPTANCE OF HONORARIA, GIFTS, AND GRATUITIES: A. The County Treasury Oversight Committee: 1. Gifts and Gratuity limits: - Members may not accept a gift or gifts aggregating more than the Fair Political Practices Commission (FPPC) guidelines in a calendar year from an advisor, broker, dealer, banker, or other persons with whom the County Treasurer conducts business. 2. Honorarium limit - Members may not accept any honorarium from advisors, brokers, dealers, bankers, or other persons with whom the County Treasurer conducts business. 3. Employment - A member may not be employed by an entity that has contributed to the campaign of a candidate for the office of the County Treasurer or a candidate for a legislative body of the local agency that has deposited funds in the County Treasury in the previous three years or during the period the employee is a member of the Oversight Committee. A member may not secure employment with bond underwriters, bond counsel, security brokers or dealers, or with financial services firms during the period that the person is a member of the Committee or for one year after leaving the Committee. 4. Contributions - A member may not directly or indirectly raise money for a candidate for County Treasurer or a member of the governing board of any local agency that has deposited funds in the County Treasury while a member of the Committee. 18

200 2015 San Diego County Treasurer s Pooled Money Fund Investment Policy B. The County Treasurer and Designated Employees: 1. Gifts and Gratuity limits - The County Treasurer and designated employees may not accept a gift or gifts aggregating more than the Fair Political Practices Commission (FPPC) guidelines in a calendar year from a single source that does business with the County Treasurer s Office. 2. Honorarium limits - The County Treasurer and designated employees may not accept any honorarium. 3. Form 700 "Statement of Economic Interests" - The County Treasurer and designated employees are required to file a 700 form annually. 32. REPORTING - The County Treasurer shall prepare an investment report monthly to be posted on the County Treasurer Tax-Collector s website. A. The report will be available to the following officials: 1. Board of Supervisors 2. Oversight Committee 3. Chief Administration Officer 4. Auditor & Controller 5. Pool Participants B. The report will include the following: 1. Market commentary 2. A summary of Fund Statistics 3. The type of investment, issuer, date of maturity, par, and dollar amount invested on all securities, investments and moneys held by the Fund; and shall additionally include a description of any of the Fund s investments or programs that are under management of contracted parties, including the securities lending program. The report shall also include a current market value and the source of the valuation as of the date of the report for all securities held by the Fund. 4. Securities Lending Portfolio, if applicable 5. Pool Purchases, Sales and Maturities 6. Pooled Money Fund Cash Flow Forecast 19

201 2015 San Diego County Treasurer s Pooled Money Fund Investment Policy 7. Included in the monthly report shall be a statement of compliance with the Investment Policy and a statement of the Fund s ability to meet cash flow requirements for the next six months. 33. ANNUAL AUDIT - The Treasury Oversight Committee shall cause an audit to be conducted annually on a fiscal year basis to determine if the County Treasury is in compliance with Section of the California Government Code. 34. COSTS AND EARNINGS APPORTIONMENT A. Prior to quarterly interest distribution, investment costs incurred by the County Treasurer will be deducted from the interest earnings of the pool and Dedicated Portfolios based on an equitable distribution formula. The costs, which are authorized by Government Code Section 27013, are made up of direct costs (salaries, banking services, computer services, and supplies), and indirect costs (department overhead and external overhead). B. The Pool earnings distributed to each participant are proportionate to the average daily balance of the amounts on deposit by the participant. The County Auditor and Controller conducts the apportionment process based on the net earnings of the Fund each quarter. C. In the event there is a negative balance in a participant s fund at any time, it shall reduce the average daily balance for the fund. If at quarter-end there is a negative average daily balance in a participant s fund, that fund will be charged the higher of the pool s earning rate for the quarter or a proxy TRANs cost. D. The apportionment rate is set approximately ten business days after each calendar quarter end. Apportionments are not paid out by warrants; all earnings are credited to the participants' fund balance. 35. TERMS AND CONDITIONS FOR DEPOSITING FUNDS BY VOLUNTARY PARTICIPANTS - The State of California Government Code Section allows local agencies, upon adoption of a resolution by the governing body of the agency, the option of depositing excess funds in the County Treasury for the purpose of investment by the County Treasurer. A. The County, in its regional role to assist and aid other local agencies, adopted Board Resolution 11 on March 24, 1987, to allow agencies to deposit excess funds with the County Treasurer for investment. The limitation on acceptance of voluntary deposits and this Investment Policy is structured to help to ensure that, pursuant to Section of the California Government Code, the County Treasurer shall be able to find that all proposed deposits/withdrawals will not adversely affect the interests of the other depositors in the Fund. 20

202 2015 San Diego County Treasurer s Pooled Money Fund Investment Policy B. The policy for the acceptance of local agency deposits is: 1. The local agency must sign the Investment Management Agreement. The County Treasurer will allow a maximum of 25% of the total Fund in voluntary deposits. 2. The maximum amount of transactions per month shall be 10 per local agency. 3. The local agency must provide cash flows on a quarterly basis indicating projected withdrawals from the Fund. C. Before any deposits for new accounts from non-participating Voluntary Participants can be accepted by the County Treasurer, the local agency must perform the following: 1. Provide a resolution adopted by the Board or governing body that authorizes the local agency to deposit excess funds in the County Treasury for the purpose of investment by the County Treasurer. The resolution must: a) be signed by an authorized official b) indicate the resolution number and date passed by the Board or governing body, c) indicate the persons authorized to initiate deposits to and instruct withdrawals from the Fund, d) bear the seal of the local agency, if the local agency has a seal. 2. Provide wire/ach transfer instructions for cash withdrawals from the Fund. All withdrawals and external deposits will be by the Fed Wire or Automated Clearing House (ACH). 3. Establish a trust account through the County Auditor and Controller s General Accounting Division. 36. CRITERIA FOR WITHDRAWAL OF MONIES FROM THE FUND BY VOLUNTARY PARTICIPANTS A. Before a local agency withdraws monies from the Fund it must submit a withdrawal request form a minimum of 2 working days prior to the desired withdrawal date. Although not encouraged, shorter notice may be honored at the discretion of the County Treasurer s Office if the withdrawal does not 21

203 2015 San Diego County Treasurer s Pooled Money Fund Investment Policy cause the maturity status of the Fund to exceed its limits, or jeopardize its ability to meet cash flow requirements. B. When monies are requested for withdrawal, the County Treasurer s Office must find that the withdrawal will not adversely affect the interests of all other depositors in the Fund. 37. GRANDFATHERED AGENCIES A. The grandfathered agencies, including the Community Colleges, who use the services of the County to keep their records and/or issue warrants/wires for the agency can continue to function 100% in this manner and will be treated as a mandatory participant (this assumes that the agency shall continue to make their deposits into the Fund). B. They can also opt to be treated as a voluntary participant and elect to withdraw funds in the same fashion as the other voluntary participants. However, any agency so opting shall be subject to all of the restrictions placed upon the other Voluntary Participants. 22

204 2015 San Diego County Treasurer s Pooled Money Fund Investment Policy GLOSSARY OF TERMS BANKERS ACCEPTANCE - Money market instrument created from transactions involving foreign trade. In its simplest and most traditional form, a banker s acceptance is merely a check, drawn on bank by an importer or exporter of goods. BID - The price offered by a buyer of securities. COLLATERALIZED CERTIFICATE OF DEPOSIT - An instrument representing a receipt from a bank for a deposit at a specified rate of interest for a specified period of time that is collateralized by the bank with securities at a minimum of 110% of the deposit amount. COMMERCIAL PAPER - Money Market instrument representing a short-term promissory note of a large corporation at a specified rate of return for a specified period of time. COUPON - The annual rate of interest that a bond s issuer promises to pay the bondholder on the bond s face value. COVERED CALL OPTION - The sale of an option to another party giving them the right to buy an existing security in the Fund at a specified price within a specified time period. CREDIT RATING - The alphanumeric scale which provides an assessment of the credit opinion of one of the Nationally Recognized Statistical Rating Organizations for a particular investment or issuing entity. By way of example, the investment grade portion of S&P s credit rating is provided below from highest to lowest: AAA AA A BBB Highest Lowest DEDICATED PORTFOLIO - Any assets, besides those held in the Fund, invested by the County Treasurer on behalf of any San Diego County agency. DOLLAR WEIGHTED AVERAGE MATURITY - The sum of the amount of each security investment multiplied by the number of days to maturity, divided by the total amount of security investments. 23

205 2015 San Diego County Treasurer s Pooled Money Fund Investment Policy DURATION - Is a measure of the price volatility of a portfolio and reflects an estimate of the projected increase or decrease in the value of a portfolio based upon a decrease or increase in the interest rates. A duration of 1.0 means that for every one percent increase in interest rates, the market value of a portfolio would decrease by 1.0 percent. EARNINGS APPORTIONMENT - Is the quarterly interest distribution to the Pool Participants where the actual investment costs incurred by the County Treasurer are deducted from the interest earnings of the Fund. EFFECTIVE DURATION OR OPTION-ADJUSTED DURATION - Is the approximate percentage price change of a bond for a 100 basis point parallel shift in the yield curve allowing for the cash flow to change as a result of the change in yield. GOVERNMENT OBLIGATIONS - Securities issued by the U.S. Treasury and Federal Agencies. U.S. Treasuries are direct obligations of the Federal Government. Agencies are not direct obligations of the Federal Government, but involve Federal sponsorship or guarantees. Agency issuers include: Federal National Mortgage Association (FNMA) Federal Home Loan Bank (FHLB) Federal Farm Credit Bank (FFCB) Federal Agriculture Mortgage Corporation (FAMCA) Federal Home Loan Mortgage Corporation (FHLMC) Government National Mortgage Corporation (GNMA) GRANDFATHERED AGENCIES - Such as community colleges and some fire districts that use the County s banking and accounting services. ILLIQUID - Non-existent, or thinly traded secondary market resulting in the inability to access funds prior to maturity, or possibly liquidate at the cost of principal. ISSUE A discreet security of an issuing entity. ISSUER- The entity identified as the counterparty or obligator related to a security trade. INVERSE FLOATERS - An inverse floater is a note structured so that its coupon varies inversely with a designated index. INVESTMENT GROUP - Shall be made up of the County Treasurer, Chief Deputy Treasurer, Chief Investment Officer, and Investment Officers. INVESTMENT MANAGEMENT AGREEMENT - An agreement between a voluntary participant and the San Diego County Treasurer-Tax Collector. The agreement addresses the terms and conditions of local agencies deposit of funds for investment into the Fund. 24

206 2015 San Diego County Treasurer s Pooled Money Fund Investment Policy LIQUID - Low expected yield give up due to liquidation, based on historical bid/offer spreads. LOCAL AGENCY OBLIGATION - An indebtedness issued by a local agency, department, board, or authority within the State of California. LONG-TERM - The term used to describe a security when the maturity is greater than one year. MEDIUM TERM NOTES - They are corporate notes and deposit notes that are debt obligations of banks, corporations, and insurance companies. They are issued at a specific rate of return for a specific period of time. MONEY MARKET MUTUAL FUND - A mutual fund with investments directed in short-term money market instruments only, which can be withdrawn daily without penalty. MODERATELY LIQUID - Modest expected yield give up due to liquidation, based on historical bid/offer spreads. NEGOTIABLE CERTIFICATE OF DEPOSIT - A money market instrument representing a receipt from a bank for a deposit at a specified rate of interest for a specified period of time that is traded in secondary markets. OFFERED - The price at which a holder of a security would be willing to sell the security. PASS-THROUGH SECURITIES - A debt instrument that reflects an interest in a mortgage pool, consumer receivables pool and equipment lease-backed pool that serves as collateral for a bond. PORTFOLIO VALUE - The total book value amount of all the securities held in the Fund. PRUDENT RISK - An investment system in which the investor will invest conservatively to receive a stable income with little risk. PUT OPTION - The sale of an option to another party giving them the right to sell to the Fund a security at a specified price within a specified time period. RANGE NOTES - Range notes (also called accrual notes) are bonds which accrue interest daily at a set coupon which is tied to an index. Range notes typically have two coupon levels; the higher of which is for the period that the index remains within a designated range. 25

207 2015 San Diego County Treasurer s Pooled Money Fund Investment Policy REPURCHASE AGREEMENT - A repurchase agreement consists of two simultaneous transactions. One is the purchase of securities by an investor (i.e. the Fund), the other is the commitment by the seller (i.e. a broker/dealer) to repurchase the securities at the same price, plus interest, at some mutually agreed future date. REVERSE REPURCHASE AGREEMENT - The mirror image of Repurchase Agreements. In this instance the Fund is the seller of securities to an investor (i.e. brokers). SAFEKEEPING - A custodian bank s action to store and protect an investor s securities by segregating and identifying the securities. SECURITIES LENDING - A transaction wherein the Fund transfers its securities to broker/dealers and other entitles for collateral, which may be cash or securities and simultaneously agrees to return the collateral for the same securities in the future. SHADOW RATING - A credit opinion provided by a Nationally Recognized Statistical Rating Organization for a security or entity that it had previously not rated. SHORT-TERM - The term used to describe a security when the maturity is one year or less. SUPRANATIONALS- Organizations owned by governments of two or more countries. They are usually established by international treaties in order to pursue specified policy objectives such as fighting poverty by providing financing and other developmental assistance to middle and poor income countries in both private and public sectors Inter-American Development Bank (IADB) International Bank For Reconstruction and Development (IBRD) International Finance Corporation (IFC) VOLUNTARY PARTICIPANTS - Local agencies that are not required to deposit their funds with the County Treasurer. WHEN-ISSUED SECURITIES - A security traded before it receives final trading authorization with the investor receiving the certificate/security only after the final approval is granted. 26

208 County of San Diego Treasurer Investment Report MONTH ENDING March 31, 2015

209 Table of Contents 3 Summary Portfolio Statistics as of March 31, Investment Inventory with Market Value 12 Purchases/Sales/Maturities 16 Cash Flow Analysis 17 Participant Cash Balances 18 Pooled Money Fund Participants 19 Pooled Money Fund Asset Allocation 20 Pooled Money Fund Assets Credit Quality 21 Investment Policy Compliance Standards DISCLAIMER: The information provided, including all charts, tables, graphs and numerical representations, are provided to readers solely as a general overview of the economic and market conditions which the Treasurer utilizes in making investment decisions. Note: All Investments held during the month of March 2015 were in compliance with the Investment Policy dated January 1, The projected cash flows indicate sufficient liquidity to meet all scheduled expenditures for the next 6 months. 2

210 Summary Portfolio Statistics County of San Diego Pooled Money Fund as of March 31, 2015 Percent of Current Par/ Current Market Market Current Yield to Unrealized Portfolio WAM WAC YTM Share Book Price Value Accr Int Worst Gain/Loss Certificates of Deposit ,363,000 69,363, ,363,000 2, $0 Commercial Paper ,748,000,000 1,747,050, ,747,290, $240,452 Fannie Mae ,613, ,762, ,795,432 2,742, $2,033,371 Federal Farm Credit Bank Notes ,000, ,674, ,853, , $178,754 Federal Home Loan Bank Notes ,050, ,155, ,800,975 1,394, $1,645,874 Federal Home Loan Mortgage Corp ,000, ,515, ,106,500 1,502, $1,590,731 Money Market Funds ,280, ,280, ,420,140 16, $140,140 Negotiable CD ,986,700,000 1,986,704, ,986,700,000 1,508, ($4,148) Repurchase Agreements ,693,067 9,693, ,693,067 (3) 0.00 $0 Supranationals , ,000,000 50,000, ,000,000 25, $0 U.S. Treasury Notes ,000, ,552, ,491,600 1,301, $2,938,861 Totals for March ,205,699,067 7,209,750, ,218,514,783 8,964, ,764,035 Totals for February ,028,489,446 7,033,070, ,037,041,420 9,041, ,970,985 Change From Prior Month (22) (10) (0.01) 177,209, ,680, ,473,363 (76,889) (0.01) 4,793,050 Portfolio Effective Duration 0.75 years Fiscal Year Calendar Year March To Date To Date Return Annualized Return Annualized Return Annualized Book Value 0.043% 0.512% 0.363% 0.483% 0.128% 0.520% Market Value 0.043% 0.511% 0.361% 0.481% 0.126% 0.512% Note Yield to maturity (YTM) is the estimated rate of return on a bond given its purchase price, assuming all coupon payments are made on a timely basis and reinvested at this same rate of return to the maturity date. Yield to call (YTC) is the estimated rate of return on a bond given its purchase price, assuming all coupon payments are made on a timely basis and reinvested at this same rate of return to the call date. Yield to worst (YTW) is the lesser of yield to maturity or yield to call, reflecting the optionality of the bond issuer. Yields for the portfolio are aggregated based on the book value of each security. 3

211 Investment Inventory with Market Value San Diego Pooled Money Fund as of March 31, 2015 Issuer Purchase Maturity Coupon YTM Par Value Current Book Market Value Current Unrealized Date Date Accr Int Gain/Loss Certificates of Deposit CA Bank and Trust 5/8/2014 5/8/ , , , Pacific Western Bank SD 5/12/2014 5/12/ , , , CA Bank and Trust 11/17/2014 5/18/ ,000, ,000, ,000, Regents Bank 11/28/2014 5/28/ , , , American West Bank 6/20/2014 6/20/ , , , Vibra Bank 12/26/2014 6/25/ ,000, ,000, ,000, CA Bank and Trust 1/20/2015 7/20/ ,000, ,000, ,000, Vibra Bank 2/12/2015 8/12/ , , , East West Bank 2/15/2015 8/14/ , , , Torrey Pines Bank 9/5/2014 9/4/ , , , CDARS Regent Bank 3/19/2015 9/17/ ,813, ,813, ,813, CDARS SD Private Bank 10/23/ /22/ ,000, ,000, ,000, Comerica Bank 1/26/ /23/ ,000, ,000, ,000, SD Private Bank 10/24/ /24/ , , , Torrey Pines Bank 3/29/2015 3/26/ ,000, ,000, ,000, Certificates of Deposit Subtotal ,363, ,363, ,363, , Commercial Paper Fortis/BNP Paribas Bank 2/6/2015 4/7/ ,000, ,999, ,000, Fortis/BNP Paribas Bank 2/11/2015 4/13/ ,000, ,998, ,000, , Fortis/BNP Paribas Bank 2/20/2015 4/20/ ,000, ,994, ,000, , Fortis/BNP Paribas Bank 2/24/2015 4/24/ ,000, ,993, ,000, , Fortis/BNP Paribas Bank 2/24/2015 4/27/ ,000, ,996, ,000, , Fortis/BNP Paribas Bank 2/27/2015 5/1/ ,000, ,984, ,000, , General Elec Capital Corp. 9/12/2014 5/6/ ,000, ,988, ,000, , Toyota Motor Credit Corp. 10/23/2014 5/6/ ,000, ,994, ,000, , Fortis/BNP Paribas Bank 3/10/2015 5/8/ ,000, ,989, ,000, , UBS Finance 12/11/2014 5/15/ ,000, ,991, ,000, , ING (US) Funding LLC 2/13/2015 5/15/ ,000, ,990, ,000, , Mitsubishi UFJ Financial Group, Inc. 3/20/2015 5/20/ ,000, ,993, ,000, , General Elec Capital Corp. 9/11/2014 5/22/ ,000, ,983, ,000, ,

212 Investment Inventory with Market Value Issuer Purchase Maturity Coupon YTM Par Value Current Book Market Value Current Unrealized Date Date Accr Int Gain/Loss ING (US) Funding LLC 2/23/2015 5/22/ ,000, ,974, ,000, , General Elec Capital Corp. 9/11/2014 5/29/ ,000, ,981, ,000, , General Elec Capital Corp. 10/8/2014 6/1/ ,000, ,979, ,000, , Mitsubishi UFJ Financial Group, Inc. 12/8/2014 6/1/ ,000, ,966, ,000, , General Elec Capital Corp. 10/8/2014 6/3/ ,000, ,979, ,000, , ING (US) Funding LLC 3/3/2015 6/5/ ,000, ,987, ,000, , ING (US) Funding LLC 3/6/2015 6/8/ ,000, ,977, ,000, , Mitsubishi UFJ Financial Group, Inc. 3/20/2015 6/12/ ,000, ,990, ,000, , Wells Fargo Bank NA 11/19/2014 6/30/ ,000, ,962, ,000, , UBS Finance 1/27/2015 6/30/ ,000, ,966, ,000, , UBS Finance 10/8/2014 7/2/ ,000, ,946, ,000, , General Elec Capital Corp. 12/9/2014 7/2/ ,000, ,958, ,815, , Toyota Motor Credit Corp. 12/9/2014 7/2/ ,000, ,964, ,844, , Toyota Motor Credit Corp. 2/26/2015 7/13/ ,000, ,981, ,000, , Toyota Motor Credit Corp. 2/4/2015 8/3/ ,000, ,969, ,000, , Toyota Motor Credit Corp. 2/6/2015 8/3/ ,000, ,979, ,000, , Toyota Motor Credit Corp. 2/18/2015 8/3/ ,000, ,960, ,000, , Mitsubishi UFJ Financial Group, Inc. 3/20/2015 8/10/ ,000, ,979, ,000, , Toyota Motor Credit Corp. 11/20/2014 8/14/ ,000, ,951, ,000, , Toyota Motor Credit Corp. 2/23/2015 8/14/ ,000, ,961, ,000, , Rabobank Nederland 2/25/2015 8/31/ ,000, ,879, ,000, , UBS Finance 12/12/2014 9/4/ ,000, ,886, ,630, , General Elec Capital Corp. 3/24/2015 9/21/ ,000, ,967, ,000, , Commercial Paper Subtotal ,748,000, ,747,050, ,747,290, , FNMA Fed National Mortg Assoc 8/13/2010 4/15/ ,000, ,025, ,038, , , Fed National Mortg Assoc 6/10/2013 7/5/ ,000, ,840, ,970, , , Fed National Mortg Assoc 2/26/2014 7/5/ ,000, ,986, ,991, , , Fed National Mortg Assoc 5/22/2013 8/22/ ,000, ,000, ,945, , , Fed National Mortg Assoc 10/6/2011 9/28/ ,000, ,990, ,224, , , Fed National Mortg Assoc 5/14/ /14/ ,000, ,997, ,987, , , Fed National Mortg Assoc 5/28/ /14/ ,500, ,498, ,498, ,

213 Investment Inventory with Market Value Issuer Purchase Maturity Coupon YTM Par Value Current Book Market Value Current Unrealized Date Date Accr Int Gain/Loss Fed National Mortg Assoc 5/28/ /14/ ,513, ,510, ,509, , , Fed National Mortg Assoc 11/15/ /15/ ,000, ,020, ,208, , , Fed National Mortg Assoc 1/17/ /15/ ,000, ,085, ,278, , , Fed National Mortg Assoc 3/14/2013 3/14/ ,000, ,000, ,055, , , Fed National Mortg Assoc 3/10/2014 4/20/ ,000, ,884, ,110, , , Fed National Mortg Assoc 7/17/2013 7/17/ ,000, ,994, ,030, , , Fed National Mortg Assoc 11/5/2014 8/9/ ,000, ,998, ,016, , , Fed National Mortg Assoc 11/27/ /26/ ,000, ,803, ,048, , , Fed National Mortg Assoc 11/22/ /22/ ,845, ,676, ,873, , , Fed National Mortg Assoc 11/28/ /28/ ,000, ,986, ,035, , , Fed National Mortg Assoc 11/29/ /29/ ,755, ,755, ,615, , , Fed National Mortg Assoc 12/18/ /18/ ,000, ,000, ,048, , , Fed National Mortg Assoc 12/27/ /27/ ,000, ,966, ,968, , , Fed National Mortg Assoc 12/27/ /27/ ,000, ,000, ,020, , , Fed National Mortg Assoc 2/21/2015 2/21/ ,000, ,000, ,050, , , Fed National Mortg Assoc 3/28/2013 3/28/ ,000, ,985, ,820, , , Fed National Mortg Assoc 4/30/2013 4/30/ ,000, ,989, ,705, , , Fed National Mortg Assoc 4/30/2013 4/30/ ,000, ,000, ,705, , , Fed National Mortg Assoc 5/16/2013 4/30/ ,000, ,951, ,852, , , Fed National Mortg Assoc 1/22/2014 5/21/ ,000, ,702, ,964, , , Fed National Mortg Assoc 1/21/2014 9/18/ ,000, ,221, ,753, , , Fed National Mortg Assoc 1/21/ /27/ ,000, ,891, ,477, , , FNMA Subtotal ,613, ,762, ,795, ,742, ,033, FFCB Federal Farm Credit Bank 3/4/2015 3/4/ ,000, ,983, ,980, , , Federal Farm Credit Bank 3/26/2015 3/24/ ,000, ,690, ,720, , , Federal Farm Credit Bank 12/4/ /4/ ,000, ,000, ,005, , , Federal Farm Credit Bank 2/20/2015 2/20/ ,000, ,000, ,036, , , Federal Farm Credit Bank 5/21/2014 5/21/ ,000, ,000, ,042, , , Federal Farm Credit Bank 6/24/2014 6/24/ ,000, ,000, ,070, , , FFCB Subtotal ,000, ,674, ,853, , ,

214 Investment Inventory with Market Value Issuer Purchase Maturity Coupon YTM Par Value Current Book Market Value Current Unrealized Date Date Accr Int Gain/Loss FHLB Federal Home Loan Bank 7/13/2010 6/12/ ,685, ,718, ,807, , , Federal Home Loan Bank 1/21/2014 6/12/ ,315, ,316, ,318, , , Federal Home Loan Bank 10/8/2010 9/11/ ,000, ,022, ,100, , , Federal Home Loan Bank 10/8/2010 9/28/ ,000, ,015, ,097, , , Federal Home Loan Bank 11/28/ /27/ ,000, ,000, ,930, , , Federal Home Loan Bank 12/1/ /1/ ,000, ,969, ,940, , , Federal Home Loan Bank 12/9/ /9/ ,000, ,000, ,982, , , Federal Home Loan Bank 2/26/ /11/ ,000, ,186, ,197, , , Federal Home Loan Bank 6/13/2011 3/11/ ,000, ,317, ,650, , , Federal Home Loan Bank 3/23/2015 3/11/ ,000, ,959, ,024, , , Federal Home Loan Bank 3/27/2015 3/23/ ,050, ,031, ,024, , , Federal Home Loan Bank 8/10/2011 6/10/ ,000, ,110, ,304, , , Federal Home Loan Bank 3/24/2014 6/24/ ,000, ,986, ,995, , , Federal Home Loan Bank 6/19/ /19/ ,000, ,000, ,007, , , Federal Home Loan Bank 11/15/ /28/ ,000, ,920, ,060, , , Federal Home Loan Bank 3/26/2014 6/26/ ,000, ,000, ,090, , , Federal Home Loan Bank 12/29/2014 6/29/ ,000, ,000, ,009, , , Federal Home Loan Bank 9/20/2012 9/8/ ,000, ,909, ,919, , , Federal Home Loan Bank 12/29/ /29/ ,000, ,000, ,115, , , Federal Home Loan Bank 9/29/ /29/ ,000, ,000, ,042, , , Federal Home Loan Bank 1/12/2015 1/12/ ,000, ,000, ,157, , , Federal Home Loan Bank 1/12/2015 1/12/ ,000, ,000, ,157, , , Federal Home Loan Bank 6/20/2014 6/20/ ,000, ,000, ,055, , , Federal Home Loan Bank 1/9/ /13/ ,000, ,693, ,814, , , FHLB Subtotal ,050, ,155, ,800, ,394, ,645, FHLMC Fed Home Loan Mortg Corp. 8/30/2013 9/18/ ,000, ,990, ,026, , , Fed Home Loan Mortg Corp. 12/16/2011 1/19/ ,000, ,446, ,526, , , Fed Home Loan Mortg Corp. 12/24/2014 6/24/ ,000, ,000, ,007, , , Fed Home Loan Mortg Corp. 10/18/ /1/ ,000, ,990, ,060, , , Fed Home Loan Mortg Corp. 5/29/ /25/ ,000, ,000, ,890, , ,

215 Investment Inventory with Market Value Issuer Purchase Maturity Coupon YTM Par Value Current Book Market Value Current Unrealized Date Date Accr Int Gain/Loss Fed Home Loan Mortg Corp. 2/26/2014 2/22/ ,000, ,068, ,125, , , Fed Home Loan Mortg Corp. 1/9/2015 5/12/ ,000, ,091, ,119, , , Fed Home Loan Mortg Corp. 12/15/2014 6/15/ ,000, ,000, ,037, , , Fed Home Loan Mortg Corp. 2/26/2014 6/29/ ,000, ,058, ,168, , , Fed Home Loan Mortg Corp. 12/30/2014 6/30/ ,000, ,000, ,045, , , Fed Home Loan Mortg Corp. 7/25/2012 7/25/ ,000, ,999, ,080, , , Fed Home Loan Mortg Corp. 12/19/ /19/ ,000, ,000, ,065, , , Fed Home Loan Mortg Corp. 2/26/2014 3/7/ ,000, ,660, ,952, , , Fed Home Loan Mortg Corp. 2/27/2014 6/13/ ,000, ,771, ,052, , , Fed Home Loan Mortg Corp. 3/18/2014 2/19/ ,000, ,013, ,070, , , Fed Home Loan Mortg Corp. 11/21/ /2/ ,000, ,425, ,792, , , Fed Home Loan Mortg Corp. 12/30/ /30/ ,000, ,000, ,090, , , FHLMC Subtotal ,000, ,515, ,106, ,502, ,590, Money Market Funds Black Rock 3/31/2015 4/1/ ,200, ,200, ,200, Morgan Stanley 3/31/2015 4/1/ ,225, ,225, ,225, , Morgan Stanley 3/31/2015 4/1/ ,780, ,780, ,780, Caltrust 3/31/2015 4/1/ ,000, ,000, ,140, , , Fidelity 3/31/2015 4/1/ ,075, ,075, ,075, , Money Market Funds Subtotal ,280, ,280, ,420, , , Negotiable CD Toronto Domin NY 8/12/2014 4/7/ ,000, ,000, ,000, , Bank of Nova Scotia 9/15/2014 4/29/ ,000, ,000, ,000, , Wells Fargo Bank NA 7/14/2014 4/30/ ,000, ,000, ,000, , Mitsubishi UFJ Financial Group, Inc. 9/26/2014 5/4/ ,000, ,000, ,000, , UBS Finance 9/26/2014 5/6/ ,000, ,000, ,000, , Toronto Domin NY 10/23/2014 5/6/ ,000, ,000, ,000, , UBS Finance 10/29/2014 5/7/ ,000, ,000, ,000, , Bank of Montreal 11/3/2014 5/7/ ,000, ,000, ,000, , Svenska Hndl NY 9/25/2014 5/8/ ,000, ,000, ,000, , Bank of Montreal 11/3/2014 5/11/ ,000, ,000, ,000, ,

216 Investment Inventory with Market Value Issuer Purchase Maturity Coupon YTM Par Value Current Book Market Value Current Unrealized Date Date Accr Int Gain/Loss Mitsubishi UFJ Financial Group, Inc. 2/26/2015 5/15/ ,000, ,000, ,000, , Rabobank Nederland 10/22/2014 5/22/ ,000, ,000, ,000, , Svenska Hndl NY 11/21/2014 5/22/ ,000, ,000, ,000, , Svenska Hndl NY 12/8/2014 6/1/ ,000, ,000, ,000, , Svenska Hndl NY 12/5/2014 6/3/ ,000, ,000, ,000, , Bank of Montreal 12/8/2014 6/8/ ,000, ,000, ,000, , Canadian Imp BK Comm NY 9/17/2014 6/15/ ,000, ,000, ,000, , Bank of Montreal 12/8/2014 6/15/ ,000, ,000, ,000, , Toronto Domin NY 9/17/2014 6/17/ ,000, ,000, ,000, , Svenska Hndl NY 12/16/2014 6/18/ ,000, ,000, ,000, , Bank of Nova Scotia 9/17/2014 6/19/ ,000, ,000, ,000, , Rabobank Nederland 10/22/2014 6/29/ ,000, ,000, ,000, , Canadian Imp BK Comm NY 10/3/2014 6/30/ ,000, ,000, ,000, , Bank of Nova Scotia 1/28/2015 6/30/ ,000, ,000, ,000, , Bank of Nova Scotia 1/29/2015 7/1/ ,000, ,000, ,000, , Toronto Domin NY 2/18/2015 7/1/ ,000, ,000, ,000, , Toronto Domin NY 10/29/2014 7/2/ ,000, ,000, ,000, , Bank of Montreal 11/4/2014 7/2/ ,000, ,000, ,000, , Royal Bank of Canada 12/9/2014 7/2/ ,000, ,000, ,000, , Bank of Nova Scotia 1/26/2015 7/2/ ,000, ,000, ,000, , Toronto Domin NY 12/12/2014 7/13/ ,000, ,000, ,000, , Mitsubishi UFJ Financial Group, Inc. 2/17/2015 7/17/ ,000, ,000, ,000, , Mitsubishi UFJ Financial Group, Inc. 2/17/2015 7/31/ ,000, ,000, ,000, , Royal Bank of Canada 2/19/2015 7/31/ ,000, ,000, ,000, , Wells Fargo Bank NA 1/16/2015 8/3/ ,000, ,000, ,000, , Wells Fargo Bank NA 2/6/2015 8/10/ ,000, ,000, ,000, , Toronto Domin NY 3/25/2015 8/25/ ,000, ,001, ,000, , , Svenska Hndl NY 3/31/2015 8/25/ ,700, ,699, ,700, Bank of Nova Scotia 12/8/2014 9/1/ ,000, ,000, ,000, , Bank of America 3/26/ /1/ ,000, ,000, ,000, , Negotiable CD Subtotal ,986,700, ,986,704, ,986,700, ,508, ,

217 Investment Inventory with Market Value Issuer Purchase Maturity Coupon YTM Par Value Current Book Market Value Current Unrealized Date Date Accr Int Gain/Loss Repurchase Agreements Wells Fargo Bank NA 3/31/2015 4/1/ ,693, ,693, ,693, Repurchase Agreements Subtotal ,693, ,693, ,693, Supranationals Intl Bank for Reconst & Development 3/16/2015 3/16/ ,000, ,000, ,000, , Intl Bank for Reconst & Development 3/16/2015 3/16/ ,000, ,000, ,000, , Supranationals ,000, ,000, ,000, , US Treasury Notes U.S. Treasury Securities 7/14/2010 6/30/ ,000, ,999, ,064, , , U.S. Treasury Securities 10/23/2013 8/31/ ,000, ,040, ,046, , , U.S. Treasury Securities 4/12/ /30/ ,000, ,949, ,077, , , U.S. Treasury Securities 2/12/ /30/ ,000, ,071, ,077, , , U.S. Treasury Securities 9/22/2011 2/29/ ,000, ,127, ,168, , , U.S. Treasury Securities 4/5/2013 5/31/ ,000, ,242, ,244, , , U.S. Treasury Securities 9/22/2011 8/31/ ,000, ,019, ,083, , , U.S. Treasury Securities 12/12/ /30/ ,000, ,000, ,081, , , U.S. Treasury Securities 12/24/2014 1/31/ ,000, ,022, ,099, , , U.S. Treasury Securities 3/12/2012 2/28/ ,000, ,991, ,094, , , U.S. Treasury Securities 6/8/2012 5/15/ ,000, ,175, ,233, , , U.S. Treasury Securities 10/12/2012 7/31/ ,000, ,945, ,943, , , U.S. Treasury Securities 12/24/2014 8/31/ ,000, ,292, ,421, , , U.S. Treasury Securities 6/7/ /31/ ,000, ,381, ,430, , , U.S. Treasury Securities 1/7/ /31/ ,000, ,974, ,971, , , U.S. Treasury Securities 12/24/2014 1/31/ ,000, ,584, ,745, , , U.S. Treasury Securities 6/7/2013 2/28/ ,000, ,910, ,950, , , U.S. Treasury Securities 6/7/2013 5/31/ ,000, ,996, ,018, , , U.S. Treasury Securities 2/12/2014 7/31/ ,000, ,007, ,174, , , U.S. Treasury Securities 11/13/2013 8/31/ ,000, ,057, ,231, , , U.S. Treasury Securities 12/5/ /30/ ,000, ,929, ,048, , , U.S. Treasury Securities 2/20/2014 1/31/ ,000, ,853, ,057, , , U.S. Treasury Securities 4/17/2014 3/31/ ,000, ,983, ,253, ,

218 Investment Inventory with Market Value Issuer Purchase Maturity Coupon YTM Par Value Current Book Market Value Current Unrealized Date Date Accr Int Gain/Loss U.S. Treasury Securities 6/16/2014 5/31/ ,000, ,879, ,162, , , U.S. Treasury Securities 8/21/2014 7/31/ ,000, ,993, ,225, , , U.S. Treasury Securities 10/24/2014 9/30/ ,000, ,161, ,286, , U.S. Treasury Securities 12/8/ /30/ ,000, ,876, ,115, , , U.S. Treasury Securities 1/9/ /31/ ,000, ,083, ,190, , , U.S. Treasury Notes Subtotal ,000, ,552, ,491, ,301, ,938, Grand Total ,205,699, ,209,750, ,218,514, ,964, ,764, Note: Market Value source is Citigroup Inc. 11

219 Purchases/Sales/Maturities Deal Instrument Issuer Coupon Transaction Settlement Settlement Number Type Type Amount Date 1106 Repurchase Agreements Wells Fargo Bank NA 0.02 Maturity 84, /2/ U.S. Treasury Notes EOM U.S. Treasury Securities 0.25 Maturity 30,000, /2/ Money Market Funds Black Rock 0.01 Purchase (22,500,000.00) 3/2/ Commercial Paper Mitsubishi UFJ Financial Group, Inc Maturity 20,000, /2/ Commercial Paper ING (US) Funding LLC 0.20 Maturity 50,000, /2/ Commercial Paper Natixis US Finance Co Maturity 245,000, /2/ Commercial Paper Natixis US Finance Co Purchase (249,999,166.67) 3/2/ Repurchase Agreements Wells Fargo Bank NA 0.02 Purchase (5,754,198.11) 3/3/ Money Market Funds Black Rock 0.01 Maturity 14,500, /3/ Commercial Paper UBS Finance 0.24 Maturity 25,000, /3/ Money Market Funds Fidelity 0.00 Maturity 30,000, /3/ Commercial Paper Natixis US Finance Co Maturity 250,000, /3/ Commercial Paper Natixis US Finance Co Purchase (269,999,100.00) 3/3/ Commercial Paper ING (US) Funding LLC 0.24 Purchase (29,981,200.00) 3/3/ Repurchase Agreements Wells Fargo Bank NA 0.02 Maturity 222, /4/ Commercial Paper ING (US) Funding LLC 0.20 Maturity 50,000, /4/ Commercial Paper Natixis US Finance Co Maturity 270,000, /4/ Commercial Paper Natixis US Finance Co Purchase (259,999,133.33) 3/4/ FFCB Federal Farm Credit Bank 0.28 Purchase (49,982,500.00) 3/4/ Repurchase Agreements Wells Fargo Bank NA 0.02 Maturity 1,625, /5/ Money Market Funds Black Rock 0.01 Purchase (9,400,000.00) 3/5/ Commercial Paper Natixis US Finance Co Maturity 260,000, /5/ Commercial Paper Natixis US Finance Co Purchase (249,999,097.22) 3/5/ Repurchase Agreements Wells Fargo Bank NA 0.02 Maturity 3,907, /6/ Money Market Funds Fidelity 0.00 Purchase (28,175,000.00) 3/6/ Commercial Paper Natixis US Finance Co Maturity 250,000, /6/ Commercial Paper Natixis US Finance Co Purchase (209,997,725.00) 3/6/ Commercial Paper ING (US) Funding LLC 0.24 Purchase (49,968,666.67) 3/6/ Repurchase Agreements Wells Fargo Bank NA 0.02 Purchase (1,589,841.49) 3/9/ Commercial Paper ING (US) Funding LLC 0.20 Maturity 50,000, /9/ Commercial Paper Natixis US Finance Co Maturity 210,000, /9/ Commercial Paper Natixis US Finance Co Purchase (214,999,223.61) 3/9/ Repurchase Agreements Wells Fargo Bank NA 0.02 Maturity 1,036, /10/

220 Purchases/Sales/Maturities Deal Instrument Issuer Coupon Transaction Settlement Settlement Number Type Type Amount Date 2513 Money Market Funds Fidelity 0.00 Maturity 28,000, /10/ Commercial Paper ING (US) Funding LLC 0.20 Maturity 50,000, /10/ Commercial Paper Natixis US Finance Co Maturity 215,000, /10/ Commercial Paper Natixis US Finance Co Purchase (224,999,187.50) 3/10/ Commercial Paper Fortis/BNP Paribas Bank 0.19 Purchase (54,982,873.61) 3/10/ Repurchase Agreements Wells Fargo Bank NA 0.02 Maturity 2,013, /11/ Money Market Funds Black Rock 0.01 Maturity 2,000, /11/ Commercial Paper Natixis US Finance Co Maturity 225,000, /11/ Commercial Paper Natixis US Finance Co Purchase (189,999,313.89) 3/11/ Repurchase Agreements Wells Fargo Bank NA 0.02 Purchase (3,755,755.59) 3/12/ Commercial Paper Natixis US Finance Co Maturity 190,000, /12/ Commercial Paper Natixis US Finance Co Purchase (174,999,368.06) 3/12/ Repurchase Agreements Wells Fargo Bank NA 0.02 Maturity 189, /13/ Money Market Funds Morgan Stanley 0.01 Purchase (11,100,000.00) 3/13/ Negotiable CD Bank of Nova Scotia 0.23 Maturity 35,000, /13/ Negotiable CD Mitsubishi UFJ Financial Group, Inc Maturity 75,000, /13/ Commercial Paper Natixis US Finance Co Maturity 175,000, /13/ Commercial Paper Natixis US Finance Co Purchase (244,997,345.83) 3/13/ Repurchase Agreements Wells Fargo Bank NA 0.02 Maturity 558, /16/ Money Market Funds Black Rock 0.01 Maturity 14,700, /16/ Commercial Paper Abbey National 0.16 Maturity 60,000, /16/ Commercial Paper Abbey National 0.15 Maturity 25,000, /16/ Commercial Paper Natixis US Finance Co Maturity 245,000, /16/ Commercial Paper Natixis US Finance Co Purchase (264,999,043.06) 3/16/ Suprantls Call Euro Prem Intl Bank for Reconst & Development 1.23 Purchase (25,000,000.00) 3/16/ Suprantls Call Euro Prem Intl Bank for Reconst & Development 1.23 Purchase (25,000,000.00) 3/16/ Repurchase Agreements Wells Fargo Bank NA 0.02 Purchase (849,604.88) 3/17/ Money Market Funds Black Rock 0.01 Purchase (9,700,000.00) 3/17/ Commercial Paper Natixis US Finance Co Maturity 265,000, /17/ Commercial Paper Natixis US Finance Co Purchase (269,999,025.00) 3/17/ Repurchase Agreements Wells Fargo Bank NA 0.02 Purchase (640,240.12) 3/18/ Commercial Paper Natixis US Finance Co Maturity 270,000, /18/ Commercial Paper Natixis US Finance Co Purchase (284,998,970.83) 3/18/

221 Purchases/Sales/Maturities Deal Instrument Issuer Coupon Transaction Settlement Settlement Number Type Type Amount Date 1106 Repurchase Agreements Wells Fargo Bank NA 0.02 Maturity 3,208, /19/ Money Market Funds Black Rock 0.01 Maturity 3,800, /19/ CDARS ACT-365 CDARS Regent Bank 0.12 Maturity 2,813, /19/ Commercial Paper Natixis US Finance Co Maturity 285,000, /19/ Commercial Paper Natixis US Finance Co Purchase (299,998,916.67) 3/19/ CDARS ACT-365 CDARS Regent Bank 0.12 Purchase (2,813,500.00) 3/19/ Repurchase Agreements Wells Fargo Bank NA 0.02 Purchase (7,385,908.04) 3/20/ Commercial Paper Natixis US Finance Co Maturity 300,000, /20/ Commercial Paper Natixis US Finance Co Purchase (209,997,725.00) 3/20/ Commercial Paper Mitsubishi UFJ Financial Group, Inc Purchase (24,977,159.72) 3/20/ Commercial Paper Mitsubishi UFJ Financial Group, Inc Purchase (29,988,800.00) 3/20/ Commercial Paper Mitsubishi UFJ Financial Group, Inc Purchase (29,991,866.67) 3/20/ Repurchase Agreements Wells Fargo Bank NA 0.02 Maturity 6,249, /23/ Commercial Paper Natixis US Finance Co Maturity 210,000, /23/ Commercial Paper Natixis US Finance Co Purchase (159,999,422.22) 3/23/ FHLB Federal Home Loan Bank 0.25 Purchase (49,962,966.67) 3/23/ Repurchase Agreements Wells Fargo Bank NA 0.02 Purchase (2,590,357.56) 3/24/ Money Market Funds Black Rock 0.01 Purchase (10,000,000.00) 3/24/ Commercial Paper General Elec Capital Corp Maturity 50,000, /24/ Commercial Paper Natixis US Finance Co Maturity 160,000, /24/ Commercial Paper Natixis US Finance Co Purchase (329,998,808.33) 3/24/ Commercial Paper General Elec Capital Corp Purchase (24,966,062.50) 3/24/ Repurchase Agreements Wells Fargo Bank NA 0.02 Maturity 474, /25/ Money Market Funds Black Rock 0.01 Purchase (43,800,000.00) 3/25/ Money Market Funds Morgan Stanley 0.06 Purchase (100,000,000.00) 3/25/ Commercial Paper Natixis US Finance Co Maturity 330,000, /25/ Commercial Paper Natixis US Finance Co Purchase (339,998,772.22) 3/25/ Negotiable CD Toronto Domin NY 0.22 Purchase (35,001,486.17) 3/25/ Repurchase Agreements Wells Fargo Bank NA 0.02 Purchase (2,827,415.13) 3/26/ Money Market Funds Fidelity 0.00 Purchase (32,900,000.00) 3/26/ Commercial Paper Natixis US Finance Co Maturity 340,000, /26/ Commercial Paper Natixis US Finance Co Purchase (284,998,970.83) 3/26/ Negotiable CD Bank of America 0.32 Purchase (100,000,000.00) 3/26/

222 Purchases/Sales/Maturities Deal Instrument Issuer Coupon Transaction Settlement Settlement Number Type Type Amount Date 2788 FFCB Federal Farm Credit Bank 0.31 Purchase (99,686,555.56) 3/26/ Repurchase Agreements Wells Fargo Bank NA 0.02 Maturity 1,950, /27/ FHLB CALLABLE PREM Federal Home Loan Bank 1.00 Call 75,000, /27/ Money Market Funds Morgan Stanley 0.01 Purchase (46,000,000.00) 3/27/ Negotiable CD Bank of Montreal 0.20 Maturity 50,000, /27/ Commercial Paper Natixis US Finance Co Maturity 285,000, /27/ Commercial Paper Natixis US Finance Co Purchase (359,996,100.00) 3/27/ Commercial Paper Rabobank Nederland 0.08 Purchase (59,999,600.00) 3/27/ FHLB Federal Home Loan Bank 0.25 Purchase (25,031,908.33) 3/27/ Repurchase Agreements Wells Fargo Bank NA 0.02 Purchase (7,036,171.23) 3/30/ Coll CD ACT-365 DLYCMP Torrey Pines Bank 0.40 Maturity 20,000, /30/ Money Market Funds Black Rock 0.01 Maturity 29,500, /30/ Money Market Funds Morgan Stanley 0.06 Maturity 60,000, /30/ FHLB CALLABLE PREM Federal Home Loan Bank 1.00 Call 33,105, /30/ Commercial Paper Natixis US Finance Co Maturity 360,000, /30/ Commercial Paper Rabobank Nederland 0.08 Maturity 60,000, /30/ Commercial Paper Natixis US Finance Co Purchase (289,998,952.78) 3/30/ Coll CD ACT-365 DLYCMP Torrey Pines Bank 0.30 Purchase (20,000,000.00) 3/30/ Repurchase Agreements Wells Fargo Bank NA 0.02 Maturity 3,419, /31/ U.S. Treasury Notes EOM U.S. Treasury Securities 2.50 Maturity 15,000, /31/ Money Market Funds Black Rock 0.01 Purchase (200,000,000.00) 3/31/ Money Market Funds Morgan Stanley 0.01 Purchase (120,000,000.00) 3/31/ Negotiable CD Svenska Hndl NY 0.22 Maturity 40,000, /31/ Commercial Paper Natixis US Finance Co Maturity 290,000, /31/ Negotiable CD Svenska Hndl NY 0.24 Purchase (11,700,389.62) 3/31/2015 Grand Total (146,655,024.67) 15

223 Cash Flow Analysis San Diego Pooled Money Fund as of March 31, 2015 ($000) Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Beginning Pool Book Balance 7,033,070 7,209,751 8,169,522 7,459,931 6,811,381 6,176,114 5,569,614 MAIN CASH FLOW ITEMS INFLOWS: Reverse Repos Interest Income On Pool 3,515 3,000 2,000 1,250 4,000 3,000 3,500 Taxes Collected 471,667 1,300,800 60,000 67,700 50,000 60,000 45,000 School Deposits 458, , , , , , ,000 County Deposits 200, , , , , , ,000 Retirement Voluntaries 5,144 12,000 5, , ,000 Maturities/Sales Outside Pool 4, ,144,075 2,034, , ,950 1,186, , ,500 OUTFLOWS: Schools 661, , , , , , ,000 County 302, , , , , , ,000 Retirement 6,661 7,000 10,960 9, ,000 10,500 7,000 Voluntaries 64,769 27,685 50,000 24,500 30,000 45,000 34,000 Tax Apportionment 30, , , ,000 9,517 14,000 10,500 Reverse Repos Purchases/ Purchases Outside of Pool 17, ,083,891 1,074,685 1,482,541 1,335,500 1,821,767 1,309,500 1,011,500 TOTAL 60, ,771 (709,591) (648,550) (635,267) (606,500) (248,000) PROJECTED/ACTUAL MONTH END POOL BALANCE 7,209,751 8,169,522 7,459,931 6,811,381 6,176,114 5,569,614 5,321,614 LIQUIDITY PROJECTIONS INCREASE / DECREASE DUE TO INVESTMENT ACTIVITY Maturities 325, ,200 1,075, , , ,000 Sales/Calls Investments Purchased 50,000 86, ,250 50,000 60,000 15, , , , , , ,000 Net Main Cash Flow (see above) 959,771 (709,591) (648,550) (635,267) (606,500) (248,000) PROJECTED/ACTUAL MONTH END LIQUIDITY 568,973 1,803,744 1,854,153 2,145,603 2,265,336 2,060,536 2,103,536 Note: The above is not meant to be a complete Cash Flow Statement. The data represents a subset of the main cash flow items and does not include accrued interest or other adjustment items. 16

224 Participant Cash Balances San Diego Pooled Money Fund as of March 31, 2015 ($000) FMV FMV FMV % of FMV FMV FMV % of PARTICIPANT 01/31/15 02/28/15 03/31/15 Total PARTICIPANT 01/31/15 02/28/15 03/31/15 Total COUNTY $ 836,530 $ 930,189 $ 1,272, % Metropolitan Transit System 3,670 3,218 5, % COUNTY - SPECIAL TRUST FUNDS 1,890,762 1,814,392 1,776, % Majestic Pines CSD % NON-COUNTY INVESTMENT FUNDS 196, , , % Mission Resource Conservation District % SCHOOLS - (K THRU 12) 2,992,736 2,801,730 2,751, % North County Cemetery District 1,265 1,288 1, % North County Cemetry Perpetual 1,352 1,360 1, % COMMUNITY COLLEGES North County Cemetery 1,399 1,356 1, % San Diego 325, , , % North County Dispatch 3,161 3,729 3, % Grossmont 120, , , % North County Fire 2,234 2,226 1, % Mira Costa 29,715 36,676 29, % Otay Water District Investment 13,227 11,201 11, % Palomar 115, , , % Palomar Resource Conservation District % Southwestern 119, , , % Pine Valley FPD % Total Community Colleges 710, , , % Pomerado Cem Perpetual % Pomerado Cemetery District 1,708 1,693 1, % SDCERA 7,221 3,871 3, % Ramona Cemetery District % SANCAL 14,178 12,881 11, % Ramona Cemetery Perpetual % MTDB 707 3, % Rancho Santa Fe FPD 13,179 12,675 12, % SANDAG 154, ,619 98, % Rincon del Diablo Municipal Water District 2,991 2,981 3, % San Diego Housing Commission 9,989 9,957 10, % CITIES San Diego Rural Fire % Chula Vista 39,258 39,132 39, % San Dieguito River % Del Mar 3,028 3,019 3, % San Marcos FPD % Encinitas % San Miguel FPD 9,882 10,063 7, % Lemon Grove 7,074 7,051 7, % San Ysidro Sanitation % National City 5,024 5,008 5, % Santa Fe Irrigation District 4,918 4,902 4, % SDC Regional Airport Authority 296, , , % INDEPENDENT AGENCIES So County OPS Center % Alpine FPD 1,539 1,505 1, % Spring Valley/Casa de Oro % Bonita Sunnyside FPD 5,108 5,158 4, % Upper San Luis Rey Reservoir % Borrego Springs FPD 1,220 1,256 1, % Vallecitos Water District 5,077 5,061 5, % Deer Springs FPD 9,224 8,570 8, % Valley Center FPD 4,034 3,771 3, % Fallbrook Public UTL % Valley Cntr Cemetery % Grossmont Healthcare District , % Valley Ctr Cem Perpetual % Public Agency Self Insurance System 3,825 3,813 3, % Valley Ctr Water District 18,155 17,882 17, % Julian-Cuyamaca FPD % Vista FPD 2,153 2,146 2, % Lake Cuyamaca Rec & Park % Total Independent Agencies 671, , , % Lakeside Fire 8,075 7,187 7, % Leucadia Water District 11,354 11,317 11, % Lower Sweetwater FPD % Pooled Money Fund Total $ 7,298,739 $ 7,037,042 $ 7,218, % 17

225 Pooled Money Fund Participants Community Colleges 8.77% San Diego Pooled Money Fund as of March 31, 2015 Schools 38.12% County Funds 42.23% Voluntary Depositors 8.23% Non County Funds 2.65% County Funds Non County Funds Voluntary Depositors Schools Community Colleges 18

226 Pooled Money Fund - Asset Allocation San Diego Pooled Money Fund as of March 31, 2015 Negotiable CD 27.56% Repurchase Agreements 0.13% Supranationals 0.69% U.S. Treasury Notes 5.40% FDIC CDs 0.96% Money Market Funds 7.76% Commercial Paper 24.23% Federal Agency 33.27% FDIC CDs Commercial Paper Federal Agency Money Market Funds Negotiable CD Repurchase Agreements Supranationals U.S. Treasury Notes 19

227 Pooled Money Fund Assets - Credit Quality San Diego Pooled Money Fund as of March 31, 2015 AAA, 5.34% AA+, 36.19% A- 1, 29.66% A- 1+, 28.32% AA, 0.49% AAA AA+ AA A- 1+ A- 1 20