DATED JULY 24, NEW ISSUE RATING Electronic Bidding via Parity Moody s: " " NOT Bank Interest Deduction Eligible BOOK-ENTRY-ONLY SYSTEM

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1 PRELIMINARY OFFICIAL STATEMENT DATED JULY 24, 2018 This Preliminary Official Statement and the information contained herein are subject to completion or amendment. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sales of these Bonds in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the laws of any such jurisdiction. NEW ISSUE RATING Electronic Bidding via Parity Moody s: " " NOT Bank Interest Deduction Eligible BOOK-ENTRY-ONLY SYSTEM In the opinion of Bond Counsel, under existing law (i) interest on the Bonds will be excludable from gross income of the holders thereof for purposes of federal taxation and (ii) interest on the Bonds will not be a specific item of tax preference for purposes of federal taxation all subject to the qualifications described herein under the heading "Tax Exemption." The Bonds and interest thereon are exempt from income taxation and ad valorem taxation by the Commonwealth of Kentucky and political subdivisions thereof (see "Tax Exemption" herein). $35,365,000* SHELBY COUNTY SCHOOL DISTRICT FINANCE CORPORATION SCHOOL BUILDING REVENUE BONDS, SERIES OF 2018 Dated: AUGUST 21, 2018 Due: as shown below Interest on the Bonds is payable each February 1 and August 1, beginning February 1, The Bonds will mature as to principal on August 1, 2019, and each August 1 thereafter as shown below. The Bonds are being issued in Book-Entry-Only Form and will be available for purchase in principal amounts of $5,000 and integral multiples thereof. Maturing Interest Reoffering Maturing Interest Reoffering August 1 Amount Rate Yield CUSIP August 1 Amount Rate Yield CUSIP 2019 $270,000 % % 2029 $125,000 % % 2020 $275,000 % % 2030 $130,000 % % 2021 $280,000 % % 2031 $130,000 % % 2022 $285,000 % % 2032 $135,000 % % 2023 $300,000 % % 2033 $4,760,000 % % 2024 $310,000 % % 2034 $4,665,000 % % 2025 $295,000 % % 2035 $4,805,000 % % 2026 $305,000 % % 2036 $4,975,000 % % 2027 $310,000 % % 2037 $6,255,000 % % 2028 $315,000 % % 2038 $6,440,000 % % The Bonds are subject to redemption prior to their stated maturity as described herein. Notwithstanding the foregoing, the Corporation reserves the right, upon thirty (30) days notice, to call the Bonds in whole or in part for redemption on any date at par upon the total destruction by fire, lightning, windstorm or other hazard of any of the building(s) constituting the Project(s) and apply casualty insurance proceeds to such purpose. The Bonds constitute a limited indebtedness of the Shelby County School District Finance Corporation and are payable from and secured by a pledge of the gross income and revenues derived by leasing the Project on an annual renewable basis to the Shelby County Board of Education. The Shelby County (Kentucky) School District Finance Corporation will until July 31, 2018, at 11:00 A.M., E.D.S.T., receive competitive bids for the Bonds at the office of the Executive Director of the Kentucky School Facilities Construction Commission, 229 West Main Street, Suite 102, Frankfort, Kentucky *As set forth in the "Official Terms and Conditions of Bond Sale," the principal amount of Bonds sold to the successful bidder is subject to a Permitted Adjustment by increasing or decreasing the amount not to exceed $3,540,000. PURCHASER'S OPTION: The Purchaser of the Bonds, within 24 hours of the sale, may specify to the Financial Advisor that any Bonds may be combined immediately succeeding sequential maturities into a Term Bond(s), bearing a single rate of interest, with the maturities set forth above (or as may be adjusted as provided herein) being subject to mandatory redemption in such maturities for such Term Bond(s). The Bonds will be delivered utilizing the BOOK-ENTRY-ONLY-SYSTEM administered by The Depository Trust Company. The Corporation deems this preliminary Official Statement to be final for purposes of the Securities and Exchange Commission Rule 15c2-12(b)(1), except for certain information on the cover page hereof which has been omitted in accordance with such Rule and which will be supplied with the final Official Statement.

2 SHELBY COUNTY, KENTUCKY BOARD OF EDUCATION Brenda Jackson, Chairperson Allen Phillips, Vice - Chair Will Barnett, Member Andrew Cline, Member Joanna Freels, Member Dr. James Niehof, Superintendent/Secretary SHELBY COUNTY SCHOOL DISTRICT FINANCE CORPORATION Brenda Jackson, President Allen Phillips, Vice - President Will Barnett, Member Andrew Cline, Member Joanna Freels, Member Dr. James Niehof, Secretary Susan Barkley, Treasurer BOND COUNSEL Steptoe & Johnson PLLC Louisville, Kentucky FINANCIAL ADVISOR Ross, Sinclaire & Associates, LLC Lexington, Kentucky PAYING AGENT AND REGISTRAR U.S. Bank, National Association Louisville, Kentucky BOOK-ENTRY-ONLY-SYSTEM i

3 REGARDING USE OF THIS OFFICIAL STATEMENT This Official Statement does not constitute an offering of any security other than the original offering of the Shelby County School District Finance Corporation School Building Revenue Bonds, Series of 2018, identified on the cover page hereof. No person has been authorized by the Corporation or the Board to give any information or to make any representation other than that contained in the Official Statement, and if given or made such other information or representation must not be relied upon as having been given or authorized. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, and there shall not be any sale of the Bonds by any person in any jurisdiction in which it is unlawful to make such offer, solicitation or sale. 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, create any implication that there has been no change in the affairs of the Corporation or the Board since the date hereof. Neither the Securities and Exchange Commission nor any other federal, state or other governmental entity or agency, except the Corporation will pass upon the accuracy or adequacy of this Official Statement or approve the Bonds for sale. hereto. The Official Statement includes the front cover page immediately preceding this page and all Appendices ii

4 TABLE OF CONTENTS Page Introduction Book-Entry-Only System The Corporation Kentucky School Facilities Construction Commission Biennial Budget For Period Ending June 30, Outstanding Bonds Authority The Bonds General Registration, Payment and Transfer Redemption Security General The Lease; Pledge of Rental Revenues State Intercept Commission's Participation The Projects Additional Parity Bonds for Completion of Project Estimated Bond Debt Service Estimated Use of Bond Proceeds District Student Population State Support of Education Support Education Excellence in Kentucky (SEEK) Capital Outlay Allotment Facilities Support Program of Kentucky Local Support Homestead Exemption Limitation on Taxation Local Thirty Cents Minimum Additional 15% Not Subject to Recall Assessment Valuation Special Voted and Other Local Taxes Local Tax Rates, Property Assessments, and Revenue Collections Overlapping Bond Indebtedness SEEK Allotment State Budgeting Process Potential Legislation Continuing Disclosure Tax Exemption; Not Bank Qualified Original Issue Premium Original Issue Discount Absence of Material Litigation Approval of Legality No Legal Opinion Expressed as to Certain Matters Bond Rating Financial Advisor Approval of Official Statement Demographic and Economic Data APPENDIX A Financial Data APPENDIX B Continuing Disclosure Agreement APPENDIX C Official Terms & Conditions of Bond Sale APPENDIX D Official Bid Form APPENDIX E iii

5 OFFICIAL STATEMENT Relating to the Issuance of $35,365,000* SHELBY COUNTY SCHOOL DISTRICT FINANCE CORPORATION SCHOOL BUILDING REVENUE BONDS, SERIES OF 2018 * Subject to Permitted Adjustment INTRODUCTION The purpose of this Official Statement, which includes the cover page and Appendices hereto, is to set forth certain information pertaining to the Shelby County School District Finance Corporation (the "Corporation") School Building Revenue Bonds, Series of 2018 (the "Bonds"). The Bonds are being issued to purchase a building to be converted into Bid Picture Learning Academy, and the construction of a new P - 8 School (the "Projects"). The Bonds are revenue bonds and constitute a limited indebtedness of the Corporation. The Bonds will be secured by a pledge of the rental income derived by the Corporation from leasing the Project to the Shelby County Board of Education (the "Board") on a year to year basis (see "Security" herein). All financial and other information presented in this Official Statement has been provided by the Shelby County Board of Education from its records, except for information expressly attributed to other sources. The presentation of financial and other information is not intended, unless specifically stated, to indicate future or continuing trends in the financial position or other affairs of the Board. No representation is made that past experience, as is shown by financial and other information, will necessarily continue or be repeated in the future. This Official Statement should be considered in its entirety, and no one subject discussed should be considered more or less important than any other by reason of its location in the text. Reference should be made to laws, reports or other documents referred to in this Official Statement for more complete information regarding their contents. Copies of the Bond Resolution authorizing the issuance of the Bonds, the Participation Agreement and the Lease Agreement dated August 21, 2018, may be obtained at the office of Steptoe & Johnson PLLC, Bond Counsel, 700 N. Hurstbourne Parkway, Ste. 115, Louisville, Kentucky BOOK-ENTRY-ONLY-SYSTEM The Bonds shall utilize the Book-Entry-Only System administered by The Depository Trust Company ( DTC ). The following information about the Book-Entry only system applicable to the Bonds has been supplied by DTC. Neither the Corporation nor the Paying Agent and Registrar makes any representations, warranties or guarantees with respect to its accuracy or completeness. DTC will act as securities depository for the Bonds. The Securities will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. DTC, the world's largest 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 2 million issues of U.S. and non-u.s. equity issues, 1

6 corporate and municipal debt issues, and money market instruments from over 85 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. 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 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. 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 DTC 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. 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 the 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 Paying Agent and Registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Corporation as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). 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 the Corporation or the Paying Agent and Registrar, 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 Bonds 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 or its nominee, the Paying Agent and Registrar or the Corporation, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Corporation or the Paying Agent and Registrar, 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. 2

7 DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice the Corporation or the Paying Agent and Registrar. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered. The Corporation may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered. The information in this section concerning DTC and DTC's Book-Entry system has been obtained from sources that the Corporation believes to be reliable but the Corporation takes no responsibility for the accuracy thereof. THE CORPORATION The Corporation has been formed in accordance with the provisions of Sections through and Section of the Kentucky Revised Statutes ("KRS"), and KRS Chapter 273 and KRS , as a non-profit, non-stock corporation for the purpose of financing necessary school building facilities for and on behalf of the Board. Under the provisions of existing Kentucky law, the Corporation is permitted to act as an agency and instrumentality of the Board for financing purposes and the legality of the financing plan to be implemented by the Board herein referred to has been upheld by the Kentucky Court of Appeals (Supreme Court) in the case of White v. City of Middlesboro, Ky. 414 S.W.2d 569. Any bonds, notes or other indebtedness issued or contracted by the Corporation shall, prior to the issuance or incurrence thereon, be specifically approved by the Board. The members of the Board of Directors of the Corporation are the members of the Board. Their terms expire when they cease to hold the office and any successor members of the Board are automatically members of the Corporation upon assuming their public offices. KENTUCKY SCHOOL FACILITIES CONSTRUCTION COMMISSION The Commission is an independent corporate agency and instrumentality of the Commonwealth of Kentucky established pursuant to the provisions of Sections through of the Kentucky Revised Statutes, as repealed, amended, and reenacted (the "Act") for the purpose of assisting local school districts in meeting the school construction needs of the Commonwealth in a manner which will ensure an equitable distribution of funds based upon unmet need. Although the Board is obligated to pay the Corporation annual rentals in the full amount of the principal and interest requirements for the Bonds for each year in which the Lease is renewed, the Board has entered into the Lease in reliance upon a certain Participation Agreement by and between the Board and the Kentucky School Facilities Construction Commission (the "Commission"). Under the terms of the Participation Agreement, the Commission has agreed to pay annually directly to the Paying Agent for the Bonds a stated Agreed Participation equal to approximately $264,785 to be applied to the annual debt service requirements for the Bonds herein identified until their retirement, subject to the constitutional restrictions limiting the commitment to the biennium; said annual amount is to be applied only to the principal and interest requirements of the Bonds so long as the Board renews the Lease. Under the Lease, the Board has pledged and assigned all of its rights under the Participation Agreement in and to the Agreed Participation to the Corporation in order to secure the Bonds and has agreed to pay that portion of the rentals in excess of said Agreed Participation for each year in which the Lease is renewed. The General Assembly of the Commonwealth adopted the State's Budget for the biennium ending June 30, Inter alia, the Budget provides $129,504,400 in FY and $128,672,400 in FY to pay debt service on existing and future bond issues; $58,000,000 of the Commission's previous Offers of Assistance made during the last biennium; and authorizes $58,000,000 in additional Offers of Assistance for the current biennium to be funded in the Budget for the biennium ending June 30, The 1986, 1988, 1990, 1992, 1994, 1996, 1998, 2000, 2003, 2005, 2006, 2008, 2010, 2012, 2014, 2016 and 2018 Regular Sessions of the Kentucky General Assembly appropriated funds to be used for debt service of participating school districts. The appropriations for each biennium are shown in the following table: 3

8 Biennium Appropriation $18,223, ,050, ,542, ,075, ,800, ,996, ,141, ,100, ,500, ,000, ,000, ,968, ,656, ,469, ,764, ,019, ,608,000 Total $180,914,300 In addition to the appropriations for new financings as shown, appropriations subsequent to that for 1986 included additional funds to continue to meet the annual debt requirements for all bond issues involving Commission participation issued in prior years. BIENNIAL BUDGET FOR PERIOD ENDING JUNE 30, 2020 The Kentucky General Assembly, during its Regular Session, adopted a budget for the biennium ending June 30, 2020, which was approved and signed by the Governor. Such budget is effective beginning July 1, OUTSTANDING BONDS The following table shows the outstanding Bonds of the Board by the original principal amount of each issue, the current principal outstanding, the amount of the original principal scheduled to be paid with the corresponding interest thereon by the Board or the School Facilities Construction Commission, the approximate interest range; and, the final maturity date of the Bonds: Current Principal Principal Approximate Bond Original Principal Assigned to Assigned to Interest Rate Final Series Principal Outstanding Board Commission Range Maturity 2009-REF $13,710,000 $1,770,000 $10,657,504 $3,052, % $35,700,000 $30,040,000 $33,021,315 $2,678, % REF $6,210,000 $4,170,000 $6,210,000 $ % % REF $9,620,000 $7,285,000 $8,002,932 $1,617, % % $5,010,000 $4,150,000 $5,010,000 $ % % $18,590,000 $17,630,000 $14,601,037 $3,988, % % REF $3,405,000 $2,270,000 $3,405,000 $ % % $8,020,000 $7,880,000 $6,432,706 $1,587, % % REF $31,555,000 $29,800,000 $29,438,938 $2,116, % % 2029 TOTAL: $131,820,000 $104,995,000 $116,779,432 $15,040,568 4

9 AUTHORITY things: The Board of Directors of the Corporation has adopted a Bond Resolution which authorized among other i) the issuance of approximately $35,365,000 of Bonds subject to a permitted adjustment of $3,540,000; ii) iii) iv) the advertisement for the public sale of the Bonds; the Official Terms and Conditions for the sale of the Bonds to the successful bidder; and, the President and Secretary of the Corporation to execute certain documents relative to the sale and delivery of the Bonds. THE BONDS General The Bonds will be dated August 21, 2018, will bear interest from that date as described herein, payable semi-annually on February 1 and August 1 of each year, commencing February 1, 2019, and will mature as to principal on August 1, 2019, and each August 1 thereafter in the years and in the principal amounts as set forth on the cover page of this Official Statement. Registration, Payment and Transfer The Bonds are to be issued in fully-registered form (both principal and interest). U.S. Bank, National Association, Louisville, Kentucky, the Bond Registrar and Paying Agent, shall remit interest on each semiannual due date to Cede & Co., as the nominee of The Depository Trust Company. Please see Book-Entry-Only-System. Interest on the Bonds will be paid at rates to be established upon the basis of competitive bidding as hereinafter set forth, such interest to be payable on February 1 and August 1 of each year, beginning February 1, 2019 (Record Date is 15th day of month preceding interest due date). Redemption The Bonds maturing on or after August 1, 2027, are subject to redemption at the option of the Corporation prior to their stated maturity on any date falling on or after August 1, 2026, in any order of maturities (less than all of a single maturity to be selected by lot),in whole or in part, upon notice of such prior redemption being given by the Paying Agent in accordance with DTC requirements not less than thirty (30) days prior to the date of redemption, upon terms of the face amount, plus accrued interest, but without redemption premium. Redemption Date Redemption Price August 1, 2026 and thereafter 100% Notwithstanding the foregoing, the Corporation reserves the right, upon thirty (30) days notice, to call the Bonds in whole or in part for redemption on any day at par upon the total destruction by fire, lightning, windstorm or other hazard of any of the building(s) constituting the Project(s) and apply casualty insurance proceeds to such purpose. 5

10 SECURITY General The Bonds are revenue bonds and constitute a limited indebtedness of the Corporation. The Bonds are payable as to both principal and interest solely from the income and revenues derived from the leasing of the Projects financed from the Bond proceeds from the Corporation to the Board. The Bonds are secured by pledges of revenues on and from the Project. The Lease; Pledge of Rental Revenues The Board has leased the school Project securing the Bonds for an initial period from August 21, 2018 through June 30, 2019, with the option in the Board to renew said Lease from year to year for one year at a time, at annual rentals, sufficient in each year to enable the Corporation to pay, solely from the rental due under the Lease, the principal and interest on all of the Bonds as same become due. The Lease provides further that so long as the Board exercises its annual renewal options, its rentals will be payable according to the terms and provisions of the Lease until August 1, 2038, the final maturity date of the Bonds. Under the lease, the Corporation has pledged the rental revenue to the payment of the Bonds. STATE INTERCEPT Under the terms of the Lease and any renewal thereof, so long as the Bonds remain outstanding and in conformance with the intent and purpose of KRS (5) and KRS (5), in the event of a failure by the Board to pay the rentals due under the Lease, and unless sufficient funds have been transmitted to the Paying Agent, or will be so transmitted, for paying said rentals when due, the Board has granted under the terms of the Lease and Participation Agreement to the Corporation and the Commission the right to notify and request the Kentucky Department of Education to withhold from the Board a sufficient portion of any undisbursed funds then held, set aside, or allocated to the Board and to request said Department or Commissioner of Education to transfer the required amount thereof to the Paying Agent for the payment of such rentals. COMMISSION'S PARTICIPATION The Commission has determined that the Board is eligible for an average annual participation equal to approximately $142,800 from the Commission's appropriation by the Kentucky General Assembly which will be used to meet a portion of the debt service of the Bonds. The plan for financing the Project will require the Commission to pay approximately five percent (5%) of the debt service of the Bonds. The Participation Agreement to be entered into with the Board will be limited to the biennial budget period of the Commonwealth of Kentucky, with the first such biennial period terminating on June 30, The right is reserved in the Commission to terminate the commitment to pay the agreed participation every two years thereafter. The obligation of the Commission to make payments of the agreed participation shall be automatically renewed each two years thereafter unless the Commission gives notice to the Board of its intention not to participate not less than sixty days prior to the end of the biennium. However, the Commission has expressed its intention to continue to pay the agreed participation in successive biennial budget periods until the Bonds are retired, but the Commission is not required to do so. THE PROJECTS After payment of the Bond issuance costs, the Board plans to deposit the net Bond proceeds to finance the purchase of a building to be converted into Big Picture Learning Academy and the construction of a new P - 8 School (the "Projects"). The Board has reported construction bids have been let for the Projects and approval of the Kentucky Department of Education, Buildings and Grounds, to award the construction contracts is expected prior to the sale and delivery of the Bonds. Contractors for the Projects are required to furnish to the Board a one hundred percent completion bond to assure their performance of the construction contract. 6

11 ADDITIONAL PARITY BONDS The Corporation has reserved the right and privilege of issuing additional bonds from time to time payable from the income and revenues of said lands and school building Project and secured by the same pledges of revenues, but only if and to the extent the issuance of such additional parity bonds are in accordance with the plans and specifications approved by the Board, Commissioner of Education, and filed in the office of the Secretary of the Corporation. ESTIMATED BOND DEBT SERVICE The following table shows by fiscal year the current bond payments of the Board. The plan of financing provides for the Board to pay approximately 95% of the debt service of the Bonds. Fiscal Current Series 2018 Revenue Bonds Total Year Local Local Ending Bond Principal Interest Total SFCC Local Bond June 30 Payments Portion Portion Payment Portion Portion Payments 2019 $5,477,194 $549,014 $549,014 $28,275 $520,740 $5,997, $5,473,189 $270,000 $1,232,785 $1,502,785 $142,802 $1,359,983 $6,833, $5,476,978 $275,000 $1,227,538 $1,502,538 $142,802 $1,359,735 $6,836, $5,480,049 $280,000 $1,221,778 $1,501,778 $142,800 $1,358,977 $6,839, $5,480,764 $285,000 $1,215,490 $1,500,490 $142,803 $1,357,687 $6,838, $5,470,656 $300,000 $1,208,613 $1,508,613 $142,803 $1,365,810 $6,836, $5,469,172 $310,000 $1,200,983 $1,510,983 $142,802 $1,368,181 $6,837, $5,488,201 $295,000 $1,192,896 $1,487,896 $143,093 $1,344,803 $6,833, $5,489,524 $305,000 $1,184,418 $1,489,418 $142,797 $1,346,620 $6,836, $5,493,706 $310,000 $1,175,345 $1,485,345 $142,796 $1,342,549 $6,836, $5,491,151 $315,000 $1,165,813 $1,480,813 $142,796 $1,338,016 $6,829, $5,684,300 $125,000 $1,158,930 $1,283,930 $142,797 $1,141,133 $6,825, $5,620,186 $130,000 $1,154,818 $1,284,818 $142,795 $1,142,022 $6,762, $5,507,215 $130,000 $1,150,528 $1,280,528 $142,797 $1,137,731 $6,644, $5,391,542 $135,000 $1,146,055 $1,281,055 $142,797 $1,138,258 $6,529, $789,099 $4,760,000 $1,061,650 $5,821,650 $142,796 $5,678,854 $6,467, $1,044,915 $4,665,000 $897,903 $5,562,903 $142,797 $5,420,106 $6,465, $1,044,513 $4,805,000 $730,976 $5,535,976 $142,796 $5,393,180 $6,437, $1,059,543 $4,975,000 $556,138 $5,531,138 $142,797 $5,388,341 $6,447, $6,255,000 $352,434 $6,607,434 $142,799 $6,464,634 $6,464, $6,440,000 $119,140 $6,559,140 $114,527 $6,444,613 $6,444,613 TOTALS: $86,431,899 $35,365,000 $20,903,241 $56,268,241 $2,856,267 $53,411,974 $139,843,873 Notes: Numbers are Rounded to the nearest $1.00; Estimated Net Interest Cost of % 7

12 ESTIMATED USE OF BOND PROCEEDS The table below shows the estimated sources of funds and uses of proceeds of the Bonds, other than any portions thereof representing accrued interest: Sources: Par Amount of Bonds $35,365, Total Sources $35,365, Uses: Deposit to Construction Fund $34,566, Underwriter's Discount (2%) 707, Cost of Issuance 90, Total Uses $35,365, DISTRICT STUDENT POPULATION Selected school census and average daily attendance for the Shelby County School District is as follows: Average Daily Average Daily Year Attendance Year Attendance , , , , , , , , , , , , , , , , , , , , , , , , , , , ,193.8 Source: Kentucky State Department of Education. STATE SUPPORT Support Education Excellence in Kentucky (SEEK). In determining the cost of the program to Support Education Excellence in Kentucky (SEEK), the statewide guaranteed base funding level is computed by dividing the amount appropriated by the prior year's statewide average daily attendance. The SEEK fund is a guaranteed amount of money per pupil in each school district of Kentucky. The current SEEK allotment is $3,866 per pupil. The $100 capital outlay allotment per each average daily attendance is included within the guaranteed amounts. Each district's base funding from the SEEK program is adjusted for the number of at-risk students, the number and types of exceptional children in the district, and cost of transporting students from and to school in the district. 8

13 Capital Outlay Allotment. The per pupil capital outlay allotment for each district from the public school fund and from local sources shall be kept in a separate account and may be used by the district only for capital outlay projects approved by the State Department of Education. These funds shall be used for the following capital outlay purposes: a. For direct payment of construction costs. b. For debt service on voted and funding bonds. c. For payment or lease-rental agreements under which the board will eventually acquire ownership of the school plant. d. For retirement of any deficit resulting from over-expenditure for capital construction, if such deficit resulted from certain declared emergencies. e. As a reserve fund for the above named purposes, to be carried forward in ensuing budgets. The allotment for each school board of education in the Commonwealth for fiscal year was $1,800 per classroom unit. The 1979 Session of the Kentucky General Assembly approved increases in this allotment in to $1,900 per classroom unit. This rate remained unchanged in The 1981 Session of the Kentucky General Assembly decreased the allotment per classroom to $1,800 and this allotment rate did not change from the rate, until the school year. Beginning with , the Capital Outlay allotment for each district is based on $100 per average daily attendance. The following table shows the computation of the capital outlay allotment for the Shelby County School District for certain preceding school years. Beginning , the allotment is based on average daily attendance as required by law. Capital Capital Outlay Outlay Year Allotment Year Allotment , , , , , , , , , , , , , , , , , , , , , , , , , , ,380.0 If the school district has no capital outlay needs, upon approval from the State, the funds can be used for school plant maintenance, repair, insurance on buildings, replacement of equipment, purchase of school buses and purchase of modern technological equipment for educational purposes. If any district has a special levy for capital outlay or debt service that is equal to the capital outlay allotment or a proportionate fraction thereof, and spends the proceeds of the levy for eligible purposes, the State may authorize the district to use all or a proportionate fraction of its capital outlay allotment for current expenses (school districts which use capital outlay allotments to meet current expenses are not eligible to participate in the School Facilities Construction Commission funds). Facilities Support Program of Kentucky. School districts may be eligible to participate in the Facilities Support Program of Kentucky (FSPK), subject to the following requirements: 1) The district must have unmet needs as set forth and approved by the State Department of Education in a School Facilities Plan; 9

14 2) The district must commit to establish an equivalent tax rate of at least 5 cents, in addition to the 30 cents minimum current equivalent tax rate; and, 3) The new revenues generated by the 5 cent addition, must be placed in a restricted account for school building construction bonding. LOCAL SUPPORT Homestead Exemption. Section 170 of the Kentucky Constitution was amended at the General Election held November 2, 1971, to exempt from property taxes $6,500 of value of single unit residential property of taxpayers 65 years of age or older. The 1972 General Assembly amended KRS Chapter 132 to permit counties and school districts to adjust their local tax revenues lost through the application of this Homestead Exemption. The "Single Unit" qualification has been enlarged to subsequent sessions of the General Assembly to provide that such exemption shall apply to such property maintained as the permanent resident of the owner and the dollar amount has been construed to mean $6,500 in terms of the purchasing power of the dollar in Every two years thereafter, if the cost of living index of the U.S. Department of Labor has changed as much as 1%, the maximum exemption shall be adjusted accordingly. Under the cost of living formula, the maximum was increased to $37,600 effective January 1, Limitation on Taxation. The 1979 Special Session of the Kentucky General Assembly enacted House Bill 44 which provides that no school district may levy a general tax rate, voted general tax rate, or voted building tax rate which would generate revenues that exceeds the previous years revenues by four percent (4%). The 1990 Regular Session of the Kentucky General Assembly in enacting the "School Reform" legislative package amended the provisions of KRS which prohibited school districts from levying ad valorem property taxes which would generate revenues in excess of 4% of the previous year's revenues without said levy subject to recall to permit exceptions to the referendum under (1) KRS (12) and (2) an amended KRS Under KRS (12)(a) for fiscal years beginning July 1, 1990 school districts are required to levy a "minimum equivalent tax rate" of thirty cents ($.30) for general school purposes. The equivalent tax rate is defined as the rate which results when the income collected during the prior year from all taxes (including occupational or utilities) levied by the district for school purposes divided by the total assessed value of property plus the assessment for motor vehicles certified by the State Revenue Cabinet. Failure to levy the minimum equivalent rate subjects the board of the district to removal. The exception provided by KRS (1)(a) permits school districts to levy an equivalent tax rate as defined in KRS (12)(a) which will produce up to 15% of those revenues guaranteed by the program to support education excellence in Kentucky. Levies permitted by this section of the statute are not subject to public hearing or recall provisions as set forth in KRS Local Thirty Cents Minimum. Effective for school years beginning after June 30, 1990, the board of education of each school district shall levy a minimum equivalent tax rate of thirty cents ($0.30) for general school purposes. If a board fails to comply, its members shall be subject to removal from office for willful neglect of duty. Additional 15% Not Subject to Recall. Effective with the school year beginning July 1, 1990, each school district may levy an equivalent tax rate which will produce up to 15% of those revenues guaranteed by the SEEK program. Effective with the school year, the State will equalize the revenue generated by this levy at one hundred fifty percent (150%) of the statewide average per pupil equalized assessment. For and thereafter, this level is set at $225,000. The additional 15% rate levy is not subject to the public hearing or recall provisions. Assessment Valuation. No later than July 1, 1994, all real property located in the state and subject to local taxation shall be assessed at one hundred percent (100%) of fair cash value. 10

15 Special Voted and Other Local Taxes. Any district may, in addition to other taxes for school purposes, levy not less than four cents nor more than twenty cents on each one hundred dollars ($100) valuation of property subject to local taxation, to provide a special fund for the purchase of sites for school buildings and the erection, major alteration, enlargement, and complete equipping of school buildings. In addition, districts may levy taxes on tangible and intangible property and on utilities, except generally any amounts of revenues generated above that provided for by House Bill 44 is subject to voter recall. Local Tax Rates, Property Assessments and Revenue Collections Combined Total Property Tax Equivalent Property Revenue Year Rate Assessment Collections ,828,808 5,105, ,898,408 5,638, ,051,772,503 6,037, ,094,675,876 6,283, ,273,469,322 7,488, ,353,644,439 7,580, ,537,680,616 8,826, ,630,000,000 9,356, ,695,775,917 10,089, ,903,396,406 11,991, ,997,056,662 11,882, ,111,749,847 13,304, ,253,255,993 14,195, ,416,719,066 14,717, ,593,877,461 18,027, ,814,059,162 20,007, ,984,760,867 20,744, ,131,433,467 22,922, ,171,114,014 23,212, ,178,758,065 23,332, ,204,669,598 24,515, ,280,144,864 25,125, ,336,436,213 26,658, ,409,453,570 26,457, ,569,278,286 28,518, ,742,554,282 28,667,966 11

16 OVERLAPPING BOND INDEBTEDNESS The following table shows any other overlapping bond indebtedness of the Shelby County School District or other issuing agency within the County as reported by the State Local Debt Officer for the period ending June 30, Original Amount Current Principal of Bonds Principal Issuer Amount Redeemed Outstanding County of Shelby General Obligation 13,594,413 2,936,446 10,657,967 Public Project Revenue 100,000, ,000,000 Refinancing Renewable 2,665, ,665,000 Courthouse & City Hall Lease Rev. 22,035,000 2,490,000 19,545,000 Multiple Purposes 3,000, ,992 2,695,008 Sewer Renewable 560, , ,000 Lease Purchase Renewable 82,000 63,000 19,000 Fire Protection Renewable 98,000 31,000 67,000 Building Renewable 1,300, , ,000 Detention Facility 6,400,000 1,810,000 4,590,000 City of Shelbyville General Obligation 14,184,611 3,139,226 11,045,385 Improvement Project Special Assmt. 1,060, , ,000 Refinancing Revenue 7,230,000 1,995,000 5,235,000 Lease Purchase Renewable 9,540,000 4,375,000 5,165,000 Water & Sewer Renewable 715, , ,000 City of Simpsonville General Obligation 600, , ,603 Sewer Revenue 703, , ,000 Special Districts Bagdad Fire Protection District 82,000 40,000 42,000 Mt. Eden Fire Protection District 60,000 40,000 20,000 Shelby County Extension District 1,200, , ,000 Shelby County Public Health Department 125,000 40,000 85,000 Shelby County Suburban Fire District 3,698, ,500 2,862,039 Shelbyville-Shelby County Parks & Rec 2,200, ,000 1,225,000 Simpsonville Fire Protection District 1,790, ,000 1,310,933 US 60 Water District 2,358, ,600 2,074,100 Waddy Fire Protection District 431,691 49, ,551 West Shelby Water District 1,461, ,000 1,084,000 Totals: 197,174,887 23,179, ,995,586 Source: 2014 Kentucky Local Debt Report. 12

17 SEEK ALLOTMENT The Board has reported the following information as to the SEEK allotment to the District, and as provided by the State Department of Education. Base Local Total State & Funding Tax Effort Local Funding SEEK 23,997,643 28,667,966 52,665, SEEK 24,564,853 28,518,534 53,083, SEEK 25,171,009 26,457,360 51,628, SEEK 24,408,473 26,658,125 51,066, SEEK 24,146,788 25,125,910 49,272, SEEK 23,967,307 24,515,722 48,483, SEEK 21,861,132 23,332,084 45,193, SEEK 20,819,517 23,212,555 44,032, SEEK 22,054,565 22,922,093 44,976, SEEK 21,215,375 20,744,088 41,959, SEEK 18,555,384 20,007,961 38,563, SEEK 17,555,309 18,027,448 35,582, SEEK 15,639,029 14,717,819 30,356, SEEK 14,571,627 14,195,513 28,767, SEEK 14,151,764 13,304,024 27,455, SEEK 13,798,936 11,882,487 25,681, SEEK 13,101,788 11,991,397 25,093, SEEK 12,398,004 10,089,867 22,487, SEEK 12,241,533 9,356,200 21,597, SEEK 11,111,900 8,826,287 19,938, SEEK 11,086,087 7,580,409 18,666, SEEK 10,611,017 7,488,000 18,099, SEEK 10,452,424 6,283,440 16,735, SEEK 10,083,378 6,037,174 16,120, SEEK 10,091,847 5,638,872 15,730,719 (1) Support Education Excellence in Kentucky (SEEK) replaces the minimum foundation program and power equalization funding. Capital Outlay is now computed at $100 per average daily attendance (ADA). Capital Outlay is included in the SEEK base funding. (2) The Board established a current equivalent tax rate (CETR) of $0.766 for FY The equivalent tax rate" is defined as the rate which results when the income from all taxes levied by the district for school purposes is divided by the total assessed value of property plus the assessment for motor vehicles certified by the Commonwealth of Kentucky Revenue Cabinet. STATE BUDGETING PROCESS i) Each district board of education is required to prepare a general school budget on forms prescribed and furnished by the Kentucky Board of Education, showing the amount of money needed for current expenses, debt service, capital outlay, and other necessary expenses of the school during the succeeding fiscal year and the estimated amount that will be received from all sources. ii) By September 15 of each year, after the district receives its tax assessment data from the Department of Revenue and the State Department of Education, 3 copies of the budget are forwarded to the State Department for approval or disapproval. 13

18 iii) The State Department of Education has adopted a policy of disapproving a school budget if it is financially unsound or fails to provide for: a) payment of maturing principal and interest on any outstanding voted school improvement bonds of the district or payment of rental in connection with any outstanding school building revenue bonds issued for the benefit of the school district; or b) fails to comply with the law. POTENTIAL LEGISLATION No assurance can be given that any future legislation, including amendments to the Code, if enacted into law, or changes in interpretation of the Code, will not 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 exemption of such interest. In addition, current and future legislative proposals, if enacted into law, may cause interest on state or local government bonds (whether issued before, on the date of, or after enactment of such legislation) to be subject, directly or indirectly, to federal income taxation by, for example, changing the current exclusion or deduction rules to limit the amount of interest on such bonds that may currently be treated as tax exempt by certain individuals. Prospective purchasers of the Bonds should consult their own tax advisers regarding any pending or proposed federal tax legislation. Further, no assurance can be given that the introduction or enactment of any such future legislation, or any action of the IRS, including but not limited to regulation, ruling, or selection of the Bonds for audit examination, or the course or result of any IRS examination of the Bonds or obligations which present similar tax issues, will not affect the market price for the Bonds. CONTINUING DISCLOSURE As a result of the Board and issuing agencies acting on behalf of the Board having outstanding at the time the Bonds referred to herein are offered for public sale municipal securities in excess of $1,000,000, the Corporation and the Board will enter into a written agreement for the benefit of all parties who may become Registered or Beneficial Owners of the Bonds whereunder said Corporation and Board will agree to comply with the provisions of the Municipal Securities Disclosure Rules set forth in Securities and Exchange Commission Rule 15c2-12 by filing annual financial statements and material events notices with the Electronic Municipal Market Access (EMMA) System maintained by the Municipal Securities Rule Making Board. The Board and Corporation have been late in making certain required filings under the terms of the Continuing Disclosure Agreements between the Board and the Corporation executed in connection with previous bond issues. The Board has filed Material Event Notices indicating its failure to file on a timely basis the following information: (1) Failure to file Annual Operating Data on a timely basis. Operating Data for FYs ending June 30, 2013 was filed on June 26, The Board has adopted new procedures to assure timely and complete filings in the future with regard to the Rule in order to provide required financial reports and operating data or notices of material events. Financial information regarding the Board may be obtained from Superintendent, Shelby County Board of Education, 1155 West Main Street, Shelbyville, Kentucky Telephone (502) TAX EXEMPTION; NOT BANK QUALIFIED 14

19 Bond Counsel is of the opinion that: (A) The Bonds and the interest thereon are exempt from income and ad valorem taxation by the Commonwealth of Kentucky and all of its political subdivisions. (B) The interest income from the Bonds is excludable from the gross income of the recipient thereof for Federal income tax purposes under existing law and will not be a specific item of tax preference for purposes of Federal alternative minimum tax. (C)As a result of designations and certifications by the Board and the Corporation, indicating the issuance of more than $10,000,000 of tax-exempt obligations during the calendar year ending December 31, 2018, the Bonds are NOT "qualified tax-exempt obligations" within the meaning of the Internal Revenue Code of 1986, as amended. The Corporation will provide the purchaser the customary no-litigation certificate, and the final approving Legal Opinions of Steptoe & Johnson PLLC, Bond Counsel and Special Tax Counsel, Louisville, Kentucky approving the legality of the Bonds. These opinions will accompany the Bonds when delivered, without expense to the purchaser. Original Issue Premium Certain of the Bonds are being initially offered and sold to the public at a premium ( Acquisition Premium from the amounts payable at maturity thereon. "Acquisition Premium" is the excess of the cost of a bond over the stated redemption price of such bond at maturity or, for bonds that have one or more earlier call dates, the amount payable at the next earliest call date. The Bonds that bear an interest rate that is higher than the yield (as shown on the cover page hereof), are being initially offered and sold to the public at an Acquisition Premium (the "Premium Bonds"). For federal income tax purposes, the amount of Acquisition Premium on each bond the interest on which is excludable from gross income for federal income tax purposes ("tax-exempt bonds") must be amortized and will reduce the bondholder's adjusted basis in that bond. However, no amount of amortized Acquisition Premium on tax-exempt bonds may be deducted in determining bondholder's taxable income for federal income tax purposes. The amount of any Acquisition Premium paid on the Premium Bonds, or on any of the Bonds, that must be amortized during any period will be based on the "constant yield" method, using the original bondholder's basis in such bonds and compounding semiannually. This amount is amortized ratably over that semiannual period on a daily basis. Holders of any Bonds, including any Premium Bonds, purchased at an Acquisition Premium should consult their own tax advisors as to the actual effect of such Acquisition Premium with respect to their own tax situation and as to the treatment of Acquisition Premium for state tax purposes. Original Issue Discount Certain of the Bonds (the "Discount Bonds") are being initially offered and sold to the public at a discount ("OID") from the amounts payable at maturity thereon. OID is the excess of the stated redemption price of a bond at maturity (the face amount) over the "issue price" of such bond. The issue price is the initial offering price to the public (other than to bond houses, brokers or similar persons acting in the capacity of underwriters or wholesalers) at which a substantial amount of bonds of the same maturity are sold pursuant to that initial offering. For federal income tax purposes, OID on each bond will accrue over the term of the bond. The amount accrued will be based on a single rate of interest, compounded semiannually (the "yield to maturity") and, during each semi-annual period, the amount will accrue ratably on a daily basis. The OID accrued during the period that an initial purchaser of a Discount Bond at its issue price owns it is added to the purchaser's tax basis for purposes of determining gain or loss at the maturity, redemption, sale or other disposition of that Discount Bond. In practical effect, accrued OID is treated as stated interest, that is, as excludible from gross income for federal income tax purposes. In addition, original issue discount that accrues in each year to an owner of a Discount Bond is included in the calculation of the distribution requirements of certain regulated investment companies and may result in some of the collateral federal income tax consequences discussed above. Consequently, owners of any Discount Bond should be aware that the accrual of original issue discount in each year may result in an alternative minimum 15

20 tax liability, additional distribution requirements or other collateral federal income tax consequences although the owner of such Discount Bond has not received cash attributable to such original issue discount in such year. Holders of Discount Bonds should consult their own tax advisors as to the treatment of OID and the tax consequences of the purchase of such Discount Bonds other than at the issue price during the initial public offering and as to the treatment of OID for state tax purposes. ABSENCE OF MATERIAL LITIGATION There is no controversy or litigation of any nature now pending or threatened (i) restraining or enjoining the issuance, sale, execution or delivery of the Bonds, or in any way contesting or affecting the validity of the Bonds or any proceedings of the Board or Corporation taken with respect to the issuance or sale thereof or (ii) which if successful would have a material adverse effect on the financial condition of the Board. APPROVAL OF LEGALITY Legal matters incident to the authorization and issuance of the Bonds are subject to the approving legal opinion of Steptoe & Johnson PLLC, Bond Counsel. The form of the approving legal opinion of Bond Counsel will appear on each printed Bond. NO LEGAL OPINION EXPRESSED AS TO CERTAIN MATTERS Bond Counsel has reviewed the information contained in the Official Statement describing the Bonds and the provisions of the Bond Resolution and related proceedings authorizing the Bonds, but Bond Counsel has not reviewed any of the financial data, computations, tabulations, balance sheets, financial projections, and general information concerning the Corporation or District, and expresses no opinion thereon, assumes no responsibility for same and has not undertaken independently to verify any information contained herein. BOND RATING As noted on the cover page of this Official Statement, Moody s Investors Service has given the Bonds the indicated rating. Such rating reflects only the respective views of such organization. Explanations of the significance of the rating may be obtained from the rating agency. There can be no assurance that such rating will be maintained for any given period of time or will not be revised or withdrawn entirely by the rating agency, if in their judgement circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Bonds. FINANCIAL ADVISOR Prospective bidders are advised that Ross, Sinclaire & Associates, LLC ("Ross Sinclaire") has been employed as Financial Advisor in connection with the issuance of the Bonds. Ross Sinclaire's fee for services rendered with respect to the sale of the Bonds is contingent upon the issuance and delivery thereof. Bidders may submit a bid for the purchase of the Bonds at the time of the advertised public sale, either individually or as a member of a syndicate organized to submit a bid for the purchase of the Bonds. 16

21 APPROVAL OF OFFICIAL STATEMENT The Corporation has approved and caused this "Official Statement" to be executed and delivered by its President. In making this "Official Statement" the Corporation relied upon information furnished to it by the Board of Education of the Shelby County School District and does not assume any responsibility as to the accuracy or completeness of any of the information in this Official Statement except as to copies of documents denominated "Official Terms and Conditions" and "Bid Form." The financial information supplied by the Board of Education is represented by the Board of Education to be correct. The Corporation deems this preliminary Official Statement to be final for purposes of Securities Exchange Commission Rule 15c2-12(b)(1) as qualified by the cover hereof. No dealer, broker, salesman, or other person has been authorized by the Corporation, the Shelby County Board of Education or the Financial Advisor to give any information or representations, other than those contained in this Official Statement, and if given or made, such information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. Except when otherwise indicated, the information set forth herein has been obtained from the Kentucky Department of Education and the Shelby County School District and is believed to be reliable; however, such information is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation by the Financial Advisor or by Counsel. The delivery of this Official Statement at any time does not imply that information herein is correct as of any time subsequent to the date hereof. This Official Statement does not, as of its date, contain any untrue statement of a material fact or omit to state a material fact which should be included herein for the purpose for which the Official Statement is to be used or which is necessary in order to make the statements contained herein, in the light of the circumstances under which they were made, not misleading in any material respect. By /s/ President By /s/ Secretary 17

22 APPENDIX A Shelby County School District Finance Corporation School Building Revenue Bonds Series of 2018 Demographic and Economic Data

23 SHELBY COUNTY, KENTUCKY Shelbyville, the county seat of Shelby County, is located in the Outer Bluegrass Region of north central Kentucky. Shelbyville is located 31 miles east of Louisville, KY; 50 miles west of Lexington, Kentucky; and 95 miles southwest of Cincinnati, Ohio. In 2016, Shelbyville had an estimated population of 15,514. Shelby County, with a rolling hilly terrain, covers a total land area of 384 square miles. Shelby County had an estimated 2016 population of 46,408. The Economic Framework The total number of Shelby County residents employed in 2017 averaged 23,333. Contract Construction firms provided 473 jobs; manufacturing firms in the county reported 4,183 employees; trade, transportation and utilities provided 3,221 jobs; information services provided 110 jobs; financial activities provided 475 jobs; professional and business services employed 1,103; education and health services employed 1,203; 1,524 worked in leisure and hospitality; and 547 were employed in other services and unclassified. Transportation Shelby County is served directly by U.S. Highway 64, U.S. Highways 60 and 460, and Kentucky Routes 53 and 55. Twenty-seven trucking companies provide interstate and/or intrastate service to the area. CSX Transportation and the Norfolk Southern Corporation provides main line rail service. The nearest internodal facilities are available at Louisville, 31 miles west of Shelbyville. The Capital City Airport, 20 miles east of Shelbyville in Frankfort; and Bowman Field in Louisville, 26 miles west, provide facilities for small craft operation. The nearest scheduled commercial airline service is available at the Louisville International Airport, 35 miles west of Shelbyville. Power and Fuel Electric power is provided to Shelbyville and portions of Shelby County by LG&E Energy Corp. The major portions of Shelby County is served by the East Kentucky Power Cooperative. Natural gas service is provided by the LG&E Energy Corp. and Atmos Energy Corporation. Education The Shelby County School System provides primary and secondary level education to Shelbyville and Shelby County. Eleven colleges and universities are located within 50 miles of Shelbyville. Vocational training is available at the Shelby County Area Technology Center in Shelbyville. Kentucky Tech-Jefferson Campus in Louisville, 31 miles west of Shelbyville, is the nearest state vocational training center. Structure LOCAL GOVERNMENT The City of Shelbyville is served by a mayor, six council members, and a full-time city administrator. The mayor serves a four-year term and the council members serve two-year terms. Shelby County is served by a county judge/executive and seven magistrates. Each official is elected to a four-year term. (A-1)

24 Planning and Zoning Joint agency- Triple S Planning Commission Participating cities- Shelbyville, Simpsonville Zoning enforced- All areas, both county and cities Subdivision regulations enforced- All areas, both county and cities Local codes enforced- Building Mandatory state codes enforced - Kentucky Plumbing Code, National Electric Code, Kentucky Boiler Regulations and Standards, Kentucky Building Code (modeled after BOCA code) Local Fees and Licenses The city of Shelbyville levies an occupational license tax of one percent on gross wages, salaries, and commissions of individuals. A net profit business tax of $50 for the first year is charged by the city. Thereafter, the net profits business tax is one percent with a maximum of $3,000 per year. Shelby County levies an occupational license tax of one percent on wages and net profits, in unincorporated areas, exempting the first $10,000 of net profits. Property Taxes The Kentucky Constitution requires the state to tax all classes of taxable property, and state statutes allow local jurisdictions to tax only a few classes. All locally taxed property is subject to county taxes and school district taxes (either a county school district or an independent school district). Property located inside of city limits may also be subject to city property taxes. Special local taxing jurisdictions (fire protection districts, watershed districts, and sanitation districts) levy taxes within their operating areas (usually a small portion of community or county). Property assessments in Kentucky are at 100% fair cash value. A 15% reduction is automatically granted for accounts receivable. LABOR MARKET STATISTICS The Shelby County Labor Market Area includes Shelby County and the adjoining Kentucky counties of Anderson, Franklin, Henry, Jefferson, Oldham, and Spencer. POPULATION Area Labor Market Area 1,546,787 1,558,046 1,568,913 Shelbyville 14,998 15,242 15,514 Shelby County 44,894 45,591 46,408 Simpsonville 2,658 2,701 2,751 Source: U.S. Department of Commerce, Bureau of the Census. (A-2)

25 POPULATION PROJECTIONS Area Shelby County 54,637 59,415 64,209 Source: University of Louisville, Urban Studies Center, State Data Center. EDUCATION Public Schools Shelby County Total Enrollment ( ) 6,868 Pupil-Teacher Ratio ( ) Vocational Training Kentucky Tech schools are operated by the Cabinet for workforce Development and provide secondary (Sec) and postsecondary (P/S) vocational-technical training. Customized Training The Kentucky Tech system, through its Training and Development Coordinators, will provide technical assistance and will identify and develop low-cost customized training programs and services for both established and prospective businesses. Businesses wanting to establish a customized training program should contact a Training and Development Coordinator located on the campus of the Kentucky Tech-Jefferson Campus. Assessment Services Kentucky Tech Career Connections offers to business, education and government agencies testing packages for evaluating job applicants, selecting employees for promotional consideration, and developing training programs within the organization. Adult Education Services Adult education programs are available to adults who want to develop new skills, improve basic skills, or earn a high school equivalency diploma. In Shelby County, adult education is provided by the Shelby County Board of education and adult literacy programs are provided through the Appalachian Communities for Children. (A-3)

26 Enrollment Vocational School Location Shelby County ATC Shelbyville 565 Oldham County ATC Buckner 450 Franklin County Career & Tech Ctr. Frankfort 892 Nelson County ATC Bardstown 472 Bullitt County ATC Shepherdsville 346 Carroll County ATC Carrollton 723 Elkhorn Crossing School Georgetown 885 Hughes Jones Harrodsburg ATC Harrodsburg 255 Jessamine Career & Tech Ctr. Nicholasville 3,338 Eastside Technical Center Lexington 820 Southside Technical Center Lexington 438 Marion County ATC Lebanon 916 Harrison County ATC Cynthiana 1,098 Meade County ATC Brandenburg 637 Garrard County ATC Lancaster 368 Lincoln County ATC Stanford 407 Clark County ATC Winchester 689 Area Colleges and Universities Enrollment Name Location (Fall 2015) Kentucky State University Frankfort, KY 1,586 Bellarmine University Louisville, KY 3,846 Galen College of Nursing Louisville, KY 1,045 Spalding University Louisville, KY 2,202 University of Louisville Louisville, KY 21,294 Midway College Midway, KY 1,055 Georgetown College Georgetown, KY 1,364 Asbury University Wilmore, KY 1,540 Transylvania University Lexington, KY 1,053 University of Kentucky Lexington, KY 29,727 Centre College Danville, KY 1,367 Campbellsville University Campbellsville, KY 3,128 FINANCIAL INSTITUTIONS Institution Assets Deposits Citizens Union Bank of Shelbyville $727,699,000 $558,986,000 Source: Accuity American Financial Directory (January - June 2018). (A-4)

27 EXISTING INDUSTRY Firm Product Employees Shelbyville: Amcor Flexibles Shelbyville Flexible packaging for pharmaceutical industry 115 Bekaert Corp. Preformed steel staple wire, fine wire, flat wire 96 Curwood Division - A Bemis Co. Flexible packaging for food industry 240 Creative Packaging Co. Corrugated paper & protective polystyrene foam packaging 140 Edwards Moving & Rigging Trucking, except local 130 Ficosa North America Corp. Automotive trim parts 207 Katayama American Co. Inc. Automotive door sashes and moldings 370 Martinrea Automobile parts stamping 1100 Nifco America Corporation Manufacture plastic injection molded fasteners for 220 the automotive industry Ohio Valley Aluminum Co. LLC Aluminum billets 120 Omega Plastics of KY Plastic & high-density polyethylene bags 200 Process Machinery Inc. Manufacture and distribute products for the Aggregate Processing Industry 92 Roll Forming Corp. Custom roll formed products and headquarters 235 Sonoco Protective Solutions Custom made insulated shipping containers, polar pack Icepacks 74 Sonoco Protective Solutions Manufacture foam filled products for the automotive Industry; manufacture temperature assurance packaging For pharmaceutical industry 68 Stanley Black & Decker Corp. Circular saw blades 122 Superb IPC Powder coating service for automotive, appliance, And general industry 95 Simpsonville: Faurecia Seating Manufacturer of automobile seating 450 Neff Packaging Solutions Headquarters; manufacture folding cartons 98 Purnell Old Folks Sausage Inc. Headquarters; pork, turkey & chicken sausage products Sausage and biscuit sandwiches 270 Source: Kentucky Cabinet for Economic Development (06/01/2018).

28 APPENDIX B Shelby County School District Finance Corporation School Building Revenue Bonds Series of 2018 Audited Financial Statement ending June 30, 2017 (A-6)

29 , I SHELBY COUNTY BOARD OF EDUCATION FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION And INDEPENDENT AUDITOR'S REPORTS Year Ended June 30, 2017 Denise M. Keene Certified Public Accountant P.O. Box 1444 Georgetown, Kentucky

30 SHELBY COUNTY BOARD OF EDUCATION TABLE OF CONTENTS Independent Auditor's Report Management's Discussion and Analysis Basic Financial Statements: Entity-Wide Financial Statements: Statement of Net Position Statement of Activities Fund Financial Statements: Balance Sheet - Governmental Funds Reconciliation of the Balance Sheet - Governmental Funds to the Statement of Net Position Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Entity-Wide Statement of Activities Statement of Net Position - Proprietary Funds Statement of Revenues, Expenditures and Changes in Net Position - Proprietary Funds Statement of Cash Flows - Proprietary Funds Statement of Fiduciary Net Position - Fiduciary Funds Statement of Changes in Net Position - Fidcuiary Funds Notes to the Financial Statements Supplementary Information: Budget Comparison Budgetary Comparison Schedule for the General Fund Budgetary Comparison Schedule for the Special Revenue Schedule of the District's Proportionate Share of the Net Pension Liability Schedule of the District Pension Contributions Notes to Required Supplementary Information Summary of Receipts, Disbursements, and Due to Student Groups - All Schools Summary of Receipts, Disbursements, and Due to Student Groups - Martha Layne Collins High School Summary of Receipts, Disbursements, and Due to Student Groups - All Schools Shelby County High School Schedule of Expenditures of Federal Awards Notes to the Schedule of Expenditures of Federal Awards Independent Auditor's Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of the Financial Statement Performed in Accordance with Government Auditing Standards Independent Auditor's Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by Uniform Guidance Schedule of Findings and Questioned Costs Schedule of Prior Year Audit Findings Management Letter Pages

31 DENISE M. KEENE CERTIFIED PUBLIC ACCOUNT ANT P.O. BOX 1444 GEORGETOWN, KENTUCKY State Committee For School District Audits Members of the Board of Education Shelby County Board of Education Shelbyville, Kentucky Report on the Financial Statements INDEPENDENT AUDITOR'S REPORT We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Shelby County Board of Education as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the Board's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America, and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; Audits of States and Local Governments, and Non-Profit Organizations, and the audit requirements prescribed by the Kentucky State Committee for School District Audits. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 3

32 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Board as of June 30, 2017 and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 6 through 16 and budgetary comparison information on pages 52 and 53 and the Schedules of Proportionate Share of the Net Pension Liability and Schedule of Contributions on pages 54 and 55 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited prqcedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Board's basic financial statements. The fiduciary funds, the statement of receipts, disbursements, and due to student groups are presented for purposes of additional analysis and are not a required part of the basic financial statements. The schedule of expenditures of federal awards is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200. Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and is also not a required part of the basic financial statements. 4

33 The fiduciary funds, the statement of receipts, disbursements, and due to student groups, and the schedule of expenditures of federal awards is the responsibility of management and was derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the fiduciary funds, the statement of receipts, disbursements, and due to student groups, and the schedule of expenditures of federal awards are fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 13, 2017, on our consideration of the Board's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Board's internal control over finanqial reporting and compliance. Denise M. Keene, CPA Georgetown, Kentucky November 13,

34 SHELBY COUNTY PUBLIC SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) For the Year Ended June 30, 2017 As management of the Shelby County Public School District (District), we offer readers of the financial statements this narrative overview and analysis to highlight and further explain the financial events that have taken place over the past year. We encourage readers to consider the information presented herein along with the District's financial statements, which immediately follow this section. FINANCIAL HIGHLIGHTS The General Fund had $60.1 million in revenues, which primarily consisted of funding from the State's Support Education Excellence in Kentucky (SEEK) program and revenues from taxes, which include property taxes, motor vehicle taxes, and utilities taxes. This compares to $59.3 million in General Fund revenues for the prior year, which is a 1.4% increase. Net General Fund SEEK revenue for the year was $23.4 million compared to $23.9 million for the prior year. This represents a 2.1 % decrease from the previous year's funding. The District levied tax rates of 71.5 cents (real estate), 71.5 cents (tangible property), and 46.5 cents (motor vehicles) per $100 in assessed value, and continued the 3% utility tax. These are the same rates as the previous year. OVERVIEW OF FINANCIAL STATEMENTS The discussion and analysis is intended to serve as an introduction to the District's basic financial statements. The District's basic financial statements are comprised of three components: 1) entity-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Entity-wide financial statements - The entity-wide financial statements are designed to provide readers with a broad overview of the District's finances, in a manner similar to a private-sector business. The statement of net position presents information on all of the District's assets, deferred outflows of resources, liabilities, and deferred inflow of resources. Net position is reported as assets plus deferred outflows of resources minus liabilities minus deferred inflows of resources. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the District is improving or deteriorating. The statement of activities presents information showing how the government's net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing or related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). 6

35 The entity-wide financial statements can be found on pages of this report. Fund financial statements - A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The District, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the District can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the entity-wide financial statements. However, unlike the entity-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government's near-term financing requirements. Because the focus of governmental funds is narrower than that of the entity-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the entity-wide financial statements. By doing so, readers may better understand the long-term impact of the government's near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The District maintains six individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the general fund, the special revenue fund, the capital outlay fund, the Facilities Support Program of Kentucky (FSPK) fund, the school construction fund, and the debt service fund, all of which are considered major funds. Proprietary funds. Proprietary funds are used to account for food services and day care programs which are operated by the District like a business. The proprietary funds statements offer short- and long-term financial information about the activities of these funds. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the governmental entity. Fiduciary funds are not reflected in the entitywide financial statements because the District cannot use these funds to finance its operations. The District uses an agency fund to account for resources held for student activities and groups. The fund financial statements can be found on pages of this report. Notes to the basic financial statements - The notes provide additional information that is essential for a full understanding of the data provided in the entity-wide and fund financial statements. The notes to the financial statements can be found on pages of this report. 7

36 ENTITY-WIDE FINANCIAL ANALYSIS As noted earlier, net position may serve over time as a useful indicator of a government's financial position. In the case of the District, assets plus deferred outflows of resources exceeded liabilities plus deferred inflows of resources by $67,389,848 at the close of the most recent fiscal year. Net position in summarized in Table 1. The largest portion of the District's net position (74.0%) reflects its investment in capital assets (e.g. land, buildings, furniture and equipment, vehicles), less any related debt used to acquire those assets that is still outstanding. The District uses these capital assets to provide services to students; consequently, these assets are not available for future spending. Although the District's investment in capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. An additional portion of the District's net position (18.9%) represents resources that are subject to external restrictions on how they may be used. The majority of the restricted balance is for capital projects. GASB Statements 68 and 71 impacted the district's net position in governmental funds negatively by approximately $15.7 million in net pension liability and $975 thousand in pension expense. The proprietary funds' net assets were negatively impacted by approximately $1.8 million in net pension liability and $28 thousand in pension expense. 8

37 Table 1 SHELBY COUNTY PUBLIC SCHOOL DISTRICT NET POSITION June 30, 2017 ASSETS AND DEFERRED OUTFLOWS OF RESOURCES Governmental Activities Current and other assets $ 33,515,678 Capital assets 129,024,352 Deferred outflows of resources 5,445,992 Total assets and deferred outflows of resources 167,986,022 LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND NET POSITION Liabilities and deferred inflows of resources: Current and other liabilities $ 7,961,382 Long-term liabilities outstanding 91,314,341 Deferred inflows of resources 1,320,451 Total liabilities and deferred inflows of resources 100,596,174 Business-Type Activities Total $ 345,930 $ 33,861, , ,429, ,400 6,057,392 1,362, ,348,796 $ 54,589 $ 8,015,971 1,779,866 93,094, ,691 1,496,142 2,010, ,606,320 Net position: Net Investment in Capital Assets 49,854,352 Restricted 12,713,267 Unrestricted 4,822,229 Total net position 67,389, ,444 50,259,796 (1,344,157) 11,369, ,341 5,113,570 (647,372) 66,742,476 Total liabilities, deferred inflows of resources, and net position $ 167,986,022 $ 1,362,774 $ 169,348,796 9

38 Table 2 presents a summary of the District's revenues for the year: Table 2 SHELBY COUNTY PUBLIC SCHOOL DISTRICT REVENUES For the Year Ended June 30, 2017 Governmental Funds Proprietary Funds Total Percent Property taxes $ 24,134,107 $ $ Motor vehicle taxes 1,701,932 Utilities taxes 3,137,791 Earnings on Investment 396, Other local revenues 1,333,144 1,740 State revenue 42,002, ,995 Federal revenue 3,607,337 3,000,095 Lunchroom sales 724,150 Child care fees 586,539 Total 76,313,083 4,621,050 24,134, % 1,701, % 3,137, % 397, % 1,334, % 42,310, % 6,607, % 724, % 586, % 80,934, % Revenues Lunchroom sa les, 0.9% Federal revenue, 8.2% Child care fees, 0.7% Property taxes, 29.8% Motor vehicle taxes, 2.1% State revenue, 52.3% I Other local revenues, 1.6%

39 Table 3 presents a summary of the District's expenditures for the year. Table 3 SHELBY COUNTY PUBLIC SCHOOL DISTRICT EXPENDITURES For the Year Ended June 30, 2017 Govornmentel Fund& Proprietary Funds Total Percent I Instruction $ 41,554,391 Student support 2,709,630 Instructional staff support 4,631,305 District administration 1,288,100 School administration 3,889,888 Business support 1,690,018 Operation and maintenance of facilities 6,178,458 Student transportation 3,926,108 Community services 621,611 Food service operations 137,186 Day care operations Capital outlay 7,660,699 Debt service 6,540,225 $ 4,138, ,287 $ 41,554,391 2,709,630 4,631,305 1,288,100 3,889,888 1,690,018 6,178,458 3,926, ,61 1 4,275, ,287 7,660,699 6,540, % 3.2% 5.4% 1.5% 4.6% 2.0% 7.2% 4.6% 0.7% 5.0% 0.5% 9.0% 7.7% Total 80,827,619 4,574,715 85,402, % Expenditures Day care operations, 0.5% Capital outlay, 9.0% / "'" ~ -'" 7.7% Food service operations, \ 5.0% Community services, 0.7% _ Student transportation, 4.6% ---- _ student support, 3.2% School administration, 4.6% District administration, 1.5% I nstructlonal staff support, 5.4%

40 SHELBY COUNTY PUBLIC SCHOOL DISTRICT NET POSITION For the Years Ended June 30, 2017 and June 30, 2016 ASSETS AND DEFERRED OUTFLOWS OF RESOURCES 2017 Governmental Activities Current and other assets $ 33,515,678 Capital assets 129,024,352 Deferred outflows of resources 5,445,992 Total assets and deferred outflows of resources 167,986,022 LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND NET POSITION Liabilities and deferred inflows of resources: Current and other liabilities $ 7,961,382 Long-term liabilities outstanding 91,314,341 Deferred inflows of resources 1,320,451 Total liabilities and deferred inflows of resources 100,596, Governmental Activities Variance $ 27,210,709 $ 6,304, ,122,171 2,902,181 5,003, , ,336,241 9,649,781 $ 6,537,182 $ 1,424,200 86,714,254 4,600, , ,797 94,026,090 6,570,084 Net position: Net Investment in Capital Assets 49,854,352 Restricted 12,713,267 Unrestricted 4,822,229 Total net position 67,389,848 50,982,171 (1,127,819) 10,025,571 2,687,696 3,302,409 1,519,820 64,310,151 3,079,697 Total liabilities, deferred inflows of resources, and net position $ 167,986,022 $ 158,336,241 $ 9,649,781 12

41 ASSETS AND DEFERRED OUTFLOWS OF RESOURCES Business-Type Business-Type Activities Activities Variance Current and other assets $ 345,930 $ 536,322 $ (190,392) Capital assets 405, ,315 (45,871) Deferred outflows of resources 611, ,167 (12,767) Total assets and deferred outflows of resources 1,362,774 1,611,804 (249,030) LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND NET POSITION Liabilities and deferred inflows of resources: Current and other liabilities $ 54,589 $ 67,737 $ (13,148) Long-term liabilities outstanding 1,779,866 1,818,212 (38,346) Deferred inflows of resources 175, ,146 53,545 Total liabilities and deferred inflows of resources 2,010,146 2,008,095 2,051 Net position: Net Investment in Capital Assets 405, ,315 (45,871) Restricted (1,344,157) (1,191,965) (152,192) Unrestricted 291, ,359 (53,018) Total net position (647,372) (396,291) (251,081) Total liabilities, deferred inflows of resources, and net position $ 1,362,774 $ 1,611,804 $ (249,030) 13

42 Table 5 SHELBY COUNTY PUBLIC SCHOOL DISTRICT STATEMENT OF ACTIVITIES For the Years Ended June 30, 2017 and June 30, 2016 Revenues: Governmental Governmental Activities Activities Variance Program revenues: Charges for services $ 197,588 $ 112,891 $ 84,697 Operating grants and contributions 6,329,044 6,994,675 (665,631) Capital grants and contributions 237, ,159 (26,603) General revenues: Property taxes 24,134,107 22,974,958 1,159,149 Motor vehicle taxes 1,701,932 1,570, ,767 Utilities taxes 3,137,791 3,132,617 5,174 Earnings on investment 396, , ,279 State grants 38,270,874 38,370,052 (99,178) Federal grants 772, , ,878 Other local amounts 1,165,073 1,016, ,096 Expenses: Total revenues 76,342,601 74,777,973 1,564,628 Instruction 43,686,716 45,878,923 (2,192,207) Supporting services: Students 2,716,557 2,580, ,679 Instructional staff 4,632,403 5,796,723 (1,164,320) District admin. 1,301,410 1,338,586 (37,176) School admin. 4,184,016 4,021, ,197 Business services 1,708,314 1,718,105 (9,791) Operation and Main!. 9,051,381 8,599, ,168 Transportation 4,274,108 3,679, ,923 Total supporting services 27,868,189 27,734, ,680 Food services 137, ,120 7,066 Community services 621, ,580 65,031 Interest on long-term debt 1,443,339 2,771,464 (1,328,125) Total expenses 73,757,041 77,071,596 (3,314,555) Change in net position before transfers 2,585,560 (2,293,623) 4,879,183 Extraordinary Item 200, ,425 Transfers 293, , ,732 Change in net position with transfers and other items 3,079,697 (2,104,643) 5,184,340 Net position - Beginning 64,310,151 66,414,794 (2,104,643) Net position - Ending $ 67,389,848 $ 64,310,151 $ 3,079,697 14

43 Revenues by Source Operating grants and contributions 8.3% Capital grants and contributions 0.3% Unrestricted grants and contributions 2.5% Charges for services 0.3% Unrestricted investment earnings 0.5% Property taxes 31.6% Unrestricted state aid 50.1% Motor vehicle taxes 2.2% Expenditures by Function Food seivices 0.2% Interest on long-term debt 0.4% Total supporting seivlces 37.8% Instruction 59.2% 15

44 BUDGET COMPARISONS Revenues - General fund revenues exceeded the amount budgeted by approximately $1.3 m illion. The difference is primarily due to receiving $0.8 million more in on-behalf revenue from the state than the estimated amount included in the budget. Property tax revenues were budgeted with greater than 99% accuracy. Expenditures - Actual general fund expenditures were less than budgeted by approximately $2.3 million. By law the District must have at least a 2% contingency for budgetary purposes but management has concluded a higher reserve is needed due to significant fluctuations and Instability in state and federal funding. The District ended the year with $5.5 million remaining in budgeted contingency or 8.65% of actual expenditures in the general and food service funds combined. Budget Approach - The District prepares its budget in a conservative manner. A sizable fund balance at the beginning of the fiscal year is important since the majority of the District's tax revenue is not received until approximately five months into the fiscal year. The District's fund balance is used to offset the delay In tax receipts. In addition, the District receives approximately half its funding from state sources. As a result, it is important that the District continue to budget conservatively due to periodic changes in state and federal funding, such as cuts in state and federal grants and downward adjustments to state SEEK allocations. FACTORS AFFECTING THE DISTRICT'S FINANCIAL OUTLOOK The following factors may affect the District's financial position in the upcoming fiscal year: The Board approved plans to construct a new school to serve students in grades kindergarten through eighth. The building should be In use during the school year. The District's bonding potential at June 30, 2017 is approximately $42 million. The Board approved a plan to sell bonds for the construction of the P-8 Center in the amount of approximately $27 million. Tax rates for FY 18 were set at 73.1, the 4% increase rate with exonerations, an Increase from the previous year. Enrollment is projected to steadily grow over the next five years. CONTACTING THE DISCTRICT'S FINANCIAL MANAGER This financial report is designed to provide a general overview of the District's finances and to demonstrate the District's accountability of the public funds it receives. If you have questions about this report or need additional information, contact Susan Barkley, Director of Finance, Shelby County Public Schools, 1155 Main Street, Shelbyville, Kentucky She can also be reached by electronic mail at susan.bark!ey@shelby,kyschools,us or by telephone at

45 SHELBY COUNTY PUBLIC SCHOOL DISTRICT STATEMENT OF NET POSITION June 30, 2017 ASSETS AND DEFERRED OUTFLOWS OF RESOURCES Governmental Activities Business-Type Activities Total Assets: Cash and cash equivalents Investments Accounts Receivable Taxes Intergovernmental Other Prepaid workers' compensation premiums Inventory Total capital assets, net of depreciation Total assets $ 31,847,004 43, , ,060 5,640 10, ,024, ,540,030 $ 290,985 32,429 22, , ,374 $ 32,137,989 43, , ,060 38,069 10,995 22, ,429, ,291,404 Deferred outflows of resources: Deferred outflows - pension contributions Deferred outflows - pension changes in assumptions, expectations Deferred outflows from advanced bond refundings Total deferred outflows of resources 1,414,868 3,766, ,937 5,445, , , ,400 1,575,752 4,216, ,937 6,057,392 Total assets and deferred outflows of resources $167,986,022 $ 1,362,774 $169,348,796 LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND NET POSITION Liabilities: Bank overdraft Accounts payable Unearned revenue Current maturities of bond obligations Current portion of accumulated sick leave Interest payable Current portion of accrued insurance claims liability Noncurrent maturities of bond obligations Net pension liability Noncurrent portion of accumulated sick leave Noncurrent portion of accrued insurance claims liability Total liabilities $ 2,214, ,449 4,145, , ,111 24,102 75,025,000 15,652, ,327 72,306 99,275,723 $28,726 1,940 23,923 1,779,866 1,834,455 $28,726 2,216, ,372 4,145, , ,111 24,102 75,025,000 17,432, ,327 72, , Deferred inflows of resources Total deferred Inflows of resources 1 320,451 1,320, ,691 1,496,142 1,496,142 Total liabilities and deferred inflows of resources $100,596,174 $102,606,320 Net Position: Net Investment in Capital Assets Restricted for: Special projects Capital projects/debt service Unrestricted Total net position $ 49,854, ,496 12,333,771 4,822,229 $ 67,389,848 $ $ 405,444 (1,344,157) 291,341 (647,372) 50,259,796 (964,661) 12,333,771 5,113,570 $ 66,742,476 See Notes to Financial Statements 17

46 SHELBY COUNTY PUBLIC SCHOOL DISTRICT STATEMENT OF ACTIVITIES For the Year Ended June 30, 2017 FUNCTIONS/PROGRAMS Governmental activities: Instruction Supporting services: Students Instructional staff District administration School administration Business support services Operation and maintenance of facilities Student transportation Food services Community services Interest on long-term debt Total governmental activities Business-type activities: Food services Child care Total business-type activities Total Primary Government Exeenses 43,686,716 2,716,557 4,632,403 1,301,410 4,184,016 1,708,314 9,051,381 4,274, , ,611 1,443,339 73,757,041 4,138, ,287 4,574,715 78,331,756 Charges for Services 169, , , , ,539 1,310,689 1~277 Pro2ram Revenues Operating Capital Grants and Grants and Contributions Contributions 3,856, , , , , , , ,322 12,111 6,329,044 3,309,830 3,309,830 9,638, , , ,556 = Net (Expense), Revenue and Chan2es in Net Position Governmental Activities (39,660,337) (2,476,516) (4,223,450) (1,186,520) (3,814,647) (1,557,502) (8,224,626) (3,896,786) (125,075) (621,611) (1,205,783) (66,992,853) Business-Type Activities (104,448) 150,252 45,804 (66,992,853) 45,804 Total (39,660,337) (2,476,516) (4,223,450) (1,186,520) (3,814,647) (1,557,502) (8,224,626) (3,896,786) (125,075) (621,611) (1,205,783) (66,992,853), (104,448) 150,252 45,804 (66,947,049) General revenues: Property taxes Motor vehicle taxes Utilities taxes Earnings on investment State grants Federal grants Loss on disposal of assets Other local amounts Total general revenues Extraordinary item Transfers in (out) Change in net position Net position - beginning Net position - ending 24,134,107 1,701,932 3,137, , ,270, ,021 (2,670) 1,165,073 69,578,413 (2,139) 200, ,712 (293,712) 3,079,697 (250,047) 64,310,151 (397,325) 67~9,848 (647,372) 24,134,107 1,701,932 3,137, ,146 38,270, ,021 (2,670) 1,165,073 69,576, ,425 2,829,650 63,912,826 66~476 See Notes to Financial Statements 18

47 SHELBY COUNTY PUBLIC SCHOOL DISTRICT BALANCE SHEET-GOVERNMENTAL FUNDS June 30, , General Special SEEK Facility Support School Debt Current Expense Revenue Capital Outla~ Program (FSPK) Construction Service Total Fund Funds Fund Fund Fund Fund Governmental ASSETS Assets: Cash and cash equivalents $ 17,669, ,777 $1,246,141 $ 4,310,614 $8,419,965 $ $ 31,847,004 Investments 43,905 43,905 Accounts receivable Taxes 793, ,074 Intergovernmental 815, ,060 Other receivables 5,640 5,640 Prepaid workers' compensation premiums 10,995 10,995 Total assets 18,523,121 1,015,837 1,246,141 4,310,614 8,419,965 33,515,678 TOTAL ASSETS $ 18,523,121 $1,015,837 $1,246,141 $ 4,310,614 $8,419,965 $ $33,515,678 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable 565,546 $ 5,892 $ $ $1,642,949 $ 2,214,387 Unearned revenue 630, ,449 Current portion of accrued insurance claims liability 24,102 24,102 Current portion of accumulated sick leave 59,991 59,991 Total liabilities 649, ,341 1,642,949 2,928,929 Fund Balances: Nonspendable 10,995 10,995 Restrtcted 379,496 1,246,141 4,310,614 6,777,016 12,713,267 Committed 8,000,000 8,000,000 Assigned 970, ,398 Unassigned 8,892,089 8,892,089 Total fund balances 17,873, ,496 1,246,141 4,310,614 6,777,016 30,586,749 TOTAL LIABILITIES AND FUND BALANCES $ 18,523,121 $1,015,837 $1,246,141 $ 4,310,614 $8,419,965 $ $ 33,515,678 See Notes to Financial Statements 19

48 SHELBY COUNTY PUBLIC SCHOOL DISTRICT RECONCILIATION OF THE BALANCE SHEET GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION As of June 30, 2017 Total fund balance - governmental funds Amounts reported for governmental activities in the statement of net position are different because: Capital assets used in governmental activities are not current financial resources and therefore are not reported as assets in governmental funds. The historical cost of the assets is $187,382,985 and the accumulated depreciation is $58,358,633. Deferred outflows are not reported in the governmental funds because they are not current financial resources, but they are reported in the statement of net position. Deferred inflows of resources are not reported in the fund financial statement because they are not due and payable, but they are reported in the statement of net position. (1,320,451) Bonds payable are not reported in the governmental funds balance sheet because they are not due and payable in the current period, but they are presented in the statement of net position. The noncurrent portion of accumulated sick leave is not reported in the governmental funds balance sheet because it is not due and payable in the current period, but it is presented in the statement of net position. Interest payable is not reported in the governmental funds balance sheet because it is not due and payable in the current period, but it is presented in the statement of net position. Pension liability is not reported in the governmental funds balance sheet because it is not due and payable in the current period, but it is presented in the statement of net position. The noncurrent portion of accrued insurance claims liability is not reported in the governmental funds balance sheet because it is not due and payable in the current period, but it is presented in the statement of net position. Total net position - governmental activities (775,111) (15,652,708) (72,306) $ See Notes to Financial Statements 20

49 SHELBY COUNTY PUBLIC SCHOOL DISTRICT STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS For the Year Ended June 30, , General Special SEEK Facility Support School Debt Current Expense Revenue Capital Outlay Program (FSPK) Construction Service Total Fund Funds Fund Fund Fund Fund Governmental Revenues: Local sources: Property taxes $ 18,520,276 $ $ $ 5,613,831 $ $ $ 24,134,107 Motor vehicle taxes 1,701,932 1,701,932 Utility taxes 3,137,791 3,137,791 Earnings on investments 306,731 6,260 83, ,615 Other local 729, ,470 1,333,144 State sources 35,738,876 3,499, ,019 1,151, ,745 42,007,723 Federal sources 772,021 2,829,750 3,601,771 Total revenues 60,907,301 6,938, ,019 6,765,621 83, ,745 76,313,083 Expenditures: Instruction 36,605,346 4,949,045 41,554,391 Supporting services: Students 2,681,017 28,613 2,709,630 Instructional staff 3,361,947 1,269,358 4,631,305 District administration 1,288,100 1,288,100 School administration 3,833,277 56,611 3,889,888 Business support services 1,690,018 1,690,018 Operation and maintenance of facilities 6,178,458 6,178,458 Student transportation 3,761, ,635 3,926,108 Food services 137, ,186 Community services 621, ,611 Capital outlay 7,660,699 7,660,699 Debt service 6,540,225 6,540,225 Total expenditures 59,536,822 7,089,873 7,660,699 6,540,225 80,827,619 Excess (deficiency) of revenues over expenditures 1,370,479 (151,100) 625,019 6,765,621!7,577,075) (5,547,480)!4,514,536) Other financing sources (uses): Proceeds from loss of assets 29,517 29,517 Proceeds from the sale of bonds 8,862,740 31,555,000 40,417,740 Bond issuance premium 3,173,923 3,173,923 Payment to refunded debt escrow agent (34,567,280) (34,567,280) Transfers In 996, ,078 4,791,224 5,385,837 11,529,603 Transfers (out)!251,080)!157,750)!2,649) (8,082,620) (2,741,792)!11,235,891) Total other financing sources (use 774, ,328 (2,649) (8,082,620) 10,912,172 5,547,480 9,347,612 Extraordinary Item: Restitution received 200, ,425 Net change in fund balances 2,345,805 47, ,370!1,316,999) 3,335,097 5,033,501 Fund balances beginning 15,527, , ,771 5,627,613 3,441,919 25,553,248 Fund balances ending $ 17,873,482 $ 379,496 $ 1,246,141 $ 4,310,614 $ 6,777,016 $ $ 30,586,749 See Notes to Financial Statements 21

50 SHELBY COUNTY PUBLIC SCHOOL DISTRICT RECONCILA TION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES For The Year Ended June 30, 2017 Net change in fund balances - total governmental funds $5,033,501 Amounts reported for governmental activities in the statement of activities are different due to: Governmental funds report capital outlays as expenditures. However, in the statement of net position, the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. The effect on net position is the amount by which capital outlays exceeds depreciation in the current period. Depreciation expense Capital outlays Deferred loss on bond refundings are not reported as expenditures in the governmental funds financial statements but are capitalized and amortized over the life of the related bonds on the statement of activities. This is the amount by which the deferred loss on bond refundings has increased/( decreased). The repayment of the principal of long-term debt is shown as expenditures in the governmental funds financial statements at the time the payments are made. However, these payments are shown as a reduction of long-term debt in the statement of net position. The issuance of long-term debt is shown as an other financing source in the governmental funds financial statements. However, these amounts are shown as an increase to long-term debt in the statement of net position. (4,425,506) 7,327,688 (54,509) 4,000,000 (8,030,000) Deferred outflows from pensions. This is the amount by which deferred outflows from pensions has increase/(decreased). Deferred inflows from pensions. This is the amount by which deferred inflows from pensions has (increased)/decreased. Accumulated sick leave is reported as a liability in the statement of net position, but is only reported in the governmental funds financial statements to the extent that the amounts will be paid with available financial resources. This is the amount by which accumulated sick leave has (increased)/decreased. Insurance claims expense related to the insurance claims liability is recognized in the statement of activities but not in the governmental fund financial statements because it is not paid with existing financial resources. This is the amount by which insurance claims liability has (increased)/ decreased. lnterfund transfer from prior year not reported in entity wide statements Pension liability is recognized in the statement of activities but not in the governmental fund financial statements because it is not paid with existing financial resources. This is the amount by which pension liability has (increased)/decreased. 497,140 (545,797) 76,224 24,102 1,033 (926,682) Interest on long-term debt in the statement of activities differs from the amount reported in the governmental funds because interest is recognized as an expenditure in the funds when it is due and thus requires the use of current financial resources. In the statement of activities, however, interest expense is recognized as the interest accures, regardless of when it is due. This is the amount by which accrued interest has (increased)/decreased. Change in net position of governmental activities $ See Notes to Financial Statements 22

51 SHELBY COUNTY PUBLIC SCHOOL DISTRICT STATEMENT OF NET POSITION PROPRIETARY FUNDS June 30, 2017 School Food Child Care Total Service Fund Fund Proprietary Funds ASSETS Current Assets Cash and cash equivalents $290,985 $ 290,985 Accounts receivable 30,092 2,337 32,429 Inventory 22,516 22,516 Noncurrent Assets Capital assets, net of depreciation 405, ,444 Total assets 458, , ,374 Deferred outflows of resources 611, ,400 Total deferred outflows of resources 611, ,400 Total assets and deferred outflows of resources $1,069,452 $293,322 $ 1,362,774 LIABILITIES Current Liabllitles Bank overdraft 28,726 28,726 Accounts payable 1, ,940 Unearned revenue 22,570 1,353 23,923 Net pension liability 1,779,866 1,779,866 Total liabilities 1,832,474 1,981 1,834,455 Deferred inflows of resources 175, ,691 Total deferred inflows of resources 175, ,691 Total liabilities and deferred inflows of resources $2,008,165 $ 1,981 $ 2,010,146 NET POSITION Net Investment in Capital Assets 405, ,444 Restricted for special projects (1,344,157) (1,344,157) Unrestricted 291, ,341 Total net position $ {938,713) $291,341 $!647,372) See Notes to Financial Statements 23

52 SHELBY COUNTY PUBLIC SCHOOL DISTRICT STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION - PROPRIETARY FUNDS For the Year Ended June 30, 2017 School Food Child Care Total Service Fund Fund Proprietary Funds Operating Revenues Lunchroom sales $ 724,150 $ $ 724,150 Child care fees 586, ,539 Total operating revenues 724, ,539 1,310,689 Operating Expenses Salaries and benefits 1,991, ,771 2,371,266 Contract services 20,266 9,405 29,671 Materials and supplies 2,046,367 37,274 2,083,641 Depreciation 75,828 75,828 Other 4,472 9,837 14,309 Total operating expenses 4,138, ,287 4,574,715 Operating income (loss) (3,414,278) 150,252 (3,264,026) Nonoperating Revenues Federal grants 2,808,272 2,808,272 Donated commodities 191, ,823 State grants 307, ,995 Services provided to governmental funds 1,740 1,740 Loss on disposal of assets (2,670) (2,670) Interest income Total nonoperating revenues 3,307,691 3,307,691 Income (loss) before operating transfer (106,587) 150,252 43,665 Operating transfer in 121, ,010 Operating transfer out {211,452) {203,270) {414,722) Change in net position (197,029) (53,018) (250,047) Net position as of July 1, 2016 (741,684) 344,359 (397,325) Net position as of June 30, 2017 $ {938,713) $291,341 $ {647,372) See Notes to Financial Statements 24

53 SHELBY COUNTY PUBLIC SCHOOL DISTRICT STATEMENT OF CASH FLOWS - PROPRIETARY FUNDS For the Year Ended June 30, 2017 School Food Child Care Total Service Fund Fund Proprietary Funds Cash flows from operating activities Cash received from: Lunchroom sales $ 717,460 $ $ 717,460 Child care fees 585, ,095 Cash paid for: Employees and contract services (1,707,527) (389,176) (2,096,703) Materials and supplies (1,889,834) (37,096) (1,926,930) Other (4,472) (9,837) (14,309) Net cash provided by (used in) operating activities {2,884,373) 148,986 {2,735,387) Cash flows from noncapital financing activities Services provided to governmental funds 1,740 1,740 Government grants 2,829,783 2,829,783 Net cash provided by noncapital financing activities 2,831,523 2,831,523 Cash flows from capital and related financing activities Capital asset purchases (32,627) (32,627) Operating transfer to general fund (90,442) (203,270) (293,712) Net cash used in capital and related financing activities (123,069) (203,270) (326,339) Cash flows from investing activities Receipt of interest income Net cash provided by investing activities Net decrease in cash (175,388) (54,284) (229,672) Cash as of July 1, , , ,931 Cash as of June 30, 2017 $ (28,726) $ 290,985 $ 262,259 Reconciliation of operating Income (loss) to net cash used in operating activities Operating income (loss) $ (3,414,278) $ 150,252 $ (3,264,026) Adjustments to reconcile operating loss to net cash used in operating activities: Depreciation 75,828 75,828 Donated commodities 191, ,823 On behalf payments 276, ,268 Changes in assets and liabiities: Accounts receivable (1,543) (1,543) Inventory 1,205 1,205 Deferred Outflows 12,767 12,767 Unearned revenues (6,690) 99 (6,591) Accounts payable (35,461) (35,461) lnterfund payable (1,034) (1,034) Deferred Inflows 53,545 53,545 Net pension liability {38,346) 178 (38,168) Net cash provided by (used in) operating activities $ {2,884,373) $ 148,986 $ (2,735,387) Schedule of noncash transactions Donated commodities $ 191,823 $ $191,823 See Notes to Financial Statements 25

54 SHELBY COUNTY PUBLIC SCHOOL DISTRICT STATEMENT OF FIDUCIARY NET POSITION - FIDUCIARY FUNDS June 30, 2017 ASSETS Agency Fund School Activity Funds Private Purpose Trust Fund Total Fiduciary Funds Assets: Cash and cash equivalents Receivables Total assets $ 618, ,587 $ $ 618, ,587 LIABILITIES Liabilities: Accounts payable and accrued liabilities Due to student groups Total liabilities $ 618, ,587 $ $ 618, ,587 Total net position $ $ $ See Notes to Financial Statements 26

55 SHELBY COUNTY PUBLIC SCHOOL DISTRICT STATEMENT OF CHANGES IN NET POSITION-FIDUCIARY FUNDS For the Year Ended June 30, 2017 Private Purpose Trust Fund Additions Earnings on investment $ Contributions 8,000 Total revenues 8,000 Deductions Scholarships 10,500 Total expenditures 10,500 Income (loss) before operating transfer (2,500) Change in net position (2,500) Net position as of July 1, ,500 Net position as of June 30, 2017 $ See Notes to Financial Statements 27

56 SHELBY COUNTY PUBLIC SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2017 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REPORTING ENTITY The Shelby County Board of Education (Board), a five member group, is the level of government which has oversight responsibilities over all activities related to public elementary and secondary school education within the jurisdiction of the Shelby County School District (District). The District receives funding from local, state and federal government sources and must comply with the commitment requirements of these funding source entities. However, the Board is not included in any other governmental "reporting entity" as defined in Section 2100, Codification of Governmental Accounting and Financial Reporting Standards as Board members are elected by the public and have decision making authority, the power to designate management, the responsibility to develop policies which may influence operations, and primary accountability for fiscal matters. The Board, for financial purposes, includes all of the funds and account groups relevant to the operation of the Shelby County Board of Education. The financial statements presented herein do not include funds of groups and organizations, which although associated with the school system, have not originated within the Board itself such as Band Boosters, Parent-Teacher Associations, etc. The financial statements of the Board include those of separately administered organizations that are controlled by or dependent on the Board. Control or dependence is determined on the basis of budget adoption, funding, and appointment of the respective governing board. Based on the foregoing criteria, the financial statements of the following organization are included in the accompanying financial statements: Shelby County School District Finance Corporation (the Corporation) - the Shelby County Board of Education has established the Shelby County School District Finance Corporation (a non-profit, non-stock, public and charitable corporation organized under the School Bond Act and KRS 273 and KRS Section ) as an agency of the Board for financing the costs of school building facilities. The Board Members of the Shelby County Board of Education also comprise the Corporation's Board of Directors. Basis of Presentation Entity-Wide Financial Statements - The statement of net position and the statement of activities display information about the District as a whole. These statements include the financial activities of the primary government, except for fiduciary funds. The statements distinguish between those activities of the Board that are governmental and those that are considered business-type activities. The entity-wide statements are prepared using the economic resources measurement focus and the accrual basis of accounting. The District's activities are generally financed through state funding, property and utility taxes, and federal, state, and local grants. Revenues are recorded when earned and expenses are recorded at the time the liability is incurred, regardless of when the related cash flows take place. Revenues from grants are recognized in the fiscal year in which eligibility requirements are met. 28

57 The entity-wide statement of activities presents a comparison between direct expenses and program revenues for each segment of the business-type activities of the District and for each function or program of the District's governmental activities. Direct expenses are those that are specifically associated with a service, program or department and are therefore clearly identifiable to a particular function. Program revenues include charges paid by the recipient of the goods or services offered by the program and grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues are presented as general revenues of the District, with certain limited exceptions. The comparison of direct expenses with program revenues identifies the extent to which each business segment or governmental function is self-financing or draws from the general revenues of the District. Fund Financial Statements - Fund financial statements report detailed information about the District. The focus of governmental and proprietary fund financial statements is on individual funds rather than reporting funds by type. Each fund is presented in a separate column. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. Revenues applicable to the current fiscal year and collected within 60 days of year end are recognized as revenue. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, which are recognized as expenditures when they come due for payment. General capital asset acquisitions are reported as expenditures in governmental funds, and proceeds of general long-term debt are reported as other financing sources. Under the terms of the District's grant agreements, certain programs are funded by specific costreimbursement grants and general revenu'es. Generally, the District applies cost-reimbursement funds first to finance such programs with remaining costs paid by general revenues. Proprietary funds utilize the economic resources measurement focus and the accrual basis of accounting. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues generally result from providing services in connection with the fund's principal operations. The funds' principal operating revenues are food service charges and childcare fees. Operating expenses include salaries and benefits, materials and supplies, administrative costs, and depreciation on capital assets. Fiduciary funds utilize the economic resources measurement focus and the accrual basis of accounting. Accounting principles generally accepted in the United States of America require the General Fund be reported as a major fund. All other governmental and proprietary funds whose assets, liabilities, revenues, or expenditures comprise at least 10% of the total for the relevant fund category and at least 5% of the corresponding total for all governmental and proprietary funds combined must also be reported as major funds, at a minimum. The District has determined all funds should be reported as major funds. The District has the following funds: I. Governmental Fund Types (A) The General Fund is the general operating fund of the District. It accounts for and reports all financial resources not accounted for and reported in another fund. All general tax revenues and other receipts that are not allocated by law or contractual agreement to some other fund are accounted for in this fund. General operating expenditures and the capital improvement costs that are not paid through other funds are paid from the General Fund. 29

58 (B) The Special Revenue Funds are used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects. This is a major fund of the District. (C) Capital Project Funds are used to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays, including the acquisition or construction of capital facilities and other capital assets, and to provide financial resources for debt service requirements. Capital projects funds exclude those types of capital-related outflows financed by proprietary funds or for assets that are held in trust. 1. The Support Education Excellence in Kentucky (SEEK) Capital Outlay Fund receives those funds designated by the state as capital outlay funds and is generally restricted for use in financing projects identified in the district's facility plan (including payment of bonded lease obligations). This is a major fund of the District. 2. The Facility Support Program of Kentucky (FSPK) Fund accounts for and reports funds generated by the building tax levy required to participate in the School Facilities Construction Commission's construction funding and state matching funds, where applicable. Funds may be used for projects identified in the district's facility plan. This is a major fund of the District. 3. The Construction Fund accounts for and reports proceeds from sales of bonds and other revenues to be used for authorized construction. This is a major fund of the District. II. Debt Service Fund The Debt Service Fund accounts for and reports expenditures for debt payments. This is a major fund of the District. Ill. Proprietary Funds (Enterprise Fund) 1. The School Food Service Fund accounts for and reports school food service activities, including the National School Lunch Program and the National School Breakfast Program, which are conducted in cooperation with the U.S. Department of Agriculture (USDA). Amounts have been recorded for in-kind contribution of commodities from the USDA. This is a major fund for the District. 2. The Day Care Fund is used to account for and report the activities of the day care programs where a fee is charged for participating. This is a major fund of the District. IV. Fiduciary Fund Type (Agency and Private Purpose Trust Funds) 1. The Student Activity Funds account for and report activities of student groups and other types of activities requiring clearing accounts. These funds are accounted for in accordance with Accounting Procedures for Kentucky School Activity Funds Redbook). 2. The Private Purpose Trust Fund accounts for and reports a scholarship fund under which principal and income are used to benefit individuals by providing scholarships. Budgetary Process The District's budgetary process accounts for transactions on the modified accrual basis of accounting which is consistent with the accounting principles generally accepted in the United States of America. 30

59 In accordance with state law, the District prepares a general school budget based upon the amount of revenue to be raised by local taxation, including the rate of levy, and from estimates of other local, state, and federal revenues. The budget contains estimated expenditures for current expenses, debt service, capital outlay, and other necessary expenses. The budget must be approved by the Board. The District must formally and publicly examine estimated revenues and expenses for the subsequent fiscal year by January 31 of each year. Additionally, the District must prepare an annual allocation to schools by March 1 of each year for the following fiscal year. This allocation must include the amount for certified and classified staff based on the District's staffing policy and the amount for instructional supplies, materials, travel, and equipment. The Board must also adopt a tentative working budget for the subsequent fiscal year by May 30 of each year. This budget must contain a 2% reserve. Finally, the District must adopt a final working budget and submit it to the Kentucky Department of Education by September 30 of the current fiscal year. The Board has the ability to amend the working budget. The working budget was amended during the year. Cash and Cash Equivalents The District considers demand deposits, money market funds, and other investments with an original maturity of 90 days or less, to be cash equivalents. Investments The District holds investments that are measured at fair value on a recurring basis. Because investing is not a core part of the District's mission, the District determines that the disclosures related to these investments only need to be disaggregated by major type. The District chooses a narrative format for the fair value disclosures. Inventories On entity-wide financial statements inventories are stated at cost and are expensed when used. On fund financial statements inventories are stated at cost. The cost of inventory items is recorded as an expenditure in the governmental fund types when purchased. The food service fund uses the specific identification method. Prepaid Assets Payments made that will benefit periods beyond the end of the fiscal year are recorded as prepaid items using the consumption method. Prepaid assets are only recorded if material to the financial statements. Bond Issuance Costs Bond issuance costs are expensed as incurred. 31

60 Deferred Loss on Bond Refundings Deferred loss on bond refundings represents losses equal to the principal amount borrowed to refund the principal amount outstanding on previous bond issues. These amounts are recognized as deferred outflows of resources on the accompany statement of net position. The amounts are amortized over the life of the new bond or the life of the refunded bond (whichever is shorter), and included in interest expense'on the accompanying statement of activities. lnterfund Balances On fund financial statements, receivables and payables resulting from short-term interfund loans are classified as "interfund receivables/payables". These amounts are eliminated in the governmental and business-type activities columns of the statements of net position, except for the net residual amounts due between governmental and business-type activities, which are presented as internal balances. Capital Assets General capital assets are those assets not specifically related to activities reported in the proprietary funds. These assets generally result from expenditures in the governmental funds. These assets are reported in the governmental activities column of the government-wide statement of net position but are not reported in the fund financial statements. Capital assets utilized by the proprietary funds are reported both in the business-type activities column of the government-wide statement of net position and in the respective proprietary funds. All capital assets are capitalized at cost (or estimated historical cost) and updated for additions and retirements during the year. Donated fixed assets are recorded at their fair market values as of the date received. The District maintains a capitalization threshold of five thousand dollars. Improvements are capitalized; the cost of normal maintenance and repairs that do not add to the value of the asset or materially extend an asset's life are not. All reported capital assets except land and construction in progress are depreciated. Improvements are depreciated over the remaining useful lives of the related capital assets. Depreciation is computed using the straight-line method over the following useful lives for both general capital assets and proprietary fund assets: Description Buildings and improvements Land improvements Technology equipment Vehicles Audio-visual equipment Food service equipment Furniture and fixtures Estimated Useful Lives years 20 years 5 years 5-10 years 15 years 12 years 20 years 32

61 Accrued Liabilities and Long-Term Obligations All payables, accrued liabilities and long-term obligations are reported in the entity-wide financial statements, and all payables, accrued liabilities and long-term obligations payable from proprietary funds are reported on the proprietary fund financial statements. In general, payables and accrued liabilities that will be paid from governmental funds are reported on the governmental fund financial statements if they will be liquidated with current resources. In general, payments made within 60 days after year end are considered to have been made with current available financial resources. Bonds and other long-term obligations that will be paid from governmental funds are not recognized as a liability in the fund financial statements until due. Unearned Revenue Unearned revenue arises when assets are received before revenue recognition criteria have been satisfied. Grants and entitlements received before the eligibility requirements are met are recorded as unearned revenue. Accumulated Unpaid Sick Leave Benefits Upon retirement from the school system, an employee will receive from the District an amount equal to 30% of the value of accumulated sick leave. Sick leave benefits are accrued as a liability using the termination payment method. An accrual 'tor earned sick leave is made to the extent that it is probable that the benefits will result in termination payments. The liability is based on the School District's past experience of making termination payments. The entire compensated absence liability is reported on the government-wide financial statements. For governmental fund financial statements the current portion of unpaid accrued sick leave is the amount expected to be paid using expendable available resources. These amounts are recorded in the account "accumulated sick leave payable" in the general fund. The noncurrent portion of the liability is not reported. Fund Balances The District classifies its governmental fund balances as follows: Nonspendable - Amounts that cannot be spent because they are either not in a spendable form (such as inventories and prepaid amounts) or are legally or contractually required to be maintained intact. Restricted - This category includes resources that are either; (a) externally imposed by creditors, grantors, contributors, or laws or regulations or other governments; or (b) imposed by law through constitutional provisions or enabling legislation. The SEEK Capital Outlay Fund and the FSPK Fund are restricted to be used for future debt service or future construction projects. The Construction Fund is restricted for future construction projects. The Debt Service Fund is restricted for debt service. Committed - This category includes funds that have been designated for specific purposes by formal action of the Board of Education. Only the Board may commit funds and modify or rescind the commitment. 33

62 Assigned Fund Balance - This category represents funds that have been assigned for a specific purpose or, in the general fund only, for existing purchase obligations. Assignments can be made by authorized members of management. Unassigned Fund Balance - This category represents the remainder of the governmental fund balances that do not belong in any other fund balance classifications. When an expenditure is incurred for purposes for which committed, assigned, or unassigned funds are available, the funds will first be spent from committed, then assigned, and then finally unassigned. The Board will use restricted funds before unrestricted (committed, assigned, or unassigned) funds when an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available. Net Position Net position represents the difference between assets and deferred outflows of resources, and liabilities and deferred inflows of resources. Amounts invested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for the acquisition, construction or improvement of those assets. Net position is reported as restricted when there are limitations imposed on their use either through the enabling legislation adopted by the District or through external restrictions imposed by creditors, grantors or laws or regulations of other governments. lnterfund Activity Flows of cash or goods from one fund to another without a requirement for repayment are reported as interfund transfers. lnterfund transfers are reported as other financing sources/uses in governmental funds and after nonoperating revenues/expenses in proprietary funds. These transactions are eliminated in the governmental and business-type activities columns of the statement of activities. Encumbrances Encumbrances are not liabilities and therefore, are not recorded as expenditures until receipt of material or service. For budgetary purposes, appropriations lapse at fiscal year-end and outstanding encumbrances at year-end are reappropriated in the next fiscal year. Estimates The process of preparing financial statements in conformity with general accepted accounting principles of the United States of America requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, designated fund balances, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from those estimates. Subsequent Events Subsequent events were considered through November 13,

63 NOTE B- CASH AND CASH EQUIVALENTS At year-end, the carrying amount of the District's total cash and cash equivalents was $5,005,102. Of the total cash balance $250,000 was covered by Federal Depository insurance, with the remainder covered by collateral agreements and collateral held by the pledging banks' trust departments in the District's name. Cash equivalents are funds temporarily invested in securities with a maturity of 90 days or less. The District participates in the Insured Cash Sweep program whereby an additional $33,883,472 was covered by Federal Depository insurance at numerous financial institutions in increments of less than $250,000. Due to the nature of the accounts and limitations imposed by bond issue requirements, construction projects, and financial assistance programs, each cash amount within the following funds is considered to be restricted: Special Revenue Funds, Capital Outlay Fund, Facilities Support Program (FSPK) Fund, School Construction Fund, Student Activity Funds, and Private Purpose Trust Funds. District funds are considered to be public funds and therefore their investment is limited by statute to certain obligations of the United States or similar government agencies, cash instruments, and certain pooled investment funds. Interest rate risk. In accordance with the District's investment policy, interest rate risk is limited by investing in public funds with the highest rate of return with the maximum security of principal. Investments are undertaken in a manner that seeks to ensure preservation of the capital in its portfolio. Credit risk. The District's investment policy limits the types of authorized investment instruments to obligations of the United States, its agencies, and instrumentalities. In addition, certificates of deposit or bonds of a bank or the Commonwealth of Kentucky, securities issued by a state or local government or shares of mutual funds are acceptable investments. Concentration of credit risk. The district may invest, at any one time, funds in any one of the above listed categories with no limitation of the total amount of funds invested on behalf of the District. Custodial credit risk - deposits. For deposits, this is the risk that in the event of a bank failure, the District's deposits may not be returned. The District maintains deposits with financial institutions insured by the Federal Deposit Insurance Corporation (FDIC). As allowed by law the depository bank should pledge securities along with FDIC insurance at least equal to the amount on deposit at all times. As of June 30, 2017, the District's deposits are entirely insured and/or collateralized with securities held by the financial institutions on the District's behalf and the FDIC insurance. 35

64 Cash and cash equivalents at June 30, 2017 consisted of the following: General Checking Account General Fund Special Revenue Funds Capital Outlay Fund FSPK Fund School Construction Fund Food Service Account Day Care Fund Total General Checking Account School Activity Funds Accounts Total of all Checking Accounts Book Balance $17,669, ,777 1,246,141 4,310, ,965 (28,726) 290,985 32,109, ,587 $32, Breakdown per financial statements: Governmental Funds Proprietary Funds Agency Funds Total $31,847, , ,587 $32,727,850 NOTE C - INVESTMENTS The District categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs to measure the fair value of the asset. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable inputs. The District has the following recurring fair value measurements as of June 30, 2017: Securities of $43,905 are valued using quoted market prices (Level 1 inputs) NOTE D - PROPERTY TAXES Property taxes are levied each September on the assessed value listed as of the prior January 1 for all real and personal property located in the district. The billings are considered due upon receipt by the taxpayer; however, the actual date is based on a period ending 30 days after the tax bill mailing. Property taxes collected are recorded as revenues in the fiscal year in which they were levied. The property tax rates assessed for the year ended June 30, 2017, to finance operations were $.715 per $100 valuation for real property, $.715 per $100 valuation for business personal property and $.465 per $100 valuation for motor vehicles. 36

65 The District levies a utility gross receipts license tax in the amount of 3% of the gross receipts derived from the furnishings, within the District, of telephonic and telegraphic communications services, cablevision services, electric power, water, and natural, artificial and mixed gas. The due date and collection periods for all taxes exclusive of vehicle taxes are as follows: Description Discount, 2% Face value amount payment date Delinquent date, 5% penalty Delinquent date, 10% penalty per KRS by November 1 November 2 thru December 31 January 1-31 February 1 Vehicle taxes are collected by the County Clerk and are due and collected in the birth month of the vehicle's licensee. 37

66 NOTE E - CAPITAL ASSETS Capital asset activity for the fiscal year ended June 30, 2017 was as follows: E?a:irria;i Erda;i ~are ~are Governmental Activities 6/30/2016 Additions Retirements Transfers 6/30/ Land $ 2,916,550 $ $ $. $ 2,916, Land Improvements 1,484,521 1,484, Buildings & Building Improvements 166,698, , ,832, Technology Equipment 1,040,518 1,040, Vehicles 6,107, ,075 (355,694) 6,304, General Equipment 1,356,296 12,864 1,369, Construction Work in Progress 317,203 6,627,603 6,944, Infrastructure 489, ,832 Totals at Historical Cost: 180,410,991 7,327,688 (355,694) 187,382,985 Less Accumulated Depreciation: 6202 Land 6212 Land Improvements 990,060 42,673 1,032, Buildings & Building Improvements 46,553,916 3,894,921 50,448, Technology Equipment 964,077 40,813 1,004, Vehicles 4,674, ,317 (355,694) 4,653, General Equipment 787,799 88, , Infrastructure 318,391 24, ,883 Total Accumulated Depreciation: 54,288,821 4,425,506 (355,694) 58,358,633 Net Capital Assets - Governmental Activities $126,122,170 $2,902,182 $ $ $ 129,024,352 Business-T~~e Activities: 6251 Food Service Equipment 1,471,790 32,627 (100,895) 1,403,522 Less Accumulated Depreciation: 6252 Food Service Equipment 1,020,475 75,828 (98,225) 998,078 Net Capital Assets - Business-Type Activities $ 451,315 $ (43,201) $ (2,670) $. $ 405,444 38

67 Depreciation expense was charged to functions of the governmental activities as follows: 1100 Instruction 2100 Stu dent Sup port Services 2200 Staff Support Services 2300 District Administration 2400 School Administration 2500 Business Support Services 2600 Plant Operations and Maintenance 2700 Student Transportation Total Depreciation expense, governmental activities $ $ 846,721 6,927 1,098 37, ,128 18,296 2,872, ,000 4,425,506 NOTE F - BONDED DEBT AND LEASE OBLIGATIONS The amount shown in the accompanying financial statements as bond obligations represents the District's future obligations to make bond principal and interest payments relating to the bonds issued by the Shelby County School District Finance Corporation. The original amount of each issue, the issue date, and interest rates are summarized below: Issue Proceeds Interest Rates ,710, % ,210, % ,620, % ,010, % ,590, % ,405, % ,020, % ,555, % The District, through the General Fund (including utility taxes) and the Support Education Excellence in Kentucky (SEEK) Capital Outlay Fund is obligated to make payments in amounts sufficient to satisfy debt service requirements on bonds issued to construct school facilities. The District has an option to purchase the property under lease at any time by retiring the bonds then outstanding. The District entered into "participation agreements" with the School Facility Construction Commission. The Commission was created by the Kentucky General Assembly for the purpose of assisting local school districts in meeting school construction needs. The participation agreements generally provide for the Commission to assist the District in meeting bond obligations and are renewable, at the Commission's option, biannually. Should the Kentucky General Assembly choose to not fund the Commission in the future, the District would be responsible for meeting the full requirements of the bond issues. The table below sets forth the amount to be paid by the District and the Commission for each year until maturity of all bond issues. The liability for the total bond amount remains with the District and, as such, the total principal outstanding has been recorded in the financial statements. The bonds may be called prior to maturity and redemption premiums are specified in each issue. Assuming no bonds are called prior to scheduled maturity, the minimum obligations of the District, including amounts to be paid by the Commission, at June 30, 2017 for debt service (principal and interest) are as follows: 39

68 Fiscal Shelb~ Count~ School Kentuck~ School Facilit~ Year District Construction Commission Ending Principal Interest Principal Interest Total 2018 $ 3,310,222 $ 2,260,723 $ 834,778 $ 237,434 $ 6,643, ,382,378 2,091, , ,072 6,545, ,462,728 2,005, , ,901 6,213, ,564,685 1,908, , ,859 6,218, ,666,165 1,805, , ,338 6,217, ,765,457 1,708, , ,630 6,219, ,864,103 1,604, , ,276 6,214, ,967,850 1,495, , ,767 6,033, ,109,871 1,378, , ,484 6,057, ,275,069 1,214, ,931 94,684 6,059, ,449,771 1,043, ,229 79,385 6,063, ,623, , ,043 63,570 6, ,017, , ,928 47,116 6,049, ,093, , ,862 38,182 5,985, ,123, , ,106 28,938 5,872, ,154, , ,726 19,318 5,756, ,336 95,763 91,664 8, ,909 74,007 94,091 6,572 1,145, ,223 46, ,885 1,145, ,043,885 15,658 81,115 1,217 1,141,875 $ 70,536,987 $ 21,431,800 $ 8,633,013 $ 1,929,626 $ 102,531,426 The following is a summary of the changes in outstanding bonds during the fiscal year ended June 30, 2017: Balance Balance Issue June 30, 2016 Additions Deductions Payments June 30, $ 5,165,000 $ $ $ (1,675,000) $ 3,490, ,545,000 (31,545,000) ,760,000 (290,000) 4,470, ,285,000 (495,000) 7,790, ,520,000 (180,000) 4,340, ,000,000 (185,000) 17,815, ,865,000 (295,000) 2,570, ,555,000 (880,000) 30,675, ,020,000 8,020,000 $ 75,140,000 $ 39,575,000 $ (31,545,000) $ (4,000,000) $ 79,170,000 40

69 NOTE G - ACCUMULATED UNPAID SICK LEAVE BENEFITS Upon retirement from the school district, eligible employees will receive from the District an amount equal to 30% of the value of accumulated sick leave. The entire compensated absence liability is reported on the entity-wide financial statements. For governmental fund financial statements, the current portion of unpaid accumulated sick leave is the amount expected to be paid using expendable available financial resources. These amounts are recorded in the accumulated sick leave payable account in the General Fund. The noncurrent portion of the liability is not reported in the governmental fund financial statements. A summary of the changes in the estimated accumulated unpaid sick leave benefits during the fiscal year ended June 30, 2017 is as follows: Balance as of July 1, 2016 Minus sick leave payments beyond payments/forfeitures $ 779,065 (42,405) Balance as of June 30, 2017 Less Current Portion 736,660 (59,991) Noncurrent portion $ 676,669 NOTE H - ACCRUED INSURANCE CLAIMS LIABILITY The District has previously purchased workers' compensation and general liability insurance through the Kentucky School Board Insurance Trust (KSBIT). KSBIT filed for bankruptcy. Accordingly, the participant districts are subject to KSBIT's unpaid outstanding claims. On June 4, 2014, the Franklin Circuit Court issued an order instructing the Rehabilitator to assess the former members of the Kentucky School Boards Insurance Trust Workers' Compensation Fund. The District was assessed $192,820. The District elected to pay 25% by August 31, 2014, and the balance in equal installments for 6 years. On July 17, 2014 the Franklin Circuit Court issued an order instructing the Rehabilitator to assess the former members of the Kentucky School Boards Insurance Trust Property & Liability Fund. The District was assessed $133,353. The District elected to pay 40% by September 15, 2014, and the balance in equal installments for 2 years. The following is a schedule by years of the future payments under the agreements: Year Ending June 30 Amount 2018 $ 24, , , ,102 Total $ 96,408 41

70 NOTE I - CONTINGENCIES The District receives funding from Federal, State and Local government agencies and private contributions. These funds are to be used for designated purposes only. For government agency grants, if based upon the grantor's review, the funds are considered not to have been used for the intended purpose, the grantors may request a refund of monies advanced, or refuse to reimburse the District for its disbursements. The amount of such future refunds and unreimbursed disbursements, if any, is not expected to be significant. Continuation of the District's grant programs is predicated upon the grantors' satisfaction that the funds provided are being spent as intended and the grantors' intent to continue their programs. NOTE J - INSURANCE, RISK MANAGEMENT AND RELATED ACTIVITIES The District is exposed to various forms of loss of assets associated with the risks of fire, personal liability, theft, vehicular accidents, errors and omissions, fiduciary responsibility, etc. Each of these risk areas is covered through the purchase of commercial insurance. The District has purchased certain policies which are retrospectively rated including Workers' Compensation insurance. Settled claims resulting from these risks have not exceeded commercial insurance coverage in any of the past three fiscal years. NOTE K - INTERFUND RECEIVABLES AND PAY ABLES There were no lnterfund balances at June 30, NOTE L - DEFICIT OPERA TING/FUND BALANCES The Food Service Fund has a deficit net position at June 30, 2017 of ($938,713) due to the recording of the net pension liability in accordance with GASB Statements 68 and 71. Without the effect of GASB Statements 68 and 71, the Food Service Fund's net position at June 30, 2017 is $0. The following funds had operations that resulted in a current year operating loss, resulting in a corresponding reduction to fund balance (net position): FSPKFund Food Service Fund Day Care Fund ($1,316,999) (197,029) (53,018) NOTE M - COBRA Under COBRA, employers are mandated to notify terminated employees of available continuing insurance coverage. Failure to comply with this requirement may put the school district at risk for a substantial loss. 42

71 NOTE N - TRANSFER OF FUNDS The following transfers were made during the fiscal year ended June 30, 2017: Tu2.s! From Fund To Fund Purpose Amount Operating General Special Revenue Matching Funds 130,070 Operating General Foos Service Satisfy Deficit 121,010 Operating Capital Outlay Construction SFCC Required Cash 2,649 Financing FSPK Debt Service Debt Payments 5,385,837 Operating FSPK General Capital Funds Request 650,000 Operating FSPK Construction Future Construction 2,046,783 Operating Food Service General Indirect Costs 211,452 Operating Special Revenue Special Revenue Administrative 157,750 Capital Construction Construction Administrative (4,791,224) Operating Day Care District Activity Profit Sharing 73,400 Operating Day Care General Funding 129,870 NOTE O - ON-BEHALF PAYMENTS 4,117,597 The District receives on-behalf payments for fringe benefits form the Commonwealth of Kentucky. The following amounts are included as revenues and expenditures/expenses on the statement of activities, and the statement of revenues, expenditures, and changes in fund balance/net position in each of the functions. Instruction Support Services Student Instructional Staff District Administration School Administration Business Plant Operation and Maintenance Student Transportation Food Service Total $8,753, , , , , , , , ,268 $12,344,948 Additionally, the Commonwealth of Kentucky paid $107,130 in technology related expenses and The School Facilities Construction Commission paid $992,745 in debt service on-behalf of the District. These amounts are included as revenues and expenditures/expenses on the statement of activities, and the statement of revenues, expenditures, and changes in fund balance. 43

72 NOTE P - RETIREMENT PLANS The following are payroll and retirement amounts for the years ended June 30, 2017, 2016, and Q1l ~ Total payroll $42,820,264 $42,846,564 TRS total payroll 33,057,511 33,358,791 CERS total payroll 12,999,381 12,270,458 Contributions requirement for CERS 1,653,985 1,462,426 CERS contribution - District portion 1,653,985 1,462,426 CERS contribution - Employee portion 476, ,346 TRS contribution - Commonwealth of KY 5,157,815 5,037,052 TRS contribution - District federal employees 1,238,533 1,245, $41,285,008 32,251,771 11,471,190 1,444,969 1,444, ,158 4,913, ,405 NOTE Q - GENERAL INFORMATION ABOUT THE PENSION PLANS Teachers' Retirement System of the State of Kentucky (TRS) Plan Description - Teaching-certified employees of the District are provided pensions through the Teachers' Retirement System of the State of Kentucky (TRS) - ci cost-sharing multiple-employer defined benefit pension plan with a special funding situation established to provide retirement annuity plan coverage for local school districts and other public education agencies in the state. TRS was created by the 1938 General Assembly and Is governed by Chapter 161 Section 220 through Chapter161 Section 990 of the Kentucky Revised Statutes (KRS). TRS Is a blended component unit of the Commonwealth of Kentucky and therefore is included in the Commonwealth's financial statements. TRS issues a publicly available financial report that can be obtained at publications/index.htm. Benefits Provided - For members who have established an account in a retirement system administered by the Commonwealth prior to July 1, 2008, members become vested when they complete five (5) years of credited service. To qualify for monthly retirement benefits, payable for life, members must either: 1. Attain age fifty-five (55) and complete five (5) years of Kentucky service, or 2. Complete 27 years of Kentucky service. Participants that retire before age 60 with less than 27 years of service receive reduced retirement benefits. Non-university members with an account established prior to July 1, 2002 receive monthly payments equal to two (2) percent (service prior to July 1, 1983) and two and one-half (2.5) percent (service after July 1, 1983) of their final average salaries for each year of credited service. New members (including second retirement accounts) after July 1, 2002 will receive monthly benefits equal to 2% of their final average salary for each year of service If, upon retirement, their total service less than ten years. New members after July 1, 2002 who retire with ten or more years of total service will receive monthly benefits equal to 2.5% of their final average salary for each year of services, including the first ten years. In addition, members who retire July 1, 2004 and later with more than 30 years of service will have their multiplier increased for all years over 30 and 2.5% to 3% to be used in their benefit calculation. Effective July 1, 2008, the System has been amended to change the benefit structure for members hired on or after that date. 44

73 Final average salary is defined as the member's five (5) highest annual salaries for those with less than 27 years of service. Members at least age 55 with 27 or more years of service may use their three (3) highest annual salaries to compute the final average salary. TRS also provides disability benefits for vested members at the rate of sixty (60) percent of the final average salary. A life insurance benefit, payable upon the death of a member, is $2,000 for active contributing members and $5,000 for retired or disabled members. Cost of living increases are one and one-half (1.5) percent annually. Additional ad hoc increases and any other benefit amendments must be authorized by the General Assembly. Contributions - Contribution rates are established by Kentucky Revised Statutes (KRS). Nonuniversity members are required to contribute % of their salaries to the System. The Commonwealth of Kentucky, as a non-employer contributing entity, pays matching contributions of the amount % of salaries for local school district and regional cooperative employees hired before July 1, 2008 and % for those hired after July 1, For local school district and regional cooperative members whose salaries are federally funded, the employer contributes % of salaries. If an employee leaves covered employment before accumulating five (5) years of credited service, accumulated employee pension contributions plus interest are refunded to the employee upon the member's request. Medical Insurance Plan Plan description - In addition to the pension benefits described above, Kentucky Revised Statute requires TRS to provide post-employment healthcare benefits to eligible members and dependents. The TRS Medical Insurance benefit is a cost-sharing multiple employer defined benefit plan. Changes made to the medical plan may be made by the TRS Board of Trustees, the Kentucky Department of Employee Insurance and the General Assembly. To be eligible for medical benefits, the member must have retired either for service or disability. The TRS Medical Insurance Fund offers coverage to members under the age of 65 through the Kentucky Employees Health Plan administered by the Kentucky Department of Employee Insurance. Once retired members and eligible spouses attain age 65 and are Medicare eligible, coverage is obtained through the TRS Medicare Eligible Health Plan. Funding policy - In order to fund the post-retirement healthcare benefit, seven and one-half percent (7.50%) of the gross annual payroll of members before July 1, 2008 is contributed. Three and three-fourths percent (3.75%) is paid by member contributions and three quarters percent (.75%) from state appropriation and three percent (3.00%) from the employer. Also, the premiums collected from retirees as described in the plan description and investment interest help meet the medical expenses of the plan. Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions At June 30, 2017, the Kentucky School District did not report a liability for its proportionate share of the net pension liability because the State of Kentucky provides the pension support directly to TRS on behalf of the District. The amount recognized by the District as its proportionate share of the net pension liability, the related State support, and the total portion of the net pension liability that was associated with the District were as follows: 45

74 State's proportionate share of the net pension liability associated with the District $ The net pension liability was measured as of June 30, 2016, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The District's proportion of the net pension liability was based on the actual liability of the employees and former employees relative to the total liability of the System as determined by the actuary. At June 30, 2016, the District's proportion was percent. For the year ended June 30, 2017, the District recognized pension expense of $5,157,815 and revenue of $5,157,815 for support provided by the State. At June 30, 2017, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Actuarial assumptions - The total pension liability in the June 30, 2016 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Investment rate of return Projected salary increases Inflation rate Municipal Bond Index Rate Single Equivalent Interest Rate 7.50%, net of pension plan investment expense, including inflation %, including inflation 3.50% 3.01% 4.20% Mortality rates were based on the RP-2000 Combined Mortality Table for Males or Females, as appropriate, with adjustments for mortality improvements based on a projection of Scale AA to 2020 with a setback of 1 year for females. The actuarial assumptions used in the June 30, 2015 valuation were based on the results of an actuarial experience study for the period July 1, June 30, 2010 adopted by the Board on December 19, The results of the experience study for the period July 1, June 30, 2015 will be reflected in the June 30, 2016 valuation and the June 30, 2017 GASB 67 report. The long-term expected rate of return on pension plan investments was determined using a lognormal distribution analysis in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. 46

75 The target allocation and best estimates of arithmetic real rates of return for each major asset class, as provided by TRS's investment consultant, are summarized in the following table: Target Long-Term Expected Asset Class Allocation Real Rate of Return U.S. Equity 45.0% 6.4% Non U.S. Equity 17.0% 6.5% Fixed Income 24.0% 1.6% High Yield Bonds 4.0% 3.1% Real Estate 4.0% 5.8% Alternatives 4.0% 6.8% Cash 2.0% 1.5% Total 100.0% Discount rate - The discount rate used to measure the total pension liability was 4.20%. The projection of cash flows used to determine the discount rate was performed in accordance with GASS 67. It was assumed that Plan member contributions will be made at the current contribution rates and the Employer contributions will be made at statutorily required rates. Based on those assumptions, the pension plan's fiduciary net position was projected to be available to make all projected future benefit payments of current plan members until the 2040 plan year and as a result, the Municipal Bond Index Rate was used in the determination of the Single Equivalent Interest Rate (SEIR). There was a change in the Municipal Bond Index Rate from the Prior Measurement Date to the Measurement Date, so as required under GASS 68, the SEIR at the Measurement Date of 4.20% was calculated using the Municipal Bond Index Rate as of the Measurement Date (3.01%). This change in the discount rate is considered a change in actuarial assumptions under GASS 68. The following table presents the District's proportionate share of the net pension liability of the System, calculated using the discount rate of 4.20%, as well as what the District's proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1- percentage-point lower (3.20%) or 1-percentage-point higher (5.20%) than the current rate: 1% Decrease (3.20%) Current Discount Rate (4.20%) 1% Increase (5.20%) System's net pension liability 403,121, ,599, ,437,261 Pension plan fiduciary net position - Detailed information about the pension plan's fiduciary net position is available in the separately issued KTRS financial report. June 30, 2015 is the actuarial valuation date upon which the TPL is based. An expected TPL is determined as of June 30, 2016 using standard roll forward techniques. The procedure used to determine the TPL as of June 30, 2016 is shown on page 5 of the GASS 67 report for TRS. 47

76 Since certain expense items are amortized over closed periods each year, the deferred portions of these items must be tracked annually. If the amounts serve to reduce pension expense they are labeled deferred inflows. If they will increase pension expense they are labeled deferred outflows. The amortization of these amounts Is accomplished on a level dollar basis, with no interest included in the deferred amounts. Experience gains/losses and the impact of changes in actuarial assumptions, if any, are amortized over the average expected remaining service life of the active and inactive Plan members at the beginning of the fiscal year. Investment gains and losses are amortized over a fixed five year period. County Employees Retirement System CCERS) Plan description: Substantially all full-time classified employees of the District participate in the County Employees Retirement System ("CERS"). CERS is a cost-sharing, multiple-employer, defined benefit pension plan administered by the Kentucky General Assembly. The plan covers substantially all regular full-time members employed In non-hazardous duty positions of each county and school board, and any additional eligible local agencies electing to participate in the plan. The plan provides for retirement, disability and death benefits to plan members. CERS issues a publicly available financial report included in the Kentucky Retirement Systems Annual Report that includes financial statements and the required supplementary information for CERS. That report may be obtained by writing to Kentucky Retirement Systems, Perimeter Park West, 1260 Louisville Road, Frankfort, Kentucky, 40601, or by calling (502) or at Benefits provided: Benefits under the plan will vary based on final compensation, years of service and other factors as fully described in the plan documents. Contributions: Funding for CERS is provided by members who contribute 5% (6.00% for employees hired after September 1, 2008) of their salary through payroll deductions and by employers of members who contribute 18.68% of the member's salary. The contribution requirements of CERS are established and may be amended by the CERS Board of Trustees. At June 30, 2017, the District reported a liability for its proportionate share of the net pension liability. The net pension liability was measured as of June 30, The total pension liability used to calculate the net pension liability was based on an actuarial valuation as of June 30, An expected total pension liability as of June 30, 2016 was determined using standard roll-forward techniques. The District's proportion of the net pension liability was based on contributions to CERS during the fiscal year ended June 30, At June 30, 2016, the District's proportion was %. For the year ended June 30, 2017, the District recognized pension expense of $2,808,019. At June 30, 2016, the District reported deferred outflows of resources for District contributions subsequent to the measurement date of $1,575,752, deferred outflows of resources resulting from changes in assumptions and expectations of $4,216,703, and deferred inflows of resources related to pensions from the net difference between projected and actual earnings on pension plan investments in the amount of $1,496,

77 District contributions subsequent to the measurement date of $1,575,752 are reported as deferred outflows of resources and will be recognized as a reduction of the net pension liability in the year ended June 30, Other amounts reported as deferred outflows of resources and deferred inflows of resources related to CERS will be recognized in pension expense as follows: Year Deferred Outflows Deferred Inflows 2018 $1,684,688 $398, , , ,058, , , , ,274 60,882 $4,216,703 $1,496,142 Actuarial Methods and Assumptions: The total pension liability for CERS was determined by applying procedures to the actuarial valuation as of June 30, The financial reporting actuarial valuation as of June 30, 2015, used the following actuarial methods and assumptions, applied to all prior periods included in the measurement: Valuation Date Experience Study Actuarial Cost Method Amortization Method Remaining Amortization Period Asset Valuation Method Inflation Salary Increase Investment Rate of Return June 30, 2015 July 1, June 30, 2013 Entry Age Normal Level percentage of payroll, closed 28 years 5-year smoothed market 3.25% 4.0%, average, including inflation 7.5%, net of pension plan investment expense, including inflation The mortality table used for active members is RP-2000 Combined Mortality Table projected with Scale BB to 2013 (multiplied by 50% for males and 30% for females). For healthy retired members and beneficiaries, the mortality table used is the RP-2000 Combined Mortality Table projected with Scale BB to 2013 (set back 1 year for females). For disabled members, the RP-2000 Combined Disabled Mortality Table projected with Scale BB to 2013 (set back 4 years for males) is used for the period after disability retirement. There is some margin in the current mortality tables for possible future improvement in mortality rates and that margin will be reviewed again when the next experience investigation is conducted. The long-term expected return on plan assets is reviewed as part of the regular experience studies prepared every five years for KRS. The most recent analysis, performed for the period covering fiscal years 2008 through 2013, is outlined in a report dated April 30, Several factors are considered in evaluating the long-term rate of return assumption including long term historical data, estimates inherent in current market data, and a log-normal distribution analysis in which best-estimate ranges of expected future real rates of return (expected return, net of investment expense, and inflation) were developed by the investment consultant for each major asset class. These ranges were combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and then adding expected inflation. The 49

78 capital market assumptions developed by the investment consultant are intended for use over a 10-year horizon and may not be useful in setting the long-term rate of return for funding pension plans which covers a longer timeframe. The assumption is intended to be a long term assumption and is not expected to change absent a significant change in the asset allocation, a change in the inflation assumption, or a fundamental change in the market that alters expected returns in future years. The target asset allocation and best estimates of arithmetic real rates of return for each major asset class, are summarized in the following table: Long-Term Expected Target Allocatjon Real Rate of Return 44.0% 5.40% 19.0% 1.50% Asset Class Combined Equity Combined Fixed Income Real Return (Diversified Inflation Strategies) Real Estate Absolute Return (Diversified Hedge Funds) Private Equity Cash Equivalent 10.0% 5.0% 10.0% 10.0% 2.0% 1000% 3.50% 4.50% 4.25% 8.50% -0.25% Discount Rate; The discount rate used to measure the total pension liability was 7.50%. The projection of cash flows used to determine the discount rate assumed that local employers would contribute the actuarially determined contribution rate of projected compensation over the remaining 27 year amortization period of the unfunded actuarial accrued liability. The actuarial determined contribution rate is adjusted to reflect the phase in of anticipated gains on actuarial value of assets over the first four years of the projected period. Sensitivity of the District's proportionate share of the net pension liability to changes in the discount ~ The following presents the District's proportionate share of the net pension liability calculated using the discount rate of 7.5%, as well as what the District's proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (6.5 %) or 1-percentage-point higher (8.5 %) than the current rate: 1% Current 1% Decrease Discount Rate Increase (6.5%) (7.5%) (8.5%) District's proportionate share of the net pension liability $21,723,796 $17,432,562 $13,754,121 Pension plan fiduciary net position: Detailed information about the pension plan's fiduciary net position is available in the separately issued CERS financial report which is publically available at Payables to the pension plan: At June 30, 2017 the District had payables to CERS in the amount of $0 for June's covered payroll with contributions required to be paid In July. 50

79 SUPPLEMENT ARY INFORMATION 51

80 SHELBY COUNTY PUBLIC SCHOOL DISTRICT SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - GENERAL FUND For the Year Ended June 30, 2017 Variance With Budgeted Amounts Final Budget Re~ulato!}'. Basis Actual Favorable Original Final Amounts (Unfavorable) Revenues: Local sources: Property taxes $ 18,280,205 $ 18,524,633 $18,520,276 $ (4,357) Motor vehicle taxes 1,421,543 1,555,318 1,701, ,614 Utility taxes 3,300,000 3,300,000 3,137,791 (162,209) Earnings on investments 148, , , ,731 Other local 344, , , ,315 State sources 34,688,096 34,976,605 35,738, ,271 Federal sources 136, , , ,021 Total revenues 58,318,188 59,565,915 60,907,301 1,341,386 Expenditures: Instruction 33,299,158 34,062,060 36,605,346 (2,543,286) Supporting services: Students 3,087,186 3,299,846 2,681, ,829 Instructional staff 4,625,164 4,223,251 3,361, ,304 District administration 1,760,982 1,499,900 1,288, ,800 School administration 4,574,063 4,608,628 3,833, ,351 Business support services 1,895,623 2,036,387 1,690, ,369 Operation and maintenance of facilities 6,289,977 7,275,076 6,178,458 1,096,618 Student transportation 4,127,562 4,650,275 3,761, ,802 Food services 145, , ,186 12,579 Capital outlay 130, ,000 Contingency 3,321,704 5,491,615 5,491,615 Total expenditures 63,126,825 67,426,803 59,536,822 7,889,981 Excess (deficiency) of revenues over expenditures (4,808,637l (7,860,888~ 1,370,479 9,231,367 Other financing sources (uses): Proceeds from disposal of real or personal property 29,372 29, Transfers in 185, , ,464 31,594 Transfers (out) {130,070~ {251,080~ {121,010~ Total other financing sources (uses) 185, , ,901 (89,271) Extraordinary item: Restitution received 200, ,425 Change in fund balances (4,623,637) (6,996,716) 2,345,805 9,342,521 Fund balances - beginning 15,527,677 15,527,677 15,527,677 Fund balances - ending $ 10,904,040 $ 8,530,961 $17,873,482 $ 9,342,521 52

81 SHELBY COUNTY PUBLIC SCHOOL DISTRICT SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - SPECIAL REVENUE FUNDS For the Year Ended June 30, 2017 Revenues: Variance With Budgeted Amounts Final Budget Re9ulato!:z'.: Basis Actual Favorable Original Final Amounts (Unfavorable) Local sources: $ 192,000 $ 566,765 $ 609,730 $ 42,965 State sources 2,901,233 3,268,702 3,499, ,591 Federal sources 3,201,972 3,088,800 2,829,750 (259,050) Total revenues 6,295,205 6,924,267 6,938,773 14,506 Expenditures: Instruction 4,441,868 5,392,059 4,949, ,014 Supporting services: Students 92,136 25,000 28,613 (3,613) Instructional staff 1,012,174 1,266,650 1,269,358 (2,708) School administration 50,105 65,251 56,611 8,640 Student transportation 150, , ,635 (7,366) Community services 548, , ,611 (32,191) Total expenditures 6,295,205 7,495,649 7,089, ,776 Excess (deficiency) of revenues over expenditures (571,382) (151,100) 420,282 Other financing sources (uses): Transfers in 356, ,078 (429) Transfers (out) (202,915) (157,750) 45,165 Total other financing sources (uses) 153, ,328 44,736 Change in fund balances (417,790) 47, ,018 Fund balances - beginning 332, , ,268 Fund balances - ending $ 332,268 $ (85,522) $ 379,496 $ 465,018 53

82 SHELBY COUNTY PUBLIC SCHOOL DISTRICT SCHEDULE OF THE DISTRICT'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY For The Year Ended June 30, District's proportion of the net pension liability (asset) TRS $0 GERS $17,432,574 Total District's proportionate share of the net pension liability (asset) TRS 0 GERS % State's proportionate share of the net pension liability (asset) associated with the District TRS $313,466,377 District's covered employee payroll TRS $33,057,511 GERS $12,999,381 District's proportionate share of the net pension liability (asset) as a percentage of its covered payroll TRS 0 GERS % 2016 $0 $16,544, % $255,658,927 $33,358,791 $12,270, % 2015 $0 $10,038, % $208,488,497 $32,251,771 $11,471, % Note: The schedule is intended to show information for the last 10 fiscal years. Additional years will be displayed as they become available. 54

83 SHELBY COUNTY PUBLIC SCHOOL DISTRICT SCHEDULE OF THE DISTRICT PENSION CONTRIBUTIONS For The Year Ended June 30, Contractually required contributions TRS $1,245,385 GERS i1,462,426 Total $2,707,811 Contributions in relation to the contractually required contribution TRS $1,245,385 GERS i1,462,426 Total $2,707,811 Contribution deficiency (excess) TRS $0 GERS $0 Total District's covered employee payroll TRS $33,057,511 GERS $12,999,381 Total Contributions as a percentage of covered employee payroll TRS 3.77% GERS 11.25% $960,405 $681,000 i1,444,969 i1,828,870 $2,405,374 $2,509,870 $960,405 $681,000 i1,444,969 i1,828,870 $2,405,374 $2,509,870 $0 $0 $0 $0 $33,358,791 $32,251,771 $12,270,458 $11,471, % 2.11% 11.78% 15.94% Note: The schedule is intended to show information for the last 1 0 fiscal years. Additional years will be displayed as they become available. 55

84 SHELBY COUNTY PUBLIC SCHOOL DISTRICT NOTES TO REQUIRED SUPPLEMENTARY INFORMATION For The Year Ended June 30, 2017 Changes of benefit terms TRS - none CERS The following changes were made by the Kentucky Legislature and reflected in the valuation performed as of June 30 listed below: 2009: A new benefit tier for members who first participate on or after September 1, 2008 was introduced which included the following changes: 1. Tiered Structure for benefit accrual rates 2. New retirement eligibility requirements 3. Different rules for the computation of final average compensation 2014: A cash balance plan was introduced for member who participation date is on or after January 1, Changes of assumptions TRS - In the 2011 valuation and later, the expectation of retired life mortality was changed to the RP Mortality Tables rather than the 1994 Group Annuity Mortality Table, which was used prior to In the 2011 valuation, rates of withdrawal, retirement, disability and mortality were adjusted to more closely reflect actual experience. In the 2011 valuation, the TRS Board adopted an interest smoothing methodology to calculate liabilities for purposes of determining the actuarially determined contributions. Beginning with the 2014 valuation, the interest smoothing methodology is no longer used. CERS The following changes were made by the Kentucky Legislature and reflected in the valuation performed as of June 30 listed below: 2015 The assumed investment rate of return was decreased from 7.75% to 7.50%. The assumed rate of inflation was reduced from 3.5% to 3.25%. The assumed rate of wage inflation was reduced from 1.00% to 0. 75%. Payroll growth assumption was reduced from 4.50% to 4.00%. The mortality table used for active members is RP-2000 Combined Mortality Table projected with Scale BB to 2013 (multiplied by 50% for males and 30% for females). For healthy retired members and beneficiaries, the mortality table used in the RP-2000 Combined Morality Table projected with Scale BB to 2013 (set back 1 year for females). For disabiled members, the RP-2000 Combined Disabled Mortality Table project with Scale BB to 2013 (set back 4 years for males) is used for the period after disability retirement. There is some margin in the current mortality tables for possible future improvement in mortality rates and that margin will be reviewed again when the next experience investigation is conducted. The assumed rates of Retirement, Withdrawal and Disability were updated to more accurately reflect experience. 56

85 SHELBY COUNTY PUBLIC SCHOOL DISTRICT STATEMENT OF RECEIPTS, DISBURSEMENTS, AND DUE TO STUDENT GROUPS SCHOOL ACTIVITY FUNDS FOR THE YEAR ENDED JUNE 30, 2017 Accounts Accounts Due To Cash Balance Cash Balance Receivable Payable Student Groups School July 1, 2016 Receiets Disbursements June 30, 2017 June 30, 2017 June 30, 2017 June 30, 2017 Clear Creek Elementary $ 5,491 $ 49,680 $ 50,783 $ 4,388 $ $ $ 4,388 Helitage Elemetary 17,381 57,945 59,755 15,571 15,571 Painted Stone Elementary 29,549 69,621 78,910 20,260 20,260 Simpsonville Elementary 15,550 3,738 12,396 6,892 6,892 Southside Elementary 14,354 12,183 15,343 11,194 11,194 Wright Elementary 15,932 45,429 45,213 16,148 16,148 East Middle 65, , ,613 60,438 60,438 West Middle 46, , ,333 47,010 47,010 Martha Layne Collins High 151, , , , ,200 Shelby County High 258, , , , ,043 Big Picture Totals $ 619,942 $ 1,919,129 $ 1,920,484 $ 618,587 $ $ $ 618,587 57

86 SHELBY COUNTY PUBLIC SCHOOL DISTRICT STATEMENT OF RECEIPTS, DISBURSEMENTS, AND DUE TO STUDENT GROUPS MARTHA LAYNE COLLINS HIGH SCHOOL ACTIVITY FUNDS FOR THE YEAR ENDED JUNE 30, 2017 Account Account Due To Cash Balance Cash Balance Receivable Payables Student Groups Activity Account July 1, 2016 Receipts Disbursements Transfers June 30, 2017 June 30, 2017 June 30, 2017 June 30, 2017 General $ $ 7,606 $ (5,370) $ (2,236) $ $ $ $ Back to School Bash (500) 500 School Store 500 (500) Student Recognition 4,264 6,876 (3,781) 944 8,303 8,303 Student Support 446 1,771 (1,215) (274) Staff Account 789 1,778 (1,709) AP Testing 6,177 39,866 (39,266) 450 7,227 7,227 Instructional Field Trips 10,062 (2,744) (7,318) Academic Team Beta Club 4,171 5,447 (5,630) 60 4,048 4,048 Chess Club (207) Drama Club 8,518 15,329 (14,984) 755 9,618 9,618 FCA 888 1,325 (611) 1,602 1,602 FFA 3,757 2,605 (6,076) ROTC 3,709 11,550 (12,401) (100) 2,758 2,758 Student Council Talented and G~ted (TAG) 6,364 (7,979) 2, NHS 721 1,179 (1,481) (201) Yearbook 6,643 11,997 (13,426) 5,214 5,214 In-School Clubs 10,567 50,536 (57,244) 4,051 7,910 7,910 Department Accounts 3,671 8,340 (5,289) 639 7,361 7,361 General Athletics 40, ,215 (119,148) (33,605) 13,712 13,712 Athletic Fee 75 9,350 (10,350) 925 Football 4,046 12,721 (32,536) 17,712 1,943 1,943 Volleyball 108 2,758 (1,652) (1,214) Boys Basketball 5,577 26,243 (22,013) (811) 8,996 8,996 Girls Basketball 513 7,121 (10,548) 3, Baseball 5,738 44,946 (50,651) 7,811 7,844 7,844 Softball 1,205 16,220 (16,526) 546 1,445 1,445 Boys Track 1,210 8,044 (5,992) 418 3,680 3,680 Girls Track 7,810 (6,733) 1,129 2,206 2,206 Boys Tennis 886 1,377 (1,776) Girts Tennis 327 2,192 (1,747) Boys Golf 1,285 1,025 (1,760) Girts Golf 1,471 8,550 (6,940) 372 3,453 3,453 Boys Soccer 107 6,402 (5,021) 331 1,819 1,819 Girts Soccer 703 3,178 (1,363) 398 2,916 2,916 Boys Lacrosse 3,498 6,707 (6,112) 4,093 4,093 Girts Lacrosse 139 4,471 (3,732) 140 1,018 1,018 Volleyball ,648 (11,818) 1, Cross Country 7,756 18,281 (18,870) 1,012 8,179 8,179 Cheerteading 6,443 6,644 (9,310) 3,777 3,777 Dance Team 415 5,097 (1,543) 3,969 3,969 Bass Fishing 4,955 (5,795) 840 Class of (54) (670) Class of ,730 (56,229) (470) 1,082 1,082 Class of ,115 (12,984) 150 4,281 4,281 Class of Band 10,791 34,270 (33,992) 11,069 11,069 Orchestra 1, (951) 1,668 1,668 Choir 50 16,543 (13,506) 3,087 3,087 School DAF ,585 (23,679) 1,968 Media Center DAF 1,957 (1,935) (22) Art DAF 175 (175) Band 450 (450) Drama Club 755 (755) Parking Permits-Students 870 (870) Lock Fee 5 (5) Art Fee 1,710 (1,710) Science Fee 7,484 (7,504) 20 Facculinary Fee 875 (875) PLTWFee 3,470 (3,470) World Language Fee 1,020 (1,020) Ag Fee 480 (480) Chrome Book Usage Fee 33,320 (33,320) --- Totals $ 151,153 $ 725,105 $ (725,058) $ 151,200 $ $ $ 151,200 58

87 SHELBY COUNTY PUBLIC SCHOOL DISTRICT STATEMENT OF RECEIPTS, DISBURSEMENTS, AND DUE TO STUDENT GROUPS SHELBY COUNTY HIGH SCHOOL ACTIVITY FUNDS FOR THE YEAR ENDED JUNE 30, 2017 Accounts Accounts Due To Cash Balance Cash Balance Receivables Payables Student Groups Activity Account July 1, 2016 Receipts Disbursements Transfers June 30, 2017 June 30, 2017 June 30, 2017 June 30, 2017 General $ 16,151 $ 4,660 $ (13,093) $ 15,096 $ 22,814 $- $ $ 22,814 Student Recognition 10,855 8,137 (4,943) ,474 14,474 Student Support (502) Staff Account 2,743 (2,756) 13 AP Testing 4,007 10,075 (8,970) 5,112 5,112 Instructional Field Trip 2,369 (3,275) 906 Non-Instructional Field Trip 214 (401) 187 Academic T earn (152) Art Club 1, (199) 2,421 2,421 Beta Club (576) Drama Club 4,715 9,922 (6,747) 44 7,934 7,934 Future Farmers of America 1,696 2,651 (4,177) Odyssey of the Mind 87 1,503 (220) 133 1,503 1,503 ROTC (Reserve Officer) 13,873 11,824 (11,655) (143) 13,899 13,899 Student/Youth Council 589 (589) Talented and Gifted (TAG) 1,095 (979) Student Technology Leader National Honor Society (385) (380) Yearbook Club 2,219 2,130 (74) (3) 4,272 4,272 In-School Clubs 2,738 24,381 (20,141) (545) 6,433 6,433 Classroom Accounts 5,432 7,165 (4,322) (3,081) 5,194 5,194 Departmenl/Grade Accounts 36,606 42,501 (49,305) 2,738 32,540 32,540 General Athletics 70,325 93,055 (44,734) (41,994) 76,652 76,652 Athletic Insurance Fee 3,225 (3,225) Football 7,032 52,423 (51,631) 1,986 9,810 9,810 Boys Basketball 3,250 19,081 (23,684) 5,460 4,107 4,107 Girls Basketball 6,041 14,148 (21,986) 6,726 4,929 4,929 Baseball 9,676 21,517 (26,982) (550) 3,661 3,661 Softball 9,829 14,433 (22,657) 7,770 9,375 9,375 Boys/Girls Track 1,962 4,566 (5,422) 1,106 1,106 Boys Tennis (1,756) Girls Tennis 154 (313) Boys Golf 3,340 7,391 (7,681) (132) 2,918 2,918 Girls Golf 2,300 13,684 (11,636) 1,755 6,103 6,103 Boys Soccer 4,000 6,260 (8,531) 2,734 4,463 4,463 Girls Soccer 929 1,831 (2,838) 2,485 2,407 2,407 Volleyball 1,873 6,065 (11,556) 5,796 2,178 2,178 Cross Country 7,374 8,615 (12,628) 3,361 3,361 Swim Team 3,365 11,882 (9,547) (304) 5,396 5,396 Cheerleading 1,652 7,970 (8,520) (111) Dance Team 3,960 5,307 (6,442) 2,825 2,825 Bass Fishing 13,299 (9,597) 3 3,705 3,705 Class (205) Class of ,163 32,863 (32,594) (4,872) 1,560 1,560 Class of (80) Class of (40) Class of ,164 20,060 (15,062) 1,368 7,530 7,530 Class of (782) Band 3,635 23,431 (25,133) (1,851) Orchestra (163) Choir 3,274 30,882 (24,160) (448) 9,548 9,548 School DAF 70 65,771 (63,516) (720) 1,605 1,605 Media Center DAF 1,673 (751) (44) Totals $ 258,340 $612,903 $(586,200) $ - $ $- $ $

88 SHELBY COUNTY PUBLIC SCHOOL DISTRICT SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For the Year Ended June 30, 2017 Pass- Federal Through CFDA Grantor's Federal Granter/Pass-Through Granter/Program Title Number Number Expenditures U.S.Deoartment of Education Kentucky Department of Education Title I Grants to Local Education Agencies ,897 Title I Grants to Local Education Agencies ,041 Title I Grants to Local Education Agencies ,666 Title I Grants to Local Education Agencies ,375 Title I Grants to Local Education Agencies ,064 Title I Grants to Local Education Agencies ,887 Title I Grants to Local Education Agencies ,121 Title I Grants to Local Education Agencies ,975 Title I Grants to Local Education Agencies Title I, School Improvement ,013 Subtotal 1,348,898 Migrant Education ,367 Title I Part D, Neglected and Delinquent Children and Youth C 15,250 Title I Part D, Neglected and Delinquent Children and Youth A 126 Title I Part D, Neglected and Delinquent Children and Youth AT 3,956 Subtotal 19,332 Special Education Cluster (IDEA) Special Education - Grants to States (IDEA, Part B) ,117 Special Education - Grants to States (IDEA, Part B) (4,115} Special Education - Grants to States (IDEA, Part B) ,531 Special Education - Grants to States (IDEA, Part B) (26,802) Special Education - Grants to States (IDEA, Part B) ,797 Special Education - Grants to States (IDEA, Part B) ,573 Special Education - Preschool Grants (IDEA, Preschool) ,384 Special Education - Preschool Grants (IDEA, Preschool) ,058 Special Education - Preschool Grants (IDEA, Preschool) ,121 Special Education - Preschool Grants (IDEA, Preschool) ,163 Subtotal 960,827 Vocational Education Basic ,667 Vocational Education Basic Vocational Education Basic ,463 Subtotal 51,658 Supporting Effective Instruction ,378 Supporting Effective Instruction (9,513) Subtotal 155,865 See Notes to Schedule of Expenditures of Federal Awards 60

89 SHELBY COUNTY PUBLIC SCHOOL DISTRICT SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For the Year Ended June 30, 2017 Federal Grantor/Pass-Through Grantor/Program Title Federal CFDA Number Pass- Through Grantor's Number Expenditures Mathematics and Science Partnerships English Language Acquisition English Language Acquisition Subtotal Race to the Top Passed though Green River Regional Educational Cooperative Race to the Top - District Race to the Top- District Race to the Top - District Subtotal Total U.S.Department of Education U.S.Department of Health and Human Services Head Start Total U.S. Department of Health and Human Services U.S.Department of Agriculture Kentucky Department of Education Child Nutrition Cluster National School Breakfast Program Natinal School Lunch Program Summer Food Service Program for Children Summer Food Service Program for Children Summer Food Service Program for Children Subtotal Commodities Subtotal Child Nutrition Cluster Total U.S.Department of Agriculture A , , , , C 29, A 8, ,733 61,840 2,743, C 11,925 11, , ,920, (10) , ,839 2,813,719 not provided 191,823 3,005,542 3,005,542 Total federal expenditures 5,761,244 See Notes to Schedule of Expenditures of Federal Awards 61

90 SHELBY COUNTY PUBLIC SCHOOL DISTRICT NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For the Year Ended June 30, 2017 Note 1 - Basis of Presentation The accompanying schedule of expenditures of federal awards (the "Schedule") includes the federal award activity of Shelby County School District (the "District) under programs of the federal government for the year ended June 30, 2017 and is presented on the modified accrual basis of accounting. The information in this Schedule is presented in accordance with the requirements of Title 2 U.S, Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of the operations of the District, it is not intended to and does not present the financial position, changes in net position or cash flows of the District. Note 2 - Summary of Significant Accounting Policies The District did not use the 10 percent de minimis indirect cost rate. Note 3 - Food Distribution Nonmonetary assistance for food donation is reported in the Schedule at the fair market value of the commodities disbursed. These donations are received from the US Department of Agriculture via the Kentucky Department of Agriculture (KDA). The KDA has not provided a pass-through grant number. 62

91 DENISE M. KEENE CERTIFIED PUBLIC ACCOUNTANT P.O. BOX 1444 GEORGETOWN, KENTUCKY INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF THE FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS State Committee For School District Audits Members of the Board of Education Shelby County School District Shelbyville, Kentucky We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, Audits of States and Local Governments, and Non-profit Organizations, and the audit requirement prescribed by the Kentucky Committee for School District Audits, the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Shelby County Board of Education as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the Board's basic financial statements, and have issued our report thereon dated November 13, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the District's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the District's internal control. Accordingly, we do not express an opinion on the effectiveness of the District's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the District's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merifattention by those charged with governance. 63

92 Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the District's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. I noted certain matters that I reported to management of the District in a separate letter dated November 13, Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Denise M. Keene, CPA Georgetown, Kentucky November 13,

93 DENISE M. KEENE CERTIFIED PUBLIC ACCOUNTANT P.O. BOX 1444 GEORGETOWN, KENTUCKY INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE State Committee For School District Audits Members of the Board of Education Shelby County School District Shelbyville, Kentucky Report on Compliance for Each Major Federal Program We have audited Shelby County School District's (the "District") compliance with the types of compliance requirements described in the 0MB Compliance Supplement that could have a direct and material effect on each of the District's major federal programs for the year ended June 30, The District's major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Management's Responsibility Management is responsible for compliance with federal statues, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditor's Responsibility Our responsibility is to express an opinion on compliance for each of the District's major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) Audits of States, Local Governments, and Non-Profit Organizations and the audit requirements prescribed by the Kentucky Committee for School District Audits. Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination on the District's compliance. 65

94 Opinion on Each Major Federal Program In our opinion, the District complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, Report on Internal Control Over Compliance Management of the Shelby County School District is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the District's internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major program and to test and report on internal control over compliance in accordance with Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the District's internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. 66

95 Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Denise M. Keene, CPA Georgetown, Kentucky November 13,

96 SHELBY COUNTY SCHOOL DISTRICT SCHEDULE OF FINDINGS AND QUESTIONED COSTS For The Year Ended June 30, 2017 Section I - Summary of Auditor's Results Financial Statements An unmodified opinion was issued on the financial statements. Internal control over financial reporting Material weakness(es) identified? Significant deficiency(s) identified that are not considered to be material weakness(es)? Noncompliance material to financial statements noted? _yes ~ no _yes X none reported _ yes ~ no Federal Awards Internal control over major programs: Material weakness(es) identified? Significant deficiency(s) identified that are not Considered to be material weakness(es)? yes ~ no yes.ll none reported An unmodified opinion was issued on compliance for all major programs. Any audit findings disclosed that are required to be reported in accordance with 2CFR (a)? _ yes _X_ no Identification of major programs CFDA Number(s} Name of Federal Program or Cluster Title I Grants to Local Education Agencies Supporting Effective Instruction Dollar threshold used to distinguish between type A and type B programs: $750,000 Auditee qualified as low-risk auditee?.ll yes_ no Section II - Financial Statement Findings None Section Ill - Federal Award Findings and Questioned Costs None Reported 68

97 SHELBY COUNTY SCHOOL DISTRICT SCHEDULE OF PRIOR YEAR AUDIT FINDINGS For The Year Ended June 30, 2017 PRIOR YEAR - FINANCIAL STATEMENT FINDINGS None were reported last year PRIOR YEAR- FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Corrected with written policies and procedures. 69

98 MANAGEMENT LETTER 70

99 DENISE M. KEENE CERTIFIED PUBLIC ACCOUNT ANT P.O. BOX 1444 GEORGETOWN, KENTUCKY Shelby County Board of Education Shelbyville, Kentucky We have audited the financial statements of the Shelby County School District for the year ended June 30, 2017 and have issued our report thereon dated November 13, As part of our audit, we made a study and evaluation of the District's system of internal accounting control to the extent we considered necessary to evaluate the system as required by auditing standards generally accepted in the United States of America. The purpose of our study and evaluation was to determine the nature, timing and extent of the auditing procedures necessary for expressing an opinion on the District's financial statements. Our study and evaluation was more limited than would be necessary for expressing an opinion on the system of internal accounting control taken as a whole. The management of the Shelby County School District is responsible for establishing and maintaining a system of internal accounting control. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of control procedures. The objectives of a system are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles. Because of inherent limitations in any system of internal accounting control, errors, or irregularities may nevertheless occur and not be detected. Also, projections of any evaluation of the system to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the degree of compliance with procedures may deteriorate. Our study and evaluation made for the limited purpose described in the first paragraph would not necessarily disclose all material weaknesses in the system of internal accounting control. Accordingly, we do not express an opinion on the system of internal accounting control of the Shelby County School District taken as a whole. Our study and evaluation disclosed no condition that we believe to be a material weakness. The following items from last year's management letter points were corrected during the current fiscal year as outlined in the District's response: , , , , , , , , , , , , , , , , , , The following items from last year's management letter points were not corrected: , , , , , , , , )e«t4e?It,, ~UIW, (!P,,-i November 13,