MATURITY SCHEDULE (see inside front cover)

Transcription

1 NEW ISSUE -- FULL BOOK-ENTRY BANK QUALIFIED RATING: Moody s: A3 See RATING herein In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however to certain qualifications described herein, under existing law, the interest on the Notes is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax, although, in the case of tax years beginning prior to January 1, 2018, for the purpose of computing the alternative minimum tax imposed on certain corporations, such interest earned by a corporation prior to the end of its tax year in 2018 is taken into account in determining certain income and earnings. The Notes are "qualified tax-exempt obligations" within the meaning of section 265(b)(3) of the Internal Revenue Code of 1986, as amended. In the further opinion of Bond Counsel, such interest is exempt from California personal income taxes. See TAX MATTERS herein. $2,162, BALLICO-CRESSEY SCHOOL DISTRICT (Merced County, California) 2018 General Obligation Bond Anticipation Notes (Bank Qualified) Dated: Date of Delivery Due: November 1, 2023 Issuance. The Ballico-Cressey School District 2018 General Obligation Bond Anticipation Notes (the "Notes ) are being issued by the Ballico-Cressey School District (the "District") pursuant to a resolution adopted by its Board of Trustees on October 11, 2018 (the District Resolution ). The Notes are being issued for the purpose of financing the acquisition and construction of educational facilities and projects which were described in the ballot measure approved by the qualified electors of the District on June 7, 2016, which authorized the issuance of general obligation bonds in the maximum aggregate principal amount of $6,500,000 (the General Obligation Bonds ). One series of General Obligation Bonds in the principal amount of $4,335,000 has been issued to date. The Notes are being issued in anticipation of the issuance of a second and final series of the General Obligation Bonds. Security. The principal and, in the case of Capital Appreciation Notes (defined herein), Accreted Value (as defined herein) of the Notes is payable from the proceeds of General Obligation Bonds issued for that purpose, and from amounts held in the funds and accounts established under the District Resolution. Interest on the Current Interest Notes is payable from ad valorem taxes levied upon all property within the District subject to taxation, to the extent levied with respect to the Current Interest Notes and available for that purpose. See SECURITY FOR THE NOTES herein. Covenant to Issue General Obligation Bonds. The Notes are secured by a pledge of the proceeds of the General Obligation Bonds. The District has covenanted in the District Resolution to issue and sell General Obligation Bonds or other obligations in a principal amount sufficient to pay the full principal and Accreted Value of the Notes coming due and payable at maturity or upon earlier redemption prior to the final maturity date of the Notes. See SECURITY FOR THE NOTES Covenant to Issue General Obligation Bonds or Other Obligations herein. See also CERTAIN RISK FACTORS. Book-Entry Only. The Notes will be issued in book-entry form only and will be initially issued and registered in the name of Cede & Co., as nominee for The Depository Trust Company ( DTC ). DTC will act as securities depository of the Notes. Individual purchases of the Notes will be made in book-entry form only. Purchasers will not receive physical delivery of the Notes purchased by them. Payments of the principal and Accreted Value of, and, as applicable, interest on the Notes, will be made by The Bank of New York Mellon Trust Company, N.A., as the designated paying agent, registrar and transfer agent (the Paying Agent ), to DTC for subsequent disbursement through DTC Participants (defined herein) to the beneficial owners of the Notes. See APPENDIX G DTC and the Book-Entry System herein. Payments. The Notes are dated as of the date of delivery and are issued as Current Interest Notes and Capital Appreciation Notes (both as defined herein). The Current Interest Notes accrue interest at the rates set forth on the inside cover page hereof, payable semiannually on each May 1 and November 1 until maturity or earlier redemption, commencing May 1, The Capital Appreciation Notes accrete interest at the rates set forth on the inside cover page hereof, compounded semiannually on May 1 and November 1 of each year, commencing May 1, The Notes will be issued in denominations of $5,000 principal amount or Maturity Value (defined herein), as applicable, or any integral multiple thereof. No Redemption. The Notes are not subject to redemption prior to maturity. See THE NOTES Redemption. MATURITY SCHEDULE (see inside front cover) This cover page contains certain information for reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. The Notes will be offered when, as and if issued and accepted by the Underwriter, subject to the approval as to legality by Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel to the District, and subject to certain other conditions. Jones Hall is also serving as Disclosure Counsel to the District. Norton Rose Fulbright US LLP, Los Angeles, California is serving as Underwriter s Counsel. It is anticipated that the Notes, in book-entry form, will be available for delivery through the facilities of DTC on or about November 20, The date of this Official Statement is November 6, 2018

2 MATURITY SCHEDULE BALLICO-CRESSEY SCHOOL DISTRICT (Merced County, California) 2018 General Obligation Bond Anticipation Notes (Bank Qualified) Base CUSIP : $600,000 Principal Amount Current Interest Notes Maturity Date Principal Interest (November 1) Amount Rate Yield Price CUSIP 2023 $600, % 2.650% AM1 $1,562, Denominational Amount ($1,855,000 Maturity Value) Capital Appreciation Notes Maturity Date Denominational Accretion Yield to Maturity (November 1) Amount Rate Maturity Value CUSIP 2023 $1,562, % $1,855,000 AN9 CUSIP is a registered trademark of the American Bankers Association. CUSIP data is provided by CUSIP Global Services (CGS) which is managed on behalf of the American Bankers Association by S&P Capital IQ. CUSIP data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Service Bureau. CUSIP numbers are provided for convenience of reference only. Neither the District nor the Underwriter assumes any responsibility for the accuracy of these CUSIP data.

3 GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT Use of Official Statement. This Official Statement is submitted in connection with the sale of the Notes referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not a contract between any Note owner and the District or the Underwriter. No Offering Except by This Official Statement. No dealer, broker, salesperson or other person has been authorized by the District or the Underwriter to give any information or to make any representations other than those contained in this Official Statement and, if given or made, such other information or representation must not be relied upon as having been authorized by the District or the Underwriter. No Unlawful Offers or Solicitations. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sale of the Notes by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. Information in Official Statement. The information set forth in this Official Statement has been furnished by the District and other sources which are believed to be reliable, but it is not guaranteed as to accuracy or completeness. Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure by the District in any press release and in any oral statement made with the approval of an authorized officer of the District or any other entity described or referenced herein, the words or phrases will likely result, are expected to, will continue, is anticipated, estimate, project, forecast, expect, intend and similar expressions identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, give rise to any implication that there has been no change in the affairs of the District or any other entity described or referenced herein since the date hereof. Involvement of Underwriter. The Underwriter has provided the following statement for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. Stabilization of and Changes to Offering Prices. The Underwriter may overallot or take other steps that stabilize or maintain the market prices of the Notes at levels above those that might otherwise prevail in the open market. If commenced, the Underwriter may discontinue such market stabilization at any time. The Underwriter may offer and sell the Notes to certain securities dealers, dealer banks and banks acting as agents at prices lower than the public offering prices stated on the inside cover page of this Official Statement, and those public offering prices may be changed from time to time by the Underwriter. Document Summaries. All summaries of the District Resolution or other documents referred to in this Official Statement are made subject to the provisions of such documents and qualified in their entirety to reference to such documents, and do not purport to be complete statements of any or all of such provisions. No Securities Laws Registration. The Notes have not been registered under the Securities Act of 1933, as amended, in reliance upon exceptions therein for the issuance and sale of municipal securities. The Notes have not been registered or qualified under the securities laws of any state. Effective Date. This Official Statement speaks only as of its date, and the information and expressions of opinion contained in this Official Statement are subject to change without notice. Neither the delivery of this Official Statement nor any sale of the Notes will, under any circumstances, give rise to any implication that there has been no change in the affairs of the District, the County, the other parties described in this Official Statement, or the condition of the property within the District since the date of this Official Statement. Website. The District maintains a website. However, the information presented on the website is not a part of this Official Statement and should not be relied upon in making an investment decision with respect to the Notes.

4 BALLICO-CRESSEY SCHOOL DISTRICT Merced County, California DISTRICT BOARD OF TRUSTEES Ginger Chance, President Eric Harcksen, Clerk Thomas March, Member Seanna Johnson, Member Jana Nairn, Member DISTRICT ADMINISTRATION Bliss Propes, Superintendent Becky Valdez, Business Manager PROFESSIONAL SERVICES FINANCIAL ADVISOR Isom Advisors, A Division of Urban Futures Walnut Creek, California BOND COUNSEL and DISCLOSURE COUNSEL Jones Hall, A Professional Law Corporation San Francisco, California PAYING AGENT, TRANSFER AGENT and NOTE REGISTRAR The Bank of New York Mellon Trust Company, N.A. San Francisco, California UNDERWRITER S COUNSEL Norton Rose Fulbright US LLP Los Angeles, California

5 TABLE OF CONTENTS Page INTRODUCTION... 1 THE NOTES... 3 Authority for Issuance... 3 Purpose of Issue... 3 Description of the Notes... 3 Form of Notes... 3 Current Interest Notes... 3 Capital Appreciation Notes... 4 Paying Agent... 5 No Redemption... 5 Registration, Transfer and Exchange of Notes... 5 Satisfaction and Discharge of Notes... 5 SOURCES AND USES OF FUNDS... 7 DEBT SERVICE SCHEDULE... 7 SECURITY FOR THE NOTES... 8 Pledge of General Obligation Bond Proceeds... 8 Covenant to Issue General Obligation Bonds or Other Obligations... 8 Note Repayment Fund... 8 Investment of District Funds and Note Proceeds... 9 CERTAIN RISK FACTORS No Assurances Regarding Issuance of General Obligation Bonds Reduction in Assessed Valuation Reduction in Inflationary Rate and Changes in Legislation; Initiatives Loss of Tax Exemption CONTINUING DISCLOSURE PROPERTY TAX BASE IN THE DISTRICT Property Tax Collection Procedures Taxation of State-Assessed Utility Property Assessed Valuations Reassessments and Appeals of Assessed Value Typical Tax Rates Tax Levies and Delinquencies; Teeter Plan Major Taxpayers Direct and Overlapping Debt THE DISTRICT General Information Administration Recent Enrollment Trends Employee Relations Page Insurance-Joint Powers Agreements DISTRICT FINANCIAL INFORMATION Education Funding Generally District Accounting Practices Financial Statements District Budget and Interim Financial Reporting Attendance - Revenue Limit and LCFF Funding Trends Revenue Sources District Retirement Systems No Other Post-Employment Retirement Benefits Existing Debt Obligations Investment of District Funds STATE FUNDING OF EDUCATION; RECENT STATE BUDGETS Recent State Budgets Adopted State Budget Legal Challenges to State Funding of Education CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Constitutionally Required Funding of Education Article XIIIA of the California Constitution Article XIIIB of the California Constitution Unitary Property Articles XIIIC and XIIID of the California Constitution Proposition Proposition Proposition Proposition 1A and Proposition Proposition 30 and Proposition California Senate Bill Future Initiatives and Other Statutes TAX MATTERS CERTAIN LEGAL MATTERS Absence of Material Litigation RATING UNDERWRITING ADDITIONAL INFORMATION EXECUTION APPENDIX A - Audited Financial Statements of the District for Fiscal Year Ended June 30, A-1 APPENDIX B - General Information About Merced County... B-1 APPENDIX C - Form of Opinion of Bond Counsel... C-1 APPENDIX D - Form of Continuing Disclosure Certificate... D-1 APPENDIX E - Accreted Value Tables... E-1 APPENDIX F - Merced County Investment Policy and Investment Report... F-1 APPENDIX G - DTC and the Book-Entry System... G-1 -i-

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7 $2,162, BALLICO-CRESSEY SCHOOL DISTRICT (Merced County, California) 2018 General Obligation Bond Anticipation Notes (Bank Qualified) INTRODUCTION This Official Statement, which includes the cover page, inside cover page and appendices hereto, provides information in connection with the sale and delivery by the Ballico- Cressey School District (the District ) of the Ballico-Cressey School District (Merced County, California) 2018 General Obligation Bond Anticipation Notes, in the principal amount of $2,162, (the Notes ). This Introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement and the documents summarized or described herein. A full review should be made of the entire Official Statement. The offering of the Notes to potential investors is made only by means of the entire Official Statement. The District. Located along the Merced River in the City of Ballico in Merced County (the County ), the District operates two school campuses, the Cressey Elementary School and the Ballico Elementary School. The District operates its transitional kindergarten and kindergarten programs as traditional non-charter schools. Commencing with fiscal year , the District converted its grades one through eight programs into a dependent charter school program, known as the Ballico-Cressey Community Charter School (the Charter School ). The District has total enrollment (charter and non-charter) of 371 students in fiscal year See THE DISTRICT herein. Authority and Purpose of Issue; Financing Plan. The Notes will be issued pursuant to California Education Code Section (the Authorizing Law ) and pursuant to a resolution adopted by the Board of Trustees of the District on October 11, 2018 (the District Resolution ). The Notes are issued for the purpose of providing interim financing pursuant to the Authorizing Law for projects authorized by District voters voting on a general obligation bond measure known as Measure U (the General Obligation Bonds ), at an election held in the District on June 7, 2016 (the Bond Election ). The General Obligation Bonds were authorized at the Bond Election to be issued in a principal amount of up to $6,500,000. See THE NOTES and SOURCES AND USES OF FUNDS herein. Sources of Payment for the Notes. The Notes are payable from the proceeds of the General Obligation Bonds issued for that purpose and from amounts held in the funds and accounts established under the District Resolution. The Notes may also be repaid from any other lawfully available funds of the District, including but not limited to State Reimbursements, as defined herein. The District has covenanted in the District Resolution to, no later than thirty days prior to maturity of the Notes, issue a series of the General Obligation Bonds or other obligations in an amount sufficient to pay the Notes upon maturity, or otherwise provide funds for repayment of the Notes. See SECURITY FOR THE NOTES herein. -1-

8 Form of Notes. The Notes are being issued as Current Interest Notes and Capital Appreciation Notes, both as defined herein. The Current Interest Notes accrue interest at the rates set forth on the inside cover page hereof, payable semiannually on each May 1 and November 1 until maturity or earlier redemption, commencing May 1, The Capital Appreciation Notes accrete interest at the rates set forth on the inside cover page hereof, compounded semiannually on May 1 and November 1 of each year, commencing May 1, The Notes will be issued in denominations of $5,000 principal amount or Maturity Value, as applicable, or any integral multiple thereof, will be issued in book-entry form only, and will be initially issued and registered in the name of Cede & Co. as nominee for DTC. Purchasers will not receive physical certificates representing their interest in the Notes. See THE NOTES and APPENDIX G - DTC AND THE BOOK-ENTRY SYSTEM. No Redemption. The Notes are not subject to redemption prior to maturity. See THE NOTES No Redemption herein. Legal Matters. Issuance of the Notes is subject to the approving opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, as bond counsel ( Bond Counsel ), to be delivered in substantially the form attached hereto as Appendix C. Jones Hall, A Professional Law Corporation, San Francisco, California, will also serve as Disclosure Counsel to the District ( Disclosure Counsel ). Norton Rose Fulbright US LLP, Los Angeles, California, is serving as Underwriter s counsel ( Underwriter s Counsel ). Payment of the fees of Bond Counsel, Disclosure Counsel and Underwriter s Counsel is contingent upon issuance of the Notes. Tax Matters; Bank Qualification. Assuming compliance with certain covenants and provisions of the Internal Revenue Code of 1986, in the opinion of Bond Counsel, interest on the Notes is excluded from gross income for federal income tax purposes although it may be includable in the calculation for certain taxes. Also, in the opinion of Bond Counsel, interest on the Notes will be exempt from State of California personal income taxes. The District has designated the Notes as "qualified tax-exempt obligations" pursuant to Section 265(b)(3) of the Internal Revenue Code of Such section provides an exception to the prohibition against the ability of a financial institution (as defined in the Internal Revenue Code of 1986) to deduct its interest expense allocable to interest payable on the Notes. See TAX MATTERS herein. Continuing Disclosure. The District has covenanted and agreed that it will comply with and carry out all of the provisions of the Continuing Disclosure Certificate, dated the date of the Notes and executed by the District (the Continuing Disclosure Certificate ). The form of the Continuing Disclosure Certificate is included in Appendix D hereto. See CONTINUING DISCLOSURE. Other Information. This Official Statement speaks only as of its date, and the information contained in this Official Statement is subject to change. Copies of documents referred to in this Official Statement and information concerning the Notes are available from the District from the Superintendent s Office at Gregg Street, Ballico, California The District may impose a charge for copying, mailing and handling. -2-

9 THE NOTES Authority for Issuance The Notes are being issued pursuant to the Authorizing Law and the District Resolution. Purpose of Issue The Notes are being issued for the purpose of providing interim financing for the acquisition and construction of educational facilities and projects which were described in the ballot measure, known as Measure U, approved by the qualified electors at the Bond Election, which authorized the issuance of general obligation bonds in the maximum aggregate principal amount of $6,500,000. The District has issued one series of general obligation bonds pursuant to Measure U in the principal amount of $4,335,000, leaving $2,165,000 of authorized but unissued bonds pursuant to Measure U. The Notes are being issued in anticipation of the issuance of a second and final series of General Obligation Bonds. See DISTRICT FINANCIAL INFORMATION Existing Debt Obligations General Obligation Bonds. Description of the Notes Form of Notes. The Notes are being issued as Current Interest Notes and Capital Appreciation Notes, both as described and defined below. The Notes mature in the years and in the amounts as set forth on the inside cover page hereof. The Notes will be issued in denominations of $5,000 principal amount or Maturity Value (defined below), as applicable, or any integral multiple thereof. The Notes will be issued in book-entry form only, and will be initially issued and registered in the name of Cede & Co. as nominee for DTC. Purchasers will not receive physical certificates representing their interest in the Notes. See APPENDIX G - DTC AND THE BOOK-ENTRY SYSTEM. Current Interest Notes. The Current Interest Notes are Notes which bear current interest ( Current Interest Notes ), payable semiannually on each May 1 and November 1, commencing May 1, 2019 (each, an Interest Payment Date ). Each Current Interest Note will bear interest from the Interest Payment Date next preceding the date of registration and authentication thereof unless (i) it is authenticated as of an Interest Payment Date, in which event it will bear interest from such date, or (ii) it is authenticated prior to an Interest Payment Date and after the close of business on the fifteenth (15 th ) day of the month preceding the Interest Payment Date (each, a Record Date ), in which event it will bear interest from such Interest Payment Date, or (iii) it is authenticated prior to April 15, 2019, in which event it will bear interest from the date of delivery of the Notes identified on the cover page hereof. Notwithstanding the foregoing, if interest on any Current Interest Note is in default at the time of authentication thereof, such Current Interest Note will bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon. Payments of principal of and interest on the Current Interest Notes will be paid by the Paying Agent to DTC for subsequent disbursement to DTC Participants who will remit such payments to the Beneficial Owners of the Current Interest Notes. -3-

10 Capital Appreciation Notes. Certain Definitions. The following terms used herein are defined in the District Resolution to have the following meanings with respect to the Notes: Accreted Value means, with respect to any Note, the total amount of principal thereof and interest payable thereon as of any Compounding Date determined solely by reference to the Table of Accreted Values set forth on such Note, which is attached to this Official Statement as Appendix E. The Accreted Value of any Note as of any date other than a Compounding Date will be the sum of (a) the Accreted Value as of the Compounding Date immediately preceding the date as of which the calculation is being made plus (b) interest on the Accreted Value determined under the preceding clause (a), computed to the date as of which the calculation is being made at the Accretion Rate set forth on such Note (computed on the basis of a 360-day year of twelve 30-day months). Accretion Rate means the rate which, when applied to the Denominational Amount (as defined below) of any Note and compounded semiannually on each Compounding Date, produces the Maturity Value of such Note on the maturity date thereof. Capital Appreciation Notes means Notes the interest on which is compounded semiannually on each Compounding Date and is payable in full at maturity or prior redemption as shown in the Table of Accreted Value for the Capital Appreciation Notes attached to the Notes. All of the Notes are Capital Appreciation Notes. Compounding Date means, with respect to any Note, each May 1 and November 1, commencing May 1, 2019, to and including the date of maturity or redemption of such Note. Denominational Amount means, with respect to any Note, the original amount of such Note as of the Closing Date. Maturity Value means, with respect to any Note, the Accreted Value of such Note to be paid at maturity. The Notes will be dated the date of delivery, and will accrete interest from such date. The Denominational Amount of each maturity of the Notes shall be as shown on the inside cover page hereof. The Notes will be issued in denominations such that the Maturity Value thereof shall equal $5,000 or an integral multiple thereof. The Notes are payable only at maturity (unless earlier redeemed), in the year and amount set forth on the inside cover page hereof. Interest on the Capital Appreciation Notes is compounded on each Compounding Date. Each Note accretes in value daily over the term to its maturity, from its Denominational Amount on the Closing Date to its Accreted Value on its maturity date. The Accreted Value payable on any date shall be determined solely by reference to the Table of Accreted Values attached hereto as Appendix E. -4-

11 The interest portion of the Accreted Value of any Note that is payable on the date of maturity shall represent interest accreted and coming due on such date. The Accreted Value of any Note at maturity shall be payable by check or draft mailed by first-class mail, in lawful money of the United States of America upon presentation and surrender of such Note at the Office of the Paying Agent. See APPENDIX G- DTC and the Book-Entry System. Paying Agent Payments of the Accreted Value of the Notes will be made by The Bank of New York Mellon Trust Company, N.A. (the Paying Agent ), to DTC for subsequent disbursement through DTC Participants (defined herein) to the beneficial owners of the Notes. See APPENDIX G DTC and the Book-Entry System herein. As provided in the District Resolution, if at any time the Paying Agent shall resign or be removed, the District shall promptly appoint a successor Paying Agent. No Redemption The Notes are not subject to redemption prior to maturity. Registration, Transfer and Exchange of Notes If the book entry system is discontinued (see APPENDIX G DTC and the Book-Entry System ), the District shall cause the Paying Agent to maintain and keep at its principal corporate trust office all books and records necessary for the registration, exchange and transfer of the Notes. If the book entry system is discontinued, any Note may, in accordance with its terms, be transferred, upon the registration books, by the person in whose name it is registered, in person or by his or her duly authorized attorney, upon surrender of such Note for cancellation at the office of the Paying Agent, accompanied by delivery of a written instrument of transfer in a form approved by the Paying Agent, duly executed. The District may charge a reasonable sum for each new Note issued upon any transfer. Whenever any Note or Notes shall be surrendered for transfer, the District shall execute and the Paying Agent shall authenticate and deliver a new Note or Notes, for like aggregate principal amount. Notes may be exchanged at the office of the Paying Agent for a like aggregate Maturity Value of Notes of authorized denominations. The District may charge a reasonable sum for each new Note issued upon any exchange (except in the case of any exchange of temporary Notes for definitive Notes). Satisfaction and Discharge of Notes If the District pays and discharges any or all of the outstanding Notes in any one or more of the following ways: by well and truly paying or causing to be paid the principal of and interest on such Notes, including the Accreted Value of any Capital Appreciation Notes, as and when the same become due and payable; -5-

12 by irrevocably depositing with the Paying Agent or escrow agent selected by the District, in trust, at or before maturity, money which, together with the available amounts then on deposit in the funds and accounts established with the District under the District Resolution, is fully sufficient to pay such Notes, including all principal of and interest on, or, as applicable, the Accreted Value; or by irrevocably depositing with the Paying Agent or escrow agent selected by the District, in trust, Federal Securities (as defined in the District Resolution) in such amount as an Independent Accountant (as defined in the District Resolution) shall determine will, together with the interest to accrue thereon and available moneys then on deposit in the funds and accounts established with the District under the District Resolution, be fully sufficient to pay and discharge the indebtedness on such Notes (including principal of and interest, or all Accreted Value. as applicable) at maturity; then, notwithstanding that any of such Notes not have been surrendered for payment, the pledge of the General Obligation Bond proceeds and other funds provided for in the District Resolution with respect to such Notes, and all other pecuniary obligations of the District under the District Resolution with respect to all such Notes, shall cease and terminate, except only the obligation of the District to pay or cause to be paid to the owners of such Notes not so surrendered and paid all sums due thereon from amounts set aside for such purpose. -6-

13 SOURCES AND USES OF FUNDS The estimated sources and uses of funds in connection with the Notes, excluding accrued interest, are as follows: BALLICO-CRESSEY SCHOOL DISTRICT Sources and Uses of Funds Sources of Funds Principal Amount of Notes $2,162, Net Original Issue Premium 65, Total Sources of Funds $2,228, Uses of Funds Building Fund $2,013, Debt Service Fund 51, Costs of Issuance (1) 162, Total Uses of Funds $2,228, (1) All estimated costs of issuance including, but not limited to, Underwriter s discount, printing costs, and fees of Bond Counsel, Disclosure Counsel, Financial Advisor, Paying Agent, and rating agency. DEBT SERVICE SCHEDULE Debt service payable on the Notes is summarized in the following table, assuming no early redemptions. BALLICO-CRESSEY SCHOOL DISTRICT Annual Debt Service Schedule for the Notes Current Interest Notes Capital Appreciation Notes Period Ending Principal Amount Current Interest Denominational Amount Accreted Interest Total Debt Service 11/01/ $22, $22, /01/ , , /01/ , , /01/ , , /01/2023 $600, , $1,562, $292, ,479, Total $600, $118, $1,562, $292, $2,573,

14 SECURITY FOR THE NOTES Pledge of General Obligation Bond Proceeds In accordance with the District Resolution, the principal of and interest on the Current Interest Notes, and the Accreted Value of the Capital Appreciation Notes, are payable from the proceeds of General Obligation Bonds issued for that purpose and from any other amounts held in the funds and accounts established under the District Resolution. The Notes may also be repaid from any other lawfully available funds of the District, including but not limited to State Reimbursements (as defined below). Furthermore, in accordance with the Authorizing Law, interest on the Current Interest Notes is also payable from ad valorem taxes expected to be levied upon all property within the District subject to taxation, to the extent available for that purpose in accordance with the Authorizing Law, which tax the Board has authorized to be levied for said purposes. The proceeds of the General Obligation Bonds, and the proceeds of any such ad valorem property taxes, if any, will be paid to the County Treasurer when collected and deposited in the Note Repayment Fund (as defined herein) established pursuant to the District Resolution. The Notes are secured by a pledge of all funds deposited in the 2018 Note Repayment Fund. The Notes are special obligations of the District, payable exclusively from the sources and funds identified in the preceding paragraph. The general fund of the District is not liable, and the credit of the District is not pledged, for the payment of the Notes. Covenant to Issue General Obligation Bonds or Other Obligations In order to provide for the payment of the Notes coming due at maturity or upon earlier redemption, the District has covenanted in the District Resolution that, not later than thirty days prior to maturity of the Notes, the District will issue General Obligation Bonds or other obligations including certificates of participation, or any combination of the foregoing, in an aggregate principal amount which is sufficient to pay the full Maturity Value of the Notes, coming due and payable at maturity. Under applicable California law, bond anticipation notes are not permitted to exceed a term of five years. As such, the District is not permitted to refund the Notes with an additional series of bond anticipation notes. Upon the issuance of obligations to provide for the repayment of the Notes by the District, the proceeds thereof will be paid to the County Treasurer and deposited in the 2018 Note Repayment Fund, which is pledged to the payment of the Notes. For a discussion of risk factors relating to the issuance of obligations to provide for the payment of the Notes, see CERTAIN RISK FACTORS herein. Note Repayment Fund Pursuant to the District Resolution, the County Treasurer shall create and maintain while the Notes are outstanding an interest and sinking fund for the Notes, designated the 2018 Note Repayment Fund. The 2018 Note Repayment Fund shall be maintained by the County Treasurer as a separate account, distinct from all other funds of the District, into which shall be paid on receipt thereof, (i) any premium received on the sale of the Notes, (ii) the proceeds of any ad valorem taxes levied to pay interest on the Notes, (iii) the proceeds of any General Obligation Bonds or other obligations issued to pay the Accreted Value of the Notes, and (iv) State Reimbursements which the District has identified to be used for repayment of the Notes, if any. -8-

15 Amounts on deposit in the 2018 Note Repayment Fund, to the extent necessary to pay the principal of and interest on the Current Interest Notes and the Accreted Value of the Capital Appreciation Notes as the same become due and payable, shall be transferred by the County Treasurer to the Paying Agent which, in turn, shall pay such moneys to DTC to pay the Accreted Value on the Notes. DTC will thereupon make payments of the Accreted Value of the Notes to the DTC Participants who will thereupon make payments of Accreted Value to the beneficial owners of the Notes. Any moneys remaining in the 2018 Note Repayment Fund after the Notes and the interest thereon have been paid, or provision for such payment has been made, will be transferred to the general fund of the District. Investment of District Funds and Note Proceeds All moneys held in any of the funds or accounts established with the County under the District Resolution shall be invested in any one or more investments generally permitted to school districts under the laws of the State of California, consistent with the County investment policy. Such investments shall be made under the direction and at the discretion of the County Treasurer. Obligations purchased as an investment of moneys in any fund or account shall be deemed to be part of such fund or account. All interest or gain derived from the investment of amounts in any of the funds or accounts established under the District Resolution shall be deposited in the fund or account from which such investment was made, and shall be expended for the purposes thereof. See APPENDIX F MERCED COUNTY INVESTMENT POLICY AND INVESTMENT REPORT. [Remainder of page intentionally left blank] -9-

16 CERTAIN RISK FACTORS The following factors, along with the other information in this Official Statement, should be considered by potential investors in evaluating a purchase of the Notes. However, they do not purport to be an exhaustive listing of risks and other considerations which may be relevant to an investment in the Notes. In addition, the order in which the following factors are presented is not intended to reflect the relative importance of any such risks. No Assurances Regarding Issuance of General Obligation Bonds As described above, the District is issuing the Notes as interim financing for projects approved by Measure U, which authorized the issuance of General Obligation Bonds by the District. The District intends to issue General Obligation Bonds to provide for the payment of the Notes at maturity or upon early redemption. Notwithstanding that other sources of funding, such as State Reimbursements, may become available to the District to use, at its option, as a source for the payment of the Notes, the primary source of repayment is expected to be proceeds of General Obligation Bonds. In order to issue General Obligation Bonds, there are prerequisites imposed by State law that must be met in order to proceed with bond issuance. First, the District can only issue general obligation bonds if the issuance does not cause the District to exceed its bonding capacity limitation, which is a limit of 1.25% of assessed valuation for the District. Second, the District can only issue general obligation bonds pursuant to a bond measure if it can project, at the time of issuance, that the tax rate required to pay debt service on all bonds issued pursuant to such measure is not expected to exceed $30 per $100,000 of assessed valuation over the life of such bonds. It should be noted that under State law, repayment of interest on the Notes may be paid from premium generated on the sale of the General Obligation Bonds. Bonding Capacity Limitations. As for the District s bonding capacity, the District s total assessed value in fiscal year is $624,532,150, resulting in a gross bonding capacity of approximately $7.8 million. The District s outstanding bonded debt as of this date is $4,005,000 without regard to the principal amount of the Notes, which are not included in the calculation of bonding capacity. As such, based on current assessed value, the District has $3,795,000 in available bonding capacity, which is sufficient bonding capacity to issue the District s final series of Measure U Bonds in the principal amount of $2,165,000. Notwithstanding that the 10-year historical assessed value growth rate in the District has been 5%, the District cannot guarantee that assessed values will not decrease prior to the time that the Notes mature, resulting in less or no available bonding capacity. There is a waiver process available to school districts under California law, permitting school districts to apply to the California State Board of Education for a waiver of the bonding capacity limitation which, if needed, the District could decide to pursue. In addition, the District s outstanding general obligation bonds are expected to amortize principal prior to the maturity date of the Notes, which will create more available bonding capacity. Tax Rate Projection Requirements. With respect to the required tax rate projections, the District has one series of bonds issued pursuant to Measure U, being Series A issued in the principal amount of $4,335,000 (the Series A Bonds ). See DISTRICT FINANCIAL INFORMATION Long-Term Debt. For fiscal year the tax rate levied to pay debt service on the Series A Bonds was $24.10 per $100,000 of assessed valuation. In order for the District to issue an additional series of General Obligation Bonds pursuant to Measure U in the amount of $2,165,000 by August 1, 2023, and project at that time that the District expects to be in compliance with the tax limitation of $30 per $100,000 assessed valuation, the total -10-

17 assessed valuation in the District must be at least $759,122,732 at time of issue. This amount is $134,590,582 higher (20% higher) than the current fiscal year assessed value. This target assessed value assumes that the General Obligation Bonds are issued for a 30-year term with a true interest cost of 5%. The District cannot guarantee that assessed values will increase to said amount, or that assessed values will not decrease. However, the 10-year historical assessed value growth in the District has been 5%. See below table summarizing historical assessed values in the District. In the event that the assessed value growth is not realized, the District may issue a portion of the remaining authorization of Measure U Bonds that is within the required tax rate, and has in the District Resolution covenanted to issue other obligations, such as long-term lease obligations or certificates of participation, to provide for repayment of the Notes in full upon maturity. Other Factors Bearing on Issuance of General Obligation Bonds. Other factors could affect the ability of the District to issue General Obligation Bonds or other forms of debt to provide for the repayment of the Notes. These include the financial condition of the District at the time it institutes proceedings to issue such obligations, the presence of conditions prevailing in the bond market which could make it difficult or impossible for the District to issue such obligations, and the difficulty of obtaining municipal bond insurance or other credit enhancement. No assurances can be given that the District will be able to issue obligations when and as required to provide for payment of the principal or Accreted Value of the Notes at maturity. In addition, in order to provide for the payment of interest on the Capital Appreciation Notes which has accreted and compounded on the Notes to maturity, the General Obligation Bonds will have to be sold at a premium. The District cannot guarantee that sufficient premium will be generated on the sale to provide for the accreted interest due at final maturity of the Notes. Availability of State Reimbursements. The District has applied to the State under Proposition 51 (approved by State voters on June 7, 2016) for grant funding for modernization and construction of educational facilities ( State Reimbursements ) in the amount of $3.7 million, which the District may, at its option, when and if received, apply to the payment of the Notes. The timing of receipt and amount of State Reimbursements is uncertain and depends, in part, on the State s issuance of bonds pursuant to Proposition 51 and the number and priority of qualified applicants for funding. Reduction in Assessed Valuation The reduction of taxable values of property in the District caused by economic factors beyond the District s control, such as successful appeals by property owners for a reduction in property s assessed value, blanket reductions in assessed value due to general reductions in property values or the complete or partial destruction of such property caused by, among other eventualities, an earthquake or other natural disaster, could cause a reduction in assessed valuations. Such factors could also cause the assessed value of District properties to increase at a slower rate than needed to comply with the tax rate limitation described above. Such factors could adversely affect the ability of the District to issue General Obligation Bonds prior to maturity of the Notes. See - No Assurances on Issuance of General Obligation Bonds above. Reduction in Inflationary Rate and Changes in Legislation; Further Initiatives Article XIIIA of the California Constitution provides that the full cash value base of real property used in determining taxable value may be adjusted from year to year to reflect the inflationary rate, not to exceed a two percent increase for any given year, or may be reduced to -11-

18 reflect a reduction in the consumer price index or comparable local data. Such measure is computed on a calendar year basis. Article XIIIA of the California Constitution, which significantly affected the rate of property taxation, was adopted pursuant to California s constitutional initiative process. From time to time, other initiative measures could be adopted by California voters. The adoption of any such initiative might alter the taxable value, reduce the property tax rate, or broaden property tax exemptions. See CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS - Article XIIIA of the California Constitution. Loss of Tax Exemption As discussed under the heading TAX MATTERS, certain acts or omissions of the District in violation of its covenants in the District Resolution could result in the interest on the Notes being includable in gross income for purposes of federal income taxation retroactive to the date of issuance of the Notes. Should such an event of taxability occur, the Notes would not be subject to a special redemption and would remain outstanding. CONTINUING DISCLOSURE The District has covenanted for the benefit of holders and beneficial owners of the Notes to provide certain financial information and operating data relating to the District by not later than nine (9) months following the end of the District s fiscal year (which currently would be by March 31 each year based upon the June 30 end of the District s fiscal year), commencing March 31, 2019 with the report for the fiscal year (the Annual Report ), and to provide notices of the occurrence of certain enumerated events. The Annual Report and any event notices will be filed by the District with the Municipal Securities Rulemaking Board (the MSRB ). The specific nature of the information to be contained in an Annual Report or other notices is set forth below under the caption APPENDIX D Form of Continuing Disclosure Certificate. These covenants have been made in order to assist the Underwriter in complying with S.E.C. Rule 15c2-12(b)(5) (the Rule ). The District has one prior undertaking pursuant to the Rule which was made in connection with the delivery of the District s Election of 2016, Series A Bonds. A review of the District s required and actual filings has been made and no instances of noncompliance have been identified. The District has engaged Isom Advisors to serve as its dissemination agent with respect to its undertakings pursuant to the Rule, including the undertaking in connection with the Notes. -12-

19 PROPERTY TAX BASE IN THE DISTRICT Although the Notes are secured by a pledge of the proceeds of General Obligation Bonds and are not secured by a pledge of ad valorem taxes (other than ad valorem taxes, if any, which may be available to pay interest represented by the Notes), the information in this section describes ad valorem property taxation, assessed valuation, and other measures of the tax base of the District, which investors may consider in evaluating the Notes and the marketability of the General Obligation Bonds which may be issued to provide for payment of the Notes. The District s general fund is not a source for the repayment of the Notes. Property Tax Collection Procedures In California, property which is subject to ad valorem taxes is classified as secured or unsecured. The secured roll is that part of the assessment roll containing state assessed public utilities property and real property, the taxes on which create a lien on such property sufficient, in the opinion of the county assessor, to secure payment of the taxes. A tax levied on unsecured property does not become a lien against such unsecured property, but may become a lien on certain other property owned by the taxpayer. Every tax which becomes a lien on secured property has priority over all other liens arising pursuant to State law on such secured property, regardless of the time of the creation of the other liens. Secured and unsecured property are entered separately on the assessment roll maintained by the county assessor. The method of collecting delinquent taxes is substantially different for the two classifications of property. Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each fiscal year. If unpaid, such taxes become delinquent after December 10 and April 10, respectively, and a 10% penalty attaches to any delinquent payment. In addition, property on the secured roll with respect to which taxes are delinquent is declared tax defaulted on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of the delinquent taxes and a delinquency penalty, plus a redemption penalty of 1-1/2% per month to the time of redemption. If taxes are unpaid for a period of five years or more, the property is subject to sale by the County. Property taxes are levied for each fiscal year on taxable real and personal property situated in the taxing jurisdiction as of the preceding January 1. A bill enacted in 1983, SB813 (Statutes of 1983, Chapter 498), however, provided for the supplemental assessment and taxation of property as of the occurrence of a change of ownership or completion of new construction. Thus, this legislation eliminated delays in the realization of increased property taxes from new assessments. As amended, SB813 provided increased revenue to taxing jurisdictions to the extent that supplemental assessments of new construction or changes of ownership occur subsequent to the January 1 lien date and result in increased assessed value. Property taxes on the unsecured roll are due on the January 1 lien date and become delinquent, if unpaid on the following August 31. A 10% penalty is also attached to delinquent taxes in respect of property on the unsecured roll, and further, an additional penalty of 1-1/2% per month accrues with respect to such taxes beginning the first day of the third month following the delinquency date. The taxing authority has four ways of collecting unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a certificate in the office of the county clerk specifying certain facts in order to obtain a judgment lien on certain property of the -13-

20 taxpayer; (3) filing a certificate of delinquency for record in the county recorder s office, in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the assessee. The exclusive means of enforcing the payment of delinquent taxes in respect of property on the secured roll is the sale of the property securing the taxes for the amount of taxes which are delinquent. Taxation of State-Assessed Utility Property The State Constitution provides that most classes of property owned or used by regulated utilities be assessed by the State Board of Equalization ( SBE ) and taxed locally. Property valued by the SBE as an operating unit in a primary function of the utility taxpayer is known as unitary property, a concept designed to permit assessment of the utility as a going concern rather than assessment of each individual element of real and personal property owned by the utility taxpayer. State-assessed unitary and operating nonunitary property (which excludes nonunitary property of regulated railways) is allocated to the counties of the State based on the situs of the various components of the unitary property. Except for unitary property of regulated railways and certain other excepted property, all unitary and operating nonunitary property is taxed at special county-wide rates and tax proceeds are distributed to taxing jurisdictions according to statutory formulae generally based on the distribution of taxes in the prior year. Assessed Valuations Assessed Valuation History. District s assessed valuation. The table following shows a recent history of the BALLICO-CRESSEY SCHOOL DISTRICT Assessed Valuation Fiscal Year through Fiscal Year Fiscal Year Locally Secured Utility Unsecured Total % Change $324,967,407 $647,704 $22,480,393 $348,095, ,862,971 54,500 31,527, ,445, % ,134,480 54,500 33,480, ,669, ,541,052 54,500 38,361, ,957, ,699,421 54,500 41,823, ,577, ,798,166 92,033 38,304, ,194, ,132,013 92,033 37,120, ,344, ,691,226 92,033 39,935, ,718, ,371, ,367, ,738, ,557, ,332, ,890, ,201, ,972, ,174, ,059, ,680, ,740, ,493, ,038, ,532, Source: California Municipal Statistics, Inc. Some Factors Relating to Increases/Decreases in Assessed Value. As indicated in the previous table, assessed valuations are subject to change in each year. Increases or decreases in assessed valuation result from a variety of factors including but not limited to general economic conditions, supply and demand for real property in the area, government regulations such as zoning, and man-made or natural disasters such as earthquakes, fires, floods and drought. Notable natural disasters in recent years include drought conditions -14-

21 throughout the State, which ended in 2017 due to record-level precipitation in late 2016 and early 2017, and wildfires in different regions of the State, and related flooding and mudslides. The most destructive of the recent wildfires, which have burned thousands of acres and destroyed thousands of homes and structures, have originated in wildlands adjacent to urban areas. Seismic activity is also a risk in the region where the District is located. The District cannot predict or make any representations regarding the effects that any disasters and related conditions have or may have on the value of taxable property within the District, or to what extent the effects said disasters might have had on economic activity in the District or throughout the State. Assessed Valuation by Land Use. The following table shows a breakdown of local secured property assessed value and parcels within the District by land use for fiscal year BALLICO-CRESSEY SCHOOL DISTRICT Local Secured Property Assessed Valuation and Parcels by Land Use Fiscal Year % of No. of % of Non-Residential: Assessed Valuation (1) Total Parcels Total Agricultural $474,814, % % Commercial 9,999, Vacant Commercial 183, Industrial 32,190, Vacant Industrial 170, Government/Social/Institutional 540, Miscellaneous 48, Subtotal Non-Residential $517,947, % % Residential: Single Family Residence $31,515, % % Mobile Home 1,502, Residential Units/Apartments 3,090, Miscellaneous Residential 1,172, Vacant Residential 1,264, Subtotal Residential $38,546, % % Total $556,493, % % (1) Local Secured Assessed Valuation; excluding tax-exempt property. Source: California Municipal Statistics, Inc. -15-

22 Assessed Valuation of Single Family Homes. The following table sets forth the per parcel assessed valuation of single-family homes in fiscal year BALLICO-CRESSEY SCHOOL DISTRICT Per Parcel Assessed Valuation of Single-Family Homes No. of Average Median Parcels Assessed Valuation Assessed Valuation Assessed Valuation Single Family Residential 170 $31,515,918 $185,388 $149, No. of % of Cumulative Total % of Cumulative Assessed Valuation Parcels (1) Total % of Total Valuation Total % of Total $0 - $24, % 2.941% $ 99, % 0.316% $25,000 - $49, , $50,000 - $74, ,594, $75,000 - $99, ,141, $100,000 - $124, ,603, $125,000 - $149, ,961, $150,000 - $174, ,280, $175,000 - $199, ,690, $200,000 - $224, ,498, $225,000 - $249, ,657, $250,000 - $274, ,035, $275,000 - $299, ,148, $300,000 - $324, ,881, $325,000 - $349, ,343, $350,000 - $374, ,435, $375,000 - $399, ,458, $400,000 - $424, ,453, $425,000 - $449, ,716, $450,000 - $474, , $475,000 - $499, , $500,000 and greater ,551, Total % $31,515, % (1) Improved single family residential parcels. Excludes condominiums and parcels with multiple family units. Source: California Municipal Statistics, Inc. -16-

23 Reassessments and Appeals of Assessed Value There are general means by which assessed values can be reassessed or appealed that could adversely impact property tax revenues within the District. Appeals may be based on Proposition 8 of November 1978, which requires that for each January 1 lien date, the taxable value of real property must be the lesser of its base year value, annually adjusted by the inflation factor pursuant to Article XIIIA of the State Constitution, or its full cash value, taking into account reductions in value due to damage, destruction, depreciation, obsolescence, removal of property or other factors causing a decline in value. See CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Article XIIIA of the California Constitution herein. Under California law, property owners may apply for a Proposition 8 reduction of their property tax assessment by filing a written application, in the form prescribed by the State Board of Equalization, with the County board of equalization or assessment appeals board. In most cases, the appeal is filed because the applicant believes that present market conditions (such as residential home prices) cause the property to be worth less than its current assessed value. Any reduction in the assessment ultimately granted as a result of such appeal applies to the year for which the application is made and during which the written application was filed. These reductions are subject to yearly reappraisals and are adjusted back to their original values, adjusted for inflation, when market conditions improve. Once the property has regained its prior value, adjusted for inflation, it once again is subject to the annual inflationary factor growth rate allowed under Article XIIIA. A second type of assessment appeal involves a challenge to the base year value of an assessed property. Appeals for reduction in the base year value of an assessment, if successful, reduce the assessment for the year in which the appeal is taken and prospectively thereafter. The base year is determined by the completion date of new construction or the date of change of ownership. Any base year appeal must be made within four years of the change of ownership or new construction date. Proposition 8 reductions may also be unilaterally applied by the County Assessor. The District cannot predict the changes in assessed values that might result from pending or future appeals by taxpayers or by reductions initiated by the County Assessor. Any reduction in aggregate District assessed valuation due to appeals, as with any reduction in assessed valuation due to other causes, will cause the tax rate levied to repay the District s outstanding general obligation bonds to increase accordingly, so that the fixed debt service on the District s outstanding general obligation debt of the District may be paid. -17-

24 Typical Tax Rates Below are historical typical tax rates in a tax rate area within the District. BALLICO-CRESSEY SCHOOL DISTRICT Typical Tax Rates per $100 of Assessed Valuation Fiscal Years through Taxing Entity General Tax Rate % % % % % Ballico-Cressey Union School District Merced Union High School District Merced Community College District SFID No Total Tax Rate % % % % % Source: California Municipal Statistics, Inc. Tax Levies and Delinquencies; Teeter Plan The County has adopted the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the "Teeter Plan") as provided for in the State Revenue and Taxation Code, which requires the County to pay 100% of secured property taxes due to local agencies in the fiscal year such taxes are due. Under these provisions, each county operating under the Teeter Plan establishes a delinquency reserve and assumes responsibility for all secured delinquencies, assuming that certain conditions are met. Because of this method of tax collection, the K-12 districts located in counties operating under the Teeter Plan and participating in the Teeter Plan are assured of 100% collection of their secured tax levies if the conditions established under the applicable county s Teeter Plan are met. However, such districts are no longer entitled to share in any penalties due to delinquent payments or in the interest which accrues on delinquent payments. The Teeter Plan is to remain in effect unless the Board of Supervisors orders its discontinuance or unless, prior to the commencement of any fiscal year of the County (which commences on July 1), the Board of Supervisors has received a petition for its discontinuance joined in by resolutions adopted by two thirds of the participating revenue districts in the County, in which event the Board of Supervisors is required to order discontinuance of the Teeter Plan effective at the commencement of the subsequent fiscal year. The Board of Supervisors may, by resolution adopted not later than July 15 of the fiscal year for which it is to apply after holding a public hearing on the matter, discontinue the procedures under the Teeter Plan with respect to any tax levying agency or assessment levying agency in the County if the rate of secure tax delinquency in that agency in any year exceeds 3% of the total of all taxes and assessments levied on the secured rolls for that agency. In the event that the Teeter Plan were terminated, the amount of the levy of ad valorem taxes in the District would depend upon the collections of the ad valorem property taxes and delinquency rates experienced with respect to the parcels within the District. Currently, the County includes the District s general obligation bond levies in its Teeter Plan. -18-

25 Major Taxpayers The following table shows the 20 largest owners of taxable property in the District as determined by secured assessed valuation in fiscal year Each taxpayer listed below is a unique name listed on the tax rolls. The District cannot determine from County assessment records whether individual persons, corporations or other organizations are liable for tax payments with respect to multiple properties held in various names that in aggregate may be larger than is suggested by the table below. A large concentration of ownership in a single individual or entity results in a greater amount of tax collections which are dependent upon that property owner s ability or willingness to pay property taxes. BALLICO-CRESSEY SCHOOL DISTRICT Largest Local Secured Taxpayers Fiscal Year % of Property Owner Primary Land Use Assessed Valuation Total (1) 1. Jeanette Veldhuis, Trustee Agricultural $ 22,126, % 2. Johnson Bros. Agricultural 17,605, Northern Merced Hulling Association Inc. Food Processing 15,015, Fermin M. Campos Agricultural 14,487, Cortez Growers Association Food Processing 11,159, Valley Fresh Foods Inc. Agricultural 10,680, APB Partners LLC Agricultural 9,916, Fresno Farming LLC Agricultural 9,432, Driscolls Inc. Food Processing 9,015, Kenneth J. & Johanna L. Fisher, Trustees Agricultural 8,874, David C. & Sherrie Vanvliet, Trustees Agricultural 8,126, Farmers International Inc. Agricultural 8,046, Kruppa Family Land Holdings LLC Agricultural 7,523, Ray Gene Veldhuis, Trustee Agricultural 7,053, Hartley & Joanne Spycher, Co-Trustees Agricultural 6,891, Sierra Cascade Nursery Inc. Agricultural 6,737, Gold River Ranch Agricultural 6,630, Farmland Reserve Inc. Agricultural 6,625, FJ Venture Partnership Agricultural 5,902, Roy A. Johnson Farms Inc. Agricultural 5,740, $197,593, % (1) Local Secured Assessed Valuation: $556,493,744. Source: California Municipal Statistics, Inc. -19-

26 Direct and Overlapping Debt Set forth on the following page is a direct and overlapping debt report (the Debt Report ) prepared by California Municipal Statistics, Inc. dated as of October 1, The Debt Report is included for general information purposes only. The District has not reviewed the Debt Report for completeness or accuracy and makes no representation in connection therewith. The Debt Report generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the District in whole or in part. Such long-term obligations generally are not payable from revenues of the District (except as indicated) nor are they necessarily obligations secured by land within the District. In many cases, long-term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency Assessed Valuation: $624,532,150 BALLICO-CRESSEY SCHOOL DISTRICT Statement of Direct and Overlapping Bonded Debt Dated as of October 1, 2018 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 10/1/18 Merced Community College District School Facilities Improvement District No % $1,031,195 Merced Union High School District ,283,264 Ballico-Cressey School District ,065,000 (1) TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $9,379,459 OVERLAPPING GENERAL FUND DEBT: Merced County Certificates of Participation 2.591% $735,731 Merced County Office of Education General Fund Obligations ,717 TOTAL OVERLAPPING GENERAL FUND DEBT $813,448 COMBINED TOTAL DEBT $10,192,907 (2) Ratios to Assessed Valuation: Direct Debt ($4,065,000) % Total Direct and Overlapping Tax and Assessment Debt % Combined Total Debt % (1) Excludes the Notes offered hereunder. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations. Source: California Municipal Statistics, Inc. -20-

27 THE DISTRICT General Information Located along the Merced River in the City of Ballico in Merced County (the County ), the District operates two school campuses, the Cressey Elementary School and the Ballico Elementary School. The District operates its transitional kindergarten and kindergarten programs as traditional non-charter schools. Commencing with fiscal year , the District converted its grades one through eight programs into a dependent charter school program, known as the Ballico-Cressey Community Charter School (the Charter School ). The District has total enrollment (charter and non-charter) of 371 students in fiscal year The District served as the lead petitioner for the Charter School, and the District s governing board approved the Charter School s charter on March 8, 2018, which has a term through Charter proceedings were commenced in an effort, among others, to increase enrollment, add educational options for families in the County and obtain additional revenues. The District governing board governs the Charter School, and Charter School employees are District employees covered by existing collective bargaining contracts. In the event of charter school closure or non-renewal, the program reverts to a non-charter public school, with all assets reverting to the District. Administration Board of Trustees. The District is governed by a five-member Board of Trustees, each member of which is elected to a four-year term. Elections for positions to the Board are held every two years, alternating between two and three available positions. Current members of the Board of Trustees, together with their office and the date their term expires, are listed below: Name Office Term Expires Ginger Chance President December 2020 Eric Harcksen Clerk December 2018 Thomas March Clerk December 2018 Seanna Johnson Member December 2020 Jana Nairn Member December 2018 Administration. The Superintendent of the District is appointed by the Board and is responsible for management of the day-to-day operations of the District and supervises the work of other District administrators. Bliss Propes currently serves as the District Superintendent. -21-

28 Recent Enrollment Trends The following table shows recent enrollment history for the District. Employee Relations ANNUAL ENROLLMENT* Ballico-Cressey School District Fiscal Years through School Year Enrollment % Change (2.6)% (4.9) (2.0) (2.3) (0.5) *Includes non-charter and charter students. Source: Ballico-Cressey School District. The District currently has 23.0 certificated, 10.3 classified and 9 management full-time equivalent ( FTE ) positions. The certificated employees of the District are represented by one bargaining unit, as set forth in the following table. Classified and certificated management are unrepresented. Employee Group BARGAINING UNITS Ballico-Cressey School District Representation Contract Expiration Date Certificated Ballico-Cressey Teachers Association June 30, 2019 Source: Ballico-Cressey School District. Insurance Joint Powers Agreements The District is a member of Keenan Associates, Central Valley Schools, the Merced County Schools Insurance Group I and the Self-Insured Schools of California joint ventures. The District pays an annual premium to each entity for its general liability, workers compensation and health insurance commensurate with the level of coverage requested and shares surpluses and deficits proportionate to its participation in each joint venture. The relationships between the District and the joint ventures are such that they are not component units of the District for financial reporting purposes. -22-

29 DISTRICT FINANCIAL INFORMATION The information in this section concerning the operations of the District and the District's general fund finances is provided as supplementary information only, and it should not be inferred from the inclusion of this information in this Official Statement that the Accreted Value on the Notes is payable from the general fund of the District. The Notes are payable solely from the sources of funds described under SECURITY FOR THE Notes herein. Education Funding Generally School districts in California receive operating income primarily from two sources: the State funded portion which is derived from the State s general fund, and a locally funded portion, being the district s share of the one percent general ad valorem tax levy authorized by the California Constitution. As a result, decreases or deferrals in education funding by the State could significantly affect a school district s revenues and operations. From to , California school districts operated under general purpose revenue limits established by the State Legislature. In general, revenue limits were calculated for each school district by multiplying (1) the ADA for such district by (2) a base revenue limit per unit of ADA. The revenue limit calculations were adjusted annually in accordance with a number of factors designated primarily to provide cost of living increases and to equalize revenues among all California school districts of the same type. Funding of the District's revenue limit was provided by a mix of local property taxes and State apportionments of basic and equalization aid. Generally, the State apportionments amounted to the difference between the District's revenue limit and its local property tax revenues. The fiscal year State budget package (the Budget ) replaced the previous K-12 finance system with a new formula known as the Local Control Funding Formula (the LCFF ). Under the LCFF, revenue limits and most state categorical programs were eliminated. School districts instead receive funding based on the demographic profile of the students they serve and gain greater flexibility to use these funds to improve outcomes of students. The LCFF creates funding targets based on student characteristics. For school districts and charter schools, the LCFF funding targets consist of grade span-specific base grants plus supplemental and concentration grants that reflect student demographic factors. The LCFF includes the following components: A base grant for each local education agency per unit of ADA, which varies with respect to different grade spans. The base grant is $2,375 more than the average revenue limit provided prior to LCFF implementation. The base grants will be adjusted upward each year to reflect cost-of-living increases. In addition, grades K-3 and 9-12 are subject to adjustments of 10.4% and 2.6%, respectively, to cover the costs of class size reduction in grades K-3 and the provision of career technical education in grades A 20% supplemental grant for English learners, students from low-income families and foster youth to reflect increased costs associated with educating those students. An additional concentration grant of up to 50% of a local education agency s base grant, based on the number of English learners, students from low-income -23-

30 families and foster youth served by the local agency that comprise more than 55% of enrollment. An economic recovery target to ensure that almost every local education agency receives at least their pre-recession funding level, adjusted for inflation, at full implementation of the LCFF. The LCFF was implemented for fiscal year and has been phased in gradually. Beginning in fiscal year , an annual transition adjustment was required to be calculated for each school district, equal to each district s proportionate share of the appropriations included in the State budget (based on the percentage of each district s students who are lowincome, English learners, and foster youth ( Targeted Students ), to close the gap between the prior-year funding level and the target allocation at full implementation of LCFF. In each year, districts will have the same proportion of their respective funding gaps closed, with dollar amounts varying depending on the size of a district s funding gap. Full implementation occurred in fiscal year in connection with adoption of the State Budget for said fiscal year. Funding levels used in the LCFF Target Entitlement calculations for fiscal year are set forth in the following table. Fiscal Year Base Grant* Under LCFF by Grade Span (Targeted Entitlement) Base Grant Per ADA Grade Span Adjustments (K-3: 10.4%; 9-12: 2.6%) Base Grant/Adjusted Base Grant Per ADA Grade Span COLA (3.70%) K-3 $7,193 $266 $776 $8, , n/a 7, , n/a 7, , ,269 *Does not include supplemental and concentration grant funding entitlements. Source: California Department of Education. The new legislation included a hold harmless provision which provided that a district or charter school would maintain total revenue limit and categorical funding at least equal to its level, unadjusted for changes in ADA or cost of living adjustments. The LCFF includes an accountability component. Districts are required to increase or improve services for English language learners, low income, and foster youth students in proportion to supplemental and concentration grant funding received. All school districts, county offices of education, and charter schools are required to develop and adopt local control and accountability plans, which identify local goals in areas that are priorities for the State, including pupil achievement, parent engagement, and school climate. County superintendents review and provide support to the districts under their jurisdiction, and the Superintendent of Public Instruction performs a corresponding role for county offices of education. In addition, the budget for fiscal year created the California Collaborative for Education Excellence to advise and assist school districts, county offices of education, and charter schools in achieving the goals identified in their plans. Under the LCFF and related legislation, the State will continue to measure student achievement through statewide assessments, produce an Academic Performance Index for schools and subgroups of -24-

31 students, determine the contents of the school accountability report card, and establish policies to implement the federal accountability system. District Accounting Practices The accounting practices of the District conform to generally accepted accounting principles in accordance with policies and procedures of the California School Accounting Manual. This manual, according to Section of the California Education Code, is to be followed by all California school districts. District accounting is organized on the basis of funds, with each group consisting of a separate accounting entity. The major fund classification is the general fund which accounts for all financial resources not requiring a special fund placement. The District's fiscal year begins on July 1 and ends on June 30. For more information on the District s basis of accounting and fund accounting, see APPENDIX A Audited Financial Statements of the District for Fiscal Year Ended June 30, 2017 Note 1 Significant Accounting Policies. District expenditures are accrued at the end of the fiscal year to reflect the receipt of goods and services in that year. Revenues generally are recorded on a cash basis, except for items that are susceptible to accrual (measurable and/or available to finance operations). Current taxes are considered susceptible to accrual. Revenues from specific state and federally funded projects are recognized when qualified expenditures have been incurred. State block grant apportionments are accrued to the extent that they are measurable and predictable. The State Department of Education sends the District updated information from time to time explaining the acceptable accounting treatment of revenue and expenditure categories. The Governmental Accounting Standards Board ( GASB ) published its Statement No. 34 Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments on June 30, Statement No. 34 provides guidelines to auditors, state and local governments and special purpose governments such as school districts and public utilities, on new requirements for financial reporting for all governmental agencies in the United States. Generally, the basic financial statements and required supplementary information should include (i) Management s Discussion and Analysis; (ii) financial statements prepared using the economic measurement focus and the accrual basis of accounting; (iii) fund financial statements prepared using the current financial resources measurement focus and the modified accrual method of accounting and (iv) required supplementary information. Financial Statements General. The District's Audited Financial Statements for the fiscal year were prepared by Linger, Peterson, Shrum & Co., Fresno, California (the Auditor ). Audited financial statements for the District for the fiscal year ended June 30, 2017 and prior fiscal years are on file with the District and available for public inspection at the Superintendent s Office. See Appendix A hereto for the Audited Financial Statements. The District has not requested, and the Auditor has not provided, any additional review of such financial statements in connection with their inclusion in the Official Statement. Copies of such financial statements will be mailed to prospective investors and their representatives upon written request to the District. -25-

32 General Fund Revenues, Expenditures and Changes in Fund Balance. The General Fund is the main operating fund of the District. It is used to account for all activities except those that are required to be accounted for in another fund. The following table shows the audited income and expense statements for the District for the fiscal years through GENERAL FUND REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE Fiscal Years through (Audited) Ballico-Cressey School District Audited Audited Audited Audited Audited Revenues Revenue limit - LCFF sources (1) $1,595,905 $2,326,089 $2,481,216 $3,113,640 $3,387,362 Federal 229, , , , ,650 Other State 568, , , , ,445 State On-Behalf Payments 41,302 54, Other local 94,739 45,356 43,525 36, ,996 Total Revenues 2,529,603 2,908,068 2,984,004 3,798,983 4,526,453 Expenditures Instruction 1,553,283 1,849,165 1,877,743 2,313,620 2,850,905 Instructional Library, Media and Tech. 82,781 80,601 37,253 31, ,929 School Site Administration 230, , , , Home-to-School Transportation 102, , , , Food Services , All Other Pupil Services 6,817 5,739 6,681 35, ,613 Data Processing 4,279 3,547 11,446 4, All Other General Administration 207, , , , ,493 Plant Services 272, , , , ,099 Facility Acquisition and Construction 31, ,720 14, Ancillary Services 11,539 16,348 16,231 14,835 22,233 Other Outgo 28,810 43,669 21,397 15,108 31,423 Debt Service: Principal Payments 21,598 29,350 10,334 6, Interest Payments 1, Total Expenditures 2,555,270 2,957,586 3,179,798 3,469,676 4,186,695 Excess of Revenues Over/(Under) Expenditures (25,667) (49,518) (195,794) 329, ,758 Other Financing Sources (Uses) Transfers in 16,565 55, ,920 Transfers out -- (9,960) (36,463) (361,000) (166,093) Proceeds from Capital Leases 31, Total Other Fin. Sources (Uses) 47,566 45,235 (36,463) (361,000) (141,173) Net change in fund balance 21,899 (4,283) (232,257) (31,693) 198,585 Fund Balance, July 1 (as adjusted) 780, , , , ,523 Fund Balance, June 30 $801,918 $797,635 $565,378 $533,685 $734,108 (1) LCFF commenced in fiscal year Source: Ballico-Cressey School District Audit Reports. -26-

33 District Budget and Interim Financial Reporting Budgeting Education Code Requirements. The District is required by provisions of the State Education Code to maintain a balanced budget each year, in which the sum of expenditures and the ending fund balance cannot exceed the sum of revenues and the carryover fund balance from the previous year. The State Department of Education imposes a uniform budgeting and accounting format for school districts. The budget process for school districts was substantially amended by Assembly Bill 1200 ( AB 1200 ), which became State law on October 14, Portions of AB 1200 are summarized below. School districts must adopt a budget on or before July 1 of each year. The budget must be submitted to the county superintendent within five days of adoption or by July 1, whichever occurs first. In 2014, Assembly Bill 2585 was enacted, which repealed provisions authorizing school districts to use a dual budget adoption option. Instead, all school districts must be on a single budget cycle. A budget is only readopted if it is disapproved by the county office of education, or as needed. The county superintendent will examine the adopted budget for compliance with the standards and criteria adopted by the State Board of Education and identify technical corrections necessary to bring the budget into compliance, will determine if the budget allows the district to meet its current obligations and will determine if the budget is consistent with a financial plan that will enable the district to meet its multi-year financial commitments, will determine if the budget includes the expenditures necessary to implement the local control and accountability plan and determine if the budget includes a combined assigned and unassigned ending fund balance that exceeds the minimum recommended reserve for economic uncertainties. On or before August 15, the county superintendent will approve or disapprove the adopted budget for each school district. Budgets will be disapproved if they fail the above standards. The district board must be notified by August 15 of the county superintendent s recommendations for revision and reasons for the recommendations. The county superintendent may assign a fiscal advisor or appoint a committee to examine and comment on the superintendent s recommendations. The committee must report its findings no later than August 20. Any recommendations made by the county superintendent must be made available by the district for public inspection. The law does not provide for conditional approvals; budgets must be either approved or disapproved. No later than August 20, the county superintendent must notify the Superintendent of Public Instruction of all school districts whose budget has been disapproved. For a district whose budget has been disapproved, the district must revise and readopt its budget by September 8, reflecting changes in projected income and expense since July 1, including responding to the county superintendent s recommendations. The county superintendent must determine if the budget conforms with the standards and criteria applicable to final district budgets and not later than October 8, will approve or disapprove the revised budgets. If the budget is disapproved, the county superintendent will call for the formation of a budget review committee pursuant to Education Code Section Until a district s budget is approved, the district will operate on the lesser of its proposed budget for the current fiscal year or the last budget adopted and reviewed for the prior fiscal year. Interim Certifications Regarding Ability to Meet Financial Obligations. Under the provisions of AB 1200, each school district is required to file interim certifications with the county office of education as to its ability to meet its financial obligations for the remainder of the thencurrent fiscal year and, based on current forecasts, for the subsequent two fiscal years. The -27-

34 county superintendent reviews the certification and issues either a positive, negative or qualified certification. A positive certification is assigned to any school district that will meet its financial obligations for the current fiscal year and subsequent two fiscal years. A negative certification is assigned to any school district that is deemed unable to meet its financial obligations for the remainder of the fiscal year or the subsequent fiscal year. A qualified certification is assigned to any school district that may not meet its financial obligations for the current fiscal year or two subsequent fiscal years. Under California law, any school district and office of education that has a qualified or negative certification in any fiscal year may not issue, in that fiscal year or in the next succeeding fiscal year, certificates of participation, tax anticipation notes, revenue bonds or any other debt instruments that do not require the approval of the voters of the district, unless the applicable county superintendent of schools determines that the district s repayment of indebtedness is probable. District s Budget Approval/Disapproval and Certification History. The District has not received any qualified or negative certifications of its financial reports in the past five years, nor have any of its budgets been disapproved. The District s Budget for fiscal year was approved by the County Superintendent. The District s First Interim Report for fiscal year is expected to be certified as positive by the District Board. Copies of budgets and interim reports are available from the Superintendent of the District, Ballico-Cressey School District, Gregg Street, Ballico, California 95303; telephone (209) The District may impose a charge for copying, mailing and handling. [Remainder of page intentionally left blank] -28-

35 General Fund for Fiscal Years (Unaudited Actuals). The following table shows a summary of the General Fund for Fiscal Year (Unaudited Actual). REVENUES, EXPENDITURES, AND CHANGES IN GENERAL FUND BALANCE Fiscal Year (Unaudited Actuals) Ballico-Cressey School District Unaudited Actuals Revenues LCFF $3,398,628 Federal Revenues 250,144 Other State Revenues 418,809 Other Local Revenues 29,906 Total Revenues 4,097,487 Expenditures Certificated Salaries 1,620,536 Classified Salaries 667,388 Employee Benefits 798,732 Books and Supplies 236,814 Contract Services & Operating Exp. 715,299 Capital Outlay 222,399 Other Outgo (excluding indirect costs) 53,297 Other Outgo Transfers of Indirect (12,538) Costs Total Expenditures 4,301,927 Excess of Revenues Over/(Under) Expenditures (204,440) Other Financing Sources (Uses) Operating transfers in -- Operating transfers out 56,494 Total Other Financing Sources (Uses) (56,494) Net change in fund balance (260,934) Fund Balance, July 1** 579,199 Fund Balance, June 30 $318,265 * Totals may not add to due rounding. **Fund balance does not correspond directly to audited financial statements because reserves are accounted for outside of the general fund for budgeting and interim reporting purposes. Source: Ballico-Cressey School District -29-

36 General Fund and Charter Fund for Fiscal Year (Budgeted). Fiscal Year is the first year during which the charter school conversion became effective As a result, a separate Charter School Special Revenue Fund is used to account separately for the activities of the Charter School. An initial $300,000 transfer from the General Fund was made to commence operations for fiscal year The following table shows a summary of the General Fund and Charter Fund for Fiscal Year (Budgeted). Revenues REVENUES, EXPENDITURES, AND CHANGES IN GENERAL FUND AND CHARTER FUND BALANCE Fiscal Year (Adopted Budget) Ballico-Cressey School District Budgeted General Fund (01) Budgeted Charter Fund (09) LCFF $674,584 $2,869,570 Federal Revenues 253,994 - Other State Revenues 437,267 - Other Local Revenues 53,746 - Total Revenues 1,419,591 2,869,570 Expenditures Certificated Salaries 382,310 1,259,279 Classified Salaries 270, ,438 Employee Benefits 379, ,147 Books and Supplies 132, ,861 Contract Services & Operating Exp. 221, ,975 Capital Outlay Other Outgo (excluding indirect costs) 27,234 27,190 Other Outgo Transfers of Indirect (12,232) -- Costs Total Expenditures 1,401,129 2,866,890 Excess of Revenues Over/(Under) Expenditures 18,462 2,680 Other Financing Sources (Uses) Operating transfers in 300, ,000 Operating transfers out 358, Total Other Financing Sources (Uses) (58,255) 300,000 Net change in fund balance (39,793) 302,680 Fund Balance, July 1** 422, Fund Balance, June 30 $382,795 $302,680 * Totals may not add to due rounding. **Fund balance does not correspond directly to audited financial statements because reserves are accounted for outside of the general fund for budgeting and interim reporting purposes. Source: Ballico-Cressey School District District Reserves. The District s ending fund balance is the accumulation of surpluses from prior years. This fund balance is used to meet the State s minimum required reserve of 3% of expenditures, plus any other allocation or reserve which might be approved as an expenditure by the District in the future. The District maintains an unrestricted reserve which -30-

37 meets or exceeds the State s minimum requirements of 3%, and has a Board-adopted policy requiring a 9% reserve. In connection with legislation adopted in connection with the State s fiscal year Budget ( SB 858 ), the Education Code was amended to provide that, beginning in fiscal year , if a district s proposed budget includes a local reserve above the minimum recommended level, the governing board must provide the information for review at the annual public hearing on its proposed budget. In addition, SB 858 included a provision, which became effective upon the passage of Proposition 2 at the November 4, 2014 statewide election, which limits the amount of reserves which may be maintained at the District level. Specifically, the legislation, among other things, enacted Education Code Section , which became operative December 15, 2014, and provides that in any fiscal year immediately after a fiscal year in which a transfer is made to the State s Public School System Stabilization Account (the Proposition 98 reserve), a school district may not adopt a budget that contains a reserve for economic uncertainties in excess of twice the applicable minimum recommended reserve for economic uncertainties established by the State Board (for school districts with ADA over 400,000, the limit is three times the amount). Exemptions can be granted by the County Superintendent under certain circumstances. On October 11, 2017, the Governor signed new legislation ( SB 751 ) amending Section of the Education Code, effective January 1, SB 751 raises the reserve cap established under SB 858 to no more than 10% of a school district s combined assigned or unassigned ending general fund balance and provides that the reserve cap will be triggered only if there is a minimum balance of 3% of the Proposition 98 reserve. Basic aid school districts and small districts with 2,500 or fewer ADA are exempt from the reserve cap. The District cannot predict if or when the reserve cap enacted by SB 751 will be triggered and what impact it may have on the District s reserves. The District cannot predict if or when the reserve cap enacted by SB 751 will be triggered, or when or how any additional changes to legal provisions governing the reserve cap would impact its reserves and future spending. -31-

38 Attendance - Revenue Limit and LCFF Funding Trends Funding Trends. As described herein, prior to fiscal year , school districts in California derived most State funding based on a formula which considered a revenue limit per unit of ADA. With the implementation of the LCFF, commencing in fiscal year , school districts receive base funding based on ADA, and may also be entitled to supplemental funding, concentration grants and funding based on an economic recovery target. The following table sets forth total LCFF funding and ADA for the District for fiscal years through (Projected). ADA AND LCFF FUNDING Fiscal Years through (Projected) Ballico-Cressey School District Fiscal Year ADA (1) Total LCFF Funding $2,326, ,481, ,113, ,387, ,398, (2) 363 3,544,154 (1) P-2 for Fiscal Year through (2) Projected. Includes charter school students and funding. Source: The District. Unduplicated Pupil Count. The District s unduplicated pupil count for fiscal year for purposes of calculating entitlement under LCFF for supplemental funding and concentration grant funding is approximately 66%. This entitles the District to both supplemental and concentration grant funding under LCFF. Revenue Sources The District categorizes its general fund revenues into four sources, being LCFF, Federal Revenues, Other State Revenues and Local Revenues. Each of these revenue sources is described below. LCFF Sources. District funding is provided by a mix of (1) local property taxes and (2) State apportionments of funding under the LCFF. Generally, the State apportionments will amount to the difference between the District s LCFF funding entitlement and its local property tax revenues. Beginning in , Proposition 13 and its implementing legislation provided for each county to levy (except for levies to support prior voter-approved indebtedness) and collect all property taxes, and prescribed how levies on county-wide property values are to be shared with local taxing entities within each county. The principal component of local revenues is the school district s property tax revenues, i.e., the district s share of the local 1% property tax, received pursuant to Sections 75 and following and Sections 95 and following of the California Revenue and Taxation Code. Education Code Section 42238(h) itemizes the local revenues that are counted towards the base revenue limit before calculating how much the State must provide in equalization aid. -32-

39 Historically, the more local property taxes a district received, the less State equalization aid it is entitled to. Federal Revenues. The federal government provides funding for several District programs, including special education programs, programs under Every Student Succeeds Act, the Individuals with Disabilities Education Act, and specialized programs such as Drug Free Schools. Other State Revenues. As discussed above, the District receives State apportionment of basic and equalization aid under the funding formula known as LCFF. In addition to such apportionment revenue, the District receives other State revenues. The District receives State aid from the California State Lottery (the Lottery ), which was established by a constitutional amendment approved in the November 1984 general election. Lottery revenues must be used for the education of students and cannot be used for non-instructional purposes such as real property acquisition, facility construction, or the financing of research. Moreover, State Proposition 20 approved in March 2000 requires that 50% of the increase in Lottery revenues over levels must be restricted to use on instruction material. Other Local Revenues. In addition to local property taxes, the District receives additional local revenues from items such as interest earnings and other local sources. District Retirement Systems Qualified employees of the District are covered under multiple-employer defined benefit pension plans maintained by agencies of the State. Certificated employees are members of the State Teachers Retirement System ( STRS ) and classified employees are members of the Public Employees Retirement System ( PERS ). Both STRS and PERS are operated on a Statewide basis. The information set forth below regarding the STRS and PERS programs, other than the information provided by the District regarding its annual contributions thereto, has been obtained from publicly available sources which are believed to be reliable but are not guaranteed as to accuracy or completeness, and should not to be construed as a representation by either the District or the Underwriter. Implementation of GASB Nos. 68 and 71. Commencing with fiscal year ended June 30, 2015, the District implemented the provisions of GASB Statement Nos. 68 and 71 which require certain new pension disclosures in the notes to its audited financial statements commencing with the audit for fiscal year Statement No. 68 generally requires the District to recognize its proportionate share of the unfunded pension obligation for STRS and PERS by recognizing a net pension liability measured as of a date (the measurement date) no earlier than the end of its prior fiscal year. As a result of the implementation of GASB Statement Nos. 68 and 71, the District has restated the beginning net position in the government wide Statement of Net Position, effectively decreasing net position as of July 1, See APPENDIX A Audited Financial Statements of the District For Fiscal Year Ended June 30, 2017 and particularly Note Q. STRS. All full-time certificated employees participate in STRS, a cost-sharing, multipleemployer contributory public employee retirement system. STRS provides retirement, disability and survivor benefits to plan members and beneficiaries under a defined benefit program. Benefit provisions and contribution amounts are established by State statutes, as legislatively -33-

40 amended. The program is funded through a combination of investment earnings and statutorily set contributions from three sources: employees, employers and the State. The District s employer contributions to STRS for recent fiscal years are set forth in the following table. STRS CONTRIBUTIONS Ballico-Cressey School District Fiscal Year Amount $75, , , , , * 331, * 396,453 *Unaudited Actual; Budgeted (Fund -01 and Fund -09). Source: Ballico-Cressey School District. Historically, employee, employer and State contribution rates did not vary annually to account for funding shortfalls or surpluses in the STRS plan. In recent years, the combination of investment earnings and statutory contributions were not sufficient to pay actuarially required amounts. As a result, the STRS defined benefit program showed an estimated unfunded actuarial liability of approximately $107.3 billion as of June 30, 2017 (the date of the last actuarial valuation). In connection with the State s adoption of its fiscal year Budget, the Governor signed into law Assembly Bill 1469 ( AB 1469 ), which represents a legislative effort to address the unfunded liabilities of the STRS pension plan. AB 1469 addressed the funding gap by increasing contributions by employees, employers and the State. In particular, employer contribution rates are scheduled to increase through at least fiscal year , from a contribution rate of 8.88% in fiscal year to 19.1% in fiscal year Thereafter, employer contribution rates will be determined by the STRS board to reflect the contribution required to eliminate unfunded liabilities by June 30, The District s employer contribution rates for fiscal years , , and were 10.73%, 12.58%, and 14.43%, respectively. Projected employer contribution rates for school districts (including the District) for fiscal year through fiscal year are set forth in the following table. PROJECTED EMPLOYER CONTRIBUTION RATES (STRS) Fiscal Years through Projected Employer Fiscal Year Contribution Rate (1) % (1) Expressed as a percentage of covered payroll. Source: AB 1469 Based upon the recommendation from its actuary, for Fiscal Year and each fiscal year thereafter the STRS Teachers' Retirement Board (the "STRS Board"), is required to increase or decrease the employer contribution rate to reflect the contribution required to -34-

41 eliminate the remaining unfunded actuarial obligation with respect to service credited to members of the STRS plan before July 1, 2014 (the 2014 Liability ) by June 30, 2046; provided that the rate cannot change in any fiscal year by more than 1% of creditable compensation upon which employees' contributions to the STRS plan are based; and provided further that such contribution rate cannot exceed a maximum of 20.25%. In addition to the increased contribution rates discussed above, A.B also requires the STRS Board to report to the State legislature every five years (commencing with a report due on or before July 1, 2019) on the fiscal health of the STRS plan and the unfunded actuarial obligation with respect to service credited to members of that program before July 1, The reports are also required to identify adjustments required in contribution rates for employers and the State in order to eliminate the 2014 Liability. On February 14, 2017, the STRS Board adopted a new set of actuarial assumptions that reflect members increasing life expectancies and current economic trends. These new assumptions were first reflected in the STRS Defined Benefit Program Actuarial Valuation as of June 30, The revised actuarial assumptions include (i) decreasing the investment rate of return to 7.25% and then to 7.00%, for the June 30, 2016 and June 30, 2017 actuarial valuations, respectively, (ii) decreasing projected wage growth to 3.50% (from 3.75%), and (iii) decreasing the inflation factor to 2.75% (from 3.00%). The State also contributes to STRS, currently in an amount equal to 6.828% of teacher payroll in Fiscal Year Based upon the recommendation from its actuary, for Fiscal Year and each fiscal year thereafter, the STRS Board is required, with certain limitations, to increase or decrease the State's contribution rates to reflect the contribution required to eliminate the unfunded actuarial accrued liability attributed to benefits in effect before July 1, In addition, the State is currently required to make an annual general fund contribution up to 2.5% of the fiscal year covered STRS member payroll to the Supplemental Benefit Protection Account (the "SBPA"), which was established by statute to provide supplemental payments to beneficiaries whose purchasing power has fallen below 85% of the purchasing power of their initial allowance. PERS. All full-time and some part-time classified employees participate in PERS, an agent multiple-employer contributory public employee retirement system that acts as a common investment and administrative agent for participating public entities within the State of California. The District is part of a cost-sharing pool within PERS. As a result of the implementation of PEPRA (defined herein), new members must pay at least 50% of the normal costs of the plan, which can fluctuate from year to year. Classic plan members continue to contribute 7.0%. The District is required to contribute an actuarially determined rate. The actuarial methods and assumptions used for determining the rate are those adopted by the PERS Board of Administration. The contribution requirements of the plan members are established by State statute. The District s contributions to PERS in recent years are set forth in the following table -35-

42 PERS CONTRIBUTIONS Ballico-Cressey School District Fiscal Year Amount $61, , , , , * 100, * 129,402 *Unaudited Actual; Budgeted (Fund -01 and Fund -09) Source: Ballico-Cressey School District. Like the STRS program, the PERS program has experienced an unfunded liability in recent years. The PERS unfunded liability, on a market value of assets basis, was approximately $23.6 billion as of June 30, 2017 (the date of the last actuarial valuation). To address this issue, the PERS board has taken a number of actions. In April 2013, for example, the PERS board approved changes to the PERS amortization and smoothing policy intended to reduce volatility in employer contribution rates. In April 2014, PERS set new contribution rates, reflecting new demographic assumptions and other changes in actuarial assumptions. In November 2015, PERS adopted a funding risk mitigation policy intended to incrementally lower its discount rate its assumed rate of investment return in years of good investment returns, help pay down the pension fund's unfunded liability, and provide greater predictability and less volatility in contribution rates for employers. In December 2016, PERS voted to lower its discount rate from the current 7.5% to 7.0% over the next three years according to the following schedule. PERS Discount Rate Fiscal Years through Fiscal Year Discount Rate % Source: PERS. The new rates and underlying assumptions, which are aimed at eliminating the unfunded liability of PERS in approximately 30 years, were implemented for school districts beginning in fiscal year , with the costs spread over 20 years and the increases phased in over the first five years. On April 17, 2018, the PERS Board established the employer contribution rates for Fiscal Year and released certain information from the PERS Schools Pool Actuarial Valuation as of June 30, 2017, ahead of its summer 2018 release date. Based on the changes in the discount rate, inflation rate, payroll growth rate and demographic assumptions, along with expected reductions in normal cost due to the continuing transition of active members from those employees hired after January 1, 2013, to those hired after such date, the projected contribution for Fiscal Year is projected to be 20.8%, with annual increases thereafter, resulting in a projected 25.7% employer contribution rate for Fiscal Year

43 The District s employer contribution rates for fiscal years , and were %, % and %, respectively. Projected employer contribution rates for school districts (including the District) for fiscal year through fiscal year are set forth in the following table. PROJECTED EMPLOYER CONTRIBUTION RATES (PERS) Fiscal Years through Employer Fiscal Year Contribution Rate (1) % (1) Expressed as a percentage of covered payroll. Source: PERS However, on February 14, 2018, the Board of Administration voted to shorten the period over which PERS will amortize actuarial gains and losses from 30 years to 20 years for new pension liabilities, effective for the June 30, 2019 actuarial valuations. Amortization payments for all unfunded accrued liability bases will be computed to remain a level dollar amount throughout the amortization period, and certain 5-year ramp-up and ramp-down periods will be eliminated. As a result of the shorter amortization period, the contributions required to be made by employers may increase beginning in fiscal year California Public Employees Pension Reform Act of On September 12, 2012, the Governor signed into law the California Public Employees Pension Reform Act of 2013 ( PEPRA ), which impacted various aspects of public retirement systems in the State, including the STRS and PERS programs. In general, PEPRA (i) increased the retirement age for public employees depending on job function, (ii) capped the annual pension benefit payouts for public employees hired after January 1, 2013, (iii) required public employees hired after January 1, 2013 to pay at least 50% of the costs of their pension benefits (as described in more detail below), (iv) required final compensation for public employees hired after January 1, 2013 to be determined based on the highest average annual pensionable compensation earned over a period of at least 36 consecutive months, and (v) attempted to address other perceived abuses in the public retirement systems in the State. PEPRA applies to all public employee retirement systems in the State, except the retirement systems of the University of California, and charter cities and charter counties whose pension plans are not governed by State law. PEPRA s provisions went into effect on January 1, 2013 with respect to new State, school, and city and local agency employees hired on or after that date; existing employees who are members of employee associations, including employee associations of the District, have a five-year window to negotiate compliance with PEPRA through collective bargaining. PERS has predicted that the impact of PEPRA on employees and employers, including the District and other employers in the PERS system, will vary, based on each employer s current level of benefits. As a result of the implementation of PEPRA, new members must pay at least 50% of the normal costs of the plan, which can fluctuate from year to year. To the extent that the new formulas lower retirement benefits, employer contribution rates could decrease over time as current employees retire and employees subject to the new formulas make up a larger percentage of the workforce. This change would, in some circumstances, result in a lower retirement benefit for employees than they currently earn. -37-

44 With respect to the STRS pension program, employees hired after January 1, 2013 will pay the greater of either (1) fifty percent of the normal cost of their retirement plan, rounded to the nearest one-quarter percent, or (2) the contribution rate paid by then-current members (i.e., employees in the STRS plan as of January 1, 2013). The member contribution rate could be increased from this level through collective bargaining or may be adjusted based on other factors. Employers will pay at least the normal cost rate, after subtracting the member s contribution. The District is unable to predict the amount of future contributions it will have to make to PERS and STRS as a result of the implementation of PEPRA, and as a result of negotiations with its employee associations, or, notwithstanding the adoption of PEPRA, resulting from any legislative changes regarding the PERS and STRS employer contributions that may be adopted in the future. Additional Information. Additional information regarding the District s retirement programs is available in Note J to the District s audited financial statements attached hereto as APPENDIX A. In addition, both STRS and PERS issue separate comprehensive financial reports that include financial statements and required supplemental information. Copies of such reports may be obtained from STRS and PERS, respectively, as follows: (i) STRS, P.O. Box 15275, Sacramento, California ; and (ii) PERS, 400 Q Street, Sacramento, California More information regarding STRS and PERS can also be obtained at their websites, and respectively. The references to these Internet websites are shown for reference and convenience only and the information contained on such websites is not incorporated by reference into this Official Statement. The information contained on these websites may not be current and has not been reviewed by the District or the Underwriter for accuracy or completeness. No Other Post-Employment Retirement Benefits The District does not maintain a program of providing post-employment healthcare benefits. The District has one retired employee for which it agreed to provide post-retirement health benefits commencing July 1, 2016 until the age of 65. Three years remain under the agreement at a cost of approximately $1,300 per year. Existing Debt Obligations General Obligation Bonds. The District has one series of General Obligation Bonds outstanding as summarized in the following table. GENERAL OBLIGATION BONDS Ballico-Cressey School District Final Maturity Date Original Principal Amount Principal Outstanding October 1, 2018 Dated Date Series 01/31/2017 General Obligation Bonds, Election of 2014, Series A 08/01/2045 $4,335,000 $4,065,000 Total $4,335,000 $4,065,

45 Investment of District Funds In accordance with Government Code Section et seq., the Merced County Treasurer manages funds deposited with it by the District. The County is required to invest such funds in accordance with California Government Code Sections et seq. In addition, counties are required to establish their own investment policies which may impose limitations beyond those required by the Government Code. See Appendix F for information regarding the County s investment policy and investment report. STATE FUNDING OF EDUCATION; RECENT STATE BUDGETS General. The State requires that from all State revenues there first shall be set apart the moneys to be applied for support of the public school system and public institutions of higher education. Public school districts in California are dependent on revenues from the State for a large portion of their operating budgets. California school districts receive an average of about 55% of their operating revenues from various State sources. The primary source of funding for school districts are revenues under the LCFF, which are a combination of State funds and local property taxes (see DISTRICT FINANCIAL INFORMATION - Education Funding Generally above). State funds typically make up the majority of a district s LCFF allocation, although Basic Aid school districts (also known as Community Funded Districts) derive most of their revenues from local property taxes. School districts also receive substantial funding from the State for various categorical programs. The following information concerning the State s budgets for the current and most recent preceding years has been compiled from publicly-available information provided by the State. Neither the District, the Underwriter nor the County is responsible for the information relating to the State s budgets provided in this section. Further information is available from the Public Finance Division of the State Treasurer s Office. The Budget Process. The State s fiscal year begins on July 1 and ends on June 30. The annual budget is proposed by the Governor by January 10 of each year for the next fiscal year (the Governor s Budget ). Under State law, the annual proposed Governor s Budget cannot provide for projected expenditures in excess of projected revenues and balances available from prior fiscal years. Following the submission of the Governor s Budget, the Legislature takes up the proposal. Under the State Constitution, money may be drawn from the State Treasury only through an appropriation made by law. The primary source of the annual expenditure authorizations is the Budget Act as approved by the Legislature and signed by the Governor. The Budget Act must be approved by a majority vote of each house of the Legislature. The Governor may reduce or eliminate specific line items in the Budget Act or any other appropriations bill without vetoing the entire bill. Such individual line-item vetoes are subject to override by a two-thirds majority vote of each house of the Legislature. Appropriations also may be included in legislation other than the Budget Act. Bills containing appropriations (including for K-14 education) must be approved by a majority vote in each house of the Legislature, unless such appropriations require tax increases, in which case they must be approved by a two-thirds vote of each house of the Legislature, and be signed by -39-

46 the Governor. Continuing appropriations, available without regard to fiscal year, may also be provided by statute or the State Constitution. Funds necessary to meet an appropriation need not be in the State Treasury at the time such appropriation is enacted; revenues may be appropriated in anticipation of their receipt. Recent State Budgets Certain information about the State budgeting process and the State Budget is available through several State of California sources. A convenient source of information is the State s website, where recent official statements for State bonds are posted. The references to internet websites shown below are shown for reference and convenience only, the information contained within the websites may not be current and has not been reviewed by the District and is not incorporated herein by reference. The California State Treasurer Internet home page at under the heading Bond Finance and sub-heading -Public Finance Division, (1) posts various State of California Official Statements, many of which contain a summary of the current State Budget, past State Budgets, and the impact of those budgets on school districts in the State, and (2) also posts various financial documents for the State under the -Financial Information link. The California Department of Finance s Internet home page at under the heading California Budget, includes the text of proposed and adopted State Budgets. Prior Years Budgeting Techniques. Declining revenues and fiscal difficulties which arose in the State commencing in fiscal year led the State to undertake a number of budgeting strategies, which had subsequent impacts on local agencies within the State. These techniques included the issuance of IOUs in lieu of warrants (checks), the enactment of statutes deferring amounts owed to public schools until a later date in the fiscal year or even into the following fiscal year (known as statutory deferrals), trigger reductions, which were budget cutting measures which were implemented or could have been implemented if certain State budgeting goals were not met, and the dissolution of local redevelopment agencies in part to make available additional funding for local agencies. Although the fiscal year State budget is balanced and projects a balanced budget for the foreseeable future, largely attributable to the additional revenues generated due to the passage of Proposition 30 at the November 2, 2012 statewide election and Proposition 55 at the November 8, 2016 statewide election, there can be no certainty that budget-cutting strategies such as those used in recent years will not be used in the future should the State budget again be stressed and if projections included in such budget do not materialize State Budget: Significant Change in Education Funding. As described previously herein, the State Budget and its related implementing legislation enacted significant reforms to the State s system of K-12 education finance with the enactment of the LCFF. Significant reforms such as the LCFF and other changes in law may have significant impacts on the District s finances. -40-

47 Adopted State Budget On June 27, 2018, the Governor signed the fiscal year State budget (the State Budget ) into law. The State Budget calls for total spending of $199.7 billion, with $138.6 billion in general fund spending. The State Budget provides for $78.4 billion of funding through Proposition 98, the primary source of funding for K-12 school districts and community college districts, an increase of $3.7 billion from the State budget. Of that $78.4 billion, approximately $61 billion will be distributed to K-12 school districts through the LCFF, which will be fully funded during fiscal year , two years earlier than originally scheduled, restoring every school district in the State to at least pre-recession funding levels, and including a 2.71% cost of living adjustment and an additional $570 million above the cost of living adjustment as an ongoing increase to the formula. The State Budget continues to build State reserves, with the rainy-day fund balance projected to grow to $13.8 billion by the end of the budget year, its constitutional maximum. Additionally, the State Budget adds two additional reserves to State law, the Budget Deficit Safety Account and the Safety Net Reserve Fund. Other significant features of the State Budget include: $640 million in Proposition 51 State bond authority for school facilities; an increase to $11,640 in State-funded per pupil funding under LCFF, or $16,352 per pupil from all State, federal and local sources combined; one-time funding for K-12 school districts to finance various programs, including $300 million for the lowest-performing student subgroups, $125 million to address the shortage of special education teachers, and $100 million to expand facilities for kindergarten and transitional kindergarten; $57.8 million for county offices of education to support school districts needing additional assistance, as determined based on multiple performance indicators, $4 million of which will go to geographical regional leads to build system-wide capacity to support school district improvement; $32.8 million to backfill property tax revenue losses that cities, counties and districts incurred in fiscal year and will incur in fiscal year from wildfires, mudslides and other natural disasters, $21.8 for Northern California jurisdictions and $11 million for Southern California jurisdictions; a hold harmless provision allowing local education agencies to recoup revenue that has been lost due to declines in average daily attendance that are directly associated with these disasters; $1.24 billion to multiple state agencies for the first year of implementation of a $4 billion parks and water bond measure approved by voters in 2018; and one-time funding of $500 million of emergency aid to support local governments in addressing homelessness, to be used for emergency shelters, bridge housing, motel vouchers, and supportive housing. -41-

48 Disclaimer Regarding State Budgets. The implementation of the foregoing State Budget and future State budgets may be affected by numerous factors, including but not limited to: (i) shifts in costs from the federal government to the State, (ii) national, State and international economic conditions, (iii) litigation risks associated with proposed spending reductions, (iv) rising health care costs and/or other unfunded liabilities, such as pension or OPEB, and (v) numerous other factors, all or any of which could cause the revenue and spending projections included in such budgets to be unattainable. The District cannot predict the impact that the State Budget, or subsequent state budgets, will have on its own finances and operations. However, the Series B Bonds are secured by ad valorem taxes levied and collected on taxable property in the District, without limit as to rate or amount, and are not secured by a pledge of revenues of the District or its general fund. The State has not entered into any contractual commitments with the District, the County, the Underwriter or the owners of the Series B Bonds to provide State budget information to the District or the owners of the Series B Bonds. Although they believe the sources of information listed below are reliable, neither the District nor the Underwriter assumes any responsibility for the accuracy of State budget information set forth or referred to or incorporated in this Official Statement. Availability of State Budget. The complete State Budget is available from the California Department of Finance website at An impartial analysis of the budget is published by the Legislative Analyst s Office, and is available at The District can take no responsibility for the continued accuracy of these internet addresses or for the accuracy, completeness or timeliness of information posted on these sites, and such information is not incorporated in this Official Statement by these references. The information referred to above should not be relied upon when making an investment decision with respect to the Series B Bonds. Uncertainty Regarding Future State Budgets. The District cannot predict what actions will be taken in future years by the State legislature or the Governor to address the State s current or future revenues and expenditures, or possible future budget deficits. Future State budgets will be affected by national and State economic conditions and other factors over which the District has no control. The District cannot predict what impact any future budget proposals will have on the financial condition of the District. To the extent that the State budget process results in reduced revenues to the District, the District will be required to make adjustments to its own budgets. Legal Challenges to State Funding of Education The application of Proposition 98 (as discussed below) and other statutory regulations has been the subject of various legal challenges in the past. The District cannot predict if or when there will be changes to education funding or legal challenges which may arise relating thereto. -42-

49 CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Articles XIIIA, XIIIB, XIIIC, and XIIID of the State Constitution, Propositions 62, 98, 111 and 218, and certain other provisions of law discussed below, are included in this section to describe the potential effect of these Constitutional and statutory measures on the ability of the District to levy taxes and spend tax proceeds for operating and other purposes. Constitutionally Required Funding of Education The State Constitution requires that from all State revenues, there shall be first set apart the moneys to be applied by the State for the support of the public school system and public institutions of higher education. School districts receive a significant portion of their funding from State appropriations. As a result, decreases and increases in State revenues can significantly affect appropriations made by the State Legislature to school districts. Article XIIIA of the California Constitution Basic Property Tax Levy. On June 6, 1978, California voters approved Proposition 13 ("Proposition 13"), which added Article XIIIA to the State Constitution ("Article XIIIA"). Article XIIIA limits the amount of any ad valorem tax on real property to 1% of the full cash value thereof, except that additional ad valorem taxes may be levied to pay debt service on (i) indebtedness approved by the voters prior to July 1, 1978, (ii) (as a result of an amendment to Article XIIIA approved by State voters on June 3, 1986) on bonded indebtedness for the acquisition or improvement of real property which has been approved on or after July 1, 1978 by two-thirds of the voters on such indebtedness (which provided the authority for the issuance of the Refunded Bonds), and (iii) (as a result of an amendment to Article XIIIA approved by State voters on November 7, 2000) bonded indebtedness incurred by a school district or community college district for the construction, reconstruction, rehabilitation or replacement of school facilities or the acquisition or lease of real property for school facilities, approved by 55% of the voters of the district, but only if certain accountability measures are included in the proposition. Article XIIIA defines full cash value to mean "the county assessor s valuation of real property as shown on the tax bill under full cash value, or thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership have occurred after the 1975 assessment". This full cash value may be increased at a rate not to exceed 2% per year to account for inflation. Article XIIIA has subsequently been amended to permit reduction of the "full cash value" base in the event of declining property values caused by damage, destruction or other factors, to provide that there would be no increase in the "full cash value" base in the event of reconstruction of property damaged or destroyed in a disaster and in other minor or technical ways. Both the United States Supreme Court and the California State Supreme Court have upheld the general validity of Article XIIIA. Legislation Implementing Article XIIIA. Legislation has been enacted and amended a number of times since 1978 to implement Article XIIIA. Under current law, local agencies are no longer permitted to levy directly any property tax (except to pay voter-approved indebtedness). The 1% property tax is automatically levied by the county and distributed according to a formula -43-

50 among taxing agencies. The formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the annual adjustment not to exceed 2% are allocated among the various jurisdictions in the taxing area based upon their respective situs. Any such allocation made to a local agency continues as part of its allocation in future years. Inflationary Adjustment of Assessed Valuation. As described above, the assessed value of a property may be increased at a rate not to exceed 2% per year to account for inflation. On December 27, 2001, the Orange County Superior Court, in County of Orange v. Orange County Assessment Appeals Board No. 3, held that where a home s taxable value did not increase for two years, due to a flat real estate market, the Orange County assessor violated the 2% inflation adjustment provision of Article XIIIA, when the assessor tried to "recapture" the tax value of the property by increasing its assessed value by 4% in a single year. The assessors in most California counties, including the County, use a similar methodology in raising the taxable values of property beyond 2% in a single year. The State Board of Equalization has approved this methodology for increasing assessed values. On appeal, the Appellate Court held that the trial court erred in ruling that assessments are always limited to no more than 2% of the previous year s assessment. On May 10, 2004 a petition for review was filed with the California Supreme Court. The petition has been denied by the California Supreme Court. As a result of this litigation, the recapture provision described above may continue to be employed in determining the full cash value of property for property tax purposes. Article XIIIB of the California Constitution Article XIIIB ( Article XIIIB ) of the State Constitution, as subsequently amended by Propositions 98 and 111, respectively, limits the annual appropriations of the State and of any city, county, school district, authority or other political subdivision of the State to the level of appropriations of the particular governmental entity for the prior fiscal year, as adjusted for changes in the cost of living and in population and for transfers in the financial responsibility for providing services and for certain declared emergencies. For fiscal years beginning on or after July 1, 1990, the appropriations limit of each entity of government shall be the appropriations limit for the fiscal year adjusted for the changes made from that fiscal year under the provisions of Article XIIIB, as amended. The appropriations of an entity of local government subject to Article XIIIB limitations include the proceeds of taxes levied by or for that entity and the proceeds of certain state subventions to that entity. Proceeds of taxes include, but are not limited to, all tax revenues and the proceeds to the entity from (a) regulatory licenses, user charges and user fees (but only to the extent that these proceeds exceed the reasonable costs in providing the regulation, product or service), and (b) the investment of tax revenues. Appropriations subject to limitation do not include (a) refunds of taxes, (b) appropriations for debt service, (c) appropriations required to comply with certain mandates of the courts or the federal government, (d) appropriations of certain special districts, (e) appropriations for all qualified capital outlay projects as defined by the legislature, (f) appropriations derived from certain fuel and vehicle taxes and (g) appropriations derived from certain taxes on tobacco products. -44-

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

52 On November 2, 2010, Proposition 26 was approved by State voters, which amended Article XIIIC to expand the definition of tax to include any levy, charge, or exaction of any kind imposed by a local government except the following: (1) a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege; (2) a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product; (3) a charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof; (4) a charge imposed for entrance to or use of local government property, or the purchase, rental, or lease of local government property; (5) a fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government, as a result of a violation of law; (6) a charge imposed as a condition of property development; and (7) assessments and property-related fees imposed in accordance with the provisions of Article XIIID. Proposition 26 provides that the local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor s burdens on, or benefits received from, the governmental activity. Article XIIID deals with assessments and property-related fees and charges, and explicitly provides that nothing in Article XIIIC or XIIID will be construed to affect existing laws relating to the imposition of fees or charges as a condition of property development. While the provisions of Proposition 218 may have an indirect effect on the District, such as by limiting or reducing the revenues otherwise available to other local governments whose boundaries encompass property located within the District (thereby causing such local governments to reduce service levels and possibly adversely affecting the value of property within the District), the District does not believe that Proposition 218 will directly impact the revenues available to pay debt service on the Notes. Proposition 98 On November 8, 1988, California voters approved Proposition 98, a combined initiative constitutional amendment and statute called the Classroom Instructional Improvement and Accountability Act (the Accountability Act ). Certain provisions of the Accountability Act have, however, been modified by Proposition 111, discussed below, the provisions of which became effective on July 1, The Accountability Act changes State funding of public education below the university level and the operation of the State s appropriations limit. The Accountability Act guarantees State funding for K-12 school districts and community college districts (hereinafter referred to collectively as K-14 school districts ) at a level equal to the greater of (a) the same percentage of general fund revenues as the percentage appropriated to such districts in , and (b) the amount actually appropriated to such districts from the general fund in the previous fiscal year, adjusted for increases in enrollment and changes in the cost of living. The Accountability Act permits the Legislature to suspend this formula for a oneyear period. The Accountability Act also changes how tax revenues in excess of the State appropriations limit are distributed. Any excess State tax revenues up to a specified amount -46-

53 would, instead of being returned to taxpayers, be transferred to K-14 school districts. Any such transfer to K-14 school districts would be excluded from the appropriations limit for K-14 school districts and the K-14 school district appropriations limit for the next year would automatically be increased by the amount of such transfer. These additional moneys would enter the base funding calculation for K-14 school districts for subsequent years, creating further pressure on other portions of the State budget, particularly if revenues decline in a year following an Article XIIIB surplus. The maximum amount of excess tax revenues which could be transferred to K-14 school districts is 4% of the minimum State spending for education mandated by the Accountability Act. Proposition 111 On June 5, 1990, the voters approved Proposition 111 (Senate Constitutional Amendment No. 1) called the Traffic Congestion Relief and Spending Act of 1990 ( Proposition 111 ) which further modified Article XIIIB and Sections 8 and 8.5 of Article XVI of the State Constitution with respect to appropriations limitations and school funding priority and allocation. The most significant provisions of Proposition 111 are summarized as follows: Annual Adjustments to Spending Limit. The annual adjustments to the Article XIIIB spending limit were liberalized to be more closely linked to the rate of economic growth. Instead of being tied to the Consumer Price Index, the change in the cost of living is now measured by the change in California per capita personal income. The definition of change in population specifies that a portion of the State s spending limit is to be adjusted to reflect changes in school attendance. Treatment of Excess Tax Revenues. Excess tax revenues with respect to Article XIIIB are now determined based on a two-year cycle, so that the State can avoid having to return to taxpayers excess tax revenues in one year if its appropriations in the next fiscal year are under its limit. In addition, the Proposition 98 provision regarding excess tax revenues was modified. After any two-year period, if there are excess State tax revenues, 50% of the excess are to be transferred to K-14 school districts with the balance returned to taxpayers; under prior law, 100% of excess State tax revenues went to K-14 school districts, but only up to a maximum of 4% of the schools minimum funding level. Also, reversing prior law, any excess State tax revenues transferred to K-14 school districts are not built into the school districts base expenditures for calculating their entitlement for State aid in the next year, and the State s appropriations limit is not to be increased by this amount. Exclusions from Spending Limit. Two exceptions were added to the calculation of appropriations which are subject to the Article XIIIB spending limit. First, there are excluded all appropriations for qualified capital outlay projects as defined by the Legislature. Second, there are excluded any increases in gasoline taxes above the 1990 level (then nine cents per gallon), sales and use taxes on such increment in gasoline taxes, and increases in receipts from vehicle weight fees above the levels in effect on January 1, These latter provisions were necessary to make effective the transportation funding package approved by the Legislature and the Governor, which expected to raise over $15 billion in additional taxes from 1990 through 2000 to fund transportation programs. -47-

54 Recalculation of Appropriations Limit. The Article XIIIB appropriations limit for each unit of government, including the State, is to be recalculated beginning in fiscal year It is based on the actual limit for fiscal year , adjusted forward to as if Proposition 111 had been in effect. School Funding Guarantee. There is a complex adjustment in the formula enacted in Proposition 98 which guarantees K-14 school districts a certain amount of State general fund revenues. Under prior law, K-14 school districts were guaranteed the greater of (1) 40.9% of State general fund revenues (the first test ) or (2) the amount appropriated in the prior year adjusted for changes in the cost of living (measured as in Article XIIIB by reference to per capita personal income) and enrollment (the second test ). Under Proposition 111, schools will receive the greater of (1) the first test, (2) the second test, or (3) a third test, which will replace the second test in any year when growth in per capita State general fund revenues from the prior year is less than the annual growth in California per capita personal income (the third test ). Under the third test, schools will receive the amount appropriated in the prior year adjusted for change in enrollment and per capita State general fund revenues, plus an additional small adjustment factor. If the third test is used in any year, the difference between the third test and the second test will become a credit to schools which will be paid in future years when State general fund revenue growth exceeds personal income growth. Proposition 39 On November 7, 2000, California voters approved an amendment (commonly known as Proposition 39 ) to the California Constitution. This amendment (1) allows school facilities bond measures to be approved by 55% (rather than two-thirds) of the voters in local elections and permits property taxes to exceed the current 1% limit in order to repay the bonds and (2) changes existing statutory law regarding charter school facilities. As adopted, the constitutional amendments may be changed only with another Statewide vote of the people. The statutory provisions could be changed by a majority vote of both houses of the Legislature and approval by the Governor, but only to further the purposes of the proposition. The local school jurisdictions affected by this proposition are K-12 school districts, community college districts and county offices of education. As noted above, the California Constitution previously limited property taxes to 1% of the value of property. Prior to the approval of Proposition 39, property taxes could only exceed this limit to pay for (1) any local government debts approved by the voters prior to July 1, 1978 or (2) bonds to acquire or improve real property that receive twothirds voter approval after July 1, The 55% vote requirement authorized by Proposition 39 applies only if the local bond measure presented to the voters includes: (1) a requirement that the bond funds can be used only for construction, rehabilitation, equipping of school facilities, or the acquisition or lease of real property for school facilities; (2) a specific list of school projects to be funded and certification that the school board has evaluated safety, class size reduction, and information technology needs in developing the list; and (3) a requirement that the school board conduct annual, independent financial and performance audits until all bond funds have been spent to ensure that the bond funds have been used only for the projects listed in the measure. Legislation approved in June 2000 places certain limitations on local school bonds to be approved by 55 percent of the voters. These provisions require that the tax rate levied as the result of any single election be no more than $60 (for a unified school district), $30 (for an elementary school district or high school district), or $25 (for a community college district), per $100,000 of taxable property value. These requirements are not part of the proposition and can -48-

55 be changed with a majority vote of both houses of the Legislature and approval by the Governor. Proposition 1A and Proposition 22 On November 2, 2004, California voters approved Proposition 1A, which amended the State constitution to significantly reduce the State's authority over major local government revenue sources. Under Proposition 1A, the State cannot (i) reduce local sales tax rates or alter the method of allocating the revenue generated by such taxes, (ii) shift property taxes from local governments to schools or community colleges, (iii) change how property tax revenues are shared among local governments without two-thirds approval of both houses of the State Legislature or (iv) decrease Vehicle License Fee revenues without providing local governments with equal replacement funding. Under Proposition 1A, beginning, in fiscal year , the State may shift to schools and community colleges a limited amount of local government property tax revenue if certain conditions are met, including: (i) a proclamation by the Governor that the shift is needed due to a severe financial hardship of the State, and (ii) approval of the shift by the State Legislature with a two-thirds vote of both houses. Under such a shift, the State must repay local governments for their property tax losses, with interest, within three years. Proposition 1A does allow the State to approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. Proposition 1A also amended the State Constitution to require the State to suspend certain State laws creating mandates in any year that the State does not fully reimburse local governments for their costs to comply with the mandates. This provision does not apply to mandates relating to schools or community colleges or to those mandates relating to employee rights. Proposition 22, a constitutional initiative entitled the Local Taxpayer, Public Safety, and Transportation Protection Act of 2010, approved on November 2, 2010, superseded many of the provision of Proposition 1A. This initiative amends the State constitution to prohibit the legislature from diverting or shifting revenues that are dedicated to funding services provided by local government or funds dedicated to transportation improvement projects and services. Under this proposition, the State is not allowed to take revenue derived from locally imposed taxes, such as hotel taxes, parcel taxes, utility taxes and sales taxes, and local public transit and transportation funds. Further, in the event that a local governmental agency sues the State alleging a violation of these provisions and wins, then the State must automatically appropriate the funds needed to pay that local government. This Proposition was intended to, among other things, stabilize local government revenue sources by restricting the State s control over local property taxes. Proposition 22 did not prevent the California State Legislature from dissolving State redevelopment agencies pursuant to AB 1X26, as confirmed by the decision of the California Supreme Court in California Redevelopment Association v. Matosantos (2011). Because Proposition 22 reduces the State s authority to use or reallocate certain revenue sources, fees and taxes for State general fund purposes, the State will have to take other actions to balance its budget, such as reducing State spending or increasing State taxes, and school and college districts that receive Proposition 98 or other funding from the State will be more directly dependent upon the State s general fund. Proposition 30 and Proposition 55 Guaranteed Local Public Safety Funding, Initiative Constitutional Amendment (also known as Proposition 30 ), which temporarily increases the State Sales and Use Tax and personal income tax rates on higher incomes. Proposition 30 temporarily imposes an additional -49-

56 tax on all retailers, at the rate of 0.25% of gross receipts from the sale of all tangible personal property sold in the State from January 1, 2013 to December 31, Proposition 30 also imposes an additional excise tax on the storage, use, or other consumption in the State of tangible personal property purchased from a retailer on and after January 1, 2013 and before January 1, This excise tax will be levied at a rate of 0.25% of the sales price of the property so purchased. For personal income taxes imposed beginning in the taxable year commencing January 1, 2012 and ending December 31, 2018, Proposition 30 increases the marginal personal income tax rate by: (i) 1% for taxable income over $250,000 but less than $300,000 for single filers (over $500,000 but less than $600,000 for joint filers and over, $340,000 but less than $408,000 for head-of-household filers), (ii) 2% for taxable income over $300,000 but less than $500,000 for single filers (over $600,000 but less than $1,000,000 for joint filers and over $408,000 but less than $680,000 for head-of-household filers), and (iii) 3% for taxable income over $500,000 for single filers (over $1,000,000 for joint filers and over $680,000 for head-of-household filers). The revenues generated from the temporary tax increases will be included in the calculation of the Proposition 98 minimum funding guarantee for school districts and community college districts. See -Proposition 98 and -Proposition 111 above. From an accounting perspective, the revenues generated from the temporary tax increases will be deposited into the State account created pursuant to Proposition 30 called the Education Protection Account (the EPA ). Pursuant to Proposition 30, funds in the EPA will be allocated quarterly, with 89% of such funds provided to school districts and 11% provided to community college districts. The funds will be distributed to school districts and community college districts in the same manner as existing unrestricted per-student funding, except that no school district will receive less than $200 per unit of ADA and no community college district will receive less than $100 per full time equivalent student. The governing board of each school district and community college district is granted sole authority to determine how the moneys received from the EPA are spent, provided that, the appropriate governing board is required to make these spending determinations in open session at a public meeting and such local governing boards are prohibited from using any funds from the EPA for salaries or benefits of administrators or any other administrative costs. The California Children s Education and Health Care Protection Act of 2016, also known as Proposition 55, was a constitutional amendment initiative that was approved on the June 7, 2016 general election ballot in California. Proposition 55 extends the increases to personal income tax rates for high-income taxpayers that were approved as part of Proposition 30 through 2030, instead of the scheduled expiration date of December 31, Tax revenue received under Proposition 55 is to be allocated 89% to K-12 schools and 11% to community colleges. Proposition 55 did not extend the sales tax component of Proposition

57 California Senate Bill 222 Senate Bill 222 ( SB 222 ) was signed by the California Governor on July 13, 2015 and became effective on January 1, SB 222 amended Section of the California Education Code and added Section to the California Government Code to provide that voter approved general obligation bonds which are secured by ad valorem tax collections are secured by a statutory lien on all revenues received pursuant to the levy and collection of the property tax imposed to service those bonds. Said lien shall attach automatically and is valid and binding from the time the bonds are executed and delivered. The lien is enforceable against the issuer, its successors, transferees, and creditors, and all others asserting rights therein, irrespective of whether those parties have notice of the lien and without the need for any further act. The effect of SB 222 is the treatment of general obligation bonds as secured debt in bankruptcy due to the existence of a statutory lien. Future Initiatives and Other Statutes Article XIIIA, Article XIIIB, Article XIIIC and Article XIIID of the California Constitution and Propositions 98, 22, 26, 30 and 39 were each adopted as measures that qualified for the ballot under the State s initiative process. From time to time other initiative measures could be adopted further affecting District revenues or the District s ability to expend revenues. The nature and impact of these measures cannot be anticipated by the District. [Remainder of page intentionally left blank] -51-

58 TAX MATTERS Federal Tax Status. In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however to the qualifications set forth below, under existing law, the interest on the Notes is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax, although, in the case of tax years beginning prior to January 1, 2018, for the purpose of computing the alternative minimum tax imposed on certain corporations, such interest earned by a corporation prior to the end of its tax year in 2018 is taken into account in determining certain income and earnings. The Notes are "qualified tax-exempt obligations" within the meaning of section 265(b)(3) of the Internal Revenue Code of 1986, as amended (the "Tax Code"), such that, in the case of certain financial institutions (within the meaning of section 265(b)(5) of the Tax Code), a deduction for federal income tax purposes is allowed for 80% of that portion of such financial institution's interest expense allocable to interest payable on the Notes. The opinions set forth in the preceding paragraph are subject to the condition that the District comply with all requirements of the Internal Revenue Code of 1986, as amended (the "Tax Code") relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Notes. The District has made certain representations and covenants in order to comply with each such requirement. Inaccuracy of those representations, or failure to comply with certain of those covenants, may cause the inclusion of such interest in gross income for federal income tax purposes, which may be retroactive to the date of issuance of the Notes, or may cause the Notes to not be qualified tax-exempt obligations within the meaning of Section 265(b)(3) of the Tax Code. Tax Treatment of Original Issue Discount and Premium. If the initial offering price to the public at which a Note is sold is less than the amount payable at maturity thereof, then such difference constitutes "original issue discount" for purposes of federal income taxes and State of California personal income taxes. If the initial offering price to the public at which a Note is sold is greater than the amount payable at maturity thereof, then such difference constitutes "original issue premium" for purposes of federal income taxes and State of California personal income taxes. De minimis original issue discount and original issue premium are disregarded. Under the Tax Code, original issue discount is treated as interest excluded from federal gross income and exempt from State of California personal income taxes to the extent properly allocable to each owner thereof subject to the limitations described in the first paragraph of this section. The original issue discount accrues over the term to maturity of the Note on the basis of a constant interest rate compounded on each interest or principal payment date (with straightline interpolations between compounding dates). The amount of original issue discount accruing during each period is added to the adjusted basis of such Notes to determine taxable gain upon disposition (including sale, redemption, or payment on maturity) of such Note. The Tax Code contains certain provisions relating to the accrual of original issue discount in the case of purchasers of the Notes who purchase the Notes after the initial offering of a substantial amount of such maturity. Owners of such Notes should consult their own tax advisors with respect to the tax consequences of ownership of Notes with original issue discount, including the treatment of purchasers who do not purchase in the original offering, the allowance of a deduction for any loss on a sale or other disposition, and the treatment of accrued original issue discount on such Notes under federal individual alternative minimum taxes. -52-

59 Under the Tax Code, original issue premium is amortized on an annual basis over the term of the Note (said term being the shorter of the Note's maturity date or its call date). The amount of original issue premium amortized each year reduces the adjusted basis of the owner of the Note for purposes of determining taxable gain or loss upon disposition. The amount of original issue premium on a Note is amortized each year over the term to maturity of the Note on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). Amortized Note premium is not deductible for federal income tax purposes. Owners of premium Notes, including purchasers who do not purchase in the original offering, should consult their own tax advisors with respect to State of California personal income tax and federal income tax consequences of owning such Notes. California Tax Status. In the further opinion of Bond Counsel, interest on the Notes is exempt from California personal income taxes. Other Tax Considerations. Current and future legislative proposals, if enacted into law, clarification of the Tax Code or court decisions may cause interest on the Notes to be subject, directly or indirectly, to federal income taxation or to be subject to or exempted from state income taxation, or cause the Notes to not be qualified tax-exempt obligations, or otherwise prevent beneficial owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such legislative proposals, clarification of the Tax Code or court decisions may also affect the market price for, or marketability of, the Notes. It cannot be predicted whether or in what form any such proposal might be enacted or whether, if enacted, such legislation would apply to bonds issued prior to enactment. The opinions expressed by Bond Counsel are based upon existing legislation and regulations as interpreted by relevant judicial and regulatory authorities as of the date of such opinion, and Bond Counsel has expressed no opinion with respect to any proposed legislation or as to the tax treatment of interest on the Notes, or as to the consequences of owning or receiving interest on the Notes, as of any future date. Prospective purchasers of the Notes should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel expresses no opinion. Form of Opinion. A copy of the proposed form of opinion of Bond Counsel is attached hereto as APPENDIX C. Absence of Material Litigation CERTAIN LEGAL MATTERS No litigation is pending or threatened concerning the validity of the Notes, and a certificate to that effect will be furnished to purchasers at the time of the original delivery of the Notes. The District is not aware of any litigation pending or threatened that (i) questions the political existence of the District, (ii) contests the District's ability to receive ad valorem taxes or to collect other revenues or (iii) contests the District's ability to issue and retire the Notes. -53-

60 RATING Moody s Investors Services ( Moody s ) has assigned its rating of A3 to the Notes. Such rating reflects only the view of Moody s and an explanation of the significance of such rating may be obtained only from Moody s. The District has provided certain additional information and materials to Moody s (some of which does not appear in this Official Statement because it has been determined to be immaterial for making an investment decision in the Notes). There is no assurance that such rating will continue for any given period of time or that they will not be revised downward or withdrawn entirely by the rating agency, if in the judgment of such rating agency, circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Notes. UNDERWRITING The Notes are being sold to RBC Capital Markets, LLC (the Underwriter ), pursuant to a note purchase agreement for the Notes. The Underwriter has agreed to purchase the Notes at a price of $2,190, representing the principal amount of the Notes, plus net original issue premium of $65, and less Underwriter s discount of $37, The Underwriter may offer and sell Notes to certain dealers and others at prices lower than the offering prices stated on the inside cover page hereof. The offering prices may be changed by the Underwriter. The Underwriter and its respective affiliates are full-service financial institutions engaged in various activities that may include securities trading, commercial and investment banking, municipal advisory, brokerage, and asset management. In the ordinary course of business, RBC and its respective affiliates may actively trade debt and, if applicable, equity securities (or related derivative securities) and provide financial instruments (which may include bank loans, credit support or interest rate swaps). The Underwriter and its respective affiliates may engage in transactions for their own accounts involving the securities and instruments made the subject of this securities offering or other offering of the District. The Underwriter and its respective affiliates may make a market in credit default swaps with respect to municipal securities in the future. The Underwriter and its respective affiliates may also communicate independent investment recommendations, market color or trading ideas and publish independent research views in respect of this securities offering or other offerings of the District. ADDITIONAL INFORMATION The discussions herein about the District Resolution and the Continuing Disclosure Certificate are brief outlines of certain provisions thereof. Such outlines do not purport to be complete and for full and complete statements of such provisions reference is made to such documents. Copies of these documents mentioned are available from the Underwriter and following delivery of the Notes will be on file at the offices of the Paying Agent in Dallas, Texas. References are also made herein to certain documents and reports relating to the District; such references are brief summaries and do not purport to be complete or definitive. Copies of such documents are available upon written request to the District. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official -54-

61 Statement is not to be construed as a contract or agreement between the District and the purchasers or Owners of any of the Notes. EXECUTION The execution and delivery of this Official Statement have been duly authorized by the District. BALLICO-CRESSEY SCHOOL DISTRICT By: /s/ Bliss Propes Superintendent -55-

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63 APPENDIX A AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR FISCAL YEAR ENDED JUNE 30, 2017 A-1 B-1

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65 BALLICO-CRESSEY SCHOOL DISTRICT COUNTY OF MERCED BALLICO, CALIFORNIA AUDIT REPORT JUNE 30, 2017 Linger, Peterson & Shrum Certified Public Accountants 575 East Locust Avenue, Suite 308 Fresno, California

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67 Introductory Section

68 Ballico-Cressey School District Audit Report For The Year Ended June 30, 2017 TABLE OF CONTENTS Page Exhibit/Table FINANCIAL SECTION Independent Auditor's Report... 2 Management's Discussion and Analysis (Required Supplementary Information)... 6 Basic Financial Statements Government-wide Financial Statements: Statement of Net Position Exhibit A-1 Statement of Activities Exhibit A-2 Fund Financial Statements: Balance Sheet - Governmental Funds Exhibit A-3 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position Exhibit A-4 Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds Exhibit A-5 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities Exhibit A-6 Statement of Fiduciary Net Position - Fiduciary Funds Exhibit A-7 Notes to the Financial Statements Required Supplementary Information Budgetary Comparison Schedules: General Fund Exhibit B-1 Schedule of the District's Proportionate Share of the Net Pension Liability - California STRS Exhibit B-2 Schedule of District's Contributions - California STRS Exhibit B-3 Schedule of the District's Proportionate Share of the Net Pension Liability - California PERS Exhibit B-4 Schedule of District's Contributions - California PERS Exhibit B-5 Combining Statements and Budgetary Comparison Schedules as Supplementary Information: General Fund: Combining Balance Sheet Exhibit C-1 Combining Statement of Revenues, Expenditures and Changes in Fund Balances Exhibit C-2 Combining Balance Sheet - All Nonmajor Governmental Funds Exhibit C-3 Combining Statement of Revenues, Expenditures and Changes in Fund Balances - All Nonmajor Governmental Funds Exhibit C-4

69 Ballico-Cressey School District Audit Report For The Year Ended June 30, 2017 TABLE OF CONTENTS Page Exhibit/Table Special Revenue Funds Budgetary Comparison Schedule: Cafeteria Fund Exhibit C-5 Debt Service Funds: Budgetary Comparison Schedule: Bond Interest and Redemption Fund Exhibit C-6 Capital Projects Funds: Budgetary Comparison Schedules: Building Fund Exhibit C-7 Capital Facilities Fund Exhibit C-8 Special Reserve Fund for Capital Outlay Projects Exhibit C-9 Fiduciary Funds: Agency Funds: Combining Statement of Changes in Assets and Liabilities Exhibit C-10 OTHER SUPPLEMENTARY INFORMATION SECTION Local Education Agency Organization Structure Schedule of Average Daily Attendance Table D-1 Schedule of Instructional Time Table D-2 Schedule of Financial Trends and Analysis Table D-3 Reconciliation of Annual Financial and Budget Report With Audited Financial Statements Table D-4 Schedule of Charter Schools Table D-5 Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditor's Report on State Compliance Schedule of Findings and Questioned Costs Summary Schedule of Prior Audit Findings... 90

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71 Financial Section 1

72 Linger, Peterson & Shrum Certified Public Accountants 575 East Locust Avenue, Suite 308 Fresno, California (559) Independent Auditor's Report To the Board of Trustees Ballico-Cressey School District Ballico, California Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the Ballico-Cressey School District ("the District") as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the District's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the District's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the District's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of Ballico-Cressey School District as of June 30, 2017, and the respective changes in financial position, for the year then ended in accordance with accounting principles generally accepted in the United States of America. 2

73 Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis, budgetary comparison information, schedule of the District's proportionate share of the net pension liability and schedule of District pension contributions identified as Required Supplementary Information in the table of contents be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Ballico-Cressey School District's basic financial statements. The combining and individual nonmajor fund financial statements are presented for purposes of additional analysis and are not required parts of the basic financial statements. The accompanying other supplementary information is presented for purposes of additional analysis as required by the State's audit guide, Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting prescribed in Title 5, California Code of Regulations, Section and is also not a required part of the basic financial statements. The combining and individual nonmajor fund financial statements and other supplementary information are the responsibility of management and were 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 combining and individual nonmajor fund financial statements and other supplementary information are fairly stated in all material respects in relation to the basic financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 11, 2017 on our consideration of Ballico-Cressey School District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Ballico-Cressey School District's internal control over financial reporting and compliance. Respectfully submitted, Linger, Peterson & Shrum Fresno, California December 11,

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75 Management's Discussion and Analysis 5

76 BALLICO-CRESSEY SCHOOL DISTRICT Management s Discussion and Analysis For the Year Ended June 30, 2017 This section of Ballico-Cressey School District s annual financial report presents our discussion and analysis of the District s financial performance during the fiscal year that ended on June 30, Please read it in conjunction with Ballico-Cressey s financial statements, which immediately follow this section. Ballico-Cressey School District is a K-8 district with two school sites that service the same families. Cressey Elementary houses Grades K-3 and Ballico Elementary houses Grades 4-8. The District s P-2 average daily attendance (ADA) increased from in to in The dedicated staff of teachers and support personnel serve the student population of the District. OVERVIEW OF THE FINANCIAL STATEMENTS The financial statements presented herein include all the activities of the Ballico-Cressey School District, using the integrated approach prescribed by GASB Statement Number 34. The Government-Wide Financial Statements present the financial picture of Ballico-Cressey as a whole, using the accrual basis of accounting, the accounting method used by many private-sector companies. These statements present only governmental activities, as Ballico-Cressey has no business-type activities. The Statement of Net Position includes all of the District s assets, including infrastructure, as well as liabilities. All of the current year s revenues and expenses are accounted for in the Statement of Activities regardless of when cash is received or paid. Additionally, certain interfund activities, such as payables and receivables have been eliminated as prescribed by the Statement. The two government-wide statements report the District s net position and how it has changed. Net position, the difference between the District s assets and liabilities, is one way to measure the District s financial health or position. Over time, increases or decreases in the District s net position is an indicator of whether its financial position is improving or deteriorating. Other factors to consider are changes in the District s property tax base and the condition of school buildings and other facilities. The relationship between revenues and expenses is Ballico-Cressey s operating results. Since BallicoCressey s responsibility is to provide services to our students and not to generate profit as commercial entities do, one must consider other factors when evaluating the overall health of the District. The quality of the education and the safety of our schools will likely be an important component in this evaluation. We display the District s activities in the Statement of Net Position and the Statement of Activities. 6

77 FUND FINANCIAL STATEMENTS The fund financial statements provide detailed information about the most significant funds - not the District as a whole. Some funds are required to be established by state law and by bond covenants. However, Management establishes many other funds to help it control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants, and other money that it receives from the U.S. Department of Education. All Ballico-Cressey s basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of Ballico-Cressey s general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance Ballico-Cressey s programs. The differences of results in the governmental fund financial statements to those in the governmentwide financial statements are explained in a reconciliation following each governmental fund financial statement. For assets that belong to others, such as the Student Body Fund, the District uses fiduciary funds, and acts as the trustee, or fiduciary. The District is responsible for ensuring that the assets reported in these funds are used only for their intended purpose and by those to whom the assets belong. A separate Statement of Fiduciary Net Position--Fiduciary Fund and Statement of Changes in Assets and Liabilities-Agency Fund report the District s fiduciary activities. These activities are excluded from the District-wide financial statements, as the assets cannot be used by the District to finance its operations. FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE Net Position The District s combined net position was $457,890 more on June 30, 2017 than the prior year net position. Of this amount, $2,737,038 was unrestricted. Restricted net position is reported separately to show legal constraints from debt covenants and enabling legislation that limit the School Board s ability to use the net position for day-to-day operations. Our analyses below focus on the net position (Table 1) and change in net position (Table 2) of Ballico-Cressey s governmental activities. 7

78 Table 1 Ballico Cressey School District Net Position Governmental Activities FY FY Difference Assets Current and other assets Capital assets $ 5,690,344 1,701,200 $ 1,126,972 1,011,176 $ 4,563, ,358 Total Assets $ 7,391,544 $ 2,138,148 $ 5,251,730 Deferred Outflows of Resources $ 723,553 $ 209,562 $ 513,991 Liabilities Current liabilities Long term debt $ 554,543 7,372,049 $ 229,792 2,323,000 $ 324,751 5,049,049 Total Liabilities $ 7,926,592 $ 2,552,792 $ 5,373,800 Deferred Inflows of Resources $ 162,697 $ 227,000 ($ Net Position Invested in capital assets, net of related debt Restricted Unrestricted $ 797,147 $ 1,011,176 ($ 214,029) 4,268, ,428 3,830,856 (5,039,623) ( 1,880,686) (3,158,937) Total Net Position $ 25,808 ($ 432,082) $ 64,303) 457,890 Changes in Net Position The District s financial position is the product of many factors. For the school year, the District saw an increase in the P-2 ADA, which was used to calculate the Local Control Funding Formula. To provide the best education to the student population, the District made numerous investments in the school and its employees. The results of operations for Ballico-Cressey as a whole are reported in the Statement of Activities. Table 2 takes the information from the Statement, and rearranges it slightly so you can see our total revenues. 8

79 Table 2 Ballico-Cressey School District Changes in Net Position Governmental Activities Percent FY of Total FY Revenues Program revenues Charges for services Operating grants and contributions Other general revenues Total Revenues $ 31, ,653 30, ,068 Percent of Total 0.59% $ 0.74% $ 4,555, $ 3,385, $ 5,384, % $ 4,064, % $ 3,604, % $ 2,816, , , ,257 30, % % $ 3,860,934 $ 203, % Expenses Program expenses Instruction and instructionrelated services Pupil and ancillary services Administration Maintenance and operations Other Total Expenses Changes in Net Position $ 394, , , ,040 $ 4,926,946 $ 457,890 9

80 10

81 GOVERNMENTAL ACTIVITIES The District s total revenues were $5,384,836. (See Table 2.) The total cost of all programs and services was $4,926,946. The District s expenses are predominantly related to educating and caring for students in the amount of $3,998,945 or 81.18%. The purely administrative activities of the District accounted for 7.01% of total costs. Maintenance, operations, and other expenses amounted to 11.83% of the District s expenses. Total revenue surpassed expenses, increasing net position by $457,890. Table 3 Ballico-Cressey School District Net Cost of Governmental Activities F Y Total Cost Net Cost of Services of Services F Y Total Cost Net Cost of Services of Services Program Expenses Instruction Instruction-related services $ 3,183, ,444 $ 2,775, ,407 $ 2,447, ,192 $ 2,049, ,920 Pupil, ancillary and food services General administration Plant services Other Totals 394, , , ,040 $ 4,926, , , , ,040 $ 4,097, , , ,257 66,005 $ 3,860, , , ,707 59,509 $ 3,181,613 Table 3 presents the cost of six major District functions: Instruction; instruction related services; pupil transportation services; food services; general administration; and maintenance and operations; as well as other miscellaneous expenses. The table also shows each activity s net cost (total cost less revenues generated by the activities). The net cost shows the financial burden that was placed on the District s taxpayers by each of these functions. FINANCIAL ANALYSIS OF THE DISTRICT S FUNDS The financial performance of the District as a whole is reflected in its governmental funds. As the District completed the year, its governmental funds reported a combined fund balance of $5,216,418, a $4,319,238 increase over the prior year. 11

82 GENERAL FUND BUDGETARY HIGHLIGHTS Over the course of the year, the District revised its budget several times to update projections and actual costs. The final amendment to the budget was adopted on June 30, A schedule showing the District s original and final budget amounts, compared with amounts actually paid and received, is provided in our annual report. Minor revisions made after second interim include adjustments for revenues received over amounts estimated for cafeteria receipts. Other revisions made to the budget include revised estimates in revenues and expenses to better project ending fund balances carrying over into the new budget year. Additionally at year-end, the budget was adjusted for any material amounts of revenue received over amounts estimated for a variety of instructional programs. Reallocations by major object code were also made to expenditure budgets to account for actual amounts expended for instructional programs and operating costs. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets At the end of the fiscal year, Ballico-Cressey had $1,011,176 in a broad range of capital assets, including land, buildings, furniture and equipment, net of depreciation. For the current year, the net fixed assets totaled $1,699,534. This amount represents an increase in net capital assets of $690,024, due to depreciation and net new acquisitions in equipment. (See explanations below.) 12

83 Table 4 Ballico-Cressey School District Capital Assets at Year-End (Net of Depreciation) FY Land Work in Progress Site Improvements Buildings and Improvements Equipment $ Totals FY , ,111 90, , ,860 $ 1,701,200 $ 36,236 12,813 95, , ,797 $ 1,011,176 Explanation of Changes Work in Progress Additions Site Improvements Depreciation Buildings and Improvements Depreciation Equipment Depreciation Total Difference $ 0 748,298 ( 5,224) ( 33,113) ( 19,937) $ 690,024 $ 748,298 ( 5,224) ( 33,113) ( 19,937) $ 690,024 LONG-TERM DEBT The District has long-term debt of $7,372,049, which results from net pension liability and general obligation bonds payable. The balance shows an increase of $5,049,049 from the prior year balance. Table 5 Ballico-Cressey School District Outstanding Debt at Year-End Governmental Activities FY General obligation bonds payable Net pension liability $ 4,335,000 3,037,049 FY Difference $ - $ 4,335,000 2,323, ,049 $ 7,372,049 $ 2,323,000 $ 5,049,049 13

84 ECONOMIC FACTRS BEARING ON THE DISTRICT S FUTURE Ballico-Cressey is faced with many new challenges and opportunities for the upcoming school year. Fiscal year is the fifth year of the transition to the new funding model, Local Control Funding Formula (LCFF). The continued application of the new Common Core State Standards (CCSS) poses both a challenge and an opportunity the District is ready to undertake. The volatility of enrollment, thus ADA, and the uncertainty of the new funding model makes it difficult to project class loading, maintain and adjust staffing, and develop multi-year projections (MYP). While LCFF promises more funding, the District is exposed to significant risk of major declines in funding. The District has been and will continue to be prudent when making major purchases and commitments, especially those that are long-term. We have utilized the best information available to us in the preparation of the District s budget and each revision. The California State Department of Education, School Services of California, and the California Association of School Business Officials are the primary sources of data used in our assumptions. The District s budget was prepared prior to the adoption of the state budget, and is therefore subject to any changes which could affect the programs and funding. A review of this budget will be conducted after the impact of the state budget is known. A complete update of these changes will be reported during the Interim reporting process. CONTACTING THE DISTRICT S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, investors and creditors with a general overview of the District s finances and to demonstrate the District s accountability for the money it receives. If you have any questions about this report, you may contact the Ballico-Cressey Elementary School District, W. Gregg Street, Ballico, CA 95303, or (209) * * 14 *

85 Basic Financial Statements 15

86 BALLICO-CRESSEY SCHOOL DISTRICT STATEMENT OF NET POSITION JUNE 30, 2017 EXHIBIT A-1 ASSETS: Cash in County Treasury Cash in Revolving Fund Accounts Receivable Stores Inventories Capital Assets: Land Land Improvements, Net Buildings, Net Equipment, Net Governmental Activities $ 5,564,778 4, ,592 8,974 36,236 90, , ,860 Work in Progress 761,111 Total Assets 7,391,544 DEFERRED OUTFLOWS OF RESOURCES: Deferred Expenses Total Deferred Outflows of Resources 723, ,553 LIABILITIES: Accounts Payable 554,543 Long-term Liabilities Due Within One Year: Bonds Payable 110,000 Due After One Year: Net Pension Liability 3,037,049 Bonds Payable 4,225,000 Total Liabilities 7,926,592 DEFERRED INFLOWS OF RESOURCES: Deferred Revenues Total Deferred Inflows of Resources 162, ,697 NET POSITION: Net Investment in Capital Assets 797,147 Restricted For: Debt Service 512,142 Capital Projects 3,511,564 Other Purposes 244,578 Unrestricted (5,039,623) Total Net Position $ 25,808 The accompanying notes are an integral part of this statement. 16

87 BALLICO-CRESSEY SCHOOL DISTRICT STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2017 EXHIBIT A-2 Net (Expense) Revenue and Changes in Program Revenues Net Position Operating Charges for Grants and Governmental Functions/Programs Expenses Services Contributions Activities PRIMARY GOVERNMENT: Governmental Activities: Instruction $ 3,183,559 $ - $ 407,956 $ (2,775,603) Instruction-Related Services 420,444-55,037 (365,407) Pupil Services 370,606 28, ,609 (132,406) Ancillary Services 24,336-3,140 (21,196) General Administration 345,157 2,745 55,092 (287,320) Plant Services 470, ,819 (403,626) Other Outgo 31, (31,423) Interest on Long-Term Obligations 80, (80,617) Total Governmental Activities 4,926,946 31, ,653 (4,097,598) Total Primary Government $ 4,926,946 $ 31,695 $ 797,653 (4,097,598) General Revenues: LCFF Sources 3,387,362 State Revenues 358,503 Local Revenues 809,623 Total General Revenues 4,555,488 Change in Net Position 457,890 Net Position - Beginning (432,082) Net Position - Ending $ 25,808 The accompanying notes are an integral part of this statement. 17

88 BALLICO-CRESSEY SCHOOL DISTRICT BALANCE SHEET - GOVERNMENTAL FUNDS JUNE 30, 2017 General Building Fund Fund ASSETS: Cash in County Treasury $ 824,094 $ 3,715,006 Cash in Revolving Fund 1,000 - Accounts Receivable 105,505 7,087 Due from Other Funds 29,976 - Stores Inventories - - Total Assets $ 960,575 $ 3,722,093 LIABILITIES AND FUND BALANCE: Liabilities: Accounts Payable $ 226,467 $ 210,529 Due to Other Funds - - Total Liabilities 226, ,529 Fund Balance: Nonspendable Fund Balances: Revolving Cash 1,000 - Stores Inventories - - Restricted Fund Balances 244,578 - Assigned Fund Balances 56,624 3,511,564 Unassigned: Reserve for Economic Uncertainty 325,833 - Other Unassigned 106,073 - Total Fund Balance 734,108 3,511,564 Total Liabilities and Fund Balances $ 960,575 $ 3,722,093 The accompanying notes are an integral part of this statement. 18

89 EXHIBIT A-3 Capital Other Total Outlay Governmental Governmental Projects Funds Funds $ 468,045 $ 557,633 $ 5,564,778-3,000 4, , ,976-8,974 8,974 $ 468,045 $ 569,607 $ 5,720,320 $ 32,339 $ 4,591 $ 473,926-29,976 29,976 32,339 34, ,902-3,000 4,000-8,974 8, , , ,066 4,526, , , , ,040 5,216,418 $ 468,045 $ 569,607 $ 5,720,320 19

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91 BALLICO-CRESSEY SCHOOL DISTRICT RECONCILIATION OF THE BALANCE SHEET, GOVERNMENTAL FUNDS, TO THE STATEMENT OF NET ASSETS JUNE 30, 2017 EXHIBIT A-4 Total Fund Balances - Balance Sheet, Governmental Funds $ 5,216,418 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds: Capital assets 3,345,704 Accumulated depreciation (1,644,504) Certain liabilities are not due and payable in the current period and therefore are not reported in the funds: Accrued interest payable (80,617) General obligation bonds payable (4,335,000) Net pension liability (3,037,049) Deferred outflows and inflows of resources relating to pensions are not reported in the funds because they are applicable to future periods: Deferred outflows of resources related to pensions 723,553 Deferred inflows of resources related to pensions (162,697) Net Assets of Governmental Activities - Statement of Net Assets $ 25,808 The accompanying notes are an integral part of this statement. 21

92 BALLICO-CRESSEY SCHOOL DISTRICT STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2017 General Building Fund Fund Revenues: LCFF Sources: State Apportionment or State Aid $ 1,676,517 $ - Education Protection Account Funds 464,167 - Local Sources 1,246,678 - Federal Revenue 217,650 - Other State Revenue 521,445 - Other Local Revenue 399,996 20,436 Total Revenues 4,526,453 20,436 Expenditures: Current: Instruction 2,850,905 - Instruction - Related Services 388,929 - Pupil Services 116,613 - Ancillary Services 22,233 - General Administration 321,493 - Plant Services 455, ,819 Other Outgo 31,423 - Capital Outlay - - Total Expenditures 4,186, ,819 Excess (Deficiency) of Revenues Over (Under) Expenditures 339,758 (206,383) Other Financing Sources (Uses): Transfers In Transfers Out Proceeds from Sale of Bonds 24,920 - (166,093) (489,140) - 4,207,087 Other Sources - - Total Other Financing Sources (Uses) (141,173) 3,717,947 Net Change in Fund Balance 198,585 3,511,564 Fund Balance, July 1 535,523 - Fund Balance, June 30 $ 734,108 $ 3,511,564 The accompanying notes are an integral part of this statement. 22

93 EXHIBIT A-5 Capital Other Total Outlay Governmental Governmental Projects Funds Funds $ - $ - $ 1,676, , ,246, , ,168-12, ,891 1, , ,173 1, ,211 4,909, ,850, , , , ,233-11, ,432-3, , , , , , ,599 5,189,592 (519,985) 106,612 (279,998) 635,599 19, ,153 (24,920) - (680,153) - - 4,207, , , , ,783 4,599,236 90, ,395 4,319, ,012 16, ,180 $ 435,706 $ 535,040 $ 5,216,418 23

94 BALLICO-CRESSEY SCHOOL DISTRICT RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2017 EXHIBIT A-6 Net change in fund balances-total governmental funds $ 4,319,238 Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. This is the amount by which capital outlays exceeded depreciation in the current period: Expenditures for capital outlay 748,298 Depreciation expense (58,274) Expenses reported in the statement of activities that do not require the use of current financial resources are not reported as expenditures in the funds: Change in accrued interest payable (80,617) Debt proceeds provide current financial resources to governmental funds, but issuing debt increases long-term liabilities in the statement of net assets. Repayment of principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net assets. Amounts recognized in the funds as proceeds from debt were: (4,335,000) In governmental funds, pension costs are recognized when employer contributions are made. In the statement of activities, pension costs are recognized on the accrual basis. This year, the difference between accrual basis pension costs and actual employer contributions was: (135,755) Change in net assets of governmental activities - statement of activities $ 457,890 The accompanying notes are an integral part of this statement. 24

95 EXHIBIT A-7 BALLICO-CRESSEY SCHOOL DISTRICT STATEMENT OF FIDUCIARY NET POSITION FIDUCIARY FUNDS JUNE 30, 2017 Agency Fund ASSETS: Student Body Fund Cash on Hand and in Banks $ 14,193 Total Assets 14,193 LIABILITIES: Due to Student Groups $ 14,193 Total Liabilities 14,193 NET POSITION: Total Net Position $ - The accompanying notes are an integral part of this statement. 25

96 BALLICO-CRESSEY SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2017 A. Summary of Significant Accounting Policies Ballico-Cressey School District (District) accounts for its financial transactions in accordance with the policies and procedures of the Department of Education's "California School Accounting Manual". The accounting policies of the District conform to accounting principles generally accepted in the United States of America (GAAP) as prescribed by the Governmental Accounting Standards Board (GASB) and the American Institute of Certified Public Accountants (AICPA). 1. Reporting Entity The District's combined financial statements include the accounts of all its operations. The District evaluated whether any other entity should be included in these financial statements. The criteria for including organizations as component units within the District's reporting entity, as set forth in GASB Statement No. 14, "The Financial Reporting Entity," include whether: - the organization is legally separate (can sue and be sued in its name) - the District holds the corporate powers of the organization - the District appoints a voting majority of the organization's board - the District is able to impose its will on the organization - the organization has the potential to impose a financial benefit/burden on the District - there is fiscal dependency by the organization on the District The District also evaluated each legally separate, tax-exempt organization whose resources are used principally to provide support to the District to determine if its omission from the reporting entity would result in financial statements which are misleading or incomplete. GASB Statement No. 14 requires inclusion of such an organization as a component unit when: 1) The economic resources received or held by the organization are entirely or almost entirely for the direct benefit of the District, its component units or its constituents; and 2) The District or its component units is entitled to, or has the ability to otherwise access, a majority of the economic resources received or held by the organization; and 3) Such economic resources are significant to the District. Based on these criteria, the District has no component units. Additionally, the District is not a component unit of any other reporting entity as defined by the GASB Statement. 2. Basis of Presentation, Basis of Accounting a. Basis of Presentation Government-wide Statements: The statement of net position and the statement of activities include the financial activities of the overall government, except for fiduciary activities. Eliminations have been made to minimize the double-counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. The statement of activities presents a comparison between direct expenses and program revenues for each function of the District's governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. The District does not allocate indirect expenses in the statement of activities. Program revenues include (a) fees, fines, and charges paid by the recipients of goods or services offered by the programs and (b) 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, including all taxes, are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the District's funds, with separate statements presented for each fund category. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. All remaining governmental funds are aggregated and reported as nonmajor funds. 26

97 BALLICO-CRESSEY SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2017 The District reports the following major governmental funds: General Fund. This is the District's primary operating fund. It accounts for all financial resources of the District except those required to be accounted for in another fund. Building Fund. This fund is used to account for the acquisition of major governmental capital facilities and buildings from the sale of bond proceeds. Special Reserve (Capital Projects) Fund. This fund is used to account for the accumulation and expenditure of funds for capital outlay purposes, as established by the Board in accordance with Education Code et seq. The District reports the following nonmajor governmental funds: Cafeteria Fund. This fund is used to account for revenues received and expenditures made to operate the District's cafeterias. Capital Facilities Fund. This fund is used to account for resources received from developer impact fees assessed under provisions of the California Environmental Quality Act (CEQA). Bond Interest and Redemption Fund. This fund is maintained by the County Treasurer and is used to account for both the accumulation of resources from ad valorem tax levies and the interest and redemption of principal of bonds issued by the District. In addition, the District reports the following fund types: Agency Funds: These funds are used to report student activity funds and other resources held in a purely custodial capacity (assets equal liabilities). Agency funds typically involve only the receipt, temporary investment, and remittance of fiduciary resources to individuals, private organizations, or other governments. Fiduciary funds are reported in the fiduciary fund financial statements. However, because their assets are held in a trustee or agent capacity and are therefore not available to support District programs, these funds are not included in the government-wide statements. b. Measurement Focus, Basis of Accounting Government-wide and Fiduciary Fund Financial Statements: These financial statements are reported using the economic resources measurement focus. They are reported using the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, grants, entitlements, and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. Governmental Fund Financial Statements: 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. The District does not consider revenues collected after its year-end to be available in the current period. Revenues from local sources consist primarily of property taxes. Property tax revenues and revenues received from the State are recognized under the susceptible-to-accrual concept. Miscellaneous revenues are recorded as revenue when received in cash because they are generally not measurable until actually received. Investment earnings are recorded as earned, since they are both measurable and available. Expenditures are recorded when the related fund 27

98 BALLICO-CRESSEY SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, Encumbrances liability is incurred, except for principal and interest on general long-term debt, claims and judgments, and compensated absences, which are recognized as expenditures to the extent they have matured. General capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term debt and acquisitions under capital leases are reported as other financing sources. When the District incurs an expenditure or expense for which both restricted and unrestricted resources may be used, it is the District's policy to use restricted resources first, then unrestricted resources. Encumbrance accounting is used in all budgeted funds to reserve portions of applicable appropriations for which commitments have been made. Encumbrances are recorded for purchase orders, contracts, and other commitments when they are written. Encumbrances are liquidated when the commitments are paid. All encumbrances are liquidated as of June Budgets and Budgetary Accounting Annual budgets are adopted on a basis consistent with generally accepted accounting principles for all governmental funds. By state law, the District's governing board must adopt a final budget no later than July 1. A public hearing must be conducted to receive comments prior to adoption. The District's governing board satisfied these requirements. These budgets are revised by the District's governing board and district superintendent during the year to give consideration to unanticipated income and expenditures. Formal budgetary integration was used as a management control device during the year for all budgeted funds. The District employs budget control by minor object and by individual appropriation accounts. Expenditures cannot legally exceed appropriations by major object code. 5. Assets, Liabilities, and Equity a. Deposits and Investments Cash balances held in banks and in revolving funds are insured to $250,000 by the Federal Depository Insurance Corporation. All cash held by the financial institutions is fully insured or collateralized. In accordance with Education Code Section 41001, the District maintains substantially all its cash in the Merced County Treasury. The county pools these funds with those of other districts in the county and invests the cash. These pooled funds are carried at cost, which approximates market value. Interest earned is deposited quarterly into participating funds, except for the Tax Override Funds, in which interest earned is credited to the general fund. Any investment losses are proportionately shared by all funds in the pool. The county is authorized to deposit cash and invest excess funds by California Government Code Section et seq. The funds maintained by the county are either secured by federal depository insurance or are collateralized. Information regarding the amount of dollars invested in derivatives with Merced County Treasury was not available. b. Stores Inventories and Prepaid Expenditures Inventories are recorded using the purchases method in that the cost is recorded as an expenditure at the time individual inventory items are purchased. Inventories are valued at average cost and consist of expendable supplies held for consumption. Reported inventories are equally offset by a fund balance reserve, which indicates that these amounts are not "available for appropriation and expenditure" even though they are a component of net current assets. 28

99 BALLICO-CRESSEY SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2017 The District has the option of reporting an expenditure in governmental funds for prepaid items either when purchased or during the benefiting period. The District has chosen to report the expenditure when incurred. c. Capital Assets Purchased or constructed capital assets are reported at cost or estimated historical cost. Donated fixed assets are recorded at their estimated fair value at the date of the donation. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not capitalized. A capitalization threshold of $5,000 is used. Capital assets are being depreciated using the straight-line method over the following estimated useful lives: Estimated Useful Life Asset Class Examples in Years Land N/A Site improvements Paving, flagpoles, retaining walls, sidewalks, fencing, outdoor lighting 20 School buildings 50 Portable classrooms 25 HVAC systems Heating, ventilation AC systems 20 Roofing 20 Interior construction 25 Carpet replacement 7 Electrical/plumbing 30 Sprinkler/fire system Fire suppression systems 25 Outdoor equipment Playground, radio towers, fuel tanks, pumps 20 Machinery and tools Shop, maintenance equipment, tools 15 Kitchen equipment Appliances 15 Custodial equipment Floor scrubbers, vacuums, other 15 Science and engineering Lab equipment, scientific apparatus 10 Furniture and accessories Classroom and other furniture 20 Business machines Fax, duplicating and printing equipment 10 Copiers 5 Communication equipment Mobile, portable radios, non-computerized 10 Computer hardware PC's, printers, network hardware 5 Computer software Instructional, other short-term 5 to 10 Computer software Administrative or long-term 10 to 20 Audio visual equipment Projectors, cameras (still and digital) 10 Athletic equipment Gymnastics, football, weight machines, wrestling mats 10 Musical instruments Pianos, strings, brass, percussion 10 Library books Collections 5 to 7 Licensed vehicles Buses, other on-road vehicles 8 Contractors equipment Major off-road vehicles, front-end loaders, large tractors, mobile air compressor 10 Grounds equipment Mowers, tractors, attachments 15 29

100 BALLICO-CRESSEY SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2017 d. Receivable and Payable Balances There are no significant receivables which are not scheduled for collection within one year of year end. e. Compensated Absences Accumulated unpaid employee vacation benefits are recognized as liabilities of the District. The current portion of the liabilities is recognized in the general fund at year end. Accumulated sick leave benefits are not recognized as liabilities of the District. The District's policy is to record sick leave as an operating expense in the period taken since such benefits do not vest nor is payment probable; however, unused sick leave is added to the creditable service period for calculation of retirement benefits when the employee retires. f. Unearned Revenue Unearned revenue arises when potential revenue does not meet both the "measurable" and "available" criteria for recognition in the current period or when resources are received by the District prior to the incurrence of qualifying expenditures. In subsequent periods, when both revenue recognition criteria are met, or when the District has a legal claim to the resources, the liability for unearned revenue is removed from the balance sheet and revenue is recognized. g. Interfund Activity Interfund activity results from loans, services provided, reimbursements or transfers between funds. Loans are reported as interfund receivables and payables as appropriate and are subject to elimination upon consolidation. Services provided, deemed to be at market or near market rates, are treated as revenues and expenditures or expenses. Reimbursements occur when one fund incurs a cost, charges the appropriate benefiting fund and reduces its related cost as a reimbursement. All other interfund transactions are treated as transfers. Transfers In and Transfers Out are netted and presented as a single "Transfers" line on the government-wide statement of activities. Similarly, interfund receivables and payables are netted and presented as a single "Internal Balances" line of the government-wide statement of net position. h. Property Taxes Secured property taxes attach as an enforceable lien on property as of March 1. Taxes are payable in two installments on November 15 and March 15. Unsecured property taxes are payable in one installment on or before August 31. The County of Merced bills and collects the taxes for the District. i. Fund Balances - Governmental Funds Fund balances of the governmental funds are classified as follows: Nonspendable Fund Balance - represents amounts that cannot be spent because they are either not in spendable form (such as inventory or prepaid insurance) or legally required to remain intact (such as notes receivable or principal of a permanent fund). Restricted Fund Balance - represents amounts that are constrained by external parties, constitutional provisions or enabling legislation. Committed Fund Balance - represents amounts that can only be used for a specific purpose because of a formal action by the District's governing board. Committed amounts cannot be used for any other purpose unless the governing board removes those constraints by taking the same type of formal action. Committed 30

101 BALLICO-CRESSEY SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2017 fund balance amounts may be used for other purposes with appropriate due process by the governing board. Commitments are typically done through adoption and amendment of the budget. Committed fund balance amounts differ from restricted balances in that the constraints on their use do not come from outside parties, constitutional provisions, or enabling legislation. Assigned Fund Balance - represents amounts which the District intends to use for a specific purpose, but that do not meet the criteria to be classified as restricted or committed. Intent may be stipulated by the governing board or by an official or body to which the governing board delegates the authority. Specific amounts that are not restricted or committed in a special revenue, capital projects, debt service or permanent fund are assigned for purposes in accordance with the nature of their fund type or the fund's primary purpose. Assignments within the general fund conveys that the intended use of those amounts is for a specific purpose that is narrower than the general purposes of the District itself. Unassigned Fund Balance - represents amounts which are unconstrained in that they may be spent for any purpose. Only the general fund reports a positive unassigned fund balance. Other governmental funds might report a negative balance in this classification because of overspending for specific purposes for which amounts had been restricted, committed or assigned. When an expenditure is incurred for a purpose for which both restricted and unrestricted fund balance is available, the District considers restricted funds to have been spent first. When an expenditure is incurred for which committed, assigned, or unassigned fund balances are available, the District considers amounts to have been spent first out of committed funds, then assigned funds, and finally unassigned funds. 6. Deferred Inflows and Deferred Outflows of Resources Deferred outflows of resources is a consumption of net assets or net position that is applicable to a future reporting period. Deferred inflows of resources is an acquisition of net assets or net position that is applicable to a future reporting period. Deferred outflows of resources and deferred inflows of resources are recorded in accordance with GASB Statement numbers 63 and GASB 54 Fund Presentation Consistent with fund reporting requirements established by GASB Statement No. 54, Fund 12 (Child Development Fund) and Fund 17 (Special Reserve Fund for Other Than Capital Outlay) are merged with the General Fund for purposes of presentation in the audit report. 8. Pensions For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the CalPERS Schools Pool Cost-Sharing Multiple-Employer Plan (CalPERS Plan) and CalSTRS Schools Pool Cost-Sharing Multiple Employer Plan (CalSTRS Plan) and additions to/deductions from the CalPERS Plan and CalSTRS Plan's fiduciary net positions have been determined on the same basis as they are reported by the CalPERS Financial Office and CalSTRS Financial Office. For this purpose, benefit payments (including refunds of employee contributions) are recognized when currently due and payable in accordance with the benefit terms. Investments are reported at fair value. GASB 68 requires that the reported results must pertain to liability and asset information within certain defined time frames. For this report, the following time frames are used: Valuation Date (VD) June 30, 2015 Measurement Date (MD) June 30, 2016 Measurement Period (MP) July 1, 2015 to June 30,

102 BALLICO-CRESSEY SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, Use of Estimates The preparation of financial statements in conformity with GAAP requires the use of management's estimates. Actual results could differ from those estimates. 10. Fair Value Measurements The District categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles as defined by Governmental Accounting Standards Board (GASB) Statement No. 72. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. The hierarchy is detailed as follows: Level 1 Inputs: Level 2 Inputs: Quoted prices (unadjusted) in active markets for identical assets or liabilities that a government can access at the measurement date. Inputs other than quoted prices included within Level 1 that are observable for an asset or liability, either directly or indirectly. Level 3 Inputs: Unobservable inputs for an asset or liability. For the current fiscal year the District did not have any recurring or nonrecurring fair value measurements. 11. Change in Accounting Policies The District has adopted accounting policies compliant with new pronouncements issued by the Government Accounting Standards Board (GASB) that are effective for the fiscal year ended June 30, Those newly implemented pronouncements are as follows: GASB Statement No Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans The objective of this Statement is to improve the usefulness of information about postemployment benefits other than pensions (other postemployment benefits or OPEB) included in the general purpose external financial reports of state and local governmental OPEB plans for making decisions and assessing accountability. This Statement replaces Statements No. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans. It also includes requirements for defined contribution OPEB plans that replace the requirements for those OPEB plans in Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, as amended, Statement 43, and Statement No 50, Pension Disclosures. The scope of this Statement includes OPEB plans defined benefit and defined contribution - administered through trusts that meet the following criteria: 1. Contributions from employers and nonemployer contributing entities to the OPEB plan and earnings on those contributions are irrevocable. 2. OPEB plan assets are dedicated to providing OPEB to plan members in accordance with the benefit terms. 3. OPEB plan assets are legally protected from the creditors of employers, nonemployer contributing entities, and the OPEB plan administrator. If the plan is a defined benefit OPEB plan, plan assets also are legally protected from creditors of the plan members. This Statement also includes requirements to address financial reporting for assets accumulated for purposes of providing defined benefit OPEB through OPEB plans that are not administered through trusts that meet the specified criteria. 32

103 BALLICO-CRESSEY SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2017 The District does not administer their OPEB plan through a trust that meets the criteria noted above. As a result, the adoption of GASB Statement No. 74 did not result in a change to the financial statements or note disclosures. GASB Statement No Tax Abatement Disclosures The objective of this Statement is to improve usefulness of information about tax abatement agreements entered into by governmental agencies. Disclosure of information about the nature and magnitude of tax abatements will make these transactions more transparent to financial statement users. As a result, users will be better equipped to understand (1) how tax abatements affect a government s future ability to raise resources and meet its financial obligations and (2) the impact those abatements have on a government s financial position and economic condition. This Statement requires governments that enter into tax abatement agreements to disclose the following: 1. Brief descriptive information, such as the tax being abated, the authority under which tax abatements are provided, eligibility criteria, the mechanism by which taxes are abated, provisions for recapturing abated taxes, and the types of commitments made by tax abatement recipients. 2. The gross dollar amount of taxes abated during the period. 3. Commitments made by a government, other than to abate taxes, as part of a tax abatement agreement. The District has not entered into any tax abatement agreements. As a result, the adoption of GASB Statement No. 77 did not result in a change to the financial statements or note disclosures. GASB Statement No Blending Requirements for Certain Component Units The objective of this Statement is to improve financial reporting by clarifying the financial statement presentation requirements for certain component units. This Statement amends the blending requirements established in paragraph 53 of Statement No. 14, The Financial Reporting Entity, as amended. This Statement amends the blending requirements for the financial statement presentation of component units of all state and local governments. The additional criterion requires blending of a component unit incorporated as a not-for-profit corporation in which the primary government is the sole corporate member. The additional criterion does not apply to component units included in the financial reporting entity pursuant to the provisions of Statement No. 39, Determining Whether Certain Organizations Are Component Units. The District did not have any component units which met the definition noted above. As a result, the adoption of GASB Statement No. 80 did not result in a change to the financial statements or note disclosures. GASB Statement No Pension Issues - An Amendment of GASB No. 67, No. 68 and No. 73 The objective of this Statement is to address certain issues that have been raised with respect to Statements No. 67, Financial Reporting for Pension Plans, No. 68, Accounting and Financial Reporting for Pensions, and No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68 Specifically, this Statement addresses issues regarding (1) the presentation of payroll-related measures in required supplementary information, (2) the selection of assumptions and the treatment of deviations from the guidance in an Actuarial Standard of Practice for financial reporting purposes, and (3) the classification of payments made by employers to satisfy employee (plan member) contribution requirements. Prior to the issuance of this Statement, Statements 67 and 68 required presentation of covered employee payroll, which is the payroll of employees that are provided with pensions through the pension plan, and ratios that use that measure, in schedules of required supplementary information. This Statement amends Statements 67 and 68 to instead require the presentation of covered payroll, defined as the payroll on which contributions to a pension plan are based, and ratios that use that measure. 33

104 BALLICO-CRESSEY SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2017 This Statement clarifies that a deviation, as the term is used in Actuarial Standards of Practice issued by the Actuarial Standards Board, from the guidance in an Actuarial Standard of Practice is not considered to be in conformity with the requirements of Statement 67, Statement 68, or Statement 73 for the selection of assumptions used in determining the total pension liability and related measures. This Statement clarifies that payments that are made by an employer to satisfy contribution requirements that are identified by the pension plan terms as plan member contribution requirements should be classified as plan member contributions for purposes of Statement 67 and as employee contributions for purposes of Statement 68. It also requires that an employer s expense and expenditures for those amounts be recognized in the period for which the contribution is assessed and classified in the same manner as the employer classifies similar compensation other than pensions (for example, as salaries and wages or as fringe benefits). The financial statements and note disclosures have been updated for the effects of the adoption of GASB Statement No. 82. B. Excess of Expenditures Over Appropriations As of June 30, 2017, expenditures exceeded appropriations in individual funds as follows: Appropriations Category Excess Expenditures General Fund: Classified Salaries $ 38,982 Employee Benefits 3,499 Services and Other Operating Expenditures 423,980 Other Outgo 16,733 Cafeteria Fund: Classified Salaries 1,303 Employee Benefits 626 Books and Supplies 21,338 Direct Support/Indirect Costs 777 Building Fund Books and Supplies 204,419 Services and Other Operating Expenditures 22,400 Special Reserve Fund for Capital Outlay Projects Capital Outlay 61,389 General fund: The District incurred unanticipated expenditures for salaries and benefits due to hiring additional staff, and due to an increase in benefits. The District incurred additional costs for professional services, including expenditures related to California Clean Energy projects. Cafeteria Fund: The District incurred unanticipated expenditures for salaries and benefits due to hiring additional Food Service staff, and for unanticipated cost increases for food and supplies. Building Fund: The District did not budget for expenditures related to the new bond issue. Special Reserve Fund for Capital Outlay Projects: The District incurred unanticipated expenditures for costs related to modernization. 34

105 BALLICO-CRESSEY SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2017 C. Cash and Investments 1. Cash in County Treasury: In accordance with Education Code Section 41001, the District maintains substantially all of its cash in the Merced County Treasury as part of the common investment pool ($5,564,778 as of June 30, 2017). The fair value of the District's portion of this pool as of that date, as provided by the pool sponsor, was $5,564,778. Assumptions made in determining the fair value of the pooled investment portfolios are available from the County Treasurer. 2. Cash on Hand, in Banks, and in Revolving Fund Cash balances on hand and in banks, ($4,000 in the revolving fund) are insured up to $250,000 by the Federal Depository Insurance Corporation. All cash held by the financial institution is fully insured or collateralized. 3. Investments: The District's investments at June 30, 2017 are shown below. Fair Investment or Investment Type Maturity Value Cash in County Treasury Less Than 12 months $ 5,564,778 Cash in Revolving Fund Less Than 12 months 4,000 Total Investments $ 5,568,778 The table below identifies the investment types that are authorized for the District by the California Government Code (or the District's investment policy, where more restrictive). The table also identifies certain provisions of the California Government Code (or the District's investment policy, where more restrictive) that address interest rate risk, credit risk, and concentration of credit risk. Maximum Maximum Authorized Maximum Percentage Percentage Investment Type Maturity of Portfolio in One Issuer Local Agency Bonds 5 years None None U.S. Treasury Obligations 5 years None None U.S. Agency Securities 5 years None None Banker's Acceptances 180 days None None Commercial Paper 270 days None None Negotiable Certificates of Deposit 5 years None None Repurchase Agreements 1 year None None Reverse Repurchase Agreements 92 days None None Medium-Term Notes 5 years None None Mutual Funds N/A None None Money Market Mutual Funds N/A None None Mortgage Pass-Through Securities 5 years None None County Pooled Investment Funds N/A 100% 100% Local Agency Investment Fund (LAIF) N/A None None 4. Analysis of Specific Deposit and Investment Risks GASB Statement No. 40 requires a determination as to whether the District was exposed to the following specific investment risks at year end and if so, the reporting of certain related disclosures: 35

106 BALLICO-CRESSEY SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2017 a. Credit Risk Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The county is restricted by Government Code Section pursuant to Section to invest only in time deposits, U.S. government securities, state registered warrants, notes or bonds, State Treasurer's investment pool, bankers' acceptances, commercial paper, negotiable certificates of deposit, and repurchase or reverse repurchase agreements. The ratings of securities by nationally recognized rating agencies are designed to give an indication of credit risk. At year end, the District was not exposed to credit risk. b. Custodial Credit Risk Deposits are exposed to custodial credit risk if they are not covered by depository insurance and the deposits are uncollateralized, collateralized with securities held by the pledging financial institution, or collateralized with securities held by the pledging financial institution's trust department or agent but not in the District's name. Investment securities are exposed to custodial credit risk if the securities are uninsured, are not registered in the name of the government, and are held by either the counterparty or the counterparty's trust department or agent but not in the District's name. At year end, the District was not exposed to custodial credit risk. c. Concentration of Credit Risk This risk is the risk of loss attributed to the magnitude of a government's investment in a single issuer. At year end, the District was not exposed to concentration of credit risk. d. Interest Rate Risk This is the risk that changes in interest rates will adversely affect the fair value of an investment. At year end, the District was not exposed to interest rate risk. e. Foreign Currency Risk This is the risk that exchange rates will adversely affect the fair value of an investment. At year end, the District was not exposed to foreign currency risk. 5. Investment Accounting Policy The District is required by GASB Statement No. 31 to disclose its policy for determining which investments, if any, are reported at amortized cost. The District's general policy is to report money market investments and short-term participating interest-earning investment contracts at amortized cost and to report nonparticipating interest-earning investment contracts using a cost-based measure. However, if the fair value of an investment is significantly affected by the impairment of the credit standing of the issuer or by other factors, it is reported at fair value. All other investments are reported at fair value unless a legal contract exists which guarantees a higher value. The term "short-term" refers to investments which have a remaining term of one year or less at time of purchase. The term "nonparticipating" means that the investment's value does not vary with market interest rate changes. Nonnegotiable certificates of deposit are examples of nonparticipating interest-earning investment contracts. The District's investments in external investment pools are reported in conformity with GASB Statement No. 77 unless the pool is 2a7-like, in which case they are reported at share value. A 2a7-like pool is one which is not registered with the Securities and Exchange Commission ("SEC") as an investment company, but nevertheless has a policy that it will, and does, operate in a manner consistent with the SEC's Rule 2a7 of the Investment Company Act of

107 BALLICO-CRESSEY SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2017 D. Accounts Receivable Accounts receivable at June 30, 2017 consisted of the following: E. Capital Assets Total General Building Governmental Fund Fund Funds Federal programs $ 24,929 $ - $ 24,929 State lottery 26,796-26,796 Other local receivables 53,780 7,087 60,867 Total $ 105,505 $ 7,087 $ 112,592 Capital asset activity for the year ended June 30, 2017, was as follows: Beginning Ending Balances Increases Decreases Balances Governmental activities: Capital assets not being depreciated: Land $ 36,236 $ - $ - $ 36,236 Work in progress 12, , ,111 Total capital assets not being depreciated 49, , ,347 Capital assets being depreciated: Buildings 1,554, ,554,626 Improvements 235, ,818 Equipment 757, ,913 Total capital assets being depreciated 2,548, ,548,357 Less accumulated depreciation for: Buildings (915,045) (33,113) - (948,158) Improvements (140,069) (5,224) - (145,293) Equipment (531,116) (19,937) - (551,053) Total accumulated depreciation (1,586,230) (58,274) - (1,644,504) Total capital assets being depreciated, net 962,127 (58,274) - 903,853 Governmental activities capital assets, net $ 1,011,176 $ 690,024 $ - $ 1,701,200 Depreciation was charged to functions as follows: Instruction $ 38,932 Instruction-Related Services 5,254 Pupil Services 7,433 Plant Services 6,655 $ 58,274 37

108 BALLICO-CRESSEY SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2017 F. Interfund Balances and Activities 1. Due To and From Other Funds Balances due to and due from other funds during the year ended June 30, 2017, consisted of the following: Fund Due From Due To General Fund $ 29,976 $ - Cafeteria Special Revenue Fund - 29,976 Total $ 29,976 $ 29,976 All amounts due relate to short-term borrowing and are scheduled to be repaid within one year. 2. Transfers To and From Funds Transfers to and from funds at June 30, 2017, consisted of the following: Transfers From Transfers To Amount Reason Special Reserve Fund for General Fund $ 24,920 To reimburse for Capital Outlay Projects expenditures General Fund Cafeteria Special 19,634 To support food service Revenue Fund salaries and benefits Building Fund Special Reserve Fund for 489,140 To reimburse for Capital Outlay Projects expenditures General Fund Special Reserve Fund for 146,459 For future capital outlay Capital Outlay Projects projects G. Accounts Payable Accounts payable at June 30, 2017 consisted of the following: Total $ 680,153 Special Reserve All Other Total General Building Fund for Capital Governmental Governmental Fund Fund Outlay Projects Funds Funds Vendor payables $ 60,925 $ 210,529 $ 32,339 $ 4,429 $ 308,222 Salaries and benefits 136, ,061 Other 29, ,643 Total $ 226,467 $ 210,529 $ 32,339 $ 4,591 $ 473,926 38

109 BALLICO-CRESSEY SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2017 H. Long-Term Obligations 1. Long-Term Obligation Activity Long-term obligations include debt and other long-term liabilities. Changes in long-term obligations for the year ended June 30, 2017, are as follows: Amounts Beginning Ending Due Within Balance Increases Decreases Balance One Year Governmental activities: General obligation bonds $ - $ 4,335,000 $ - $ 4,335,000 $ 110,000 Net pension liability 2,323, ,049-3,037,049 - Total governmental activities $ 2,323,000 $ 5,049,049 $ - $ 7,372,049 $ 110,000 The funds typically used to liquidate other long-term liabilities in the past are as follows: Liability Activity Type Fund General obligation bonds Governmental Bond Interest and Redemption Net pension liability Governmental General 2. General Obligation Bonds The outstanding general obligation bond debt of the District at June 30,2017, is as follows: Issue Maturity Interest Bond Date Date Rate % Election of 2016, Series A 1/31/17 8/1/ Bonds Bonds Original Outstanding Issued Redeemed Outstanding Bond Issue July 1, 2016 During Year During Year June 30, 2017 Election of 2016, Series A 4,335,000-4,335,000-4,335,000 $ 4,335,000 $ - $ 4,335,000 $ - $ 4,335,000 The annual requirements to amortize general obligation bonds, payable and outstanding, as of June 30, 2017 are as follows: General Obligation Bonds Year Ending June 30, Principal Interest Total 2018 $ 110,000 $ 97,815 $ 207, , , , , , , , , , , , , , , ,337 1,244, , ,963 1,540, ,285, ,750 1,893, ,610, ,500 1,820,500 Totals $ 4,335,000 $ 4,356,215 $ 8,691,215 39

110 BALLICO-CRESSEY SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2017 I. Commitments Under Noncapitalized Leases Commitments under operating (noncapitalized) lease agreements for facilities and equipment provide for minimum future rental payments as of June 30, 2017, as follows: Year Ending June 30, 2018 $ 94, , , , Total Minimum Rentals $ 139, The District will receive no sublease rental revenues nor pay any contingent rentals associated with these leases. J. Pension Plans 1. General Information About the Pension Plans a. Plan Descriptions Qualified employees are covered under multiple-employer defined benefit pension plans maintained by agencies of the State of California. Certificated employees are members of the California State Teachers Retirement System (CalSTRS) and classified employees are members of the California Public Employees' Retirement System (CalPERS). Benefit provisions under the Plans are established by State statute and Local Government resolution. Support by the State for the CalSTRS plan is such that the plan has a special funding situation as defined by GASB Statement No. 68. CalSTRS and CalPERS issue publicly available reports that include a full description of the pension plans regarding benefit provisions, assumptions and membership information that can be found on their respective websites. b. Benefits Provided CalSTRS and CalPERS provide service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members. Benefits are based on years of credited service, equal to one year of full-time employment. Members with five years of total service are eligible to retire at age 62 for normal benefits or at age 55 with statutorily reduced benefits. Employees hired prior to January 1, 2013 are eligible to retire at age 60 for normal benefits or at age 55 with statutorily reduced benefits. All members are eligible for non-duty disability benefits after 10 years of service. All members are eligible for death benefits after one year of total service. The Plans' provisions and benefits in effect at June 30, 2017 are summarized as follows: CalSTRS Before On or After Hire Date Jan. 1, 2013 Jan. 1, 2013 Benefit Formula 2% at 60 2% at 62 Benefit Vesting Schedule 5 Years 5 Years Benefit Payments Monthly for Life Monthly for Life Retirement Age Monthly benefits, as a % of eligible compensation % %* Required Employee Contribution Rates (at June 30, 2017) % 9.205% Required Employer Contribution Rates (at June 30, 2017) % % Required State Contribution Rates (at June 30, 2017) 7.050% 7.050% *Amounts are limited to 120% of Social Security Wage Base. **The rate imposed on CalSTRS 2% at 62 members is based on the normal cost of benefits. 40

111 BALLICO-CRESSEY SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2017 c. Contributions CalPERS Before On or After Hire Date Jan. 1, 2013 Jan. 1, 2013 Benefit Formula 2% at 55 2% at 62 Benefit Vesting Schedule 5 Years 5 Years Benefit Payments Monthly for Life Monthly for Life Retirement Age Monthly Benefits as a % of Eligible Compensation % % Required Employee Contribution Rates (at June 30, 2017) 7.000% 6.000% Required Employer Contribution Rates (at June 30, 2017) % % CalSTRS *Amounts are limited to 120% of Social Security Wage Base. For the measurement period ended June 30, 2016 (measurement date), Section of the California Education code requires members to contribute monthly to the system 9.20% (if hired prior to January 1, 2013) or 8.56% (if hired on or after January 1, 2013) of the creditable compensation upon which members' contributions under this part are based (rates increased to 10.25% and 9.205% for fiscal year ended June 30, 2017). In addition, the employer required rates established by the CalSTRS Board have been established at 10.73% of creditable compensation for the measurement period ended June 30, 2016 and 12.58% for the fiscal year ended June 30, Rates are defined in Section through measurement period ending June 30, Beginning in the fiscal year and for each fiscal year thereafter, the CalSTRS Board has the authority to increase or decrease percentages paid specific to reflect the contribution required to eliminate by June 30, 2046, the remaining unfunded actuarial obligation with respect to service credited to members before July 1, 2014, as determined by the Board based upon a recommendation from its actuary. CalPERS Section 20814(c) of the California Public Employees' Retirement Law requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. The CalPERS Board retains the authority to amend contribution rates. The total plan contributions are determined through CalPERS' annual actuarial valuation process. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The employer is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. For the measurement period ended June 30, 2016 (measurement date), the average active employee contribution rate is 6.974% of annual pay, and the employer's contribution rate is % of annual payroll. For the fiscal year ending June 30, 2017, the average active employee contribution rate is 6.974%, and the employer's contribution rate is %. On Behalf Payments Consistent with Section of the California Education Code, the State of California makes contributions to CalSTRS on behalf of employees working for the District. For the measurement period ended June 30, 2016 (measurement date) the State contributed 5.400% of salaries creditable to CalSTRS. Under accounting principles generally accepted in the United States of America, these amounts are to be reported as revenues and expenditures. Accordingly, these amounts have been recorded in these financial statements. On behalf payments have been excluded from the calculation of available reserves, and have not been included in the budgeted amounts reported in the General Fund Budgetary Comparison Schedule. Contribution reported each fiscal year are based on the contribution rate multiplied by salaries creditable to CalSTRS from the fiscal year two periods prior to the measurement period. 41

112 BALLICO-CRESSEY SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2017 On Behalf Payments reported by the District for the past three fiscal years are as follows: d. Contributions Recognized Year Ended Contribution Contribution June 30, Rate Amount % $ 51, % $ 70, % $ 76,390 For the measurement period ended June 30, 2016 (fiscal year June 30, 2017), the contributions recognized for each plan were: CalSTRS CalPERS Total Contributions - Employer (Measurement Period) $ 134,187 $ 72,976 $ 207,163 Contributions - State On Behalf Payments (Fiscal Year) 76,390 76,390 Total Contributions $ 210,577 $ 72,976 $ 283, Pension Liabilities, Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions As of June 30, 2017, the District reported net pension liabilities for its proportionate shares of the net pension liability of each plan as follows: Proportionate Share of Net Pension Liability CalSTRS $ 2,029,103 CalPERS 1,007,946 Total Net Pension Liability $ 3,037,049 The District's net pension liability for each Plan is measured as the proportionate share of the net pension liability. The net pension liability of each of the Plans is measured as of June 30, 2016, and the total pension liability for each Plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2015 rolled forward to June 30, 2016 using standard update procedures. The District's proportion of the net pension liability was based on a projection of the District's long-term share of contributions to the pension plans relative to the projected contributions of all participating employers, actuarially determined. The District's proportionate share of the net pension liability for each Plan as of June 30, 2016 and June 30,2017 were as follows: CalSTRS District's State's Total For Proportionate Proportionate District Share Share Employees CalPERS Proportion June 30, % % % % Proportion June 30, % % % % Change in Proportion % % % 42

113 BALLICO-CRESSEY SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2017 a. Pension Expense For the measurement period ended June 30, 2016 (fiscal year June 30, 2017), pension expense was recognized as follows: CalSTRS CalPERS Total Change in Net Pension Liability (Asset) $ 443,103 $ 270,946 $ 714,049 Contributions - State On Behalf Payments 76,390 76,390 Increase/(Decrease) resulting from changes in Deferred Outflows and Deferred Inflows of Resources for: Contributions - Employer made subsequent to measurement date (55,336) (13,084) (68,420) Difference Between Actual & Expected Experience (70) (5,004) (5,074) Change in Assumptions - (12,125) (12,125) Change in Proportionate Shares (64,879) (20,365) (85,244) Net Difference Between Projected & Actual Earnings (247) (184,371) (184,618) Total Pension Expense $ 398,961 $ 35,997 $ 434,958 b. Deferred Outflows and Inflows of Resources At June 30, 2017, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows of Resources CalSTRS CalPERS Total Pension contributions subsequent to measurement date $ 189,523 $ 86,060 $ 275,583 Differences between actual and expected experience - 50,116 50,116 Changes in assumptions Change in employer's proportion share 131,299 12, ,181 Net difference between projected and actual earnings , ,673 Total Deferred Outflows of Resources $ 321,379 $ 402,174 $ 723,553 Deferred Inflows of Resources CalSTRS CalPERS Total Pension contributions subsequent to measurement date $ - $ - $ - Differences between actual and expected experience (362) - (362) Changes in assumptions - (36,375) (36,375) Change in employer's proportionate share - (22,450) (22,450) Net difference between projected and actual earnings (103,510) (103,510) Total Deferred Inflows of Resources $ (362) $ (162,335) $ (162,697) Pension contributions made subsequent to measurement date reported as deferred outflows of resources will be recognized as a portion of pension expense in the year ended June 30, The remaining amounts reported as deferred outflows or deferred inflows of resources will be recognized as an increase or decrease to pension expense over a five year period. Pension expense resulting from deferred outflows and deferred inflows of resources will be recognized as follows: Year Ended Deferred Outflows of Resources Deferred Outflows of Resources Net Effect June 30 CalSTRS CalPERS CalSTRS CalPERS on Expenses 2018 $ 226,657 $ 175,439 $ (138) $ (71,363) $ 330, ,134 89,379 (138) (71,363) 55, ,135 89,379 (74) (19,609) 106, ,453 47,977 (12) - 68,418 Thereafter Total $ 321,379 $ 402,174 $ (362) $ (162,335) $ 560,856 43

114 BALLICO-CRESSEY SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2017 c. Actuarial Assumptions The total pension liabilities in the June 30, 2017 actuarial valuations were determined using the following actuarial assumptions: d. Discount Rate CalSTRS CalPERS Valuation Date June 30, 2015 June 30, 2015 Measurement Date June 30, 2016 June 30, 2016 Actuarial Cost Method Entry Age - Normal Cost Method for both CalSTRS & CalPERS Actuarial Assumptions: Discount Rate 7.60% 7.65% Inflation 3.0% 2.75% Payroll Growth 3.75% 3.00% Projected Salary Increase 0.05%-5.6% (1) 3.20%-10.80% (1) Investment Rate of Return 7.60% (2) 7.65% (2) Mortality.013%-0.435% (3) (3) (1) Depending on age, service and type of employment (2) Net of pension plan investment expenses, including inflation (3) Industry standard published by the Society of Actuaries The discount rate used to measure the total pension liability was 7.60% for CalSTRS and 7.65% for CalPERS. The projection of cash flows used to determine the discount rate assumed the contributions from plan members, employers, and state contributing agencies will be made at statutory contribution rates. To determine whether the District bond rate should be used in the calculation of a discount rate for each plan, CalSTRS and CalPERS stress tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. Based on the testing, none of the tested plans run out of assets. Therefore, the current discount rates are adequate and the use of the District bond rate calculation is not necessary for either plan. The stress test results are presented in a detailed report that can be obtained from the CalPERS and CalSTRS websites. The CalPERS discount rate was increased from 7.50% in 2015 to correct for an adjustment to exclude administrative expenses. There have been no other changes to discount rate for either CalPERS or CalSTRS. According to Paragraph 30 of GASB Statement No. 68, the long-term discount rate should be determined without reduction for pension plan administrative expense. The investment return assumption used in the accounting valuations is net of administrative expenses. Administrative expenses are assumed to be 15 basis points. Using this lower discount rate has resulted in a slightly higher Total Pension Liability and Net Pension Liability. CalSTRS and CalPERS checked the materiality threshold for the difference in calculation and did not find it to be a material difference. CalSTRS and CalPERS are scheduled to review all actuarial assumptions as part of their regular Asset Liability Management (ALM) review cycle that is scheduled to be completed in February Any changes to the discount rate will require board action and proper stakeholder outreach. For these reasons, CalSTRS and CalPERS expect to continue using a discount rate net of administrative expenses for GASB 67 and GASB 68 calculations through at least the fiscal year. CalSTRS and CalPERS will continue to check the materiality of the difference in calculation until such time as they have changed their methodology. The long-term expected rate of return on pension plan investments was determined using a building-block method 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. 44

115 BALLICO-CRESSEY SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2017 In determining the long-term expected rate of return, CalSTRS and CalPERS took into account both shortterm and long-term market return expectations as well as the expected pension fund cash flows. Using historical returns of all the funds' asset classes, expected compound returns were calculated over the shortterm (first 10 years) and long-term (11-60 years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equivalent to the single equivalent rate calculated above and rounded down to the nearest quarter of one percent. The tables below reflect the long-term expected real rate of return by asset class. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation. These rates of return are net of administrative expenses. CalSTRS Assumed Long Term Allocation Expected Asset Class 06/30/2016 Return* Global Equity 47.00% 6.30% Fixed Income 12.00% 0.30% Real Estate 13.00% 5.20% Private Equity 13.00% 9.30% Absolute Return 9.00% 2.90% Inflation Sensitive 4.00% 3.80% Cash/Liquidity 2.00% -1.00% *20 year geometric average used for long term expected real rate of return CalPERS Assumed Allocation Real Return Real Return Asset Class 06/30/2016 Years 1-10(1) Years 11+(2) Global Equity 51.00% 5.25% 5.71% Global Debt Securities 20.00% 0.99% 2.43% Inflation Assets 6.00% 0.45% 3.36% Private Equity 10.00% 6.83% 6.95% Real Estate 10.00% 4.50% 5.13% Infrastructure 2.00% 4.50% 5.09% Liquidity 1.00% -0.55% -1.05% (1) An expected inflation of 2.5% used for this period (2) An expected inflation of 3.0% used for this period e. Sensitivity to Proportionate Share of the Net Pension Liability to Changes in the Discount Rate The following represents the District's proportionate share of the net pension liability for each Plan, calculated using the discount rate for each Plan, 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 or 1 percentage point higher than the current rate: 45

116 BALLICO-CRESSEY SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2017 CalSTRS CalPERS 1% Decrease 6.60% 6.65% Net Pension Liability $ 2,930,046 $ 1,498,920 Current Discount Rate 7.60% 7.65% Net Pension Liability $ 2,029,103 $ 1,007,946 1% Increase 8.60% 8.65% Net Pension Liability $ 1,293,181 $ 593,044 f. Total Pension Liability, Pension Plan Fiduciary Net Position and Net Pension Liability CalSTRS Increase (Decrease) Total Plan Net State's Share District's Share Pension Fiduciary Pension of Net Pension of Net Pension Liability Net Position Liability Liability Liability (a) (b) (a) - (b) (c) (a) - (b) - (c) Balance at June 30, 2016 (Previously Reported) $ 9,334,000 $ 6,909,000 $ 2,425,000 $ 839,000 $ 1,586,000 Changes for the year: Change in Proportionate share 392, , , ,855 Service Cost 224, ,216 76, ,854 Interest 737, , , ,603 Differences between expected and actual experience (46,149) (46,149) (15,717) (30,432) Contributions: Employer 129,443 (129,443) (44,085) (85,358) Employee 112,889 (112,889) (38,447) (74,442) State On Behalf Payments 74,048 (74,048) (25,219) (48,829) Net Investment Income 87,982 (87,982) (29,964) (58,018) Other Income 1,585 (1,585) (540) (1,045) Benefit Payments, including refunds of employee contributions (501,892) (501,892) - Administrative expenses (6,873) 6,873 2,341 4,532 Other Expenses (581) Net Changes 806, , , , ,103 Balance at June 30, 2017 $ 10,140,160 $ 7,095,812 $ 3,044,348 $ 1,015,245 $ 2,029,103 46

117 BALLICO-CRESSEY SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2017 CalPERS Increase (Decrease) Total Plan Net Pension Fiduciary Pension Liability Net Position Liability (a) (b) (a) - (b) Balance at June 30, 2016 (Previously Reported) $ 3,583,000 $ 2,846,000 $ 737,000 Changes for the year: Adjustment for Change in Proportionate Share 78,276 62,173 16,103 Service Cost 87,323-87,323 Interest 276, ,816 Differences between expected and actual experience 20,352-20,352 Changes in Assumptions Contributions - Employer - 72,976 (72,976) Contributions - Employee - 43,295 (43,295) Net Plan to Plan Resource Movement - 1 (1) Net Investment Income - 15,134 (15,134) Benefit Payments, including refunds of employee contributions (180,418) (180,418) - Administrative expenses - (1,758) 1,758 Net Changes 282,349 11, ,946 Balance at June 30, 2017 $ 3,865,349 $ 2,857,403 $ 1,007,946 Detailed information about each pension plan's fiduciary net position is available in the separately issued CalSTRS and CalPERS financial reports. Section 403(b) Tax Sheltered Annuity Plan Plan Description The District s Board of Trustees authorized the establishment of a Section 403(b) Tax-Sheltered Annuity Plan. This is a retirement plan funded by elective deferrals made under salary reduction agreements. Funding Policy All eligible employees electing to participate in this plan choose the amount of monthly compensation deferrals up to maximums allowed by the Internal Revenue Code and its regulations and rulings. The District does not contribute to the plan on behalf of participating employees. For the fiscal year ended June 30, 2017, there were 11 employees that had elected to participate, with total compensation deferrals of $21,349. K. Postemployment Benefits Other Than Pension Benefits The District provided no postemployment benefits (other than pension benefits) during

118 BALLICO-CRESSEY SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2017 L. Construction in Progress The District has construction contracts-in-progress as follows: Project Expanded to Authorization 06/30/2017 Committed Ballico New Classroom and Parking Lot $ 286,173 $ 5,923 $ 280,250 Ballico Roofing Project 199, ,722 46,407 Geological Study 38,000-38,000 Ballico Roofing Project 23,000 20,585 2,415 $ 546,302 $ 179,230 $ 367,072 M. Commitments and Contingencies State and Federal Allowances, Awards, and Grants The District has received state and federal funds for specific purposes that are subject to view and audit by the grantor agencies. Although such audits could generate expenditure disallowances under terms of the grants, it is believed that any required reimbursement will not be material. N. Restricted Fund Balances Restricted balances at June 30, 2017 are as follows: California Clean Energy Jobs Act $ 192,585 Lottery: Instructional Materials 47,963 Other Restricted Local - General Fund 843 Other Restricted Local - Child Development Fund 3,187 Totals $ 244,578 O. Joint Ventures (Joint Powers Agreements) The District participates in three joint ventures under joint powers agreements (JPAs) as follows: Keenan Associates, Central Valley Schools (general liability insurance) Merced County Schools Insurance Group I (MCSIG I) (workers' compensation insurance) Self-Insured Schools of California III (SISC III) (health insurance) The relationships between the District and the other JPAs are such that none of the other JPAs are component units of the District for financial reporting purposes. The JPAs provide insurance and services as noted for member school districts. Each JPA is governed by a board consisting of a representative from each member district. Such governing board controls the operations of its JPA, including selection of management and approval of operating budgets, independent of any influence by the member districts beyond representation on the governing board. 48

119 BALLICO-CRESSEY SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2017 Each district pays premiums and fees commensurate with the level of coverage or services requested, and shares surpluses and deficits proportionate to its participation in each JPA. Each JPA is independently accountable for its fiscal matters, and maintains its own accounting records. The District's share of year-end assets, liabilities, or fund equity has not been calculated by the entities. Condensed financial information for the above JPAs for the year ended June 30, 2017 was not available as of the audit report date. Complete financial statements for the JPAs may be obtained from the JPAs at the addresses indicated below: Keenan Associates, Central Valley Schools MCSIG I SISC III Keenan Associates Central Valley Schools JPA P. O. Box 4328 Torrance, CA Merced County Office of Education 632 West 13th Street Merced, CA Self-Insured Schools of California Kern County Superintendent of Schools P. O. Box 1847 Bakersfield, CA P. Subsequent Events Implementation of New Accounting Guidance The District has adopted accounting policies compliant with new pronouncements issued by the Government Accounting Standards Board (GASB) that are effective for the fiscal year ended June 30, Those newly implemented pronouncements are as follows: GASB Statement No Accounting and Financial Reporting for Postemployment Benefits Other than Pensions The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for postemployment benefits other than pensions (other postemployment benefits or OPEB). It also improves information provided by state and local governmental employers about financial support for OPEB that is provided by other entities. This Statement replaces the requirements of Statements No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans, for OPEB. Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, establishes new accounting and financial reporting requirements OPEB plans. The scope of this Statement addresses accounting and financial reporting for OPEB that is provided to employees of state and local governmental employers. This Statement establishes standards for recognizing and measuring liabilities, deferred outflows of resources, deferred inflows of resources, and expense/expenditures. For defined benefit OPEB, this Statement identifies the methods and assumptions that are required to be used to project benefit payments, discount projected benefit payments to their actuarial present value, and attribute that present value to periods of employee service. Note disclosure and required supplementary information requirements about defined benefit OPEB also are addressed. In addition, this Statement details the recognition and disclosure requirements for employers with payables to defined benefit OPEB plans that are administered through trusts that meet the specified criteria and for employers 49

120 BALLICO-CRESSEY SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2017 whose employees are provided with defined contribution OPEB. This Statement also addresses certain circumstances in which a nonemployer entity provides financial support for OPEB of employees of another entity. Financial impact of implementing GASB Statement No. 75 has not yet been determined; however, it is expected that the Net OPEB Obligation will significantly increase. GASB Statement No Irrevocable Split Interest Agreements The objective of this Statement is to improve accounting and financial reporting for irrevocable split interest agreements by providing recognition and measurement guidance for situations in which a government is a beneficiary of the agreement. Split-interest agreements are a type of giving agreement used by donors to provide resources to two or more beneficiaries, including governments. Split-interest agreements can be created through trusts --- or other legally enforceable agreements with characteristics that are equivalent to split-interest agreements --- in which a donor transfers resources to an intermediary to hold and administer for the benefit of a government and at least one other beneficiary. Examples of these types of agreements include charitable lead trusts, charitable remainder trusts, and life-interests in real estate. This Statement requires that a government that receives resources pursuant to an irrevocable split interest agreement recognize assets, liabilities, and deferred inflows of resources at the inception of the agreement Furthermore, this Statement requires that a government recognize assets representing its beneficial interests in irrevocable split-interest agreements that are administered by a third party, if the government controls the present service capacity of the beneficial interests. This Statement requires that a government recognize revenue when the resources become applicable to the reporting period. As of the date this audit report is issued, the District does not have any split interest agreements. Consequently, implementation of GASB No 81 is not expected to have a financial or reporting impact on the District. GASB Statement No Omnibus 2017 The objective of this Statement is to address practice issues that have been identified during implementation and application of certain GASB Statements. This Statement addresses a variety of topics including issues related to blending component units, goodwill, fair value measurement and application, and postemployment benefits (pensions and OPEB). Specifically, this Statement addresses the following topics: 1. Blending a component unit in circumstances in which the primary government is a business-type activity that reports in a single column for financial statement presentation. 2. Reporting amounts previously reported as goodwill and negative goodwill 3. Classifying real estate held by insurance entities 4. Measuring certain money market investments and participating interest-earning investment contracts at amortized cost. 5. Timing of the measurement of pension or OPEB liabilities and expenditures recognized in financial statements prepared using the current financial resources measurement focus. 6. Recognizing on-behalf payments for pensions or OPEB in employer financial statements 7. Presenting payroll-related measures in required supplementary information for purposes of reporting by OPEB plans and employers that provide OPEB. 8. Classifying employer-paid member contributions for OPEB 50

121 BALLICO-CRESSEY SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, Simplifying certain aspects of the alternative measurement method for OPEB 10. Accounting and financial reporting for OPEB provided through certain multiple-employer defined benefit OPEB plans. Financial impact of implementing GASB Statement No. 85 has not yet been determined. GASB Statement No Certain Debt Extinguishment Issues The primary objective of this Statement is to improve consistency in accounting and financial reporting for in-substance defeasance of debt by providing guidance for transactions in which cash and other monetary assets acquired with only existing resources---resources other than the proceeds of refunding debt--- are placed in an irrevocable trust for the sole purpose of extinguishing debt. This Statement also improves accounting and financial reporting for prepaid insurance on debt that is extinguished and notes financial statements for debt that is defeased in substance. Statement No. 7, Advance Refundings Resulting in Defeasance of Debt, requires that debt be considered defeased in substance when the debtor irrevocably places cash or other monetary assets acquired with refunding debt proceeds in a trust to be used solely for satisfying scheduled payments of both principal and interest of the defeased debt. The trust also is required to meet certain conditions for the transaction to qualify as an in-substance defeasance. This Statement establishes essentially the same requirements for when a government places cash and other monetary assets acquired with only existing resources in an irrevocable trust to extinguish the debt. However, in financial statements using the economic resources measurement focus, governments should recognize any difference between the reacquisition price (the amount required to be placed in the trust) and the net carrying amount of the debt defeased in substance using only existing resources as a separately identified in the period of the defeasance. Governments that defease debt using only existing resources should provide a general description of the transaction in the notes to financial statements in the period of the defeasance. In all periods following an in-substance defeasance of debt using only existing resources, the amount of that debt that remains outstanding at period-end should be disclosed. For governments that extinguish debt, whether through a legal extinguishment or through an in-substance defeasance, this Statement requires that any remaining prepaid insurance related to the extinguished debt be included in the net carrying amount of that debt for the purpose of calculating the difference between the reacquisition price and the net carrying amount of the debt. One of the criteria for determining an in-substance defeasance is that the trust hold only monetary assets that are essentially risk-free. If the substitution of essentially risk-free monetary assets with monetary assets that are not essentially risk-free is not prohibited, governments should disclose that fact in the period in which the debt is defeased in substance. In subsequent periods, governments should disclose the amount of debt defeased in substance that remains outstanding for which that risk of substitution exists. As of the date this audit report was issued, the District did not have any defeasance of debt. Consequently, the implementation of GASB Statement No. 86 is not expected to have a fiscal impact on the District. 51

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123 Required Supplementary Information Required supplementary information includes financial information and disclosures required by the Governmental Accounting Standards Board but not considered a part of the basic financial statements. 53

124 BALLICO-CRESSEY SCHOOL DISTRICT EXHIBIT B-1 GENERAL FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30, 2017 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Revenues: LCFF Sources: State Apportionment or State Aid $ 1,801,888 $ 1,630,468 $ 1,676,517 $ 46,049 Education Protection Account Funds 467, , ,167 7,239 Local Sources 1,111,626 1,215,711 1,246,678 30,967 Federal Revenue 196, , ,650 3,499 Other State Revenue 352, , , ,351 Other Local Revenue 15,202 33, , ,951 Total Revenues 3,945,597 3,910,397 4,526, ,056 Expenditures: Current: Certificated Salaries 1,490,557 1,546,911 1,524,539 22,372 Classified Salaries 564, , ,959 (37,692) Employee Benefits 717, , ,036 (3,215) Books and Supplies 228, , ,633 51,265 Services and Other Operating Expenditures 651, ,064 1,126,044 (423,980) Other Outgo 14,690 14,690 31,423 (16,733) Direct Support/Indirect Costs (10,664) (11,162) (11,939) 777 Debt Service: Principal 6,890 6,890-6,890 Total Expenditures 3,663,055 3,786,379 4,186,695 (400,316) Excess (Deficiency) of Revenues Over (Under) Expenditures 282, , , ,740 Other Financing Sources (Uses): Transfers In 2,019 24,920 24,920 - Transfers Out (176,697) (184,130) (166,093) 18,037 Total Other Financing Sources (Uses) (174,678) (159,210) (141,173) 18,037 Net Change in Fund Balance 107,864 (35,192) 198, ,777 Fund Balance, July 1 533, , ,523 - Fund Balance, June 30 $ 641,821 $ 500,331 $ 734,108 $ 233,777 54

125 EXHIBIT B-2 BALLICO-CRESSEY SCHOOL DISTRICT SCHEDULE OF THE DISTRICT'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY CALIFORNIA STRS LAST TEN FISCAL YEARS * District's proportion of the net pension liability (asset) 0.003% 0.002% 0.002% District's proportionate share of the net pension liability (asset) $ 2,029,103 $ 1,586,000 $ 1,293,000 State's proportionate share of the net pension liability (asset) 1,015, , ,000 Total $ 3,044,348 $ 2,425,000 $ 2,074,000 District's covered-employee payroll $ 1,506,542 $ 1,274,000 $ 1,093,000 District's proportionate share of the net pension liability (asset) as a percentage of its covered-employee payroll % % % Plan fiduciary net position as a percentage of the total pension liability 69.98% 74.02% 74.00% * This schedule is presented to illustrate the requirement to show information for 10 years. However, until a full 10-year trend is compiled, this schedule provides only the information for those years for which information is available. 55

126 EXHIBIT B-3 BALLICO-CRESSEY SCHOOL DISTRICT SCHEDULE OF DISTRICT CONTRIBUTIONS CALIFORNIA STRS LAST TEN FISCAL YEARS * Contractually required contribution $ 189,523 $ 136,718 $ 97,083 Contributions in relation to the contractually required contribution 189, ,718 97,083 Contribution deficiency (excess) $ - $ - $ - District's covered-employee payroll $ 1,506,542 $ 1,274,000 $ 1,093,000 Contributions as a percentage of covered-employee payroll 12.58% 10.73% 8.88% * This schedule is presented to illustrate the requirement to show information for 10 years. However, until a full 10-year trend is compiled, this schedule provides only the information for those years for which information is available. 56

127 EXHIBIT B-4 BALLICO-CRESSEY SCHOOL DISTRICT SCHEDULE OF THE DISTRICT'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY CALIFORNIA PERS LAST TEN FISCAL YEARS * District's proportion of the net pension liability (asset) 0.005% 0.005% 0.005% District's proportionate share of the net pension liability (asset) $ 1,007,946 $ 737,000 $ 603,000 District's covered-employee payroll $ 619,672 $ 615,000 $ 554,000 District's proportionate share of the net pension liability (asset) as a percentage of its covered-employee payroll % % % Plan fiduciary net position as a percentage of the total pension liability 73.92% 79.43% 79.40% * This schedule is presented to illustrate the requirement to show information for 10 years. However, until a full 10-year trend is compiled, this schedule provides only the information for those years for which information is available. 57

128 EXHIBIT B-5 BALLICO-CRESSEY SCHOOL DISTRICT SCHEDULE OF DISTRICT CONTRIBUTIONS CALIFORNIA PERS LAST TEN FISCAL YEARS * Contractually required contribution $ 86,060 $ 72,844 $ 65,156 Contributions in relation to the contractually required contribution 86,060 72,844 65,156 Contribution deficiency (excess) $ - $ - $ - District's covered-employee payroll $ 619,672 $ 615,000 $ 554,000 Contributions as a percentage of covered-employee payroll 13.89% 11.84% 11.76% * This schedule is presented to illustrate the requirement to show information for 10 years. However, until a full 10-year trend is compiled, this schedule provides only the information for those years for which information is available. 58

129 Combining Statements and Budget Comparisons as Supplementary Information This supplementary information includes financial statements and schedules not required by the Governmental Accounting Standards Board, nor a part of the basic financial statements, but are presented for purposes of additional analysis. 59

130 BALLICO-CRESSEY SCHOOL DISTRICT EXHIBIT C-1 COMBINING BALANCE SHEET ALL GENERAL FUNDS JUNE 30, 2017 Child Special Reserve Totals General Development General June 30, Fund Fund Fund 2017 ASSETS: Cash in County Treasury $ 669,186 $ 3,187 $ 151,721 $ 824,094 Cash in Revolving Fund 1, ,000 Accounts Receivable 105, ,505 Due from Other Funds 29, ,976 Total Assets 805,667 3, , ,575 LIABILITIES AND FUND BALANCE: Liabilities: Accounts Payable $ 226,467 $ - $ - $ 226,467 Total Liabilities 226, ,467 Fund Balance: Nonspendable Fund Balances: Revolving Cash 1, ,000 Restricted Fund Balances 241,391 3, ,578 Assigned Fund Balances 56, ,624 Unassigned: Reserve for Economic Uncertainty 174, , ,833 Other Unassigned 106, ,073 Total Fund Balance 579,200 3, , ,108 Total Liabilities and Fund Balances $ 805,667 $ 3,187 $ 151,721 $ 960,575 60

131 BALLICO-CRESSEY SCHOOL DISTRICT EXHIBIT C-2 COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - ALL GENERAL FUNDS YEAR ENDED JUNE 30, 2017 Child Special Reserve Totals General Development General June 30, Fund Fund Fund 2017 Revenues: LCFF Sources: State Apportionment or State Aid $ 1,676,517 $ - $ - $ 1,676,517 Education Protection Account Funds 464, ,167 Local Sources 1,246, ,246,678 Federal Revenue 217, ,650 Other State Revenue 521, ,445 Other Local Revenue 397,476 1,349 1, ,996 Total Revenues 4,523,933 1,349 1,171 4,526,453 Expenditures: Current: Instruction 2,850, ,850,905 Instruction - Related Services 388, ,929 Pupil Services 116, ,613 Ancillary Services 22, ,233 General Administration 321, ,493 Plant Services 455, ,099 Other Outgo 31, ,423 Total Expenditures 4,186, ,186,695 Excess (Deficiency) of Revenues Over (Under) Expenditures 337,238 1,349 1, ,758 Other Financing Sources (Uses): Transfers In 24, ,920 Transfers Out (166,093) - - (166,093) Total Other Financing Sources (Uses) (141,173) - - (141,173) Net Change in Fund Balance 196,065 1,349 1, ,585 Fund Balance, July 1 383,135 1, , ,523 Fund Balance, June 30 $ 579,200 $ 3,187 $ 151,721 $ 734,108 61

132 BALLICO-CRESSEY SCHOOL DISTRICT COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS JUNE 30, 2017 EXHIBIT C-3 Special Debt Capital Revenue Service Projects Total Fund Fund Fund Nonmajor Bond Capital Governmental Cafeteria Interest Facilities Funds (See Fund & Redemption Fund Exhibit A-3) ASSETS: Cash in County Treasury $ 34,567 $ 512,142 $ 10,924 $ 557,633 Cash in Revolving Fund 3, ,000 Stores Inventories 8, ,974 Total Assets $ 46,541 $ 512,142 $ 10,924 $ 569,607 LIABILITIES AND FUND BALANCE: Liabilities: Accounts Payable $ 4,591 $ - $ - $ 4,591 Due to Other Funds 29, ,976 Total Liabilities 34, ,567 Fund Balance: Nonspendable Fund Balances: Revolving Cash 3, ,000 Stores Inventories 8, ,974 Assigned Fund Balances - 512,142 10, ,066 Total Fund Balance 11, ,142 10, ,040 Total Liabilities and Fund Balances $ 46,541 $ 512,142 $ 10,924 $ 569,607 62

133 EXHIBIT C-4 BALLICO-CRESSEY SCHOOL DISTRICT COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2017 Special Debt Capital Revenue Service Projects Total Fund Fund Fund Nonmajor Bond Capital Governmental Cafeteria Interest Facilities Funds (See Fund & Redemption Fund Exhibit A-5) Revenues: Federal Revenue $ 192,518 $ - $ - $ 192,518 Other State Revenue 12, ,446 Other Local Revenue 30, ,993 5, ,247 Total Revenues 235, ,993 5, ,211 Expenditures: Current: Pupil Services 239, ,657 General Administration 11, ,939 Plant Services 3, ,003 Total Expenditures 254, ,599 Excess (Deficiency) of Revenues Over (Under) Expenditures (19,041) 119,993 5, ,612 Other Financing Sources (Uses): Transfers In 19, ,634 Other Sources - 392, ,149 Total Other Financing Sources (Uses) 19, , ,783 Net Change in Fund Balance ,142 5, ,395 Fund Balance, July 1 11,381-5,264 16,645 Fund Balance, June 30 $ 11,974 $ 512,142 $ 10,924 $ 535,040 63

134 BALLICO-CRESSEY SCHOOL DISTRICT EXHIBIT C-5 CAFETERIA FUND SPECIAL REVENUE FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30, 2017 Variance Positive Budget Actual (Negative) Revenues: Federal Revenue $ 161,900 $ 192,518 $ 30,618 Other State Revenue 13,000 12,446 (554) Other Local Revenue 20,070 30,594 10,524 Total Revenues 194, ,558 40,588 Expenditures: Current: Classified Salaries Employee Benefits Books and Supplies Services and Other Operating Expenditures 76,800 78,103 (1,303) 31,262 31,888 (626) 104, ,298 (21,338) 13,845 6,371 7,474 Direct Support/Indirect Costs 11,162 11,939 (777) Capital Outlay 1,900-1,900 Total Expenditures 239, ,599 (14,670) Excess (Deficiency) of Revenues Over (Under) Expenditures (44,959) (19,041) 25,918 Other Financing Sources (Uses): Transfers In 37,671 19,634 (18,037) Total Other Financing Sources (Uses) 37,671 19,634 (18,037) Net Change in Fund Balance (7,288) 593 7,881 Fund Balance, July 1 11,381 11,381 - Fund Balance, June 30 $ 4,093 $ 11,974 $ 7,881 64

135 BALLICO-CRESSEY SCHOOL DISTRICT EXHIBIT C-6 BOND INTEREST AND REDEMPTION FUND DEBT SERVICE FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30, 2017 Variance Positive Budget Actual (Negative) Revenues: Other Local Revenue $ - $ 119,993 $ 119,993 Total Revenues - 119, ,993 Expenditures: Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures - 119, ,993 Other Financing Sources (Uses): Other Sources - 392, ,149 Total Other Financing Sources (Uses) - 392, ,149 Net Change in Fund Balance - 512, ,142 Fund Balance, July Fund Balance, June 30 $ - $ 512,142 $ 512,142 65

136 BALLICO-CRESSEY SCHOOL DISTRICT EXHIBIT C-7 BUILDING FUND CAPITAL PROJECTS FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30, 2017 Variance Positive Budget Actual (Negative) Revenues: Other Local Revenue $ - $ 20,436 $ 20,436 Total Revenues - 20,436 20,436 Expenditures: Current: Books and Supplies Services and Other Operating Expenditures Total Expenditure - 204,419 (204,419) - 22,400 (22,400) - 226,819 (226,819) Excess (Deficiency) of Revenues Over (Under) Expenditures - (206,383) (206,383) Other Financing Sources (Uses): Transfers Out - (489,140) (489,140) Other Sources - 4,207,087 4,207,087 Total Other Financing Sources (Uses) - 3,717,947 3,717,947 Net Change in Fund Balance - 3,511,564 3,511,564 Fund Balance, July Fund Balance, June 30 $ - $ 3,511,564 $ 3,511,564 66

137 BALLICO-CRESSEY SCHOOL DISTRICT EXHIBIT C-8 CAPITAL FACILITIES FUND CAPITAL PROJECTS FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30, 2017 Variance Positive Budget Actual (Negative) Revenues: Other Local Revenue $ 4,315 $ 5,660 $ 1,345 Total Revenues 4,315 5,660 1,345 Expenditures: Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures 4,315 5,660 1,345 Other Financing Sources (Uses): Total Other Financing Sources (Uses) Net Change in Fund Balance 4,315 5,660 1,345 Fund Balance, July 1 5,264 5,264 - Fund Balance, June 30 $ 9,579 $ 10,924 $ 1,345 67

138 BALLICO-CRESSEY SCHOOL DISTRICT EXHIBIT C-9 SPECIAL RESERVE FUND FOR CAPITAL OUTLAY PROJECTS CAPITAL PROJECTS FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30, 2017 Variance Positive Budget Actual (Negative) Revenues: Other Local Revenue $ 170 $ 1,494 $ 1,324 Total Revenues 170 1,494 1,324 Expenditures: Capital Outlay 460, ,479 (61,389) Total Expenditures 460, ,479 (61,389) Excess (Deficiency) of Revenues Over (Under) Expenditures (459,920) (519,985) (60,065) Other Financing Sources (Uses): Transfers In 146, , ,140 Transfers Out (24,920) (24,920) - Total Other Financing Sources (Uses) 121, , ,140 Net Change in Fund Balance (338,381) 90, ,075 Fund Balance, July 1 345, ,012 - Fund Balance, June 30 $ 6,631 $ 435,706 $ 429,075 68

139 BALLICO-CRESSEY SCHOOL DISTRICT EXHIBIT C-10 COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES ALL AGENCY FUNDS YEAR ENDED JUNE 30, 2017 STUDENT BODY ACTIVITIES Balance Balance July 1, June 30, 2016 Additions Deductions 2017 ASSETS Cash and investments $ 19,572 $ 94,419 $ 99,798 $ 14,193 Total Assets $ 19,572 $ 94,419 $ 99,798 $ 14,193 LIABILITIES Due to student groups $ 19,572 $ 94,419 $ 99,798 $ 14,193 Total Liabilities $ 19,572 $ 94,419 $ 99,798 $ 14,193 The accompanying notes are an integral part of this statement. 69

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141 Other Supplementary Information This section includes financial information and disclosures not required by the Governmental Accounting Standards Board and not considered a part of the basic financial statements. It may, however, include information which is required by other entities. 71

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143 Supplementary Information Section 73

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145 BALLICO-CRESSEY SCHOOL DISTRICT LOCAL EDUCATION AGENCY ORGANIZATION STRUCTURE JUNE 30, 2017 The District is located in Merced County. There were no changes in the boundaries of the District during the year ended June 30, The District is currently operating two elementary schools. Governing Board Name Office Term Expiration Thomas March President 2018 Ginger Chance Clerk 2020 Jana Nairn Member 2018 Seanna Johnson Member 2020 Erick Harcksen Member 2018 Administration Bryan Ballenger Superintendent Becky Valdez Business Manager 75

146 EXHIBIT D-1 BALLICO-CRESSEY SCHOOL DISTRICT SCHEDULE OF AVERAGE DAILY ATTENDANCE YEAR ENDED JUNE 30, 2017 Second Period Annual Report Report TK/K-3: Regular ADA Grades 4-6: Regular ADA Grades 7 and 8: Regular ADA ADA Totals There were no audit findings which resulted in necessary revisions to attendance. Average daily attendance is a measurement of the number of pupils attending classes of the district or charter school. The purpose of attendance accounting from a fiscal standpoint is to provide the basis on which apportionments of state funds are made to school districts and charter schools. This schedule provides information regarding the attendance of students at various grade levels and in different programs. 76

147 EXHIBIT D-2 BALLICO-CRESSEY SCHOOL DISTRICT SCHEDULE OF INSTRUCTIONAL TIME YEAR ENDED JUNE 30, 2017 Ed. Code Number of Days Minutes Actual Traditional Grade Level Requirement Minutes Calendar Status Transitional Kindergarten 36,000 48, Complied Kindergarten 36,000 48, Complied Grade 1 50,400 53, Complied Grade 2 50,400 53, Complied Grade 3 50,400 55, Complied Grade 4 54,000 55, Complied Grade 5 54,000 55, Complied Grade 6 54,000 55, Complied Grade 7 54,000 55, Complied Grade 8 54,000 55, Complied The District did not offer a multitrack year-round calendar. School districts and charter schools must maintain their instructional minutes as defined in Education Code Section This schedule is required of all districts, including basic aid districts. The District has received incentive funding for increasing instructional time as provided by the Incentives for Longer Instructional Day. This schedule presents information on the amount of instruction time offered by the District and whether the District complied with the provisions of Education Code Sections through The District did not meet its target funding. 77

148 BALLICO-CRESSEY SCHOOL DISTRICT TABLE D-3 SCHEDULE OF FINANCIAL TRENDS AND ANALYSIS YEAR ENDED JUNE 30, 2017 Budget 2018 General Fund (see note 1) Revenues and other financial sources $ 3,959,216 $ 4,551,373 $ 3,798,983 $ 2,984,004 Expenditures 3,991,238 4,186,695 3,469,676 3,179,798 Other uses and transfers out - 166, ,000 36,463 Total outgo 3,991,238 4,352,788 3,830,676 3,216,261 Change in fund balance (deficit) (32,022) 198,585 (31,693) (232,257) Ending fund balance $ 702,086 $ 734,108 $ 533,685 $ 565,378 Available reserves (see note 2) $ 208,548 $ 431,906 $ 382,049 $ 255,233 Available reserves as a percentage of total outgo 5.2% 9.9% 10.0% 7.9% Total long-term debt $ 7,262,049 $ 7,372,049 $ 2,323,000 $ 1,902,889 Average daily attendance at P This schedule discloses the district's financial trends by displaying past years' data along with current year budget information. These financial trend disclosures are used to evaluate the district's ability to continue as a going concern for a reasonable period of time. The fund balance of the general fund has increased by $168,730 (29.8%) over the past two years. The fiscal year budget projects a decrease of $32,022 (4.4%). For a district of this size, the State recommends available reserves of at least 4% of total general fund expenditures, transfers out and other uses (total outgo). The District has incurred any operating deficits in two of the past three years, but projects a deficit during the fiscal year. Total long-term debt has increased by $5,469,160 over the past two years. Average daily attendance has increased by 35 over the past two years. During fiscal year , a decrease of 6 average daily attendance is anticipated. NOTES: 1 The budget for 2018 is included for analytical purposes only and has not been subjected to audit. 2 Available reserves consist of all unassigned fund balances and all funds reserved for economic uncertainties contained within the General Fund. 78

149 BALLICO-CRESSEY SCHOOL DISTRICT TABLE D-4 RECONCILIATION OF ANNUAL FINANCIAL AND BUDGET REPORT WITH AUDITED FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2017 This schedule provides the information necessary to reconcile the fund balances of all funds and the total liabilities balance of the general long-term debt account group as reported on the SACS report to the audited financial statements. There were no adjustments to fund balances required. 79

150 BALLICO-CRESSEY SCHOOL DISTRICT SCHEDULE OF CHARTER SCHOOLS AND OTHER INFORMATION YEAR ENDED JUNE 30, 2017 No charter schools are chartered by Ballico-Cressey School District. Charter Schools None Included In Audit? N/A Subrecipients The District did not provide any awards to subrecipients. De Minimis Cost Rate The District did not elect to use the 10% de minimis cost rate. Excess Sick Leave The District did not authorize or accrue any excess sick leave as that term is defined in subdivision (c) of Education Code Section for the District's employees who are members of the California State Teachers' Retirement System (CalSTRS). 80

151 Other Independent Auditor's Reports 81

152 Linger, Peterson & Shrum Certified Public Accountants 575 East Locust Avenue, Suite 308 Fresno, California (559) Independent Auditor's Report on Internal Control over Financial Reporting and On Compliance and Other Matters Based on an Audit of Financial Statements Performed In Accordance With Government Auditing Standards Board of Trustees Ballico-Cressey School District Ballico, California Members of the Board of Trustees: We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Ballico-Cressey School District, as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise Ballico-Cressey School District's basic financial statements, and have issued our report thereon dated December 11, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Ballico-Cressey School District's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Ballico-Cressey School District's internal control. Accordingly, we do not express an opinion on the effectiveness of the Ballico-Cressey School District's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. 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 Ballico-Cressey School District's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. 82

153 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. Respectfully submitted, Linger, Peterson & Shrum Fresno, California December 11,

154 Linger, Peterson & Shrum Certified Public Accountants 575 East Locust Avenue, Suite 308 Fresno, California (559) Independent Auditor's Report on State Compliance Board of Trustees Ballico-Cressey School District Ballico, California Members of the Board of Trustees: Report on State Compliance We have audited the District's compliance with the types of compliance requirements described in the Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting, prescribed in Title 5, California Code of Regulations, Section that could have a direct and material effect on each of the District's state programs identified below for the fiscal year ended June 30, Management's Responsibility for State Compliance Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its state programs. Auditor's Responsibility Our responsibility is to express an opinion on compliance for each applicable program as identified in the State's audit guide, Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting prescribed in Title 5, California Code of Regulations, Section We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States; and the State's audit guide, Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting, prescribed in Title 5, California Code of Regulations, Section Those standards and audit guide require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the compliance requirements referred to above that could have a direct and material effect on the state programs noted below 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. Our audit does not provide a legal determination of the District's compliance with those requirements. In connection with the audit referred to above, we selected and tested transactions and records to determine the District's compliance with the state laws and regulations applicable to the following items: 84

155 Compliance Requirements Procedures In Audit Guide Performed? LOCAL EDUCATION AGENCIES OTHER THAN CHARTER SCHOOLS: Attendance Accounting: Attendance Reporting... Yes Teacher Certification and Misassignments... Yes Kindergarten Continuance... Yes Independent Study... N/A Continuation Education... N/A Instructional Time... Yes Instructional Materials... Yes Ratio of Administrative Employees to Teachers... Yes Classroom Teacher Salaries... Yes Early Retirement Incentive... N/A GANN Limit Calculation... Yes School Accountability Report Card... Yes Juvenile Court Schools... N/A Middle or Early College High Schools... N/A K-3 Grade Span Adjustment... Yes Transportation Maintenance of Effort... Yes Mental Health Expenditures... N/A SCHOOL DISTRICTS, COUNTY OFFICES OF EDUCATION, AND CHARTER SCHOOLS: Educator Effectiveness... California Clean Energy Jobs Act... After School Education and Safety Program: After School... Before School... General Requirements... Proper Expenditure of Education Protection Account Funds... Unduplicated Local Control Funding Formula Pupil Counts... Local Control and Accountability Plan... Independent Study-Course Based... Immunizations... Yes Yes N/A N/A N/A Yes Yes Yes N/A N/A CHARTER SCHOOLS: Attendance... Mode of Instruction... Nonclassroom-Based Instruction/Independent Study... Determination of Funding for Nonclassroom-Based Instruction... Annual Instructional Minutes - Classroom Based... Charter School Facility Grant Program... N/A N/A N/A N/A N/A N/A The term "N/A" is used above to mean either the District did not offer the program during the current fiscal year or the program applies to a different type of local education agency. 85

156 Opinion on State Compliance In our opinion, Ballico-Cressey School District complied, in all material respects, with the compliance requirements referred to above that are applicable to the statutory requirements listed in the schedule above for the year ended June 30, Purpose of This Report The purpose of this report is solely to describe the scope of our testing of compliance and the results of that testing, and not to provide an opinion of the effectiveness of the entity's internal control or on compliance outside of the items tested as noted above. This report is an integral part of an audit performed in accordance with the Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting prescribed in Title 5, California Code of Regulations, Section in considering the entity's compliance. Accordingly, this communication is not suitable for any other purpose. Respectfully submitted, Linger, Peterson & Shrum Fresno, California December 11,

157 Findings and Recommendations Section 87

158 BALLICO-CRESSEY SCHOOL DISTRICT SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2017 SECTION I - SUMMARY OF AUDITOR'S RESULTS 1. Financial Statements Type of auditor's report issued: Unmodified Internal control over financial reporting: One or more material weaknesses identified? Yes X No One or more significant deficiencies identified that are not considered to be material weaknesses? Yes X None Reported Noncompliance material to financial statements noted? Yes X No 2. Federal Awards Internal control over major programs: One or more material weaknesses identified? Yes N/A No One or more significant deficiencies identified that are not considered to be material weaknesses? Yes N/A None Reported Type of auditor's report issued on compliance for major programs: N/A Any audit findings disclosed that are required to be reported in accordance with Title 2 U.S. Code of Federal Regulations (CFR) Part 200? Yes N/A No Identification of major programs: CFDA Number(s) Name of Federal Program or Cluster The District had less than $750,000 in federal expenditures for the year ended June 30, Dollar threshold used to distinguish between type A and type B programs: N/A Auditee qualified as low-risk auditee? Yes N/A No 3. State Awards Any audit findings disclosed that are required to be reported in accordance with the state's Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting? Yes X No Type of auditor's report issued on compliance for state programs: Unmodified 88

159 BALLICO-CRESSEY SCHOOL DISTRICT SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2017 SECTION II - FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS This section identifies the significant deficiencies, material weaknesses, and instances of noncompliance related to the financial statements that are required to be reported in accordance with paragraphs 5.18 through 5.20 of "Government Auditing Standards". There were no Financial Statement findings and questioned costs. SECTION III - FEDERAL AWARD FINDINGS AND QUESTIONED COSTS This section identifies the audit findings required to be reported by the Uniform Guidance (e.g., significant deficiencies, material weaknesses, and instances of noncompliance, including questioned costs). There were no Federal award findings and questioned costs. SECTION IV - STATE AWARD FINDINGS AND QUESTIONED COSTS This section identifies the audit findings pertaining to noncompliance with State program rules and regulations. There were no State award findings and questioned costs. 89

160 BALLICO-CRESSEY SCHOOL DISTRICT SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS FOR THE YEAR ENDED JUNE 30, 2017 Management's Explanation Finding/Recommendation Current Status If Not Implemented There were no prior year findings and questioned costs. 90

161 APPENDIX B GENERAL INFORMATION ABOUT MERCED COUNTY The following information concerning Merced County (the County ) is included only for the purpose of supplying general information regarding the area of the District. The Notes are not a debt of the County, the State of California (the State ) or any of its political subdivisions (other than the District), and none of the City, the County, the State or any of its political subdivisions (other than the District) is liable therefor. General As described herein, the Ballico-Cressey School District is located in the Town of Ballico in the County. The County has six incorporated cities, of which the City of Merced is the largest in terms of population. Located in central California, the County is bordered by Santa Clara County to the northwest, Stanislaus County to the north, Tuolumne and Mariposa counties to the east, Madera and Fresno counties to the south, and San Benito County to the west. More than half of the County s land is made up of an agriculturally rich alluvial plain produced by the Chowchilla, San Joaquin, and Merced Rivers. Agriculture is one of the County s main sources of revenue and, based on production, Merced County is the fifth-leading agricultural county in California. Milk and related products from the County s commercial dairies generate the greatest amount of revenue. Other crops grown in commercial quantities include poultry, beef, almonds, and tomatoes. Population The following sets forth the population estimates for the County as of January 1 for the years 2014 to MERCED COUNTY Estimated Population Atwater 29,595 30,023 30,490 30,684 31,235 Dos Palos 5,212 5,309 5,446 5,491 5,679 Gustine 5,634 5,663 5,734 5,782 5,874 Livingston 13,705 13,762 13,849 13,972 14,328 Los Banos 38,182 38,838 39,660 40,009 40,986 Merced 82,711 83,945 85,003 85,953 86,750 Unincorporated 91,489 91,571 91,318 93,213 95,125 County Total 266, , , , ,977 Source: State of California Department of Finance, Demographic Research Unit. B-1

162 Employment and Industry The unemployment rate in the Merced County was 7.0 percent in August 2018, down from a revised 8.00 percent in July 2018, and below the year-ago estimate of 8.2 percent. This compares with an unadjusted unemployment rate of 4.3 percent for California and 3.9 percent for the nation during the same period. The following table shows the average annual estimated numbers by industry comprising the civilian labor force, as well as unemployment information for years 2013 through MERCED METROPOLITAN STATISTICAL AREA (MSA) (Merced County) Annual Average Civilian Labor Force, Employment and Unemployment by Industry (March 2017 Benchmark) Civilian Labor Force (1) 114, , , , ,100 Civilian Employment 98,000 99, , , ,300 Civilian Unemployment 16,600 14,700 13,000 12,100 10,800 Civilian Unemployment Rate 14.5% 12.8% 11.3% 10.6% 9.3% Wage and Salary Employment (2) Agriculture 13,600 13,700 14,100 14,000 14,400 Goods Producing 10,300 11,400 11,600 11,500 12,200 Mining, Logging, and Construction 1,600 1,700 1,900 2,200 2,500 Manufacturing 8,700 9,700 9,700 9,300 9,700 Service Providing 50,100 50,700 51,800 53,500 55,000 Private Service Providing 33,500 33,600 34,100 35,000 36,300 Trade, Transportation & Utilities 12,200 12,000 12,200 12,600 13,100 Wholesale Trade 1,700 1,400 1,400 1,600 1,600 Retail Trade 7,600 7,800 8,000 8,100 8,300 Transportation, Warehousing & Utilities 2,900 2,800 2,800 2,900 3,100 Information Financial Activities 1,500 1,600 1,600 1,800 1,900 Professional & Business Services 4,300 3,800 3,800 3,700 3,700 Educational & Health Services 8,800 9,100 9,400 9,800 10,300 Leisure & Hospitality 5,000 5,400 5,400 5,500 5,600 Other Services 1,400 1,300 1,400 1,400 1,400 Federal Government State Government 2,900 3,100 3,200 3,500 3,600 Local Government 12,900 13,300 13,700 14,200 14,300 Total, All Industries (3) 74,000 75,800 77,500 79,000 81,600 (1) Labor force data is by place of residence; includes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. (2) Industry employment is by place of work; excludes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. (3) Totals may not add due to rounding. Source: State of California Employment Development Department. B-2

163 Major Employers The following table lists the top employers in the County as of September 2018, listed in alphabetical order. MERCED COUNTY Major Employers September 2018 Employer Name Location Industry Dole Packaged Foods LLC Atwater Food Products-Retail Dole Packaged Foods LLC Livingston Food Products-Retail E & J Gallo Winery Livingston Wineries (mfrs) Ferrellgas Los Banos Gas-Propane-Refilling Stations Foster Farms Livingston Poultry Processing Plants (mfrs) Gallo Cattle Co Atwater Cheese Processors (mfrs) Golden Valley Health Ctr Merced Clinics Hilmar Cheese Co Hilmar Cheese Processors (mfrs) J Marchini & Son Le Grand Farms Liberty Packing Co Los Banos Packing & Crating Service Live Oak Farms Le Grand Fruits & Vegetables-Growers & Shippers Livingston Union School Dist Livingston School Districts Mcoe Merced Educational Cooperative Organizations Memorial Hospital Los Banos Los Banos Hospitals Merced County Human Svc Merced Government Offices-County Mercy Medical Ctr Merced Merced Hospitals Quad/Graphics Inc Merced Printers (mfrs) Scholle IPN Packaging Inc Merced Packaging Materials-Manufacturers Sensient Natural Ingredients Livingston Flavoring Extracts (whls) University of Ca-Merced Merced Schools-Universities & Colleges Academic Walmart Merced Department Stores Walmart Supercenter Atwater Department Stores Weaver Union School District Merced School Districts Western Marketing & Sales Atwater Farms Yosemite Wholesale Warehouse Merced Warehouses Source: State of California Employment Development Department, extracted from The America's Labor Market Information System (ALMIS) Employer Database, nd Edition. [Remainder of page intentionally left blank] B-3

164 Effective Buying Income Effective Buying Income is defined as personal income less personal tax and nontax payments, a number often referred to as disposable or after-tax income. Personal income is the aggregate of wages and salaries, other labor-related income (such as employer contributions to private pension funds), proprietor's income, rental income (which includes imputed rental income of owner-occupants of non-farm dwellings), dividends paid by corporations, interest income from all sources, and transfer payments (such as pensions and welfare assistance). Deducted from this total are personal taxes (federal, state and local), nontax payments (fines, fees, penalties, etc.) and personal contributions to social insurance. According to U.S. government definitions, the resultant figure is commonly known as disposable personal income. MERCED COUNTY Median Household Effective Buying Income As of January 1, 2013 through Merced County $34,919 $39,814 $37,881 $41,705 $40,894 California 48,340 50,072 53,589 55,681 59,646 United States 43,715 45,448 46,738 48,043 50,735 Source: The Nielsen Company (US), Inc. [Remainder of page intentionally left blank] B-4

165 Commerce Summaries of historic taxable sales within County during the past five years in which data is available are shown in the following table. Annual figures are not yet available for During the calendar year 2016, total taxable transactions in the City were reported to be $2,780,356,760, representing a 6.22% decrease over the total taxable transactions of $2,964,724,095 that were reported in the City during calendar year MERCED COUNTY Taxable Retail Sales Number of Permits and Valuation of Taxable Transactions (Dollars in Thousands) Retail Stores Total All Outlets Number of Permits Taxable Transactions Number of Permits Taxable Transactions ,557 $1,778,567 3,734 $2,512, ,596 1,870,789 3,725 2,672, ,553 1,913,822 3,658 2,764, (1) 1,353 1,907,627 4,064 2,964, ,750 1,964,450 4,167 2,780,357 (1) Permit figures for calendar year 2015 are not comparable to that of prior years due to outlet counts in these reports including the number of outlets that were active during the reporting period. Retailers that operate part-time are now tabulated with store retailers. Source: California State Board of Equalization, Taxable Sales in California (Sales & Use Tax). B-5

166 Construction Activity Provided below are the building permits and valuations for the County during the past five years in which data is available. MERCED COUNTY Building Permit Valuation (Valuation in Thousands of Dollars) Calendar Years 2013 through Permit Valuation New Single-family $30,218.8 $45,759.0 $86,294.1 $161,700.5 $133,276.6 New Multi-family 5, , ,232.8 Res. Alterations/Additions 5, , , , ,829.0 Total Residential 41, , , , ,338.4 New Commercial 64, , , , ,556.7 New Industrial 6, , , ,480.0 New Other 18, , , , ,300.9 Com. Alterations/Additions 42, , , , ,936.9 Total Nonresidential $131,091.4 $138,404.4 $99,759.5 $117,493.2 $129,274.5 New Dwelling Units Single Family Multiple Family TOTAL Source: Construction Industry Research Board, Building Permit Summary. Transportation Situated on Highway 99, Merced County offers excellent transportation access routes throughout California and the Western United States. There are 200 major carriers within 35 minutes of the City of Visalia who provide interstate trucking services. Many communities in the County offer airports for corporate service. Air service is available approximately 45 minutes north at Fresno Yosemite International Airport and San Francisco International Airport is about 3-1/2 hours driving time away. Union-Southern Pacific, Burlington Northern-Santa Fe Railroads are the San Joaquin Valley Rail Companies that serve Merced County with extensive spur track, piggyback service, reciprocal switching, and refrigerated shipping. B-6

167 APPENDIX C FORM OF OPINION OF BOND COUNSEL November 20, 2018 Board of Trustees Ballico-Cressey School District Gregg Street Ballico, California OPINION: $2,162, Ballico-Cressey School District (Merced County, California) 2018 General Obligation Bond Anticipation Notes (Bank Qualified) Members of the Board of Trustees: We have acted as bond counsel to the Ballico-Cressey School District (the District ) in connection with the issuance by the District of its 2018 General Obligation Bond Anticipation Notes in the aggregate principal amount of $2,162, (the Notes ), under the provisions of Section of the Education Code of the State of California and under a resolution of the Board of Trustees (the Board ) of the District adopted on October 11, 2018 (the Resolution ). We have examined the law and such certified proceedings and other papers as we have deemed necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon representations of the Board contained in the Resolution and in the certified proceedings and certifications of public officials and others furnished to us without undertaking to verify the same by independent investigation. Based upon the foregoing, we are of the opinion, under existing law, as follows: 1. The District is a school district duly organized and existing under the laws of the State of California, with power to adopt the Resolution, to perform the agreements on its part contained therein and to issue the Notes. The Notes constitute legal, valid and binding special obligations of the District enforceable in accordance with their terms and payable solely from the sources provided therefor in the Resolution. 2. The Resolution has been duly adopted by the Board and constitutes a legal, valid and binding obligation of the District enforceable against the District in accordance with its terms. The Resolution establishes a valid first and exclusive lien on and pledge of the proceeds of the General Obligation Bonds (as such term is defined in the Resolution) and other funds pledged thereby for the security of the Notes, in accordance with the terms of the Resolution. C-1

168 3. Interest on the Notes is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax, although, in the case of tax years beginning prior to January 1, 2018, for the purpose of computing the alternative minimum tax imposed on certain corporations, such interest earned by a corporation prior to the end of its tax year in 2018 is taken into account in determining certain income and earnings. The Notes are qualified tax-exempt obligations within the meaning of Section 265(b)(3) of the Internal Revenue Code of 1986, as amended (the Tax Code ), and, in the case of certain financial institutions (within the meaning of Section 265(b)(5) of the Tax Code), a deduction is allowed for 80 percent of that portion of such financial institutions interest expense allocable to the portion of the Notes designated as and comprising interest. The opinions set forth in the preceding paragraph are subject to the condition that the District comply with all requirements of the Tax Code relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Notes, and in order for the Notes to be qualified tax-exempt obligations within the meaning of Section 265(b)(3) of the Tax Code. The District has made certain representations and covenants in order to comply with each such requirement. Inaccuracy of those representations, or failure to comply with certain of those covenants, may cause the inclusion of such interest in gross income for federal income tax purposes, which may be retroactive to the date of issuance of the Bonds, or may cause the Notes not to be qualified tax-exempt obligations within the meaning of Section 265(b)(3) of the Tax Code. 4. Interest on the Notes is exempt from California personal income taxation imposed by the State of California. We express no opinion regarding any other tax consequences arising with respect to the ownership, sale or disposition of, or the amount, accrual or receipt of interest on, the Notes. The rights of the owners of the Notes and the enforceability of the Notes are limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights generally, and by equitable principles, whether considered at law or in equity. This opinion is given as of the date hereof, and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention, or any changes in law that may hereafter occur. Respectfully submitted, Jones Hall, A Professional Law Corporation C-2

169 APPENDIX D FORM OF CONTINUING DISCLOSURE CERTIFICATE $2,162, BALLICO-CRESSEY SCHOOL DISTRICT (Merced County, California) 2018 General Obligation Bond Anticipation Notes (Bank Qualified) CONTINUING DISCLOSURE CERTIFICATE This Continuing Disclosure Certificate (this Disclosure Certificate ) is executed and delivered by the Ballico-Cressey School District (the District ) in connection with the execution and delivery of the captioned Notes (the Notes ). The Notes are being executed and delivered pursuant to a resolution adopted by the Board of Trustees of the District on October 11, 2018 (the Bond Resolution ). The Bank of New York Mellon Trust Company, N.A., is initially acting as paying agent for the Notes (the Paying Agent ). The District hereby covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the District for the benefit of the holders and beneficial owners of the Notes and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5). Section 2. Definitions. In addition to the definitions set forth above and in the Bond Resolution, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: Annual Report means any Annual Report provided by the District pursuant to, and as described in, Sections 3 and 4. Annual Report Date means the date not later than nine months after the end of each fiscal year of the District (currently June 30 th ). Dissemination Agent means, initially, Isom Advisors, A Division of Urban Futures, Inc. or any successor Dissemination Agent designated in writing by the District and which has filed with the District and the Paying Agent a written acceptance of such designation. Listed Events means any of the events listed in Section 5(a). MSRB means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule. Official Statement means the final official statement executed by the District in connection with the issuance of the Notes. D-1

170 Paying Agent means The Bank of New York Mellon Trust Company, N.A., or any successor thereto. Participating Underwriter means RBC Capital Markets, LLC, the original underwriter of the Notes required to comply with the Rule in connection with offering of the Notes. Rule means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. Section 3. Provision of Annual Reports. (a) The District shall, or shall cause the Dissemination Agent to, not later than the Annual Report Date, commencing not later than March 31, 2019 with the report for the Fiscal Year, provide to the MSRB, in an electronic format as prescribed by the MSRB, an Annual Report that is consistent with the requirements of Section 4. Not later than 15 Business Days prior to the Annual Report Date, the District shall provide the Annual Report to the Dissemination Agent (if other than the District). If by 15 Business Days prior to the Annual Report Date the Dissemination Agent (if other than the District) has not received a copy of the Annual Report, the Dissemination Agent shall contact the District to determine if the District is in compliance with the previous sentence. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4; provided that the audited financial statements of the District may be submitted separately from the balance of the Annual Report, and later than the Annual Report Date, if not available by that date. If the District s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c). The District shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by the District hereunder. (b) If the District does not provide (or cause the Dissemination Agent to provide) an Annual Report by the Annual Report Date, the District, in a timely manner, shall provide (or cause the Dissemination Agent to provide) to the MSRB, in an electronic format as prescribed by the MSRB, a notice in a timely manner, in substantially the form attached as Exhibit A, with a copy to the Paying Agent and Participating Underwriter. (c) (i) (ii) With respect to each Annual Report, the Dissemination Agent shall: determine each year prior to the Annual Report Date the then-applicable rules and electronic format prescribed by the MSRB for the filing of annual continuing disclosure reports; and if the Dissemination Agent is other than the District, file a report with the District certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, and stating the date it was provided. D-2

171 Section 4. Content of Annual Reports. The District s Annual Report shall contain or incorporate by reference the following: (a) Audited financial statements prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the District s audited financial statements are not available by the Annual Report Date, the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (b) Unless otherwise provided in the audited financial statements filed on or before the Annual Report Date, the following information for the most recently completed fiscal year, or, if available at the time of filing the Annual Report, for the fiscal year in which the Annual Report is filed: (i) (ii) (iii) (v) assessed value of taxable property in the District, including identification of top twenty secured property taxpayers and their respective secured property assessed values, for the most recently completed fiscal year, or the current fiscal year if available at time of filing; property tax levies, collections and delinquencies, but only if the District s general obligation bond collections are not included on the County s Teeter Plan; and the District s most recently approved Budget or interim report, which is available at the time of filing the Annual Report Such further information, if any, as may be necessary to make the statements made pursuant to (a) and (b) of this Section, in the light of the circumstances under which they are made, not misleading. (c) Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the District or related public entities, which are available to the public on the MSRB s internet web site or filed with the Securities and Exchange Commission. The District shall clearly identify each such other document so included by reference. Section 5. Reporting of Significant Events. (a) The District shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to the Notes: (1) Principal and interest payment delinquencies. (2) Non-payment related defaults, if material. (3) Unscheduled draws on debt service reserves reflecting financial difficulties. (4) Unscheduled draws on credit enhancements reflecting financial difficulties. D-3

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

173 and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the District. Section 6. Identifying Information for Filings with the MSRB. All documents provided to the MSRB under the Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB. Section 7. Termination of Reporting Obligation. The District s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Notes. If such termination occurs prior to the final maturity of the Notes, the District shall give notice of such termination in the same manner as for a Listed Event under Section 5(c). Section 8. Dissemination Agent. The District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any Dissemination Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be Isom Advisors, A Division of Urban Futures, Inc. Any Dissemination Agent may resign by providing 30 days written notice to the District and the Paying Agent. Section 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the District may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: (a) (b) (c) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Notes, or type of business conducted; the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Notes, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and the proposed amendment or waiver either (i) is approved by holders of the Notes in the manner provided in the Bond Resolution for amendments to the Bond Resolution with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Notes. If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual financial information filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. D-5

174 If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the District to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be filed in the same manner as for a Listed Event under Section 5(c). Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the District chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the District shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Section 11. Default. If the District fails to comply with any provision of this Disclosure Certificate, the Participating Underwriter or any holder or beneficial owner of the Notes may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Bond Resolution, and the sole remedy under this Disclosure Certificate in the event of any failure of the District to comply with this Disclosure Certificate shall be an action to compel performance. Section 12. Duties, Immunities and Liabilities of Dissemination Agent. (a) The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the District agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent s negligence or willful misconduct. The Dissemination Agent will have no duty or obligation to review any information provided to it by the District hereunder, and shall not be deemed to be acting in any fiduciary capacity for the District, the Bondholders or any other party. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Notes. (b) The Dissemination Agent shall be paid compensation by the District for its services provided hereunder in accordance with its schedule of fees as amended from time to time, and shall be reimbursed for all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. D-6

175 Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, the Dissemination Agent, the Participating Underwriter and holders and beneficial owners from time to time of the Notes, and shall create no rights in any other person or entity. Date: November 20, 2018 BALLICO-CRESSEY SCHOOL DISTRICT By: Name: Title: ACCEPTANCE OF DUTIES AS DISSEMINATION AGENT ISOM ADVISORS, A DIVISION OF URBAN FUTURES, INC. By: Title: D-7

176 EXHIBIT A NOTICE OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Ballico-Cressey School District (the District ) Name of Issue: Date of Issuance: November 20, 2018 $2,162, Ballico-Cressey School District (County of Merced, California) 2018 General Obligation Bond Anticipation Notes NOTICE IS HEREBY GIVEN that the District has not provided an Annual Report with respect to the above-named Notes as required by the Continuing Disclosure Certificate, dated as of November 20, The District anticipates that the Annual Report will be filed by. Dated: DISSEMINATION AGENT By: Its: cc: Paying Agent and Participating Underwriter D-8

177 APPENDIX E ACCRETED VALUE TABLES E-1

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179 Bond Accreted Value Ballico Cressey School 2018 Bond Anticipation CAB Notes 11/01/2023 Date 3.5% 11/20/18 4, /1/19 4, /1/19 4, /1/20 4, /1/20 4, /1/21 4, /1/21 4, /1/22 4, /1/22 4, /1/23 4, /1/23 5,000.00

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181 APPENDIX F MERCED COUNTY INVESTMENT POLICY AND INVESTMENT REPORT F-1

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183 INVESTMENT POLICY 2018 Karen D. Adams, CPA Treasurer

184 TREASURY INVESTMENTS for the Quarter Ending June 30, 2018

185 CONTENTS Report of Quarter Ending June 30, 2018 Portfolio Review... 1 Allocation by Security Types... 2 Distribution by Maturity... 3 Portfolio Summary by Type... 4 Historic Quarter End Book Values... 5 Portfolio Review for Five Consecutive Quarters... 6 Sympro Investment Summary... 7 Investment Detail... 8 Investments Purchases Investment Maturities Investment Sales and Calls LAIF Meeting Minutes of April 18, ii

186 Karen D. Adams, CPA Treasurer-Tax Collector 2222 M Street Merced, CA (209) (209) (Fax) PORTFOLIO REVIEW for the Quarter Ending June 30, 2018 Portfolio Composition: Book Value of Assets Held $915,444,976 Market Value of Assets Held $907,952,142 Assets Maturing Within 90 Days $263,111,938 Percentage of Market to Book Value 99.18% Weighted Average Maturity 438 days Return on Assets: Total Earnings Quarter Ended $3,913,202 Total Earnings Fiscal YTD $12,771,916 Rate of Return QTR 1.76% Rate of Return Fiscal YTD 1.55% The entire portfolio is in Full Compliance with the Investment Policy and California Government Code. 1

187 Investment Pool Allocation by Security Types June 30, 2018 SECTOR 6/30/2018 3/31/2018 % Chng LAIF 2.20% 6.88% -4.68% CAMP 16.91% 8.73% 8.18% Wells Fargo Account 0.40% 0.00% 0.40% Corporate Bonds 18.96% 21.20% -2.24% Supra 14.8% Muni 2.1% LAIF 2.2% CAMP 16.9% Commercial Paper 9.20% 6.27% 2.93% Federal Agency 27.07% 30.19% -3.12% U. S. Treasuries 8.44% 9.58% -1.14% Tsy 8.4% WF 0.4% Supranational 14.77% 15.55% -0.78% Municipal Securities 2.05% 1.59% 0.46% Total % % SECTOR 6/30/2018 3/31/2018 LAIF CAMP Wells Fargo Account $20,109, ,497, ,694, $60,109, ,245, Agy 27.1% Corp 19.0% Corporate Bonds Commercial Paper 174,267, ,565, ,172, ,756, CP 9.2% Federal Agency 248,793, ,684, U. S. Treasuries 77,583, ,668, Supranational 135,778, ,800, Municipal Securities 18,848, ,872, Total $919,139, $873,309,300.32

188 Investment Pool Distribution by Maturity June 30, 2018 Distribution By Maturity Dollars Maturity Par Amount $250,000, Overnight $136,355, days 76,590, days 217,119, Yr - 2Yr 209,725, Yr - 3Yr 130,655, Yr - 4Yr 94,000, Yr - 5Yr 10,650, $875,094, $200,000, $150,000, $100,000, $50,000, $0.00 Overnight 1-90 days days 1Yr - 2Yr 2Yr - 3Yr 3Yr - 4Yr 4Yr - 5Yr Distribution By Maturity Percentages Maturity % Amount Overnight 15.61% 1-90 days 8.77% days 24.86% 1Yr - 2Yr 23.96% 2Yr - 3Yr 14.90% 3Yr - 4Yr 10.69% 4Yr - 5Yr 1.22% % 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Overnight 1-90 days days 1Yr - 2Yr 2Yr - 3Yr 3Yr - 4Yr 4Yr - 5Yr

189 TREASURY MERCED COUNTY TREASURY Summary by Type June 30, 2018 NUMBER OF Percent of *COMPLIANCE MEET SECURITY TYPE INVESTMENTS PAR VALUE BOOK VALUE Portfolio % ALLOWED Compliance Treasury Coupon Securities 17 78,025, ,583, % 30.00% YES Federal Agency Coupon Securities ,545, ,793, % 75.00% YES Supranationals - IBRD, IFC, IADB ,220, ,778, % 30.00% YES Medium Term Notes ,589, ,267, % 30.00% YES Municipal Bonds 6 18,765, ,848, % 75.00% YES Commercial Paper 6 85,005, ,565, % 30.00% YES LAIF 2 20,109, ,109, % 25.00% YES Managed Pool Accounts 4 159,192, ,192, % 25.00% YES ,450, ,139, % * Compliance percentage is calculated at the time the investment is purchased, as percentages change daily due to fluctuating amounts in overnight accounts.

190 Investment Pool Historic Quarter End Book Values FY 2008 to , $ Millions Fiscal Year Sept $717 $596 $558 $651 $627 $556 $594 $625 $734 $734 $769 Dec $684 $670 $675 $691 $650 $659 $701 $770 $866 $866 $889 Mar $636 $635 $648 $632 $605 $638 $687 $780 $844 $844 $873 June $634 $576 $620 $584 $639 $588 $634 $771 $862 $862 $915

191 Investment Pool Portfolio Review of Five Quarters Quarter Ending June 30, 2018 Mar. 31, 2018 Dec. 31,2017 Sept. 30, 2017 June 30, 2017 Portfolio Composition: Book Value of Assets Held Market Value of Assets Held Assets Maturing Within 90 Days Percentage of Market to Book Weighted Average Maturity (WAM) $ 915,444,976 $ 873,309,300 $ 888,692,741 $ 768,827,203 $ 862,324,468 $ 907,952,142 $ 866,300,240 $ 884,505,391 $ 767,575,959 $ 861,396,645 $ 263,111,938 $ 212,945,547 $ 259,164,925 $ 153,282,294 $ 193,409, % 99.20% 99.53% 99.84% 99.89% 438 days 480 days 479 days 538 days 527 days Return on Assets: Total Earnings Quarter Ended Total Earnings Fiscal YTD Rate of Return QTR Rate of Return Fiscal YTD $ 3,913,202 $ 3,320,178 $ 2,799,864 $ 2,716,365 $ 2,837,197 $ 12,771,916 $ 8,846,802 $ 5,510,932 $ 2,716,365 $ 9,458, % 1.60% 1.42% 1.39% 1.33% 1.55% 1.47% 1.40% 1.39% 1.20% CAMP 1.94% 1.51% 1.22% 1.13% 0.99% LAIF 1.75% 1.43% 1.20% 1.08% 0.93%

192 FY Portfolio Management Portfolio Summary June 30, 2018 Merced County Investments Par Value Market Value Book Value % of Portfolio Term Days to Maturity YTM 360 Equiv. YTM 365 Equiv. Managed Pool Accounts 175,607, ,607, ,607, Medium Term Notes 174,589, ,784, ,267, , Commercial Paper Disc. -Amortizing 85,005, ,573, ,565, Federal Agency Coupon Securities 249,545, ,462, ,793, , Treasury Coupon Securities 78,025, ,859, ,583, Supranational - IBRD, IFC, IADB 136,220, ,099, ,778, , Municipal Bonds 18,765, ,564, ,848, , Investments 917,756, ,952, ,444, % Cash and Accrued Interest Passbook/Checking (not included in yield calculations) 3,694, ,694, ,694, Accrued Interest at Purchase 135, , Subtotal 3,830, ,830, Total Cash and Investments 921,450, ,782, ,275, Total Earnings Current Year Average Daily Balance Effective Rate of Return June 30 Month Ending 1,325, Fiscal Year To Date 880,338, ,798, % Fiscal Year Ending 12,771, ,771, I hereby certify that this report includes all investments in the investment pool and is in accordance with the investment policy. I further certify that the investments meet the County's cash flow needs for the next six months. 1.55% KAREN D. ADAMS, CPA, TREASURER Reporting period 06/01/ /30/2018 Portfolio 1718 AP Run Date: 08/30/ :37 PM (PRF_PM1) Report Ver

193 CUSIP Investment # Managed Pool Accounts Issuer Average Balance FY Portfolio Management Portfolio Details - Investments June 30, 2018 Purchase Date Par Value Market Value Book Value Stated Rate S&P YTM Days to 365 Maturity CAMP 1001C California Asset Mgt Program 155,497, ,497, ,497, AAA LAIF 1001A Local Agency Investment Fund 10,093, ,093, ,093, LAIF 1001B Local Agency Investment Fund 10,016, ,016, ,016, PREMIER FUND 1001G Merrill Lynch Institutional Fu AAA UBS FINANCIAL 1001H UBS Finance AAA Page 1 Maturity Date Subtotal and Average 106,195, ,607, ,607, ,607, Medium Term Notes BQ Apple Inc 02/25/2016 5,000, ,975, ,006, AAA /22/ AQ Apple Inc 07/29/2016 5,000, ,984, ,041, AAA /06/ CB Apple Inc 01/10/2017 5,000, ,929, ,975, AAA /02/ AK Apple Inc 06/04/2018 5,000, ,817, ,848, AAA ,767 05/03/ CG Berkshire Hathaway Fin 01/30/2017 5,000, ,973, ,001, AA /15/ CG Berkshire Hathaway Fin 03/05/2018 9,994, ,941, ,947, AA /15/ BR Berkshire Hathaway Fin 04/02/2018 5,000, ,893, ,938, AA ,718 03/15/ BF Coca-Cola Company 01/24/ ,000, ,962, ,996, AA /01/ AR Chevron Corp 05/15/2017 5,000, ,936, ,001, AA /03/ BH Chevron Corp 01/10/2018 5,000, ,954, ,978, AA /16/ RAX CISCO Systems Inc 02/09/2018 5,000, ,968, ,997, AA /15/ GAD Exxon 10/24/2014 5,000, ,974, ,012, AA /15/ GAD Exxon 04/06/2015 5,000, ,974, ,016, AA /15/ GAV Exxon 01/10/2018 5,000, ,908, ,991, AA /01/ GAV Exxon 02/15/2018 5,000, ,908, ,940, AA /01/ GM International Business Machine 12/08/2016 5,000, ,071, ,085, AA /15/ ETA John Deere Cap Corp 09/11/2015 1,850, ,848, ,849, A /10/ BR Johnson & Johnson 07/29/ ,500, ,392, ,508, AAA /01/ HHS JP Morgan Chase 03/29/2018 5,000, ,121, ,140, A /22/ BN Microsoft Corp 10/27/2016 5,000, ,921, ,994, AAA /08/ BP Microsoft Corp 01/10/2017 5,000, ,794, ,919, AAA ,134 08/08/ BV Microsoft Corp 02/06/2017 5,000, ,936, ,000, AAA /06/ BH Microsoft Corp 04/02/2018 5,000, ,917, ,954, AAA ,586 11/03/ BA Microsoft Corp 04/27/2018 5,000, ,888, ,879, AAA ,322 02/12/ Mosquito Abatement Depot Note 07/03/ , , , ,460 06/30/ RDD PNC Bank NA 03/29/2018 5,000, ,975, ,976, A /02/ TCP Toyota Mtr Credit 02/05/2016 6,955, ,952, ,955, AA /13/ TCU Toyota Mtr Credit 02/19/2016 1,300, ,292, ,299, AA /19/2019 Portfolio 1718 AP Run Date: 08/30/ :37 PM (PRF_PM2) Report Ver

194 FY Portfolio Management Portfolio Details - Investments June 30, 2018 Page 2 CUSIP Investment # Medium Term Notes Issuer Average Balance Purchase Date Par Value Market Value Book Value Stated Rate S&P YTM Days to 365 Maturity 89236TDP Toyota Mtr Credit 01/10/2017 5,000, ,897, ,020, AA ,290 01/11/ TDZ Toyota Mtr Credit 06/29/2017 5,000, ,788, ,000, AA /29/ HHE US Bank 12/14/2015 5,000, ,989, ,006, AA /15/ HNJ US Bank 03/29/2018 5,000, ,954, ,971, AA /23/ BFQ Wells Fargo 10/06/2015 2,490, ,481, ,493, A /15/ J5D Wells Fargo 07/21/2016 5,000, ,955, ,020, A /24/2019 Commercial Paper Disc. -Amortizing Subtotal and Average 174,553, ,589, ,784, ,267, UGX Credit Agricole 04/12/ ,000, ,954, ,953, A /31/ EBN Credit Suisse FB USA Inc 04/10/ ,000, ,682, ,670, A /04/ QJ JP Morgan Chase 12/12/2017 5,000, ,978, ,980, A /17/ KGX Natixis NY Branch 01/30/ ,000, ,981, ,985, A /31/ KHA Natixis NY Branch 04/12/ ,000, ,975, ,974, A /10/ HG Toyota Mtr Credit 11/29/ ,005, ,001, ,002, A /06/2018 Federal Agency Coupon Securities Subtotal and Average 105,979, ,005, ,573, ,565, EFRH Federal Farm Credit Bank 11/30/2015 5,000, ,984, ,000, AAA /30/ EFRH Federal Farm Credit Bank 12/10/2015 5,000, ,984, ,000, AAA /30/ EFGN Federal Farm Credit Bank 12/21/2015 5,000, ,970, ,996, AAA /07/ EGBG Federal Farm Credit Bank 06/09/2016 5,000, ,993, ,000, AAA /23/ EGFN Federal Farm Credit Bank 06/15/2016 5,000, ,881, ,000, AAA /15/ EGD Federal Farm Credit Bank 11/16/2016 5,000, ,872, ,988, AAA /07/ EGU Federal Farm Credit Bank 12/13/2016 5,000, ,929, ,000, AAA /13/ EGU Federal Farm Credit Bank 12/14/2016 5,000, ,881, ,000, AAA /14/ EGU Federal Farm Credit Bank 12/19/2016 5,000, ,924, ,998, AAA /19/ EHSB Federal Farm Credit Bank 08/09/2017 5,000, ,835, ,000, AAA ,485 07/25/ EGJX Federal Farm Credit Bank 12/01/2017 5,000, ,931, ,965, AAA /05/ EGLC Federal Farm Credit Bank 12/29/2017 5,000, ,927, ,960, AAA /12/ A7R Federal Home Loan Bank 04/29/2016 5,000, ,955, ,000, AAA /29/ A8FB Federal Home Loan Bank 06/13/2016 5,000, ,914, ,000, AAA /13/ A8QD Federal Home Loan Bank 11/16/2016 4,545, ,411, ,524, AAA /14/ AAEX Federal Home Loan Bank 12/28/2016 5,000, ,865, ,000, AAA ,276 12/28/ AAKW Federal Home Loan Bank 01/10/2017 5,000, ,860, ,996, AAA ,289 01/10/ A8QS Federal Home Loan Bank 11/30/2017 5,000, ,784, ,882, AAA ,109 07/14/2021 Maturity Date Portfolio 1718 AP Run Date: 08/30/ :37 PM (PRF_PM2) 7.3.0

195 FY Portfolio Management Portfolio Details - Investments June 30, 2018 Page 3 CUSIP Investment # Federal Agency Coupon Securities Issuer Average Balance Purchase Date Par Value Market Value Book Value Stated Rate S&P YTM Days to 365 Maturity 3130ACN Federal Home Loan Bank 12/29/2017 5,000, ,914, ,972, AAA /15/ ADFU Federal Home Loan Bank 01/30/2018 5,000, ,999, ,000, AAA /30/ G8WZ Federal Home Loan Mtg Corp 04/26/2016 5,000, ,985, ,000, AAA /26/ G8YU Federal Home Loan Mtg Corp 04/26/2016 5,000, ,982, ,000, AAA /26/ GAZB Federal Home Loan Mtg Corp 11/30/2016 5,000, ,926, ,000, AAA ,242 11/24/ GAYV Federal Home Loan Mtg Corp 12/30/2016 5,000, ,856, ,000, AAA ,278 12/30/ GAYX Federal Home Loan Mtg Corp 11/30/2016 5,000, ,831, ,000, AAA ,244 11/26/ GAK Federal Home Loan Mtg Corp 01/25/2017 5,000, ,972, ,000, AAA /25/ GBEB Federal Home Loan Mtg Corp 04/06/2017 5,000, ,930, ,000, AAA /27/ GBEU Federal Home Loan Mtg Corp 04/07/2017 5,000, ,000, ,000, AAA /27/ GBTJ Federal Home Loan Mtg Corp 11/30/2017 5,000, ,870, ,967, AAA ,066 06/01/ GBR Federal Home Loan Mtg Corp 12/12/2017 5,000, ,945, ,985, AAA /30/ G9NB Federal Home Loan Mtg Corp 12/29/2017 5,000, ,942, ,976, AAA /24/ GBGG Federal Home Loan Mtg Corp 12/29/2017 5,000, ,950, ,983, AAA /26/ G0G Federal National Mortgage Assn 11/27/ ,000, ,954, ,991, AAA /14/ G0N Federal National Mortgage Assn 08/12/2016 5,000, ,916, ,995, AAA /02/ G4HF Federal National Mortgage Assn 11/29/2016 5,000, ,922, ,000, AAA /29/ G4HH Federal National Mortgage Assn 11/30/2016 5,000, ,917, ,000, AAA /26/ G0Q Federal National Mortgage Assn 11/17/2016 5,000, ,792, ,943, AAA ,194 10/07/ G0R Federal National Mortgage Assn 11/17/2016 5,000, ,904, ,979, AAA /24/ G0K Federal National Mortgage Assn 12/09/ ,000, ,620, ,847, AAA ,040 05/06/ G0S Federal National Mortgage Assn 04/11/2017 5,000, ,923, ,998, AAA /27/ G0T Federal National Mortgage Assn 12/01/2017 5,000, ,886, ,961, AAA /30/ G0J Federal National Mortgage Assn 12/11/2017 5,000, ,958, ,976, AAA /26/ G04T Federal National Mortgage Assn 12/29/2017 5,000, ,902, ,956, AAA /14/ X0SA Farmer Mac 04/19/2017 5,000, ,917, ,999, AAA /17/ DS Private Export Funding 01/02/2015 5,000, ,999, ,000, AAA /15/ DQ Private Export Funding 12/11/ ,000, ,884, ,941, AAA /15/ DQ Private Export Funding 11/21/2016 5,000, ,942, ,004, AAA /15/2019 Treasury Coupon Securities Subtotal and Average 255,776, ,545, ,462, ,793, A US Treasury Notes 11/09/2015 3,650, ,637, ,651, AAA /30/ A US Treasury Notes 11/16/ , , , AAA /30/ A US Treasury Notes 12/04/2015 4,940, ,923, ,946, AAA /31/ C US Treasury Notes 03/04/2016 3,900, ,881, ,916, AAA /31/2019 Maturity Date Portfolio 1718 AP Run Date: 08/30/ :37 PM (PRF_PM2) 7.3.0

196 FY Portfolio Management Portfolio Details - Investments June 30, 2018 Page 4 CUSIP Investment # Treasury Coupon Securities Issuer Average Balance Purchase Date Par Value Market Value Book Value Stated Rate S&P YTM Days to 365 Maturity A US Treasury Notes 05/06/2016 4,965, ,947, ,973, AAA /30/ M US Treasury Notes 12/14/2016 5,000, ,887, ,986, AAA /30/ L US Treasury Notes 04/10/2017 5,000, ,864, ,968, AAA /31/ S US Treasury Notes 04/11/2017 5,000, ,777, ,899, AAA ,126 07/31/ P US Treasury Notes 04/11/2017 5,000, ,810, ,922, AAA /28/ T US Treasury Notes 07/10/2017 5,000, ,984, ,993, AAA /30/ U US Treasury Notes 12/12/2017 5,000, ,977, ,989, AAA /31/ WS US Treasury Notes 12/29/2017 5,000, ,963, ,991, AAA /30/ XM US Treasury Notes 01/25/2018 5,000, ,905, ,947, AAA /31/ N US Treasury Notes 01/25/2018 5,000, ,847, ,894, AAA /31/ V US Treasury Notes 02/02/2018 5,000, ,969, ,977, AAA /31/ XS US Treasury Notes 02/02/2018 5,000, ,950, ,965, AAA /31/ S US Treasury Notes 02/02/2018 5,000, ,962, ,988, AAA /31/2020 Supranational - IBRD, IFC, IADB Subtotal and Average 77,574, ,025, ,859, ,583, DX Inter-American Development Bk 04/12/2016 1,385, ,367, ,383, AAA /13/ X0CR Inter-American Development Bk 01/12/2017 5,000, ,918, ,977, AAA /15/ X0CW Inter-American Development Bk 01/18/2017 5,000, ,894, ,995, AAA ,297 01/18/ X0CP Inter-American Development Bk 03/13/2017 5,000, ,932, ,002, AAA /16/ X0CX Inter-American Development Bk 04/13/2017 5,000, ,915, ,997, AAA /12/ X0BR Inter-American Development Bk 07/13/2017 5,000, ,997, ,003, AAA /24/ DX Inter-American Development Bk 12/04/2017 5,000, ,935, ,966, AAA /13/ X0CS Inter-American Development Bk 12/13/2017 5,000, ,887, ,974, AAA /15/ UVC Intl Bnk for Recons & Dev 02/26/2016 5,000, ,968, ,000, AAA /26/ UVC Intl Bnk for Recons & Dev 03/24/2016 5,000, ,968, ,000, AAA /26/ FC Intl Bnk for Recons & Dev 04/26/2016 5,000, ,953, ,000, AAA /26/ FD Intl Bnk for Recons & Dev 04/28/ ,000, ,000, ,000, AAA ,032 04/28/ FB Intl Bnk for Recons & Dev 04/29/2016 5,000, ,957, ,000, AAA /26/ FS Intl Bnk for Recons & Dev 11/18/2016 5,000, ,900, ,978, AAA /27/ UB Intl Bnk for Recons & Dev 12/16/2016 5,000, ,859, ,994, AAA ,263 12/15/ FQ Intl Bnk for Recons & Dev 01/23/ ,000, ,835, ,969, AAA /30/ FA Intl Bnk for Recons & Dev 04/11/2017 5,000, ,893, ,984, AAA /30/ FM Intl Bnk for Recons & Dev 07/12/2017 5,000, ,842, ,938, AAA /10/ UP Intl Bnk for Recons & Dev 10/16/2017 5,000, ,907, ,000, AAA /16/ FH Intl Bnk for Recons & Dev 11/30/2017 5,000, ,810, ,905, AAA ,058 05/24/2021 Maturity Date Portfolio 1718 AP Run Date: 08/30/ :37 PM (PRF_PM2) 7.3.0

197 FY Portfolio Management Portfolio Details - Investments June 30, 2018 Page 5 CUSIP Investment # Supranational - IBRD, IFC, IADB Issuer Average Balance Purchase Date Par Value Market Value Book Value Stated Rate S&P YTM Days to 365 Maturity DT Intl Bnk for Recons & Dev 06/06/2018 5,000, ,924, ,930, AAA ,089 06/24/ VHE Intl Fin Corp 12/16/2016 5,000, ,980, ,999, AAA /27/ KCG Intl Fin Corp 04/13/2017 5,000, ,896, ,993, AAA /16/ KCL Intl Fin Corp 06/07/2017 5,000, ,924, ,017, AAA /30/ KCG Intl Fin Corp 07/13/2017 5,000, ,896, ,994, AAA /16/ KCG Intl Fin Corp 02/02/2018 4,835, ,734, ,770, AAA /16/2020 Municipal Bonds Subtotal and Average 137,282, ,220, ,099, ,778, GTB University of California 12/09/2016 1,275, ,280, ,300, AA /15/ DAD State of California 04/27/2017 2,000, ,947, ,000, AA ,370 04/01/ DAC State of California 04/27/2017 4,000, ,972, ,042, AA ,005 04/01/ DAD State of California 04/27/2017 3,150, ,067, ,162, AA ,370 04/01/ PZE State of California 09/27/2017 3,340, ,304, ,355, AA /01/ UL Racine CO BANS 05/31/2018 5,000, ,992, ,986, AA /01/2020 Subtotal and Average 18,849, ,765, ,564, ,848, Maturity Date Total and Average 880,338, ,756, ,952, ,444, Portfolio 1718 AP Run Date: 08/30/ :37 PM (PRF_PM2) 7.3.0

198 FY Purchases Report Sorted by Purchase Date - Maturity Date April 1, June 30, 2018 Merced County CUSIP Investment # Fund Sec. Type Issuer 22533UGX ACP CR AGR 63873KHA ACP NATIXI 2254EBN ACP CR SUI BA MTN MIC BH MTN MIC BR MTN BERKSH Original Par Value Purchase Date Payment Periods Principal Purchased Accrued Interest Rate at at Purchase Purchase Maturity Date YTM Ending Book Value 25,000, /12/ /31 - At Maturity 24,827, /31/ ,953, ,000, /12/ /10 - At Maturity 9,921, /10/ ,974, ,000, /10/ /04 - At Maturity 24,523, /04/ ,670, ,000, /27/ /12-02/12 4,873, , /12/ ,879, ,000, /02/ /03-11/03 4,951, Received /03/ ,954, ,000, /02/ /15-03/15 4,935, , /15/ ,938, UL MUN RACINE 5,000, /31/ /01-06/01 4,986, /01/ ,986, DT AK MC1 MTN IBRD APPLE 5,000, /06/ /24-12/24 4,928, Received /24/ ,930, ,000, /04/ /03-05/03 4,845, , /03/ ,848, Total Purchases 90,000, ,793, , ,134, Received = Accrued Interest at Purchase was received by report ending date. Portfolio 1718 AP Run Date: 08/30/ :43 PU (PRF_PU) Report Ver

199 FY Maturity Report Sorted by Maturity Date Receipts during April 1, June 30, 2018 Merced County Sec. CUSIP Investment # Fund Type Issuer 36962G6W DF G3U BW YAG HDB PEW VE TMC EJ QFJ5 3130A8DW KFV Par Value Maturity Date Purchase Rate Date at Maturity Book Value at Maturity Interest Maturity Proceeds 2070 MTN GE CAP 5,000, /02/ /15/ ,000, , ,040, , MTN WALMRT 5,000, /11/ /11/ ,000, , ,028, , MTN GE CAP 2,230, /01/ /29/ ,230, , ,292, , MTN BERKSH 5,000, /15/ /25/ ,000, , ,032, , MTN MERCK 5,000, /18/ /09/ ,000, , ,032, , MTN BNY 2,500, /22/ /29/ ,500, , ,520, , ACP ABBEY 5,000, /30/ /01/ ,000, ,000, TRC USTN 1,150, /31/ /29/ ,150, , ,155, , MTN BAMER 5,710, /05/ /01/ ,710, , ,759, , MC1 IBRD 5,000, /15/ /07/ ,000, , ,025, , ACP JP MOR 5,000, /18/ /21/ ,000, ,000, FAC FHLB 10,000, /22/ /22/ ,000, , ,057, , ACP BNP 20,000, /29/ /02/ ,000, ,000, Total Maturities 76,590, ,590, , ,944, , Net Income Portfolio 1718 AP Run Date: 08/30/ :45 MA (PRF_MA) Report Ver

200 FY Sales/Call Report Sorted by Redemption Date - Maturity Date April 1, June 30, 2018 Merced County CUSIP Investment # Fund Issuer Purchase Redem. Date Sec. Type Date Matur. Date Par Value Rate at Redem. Book Value at Redem. Redemption Principal Redemption Interest Total Amount Net Income 3135G0M FNMA 07/27/ /25/2018 5,000, ,999, ,989, , ,003, , FAC 07/27/2018 Sale S USTN 07/10/ /25/2018 5,000, ,995, ,989, , ,000, , TRC 07/31/2018 Sale Total Sales 10,000, ,994, ,978, , ,004, , Portfolio 1718 AP Run Date: 08/30/ :46 SA (PRF_SA) Report Ver

201 JOHN CHIANG TREASURER STATE OF CALIFORNIA PMIA Performance Report Average Date Daily Yield* Quarter to Date Yield Maturity (in days) 07/30/ /31/ /01/ /02/ /03/ /04/ /05/ /06/ /07/ /08/ /09/ /10/ /11/ /12/ /13/ /14/ /15/ /16/ /17/ /18/ /19/ /20/ /21/ /22/ /23/ /24/ /25/ /26/ /27/ /28/ /29/ *Daily yield does not reflect capital gains or losses View Prior Month Daily Rates Certificates of Deposit/Bank Notes 18.76% LAIF Performance Report Apportionment Rate: Earnings Ratio: Fair Value Factor: Daily: Quarter to Date: Quarter Ending 06/30/18 Average Life: 193 PMIA Average Monthly Effective Yields July June May % % 1.76% Pooled Money Investment Account Portfolio Composition 07/31/18 $90.0 billion Time Deposits 5.49% Commercial Paper 7.66% Loans 0.86% Treasuries 49.41% Agencies 17.79% Based on data available as of 8/29/2018