$5,000,000* KERMAN UNIFIED SCHOOL DISTRICT (Fresno County, California) General Obligation Bonds, Election of 2016, Series 2018 (Bank Qualified)

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1 This Preliminary Official Statement and the information contained herein are subject to completion and amendment. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities, in any jurisdiction in which such offer, solicitation or sale would be unlawful. PRELIMINARY OFFICIAL STATEMENT DATED OCTOBER 3, 2018 NEW ISSUE BOOK-ENTRY ONLY Rating: S&P: A+ (See MISCELLANEOUS Rating herein.) In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the District, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Series 2018 Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. In the further opinion of Bond Counsel, interest on the Series 2018 Bonds is not a specific preference item for purposes of the federal alternative minimum tax. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Series 2018 Bonds. See TAX MATTERS herein. $5,000,000* KERMAN UNIFIED SCHOOL DISTRICT (Fresno County, California) General Obligation Bonds, Election of 2016, Series 2018 (Bank Qualified) Dated: Date of Delivery Due: August 1, as shown herein This cover page is not a summary of this issue; it is only a reference to the information contained in this Official Statement. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. The Kerman Unified School District (Fresno County, California) General Obligation Bonds, Election of 2016, Series 2018 (the Series 2018 Bonds ) are issued by the Kerman Unified School District (the District ), located in the County of Fresno, California (the County ), to finance specific construction, repair and improvement projects approved by the voters of the District. The Series 2018 Bonds were authorized at an election of the voters of the District held on November 8, 2016, at which at least 55% of the voters authorized the issuance and sale of $27,000,000 principal amount of bonds of the District. The Series 2018 Bonds are being issued under the laws of the State of California (the State ) and pursuant to a resolution of the Board of Trustees of the District, adopted on September 20, The Series 2018 Bonds are payable from ad valorem taxes to be levied within the District pursuant to the California Constitution and other State law. The Board of Supervisors of the County is empowered and obligated to levy ad valorem taxes upon all property subject to taxation by the District, without limitation as to rate or amount (except as to certain personal property which is taxable at limited rates), for the payment of principal of and interest on the Series 2018 Bonds, all as more fully described herein. See SECURITY AND SOURCE OF PAYMENT FOR THE SERIES 2018 BONDS herein. The Series 2018 Bonds will be issued as current interest bonds, as set forth on the inside front cover hereof. Interest on the Series 2018 Bonds is payable on each February 1 and August 1 to maturity, commencing February 1, Principal of the Series 2018 Bonds is payable on August 1 in each of the years and in the amounts set forth on the inside front cover hereof. The Series 2018 Bonds will be issued in denominations of $5,000 principal amount, or any integral multiple thereof as shown on the inside front cover hereof. As more fully described herein, the District may obtain a municipal bond insurance policy to guarantee the scheduled payment of principal of and interest on the Series 2018 Bonds as such payments become due. The District s decision whether or not to obtain such a policy will be made at or about the time of pricing of the Series 2018 Bonds and will be based upon, among other things, market conditions at the time of such pricing. No assurance can be given as to whether the District will obtain such a policy, and, if so, whether such policy will cover all or less than all of the Series 2018 Bonds. The Series 2018 Bonds will be issued in book-entry form only and will be initially issued and registered in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York ( DTC ). DTC will act as securities depository for the Series 2018 Bonds. Individual purchases of the Series 2018 Bonds will be made in book-entry form only. Purchasers will not receive physical delivery of the Series 2018 Bonds purchased by them. See THE SERIES 2018 BONDS Form and Registration herein. Payments of the principal of and interest on the Series 2018 Bonds will be made by U.S. Bank National Association, as paying agent, registrar and transfer agent with respect to the Series 2018 Bonds, to DTC for subsequent disbursement to DTC Participants, who will remit such payments to the beneficial owners of the Series 2018 Bonds. See THE SERIES 2018 BONDS Payment of Principal and Interest herein. The Series 2018 Bonds are subject to redemption prior to maturity as described herein. See THE SERIES 2018 BONDS Redemption herein. The Series 2018 Bonds will be offered when, as and if issued by the District and received by the Underwriter, subject to the approval of legality by Orrick, Herrington & Sutcliffe LLP, Irvine, California, Bond Counsel to the District. Certain legal matters will be passed upon for the District by Orrick, Herrington & Sutcliffe LLP, Irvine, California, as Disclosure Counsel to the District. It is anticipated that the Series 2018 Bonds, in definitive form, will be available for delivery through the facilities of DTC on or about October 24, Dated, * Preliminary; subject to change.

2 MATURITY SCHEDULE BASE CUSIP : $5,000,000 * KERMAN UNIFIED SCHOOL DISTRICT (Fresno County, California) General Obligation Bonds, Election of 2016, Series 2018 (Bank Qualified) $ Serial Bonds Maturity (August 1) Principal Amount Interest Rate 2019 $ % % Yield CUSIP Number $ % Term Series 2018 Bonds due August 1, 20 Yield % - CUSIP Number $ % Term Series 2018 Bonds due August 1, 20 Yield % - CUSIP Number CUSIP is a registered trademark of the American Bankers Association. CUSIP Global Services (CGS) is managed on behalf of the American Bankers Association by S&P Capital IQ. Copyright 2018 CUSIP Global Services. All rights reserved. CUSIP data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database. CUSIP numbers are provided for convenience of reference only. None of the District, the Underwriter or their agents or counsel assume responsibility for the accuracy of such numbers. * Preliminary; subject to change.

3 KERMAN UNIFIED SCHOOL DISTRICT (Fresno County, California) BOARD OF TRUSTEES Daniel G. Babshoff, President Vicki Blair, Vice President Maria Cantu, Clerk Efrain Guizar, Member Darrell Yates, Member DISTRICT ADMINISTRATORS Robert Frausto, Superintendent Kraig Magnussen, Assistant Superintendent, Business Services/Chief Business Official PROFESSIONAL SERVICES Municipal Advisor KNN Public Finance, LLC Oakland, California Bond Counsel and Disclosure Counsel Orrick, Herrington & Sutcliffe LLP Irvine, California Paying Agent, Registrar and Transfer Agent U.S. Bank National Association Los Angeles, California

4 This Official Statement does not constitute an offering of any security other than the original offering of the Series 2018 Bonds by the District. No dealer, broker, salesperson or other person has been authorized by the District to give any information or to make any representations other than as contained in this Official Statement, and if given or made, such other information or representation not so authorized should not be relied upon as having been given or authorized by the District. The Series 2018 Bonds are exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 3(a)2 thereof. This Official Statement does not constitute an offer to sell or a solicitation of an offer to buy Series 2018 Bonds in any state in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation. The information set forth herein other than that furnished by the District, although obtained from sources which are believed to be reliable, is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the District. The information and expressions of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District since the date hereof. This Official Statement is submitted in connection with the sale of the Series 2018 Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as 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. Certain statements included or incorporated by reference in this Official Statement constitute forwardlooking statements. Such statements are generally identifiable by the terminology used, such as plan, expect, estimate, budget, intend or other similar words. The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The District does not plan to issue any updates or revisions to those forward-looking statements if or when their expectations, or events, conditions or circumstances on which such statements are based, occur. The District maintains a website. However, the information presented there is not part of this Official Statement and should not be relied upon in making an investment decision with respect to the Series 2018 Bonds. In connection with this offering, the Underwriter may overallot or effect transactions which stabilize or maintain the market prices of the Series 2018 Bonds at levels above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriter may offer and sell the Series 2018 Bonds to certain securities dealers and dealer banks and banks acting as agent at prices lower than the public offering prices stated on the inside front cover page hereof and said public offering prices may be changed from time to time by the Underwriter.

5 TABLE OF CONTENTS Page INTRODUCTION... 1 General... 1 The District... 1 THE SERIES 2018 BONDS... 2 Authority for Issuance; Purpose... 2 Possible Municipal Bond Insurance... 2 Form and Registration... 3 Payment of Principal and Interest... 3 Redemption... 4 Defeasance of Series 2018 Bonds... 6 Unclaimed Moneys... 6 Application and Investment of Series 2018 Bond Proceeds... 7 Debt Service... 8 Outstanding Bonds... 9 Aggregate Debt Service SECURITY AND SOURCE OF PAYMENT FOR THE SERIES 2018 BONDS General Statutory Lien on Taxes (Senate Bill 222) Pledge of Tax Revenues Property Taxation System Assessed Valuation of Property Within the District Tax Rates Tax Charges and Delinquencies Direct and Overlapping Debt TAX MATTERS OTHER LEGAL MATTERS Legal Opinion Legality for Investment in California Continuing Disclosure Recent Payment Default Litigation Bank Qualified i

6 TABLE OF CONTENTS (continued) Page MISCELLANEOUS Rating Professionals Involved in the Offering Underwriting ADDITIONAL INFORMATION APPENDIX A APPENDIX B INFORMATION RELATING TO THE DISTRICT S OPERATIONS AND BUDGET...A-1 FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, B-1 APPENDIX C PROPOSED FORM OF OPINION OF BOND COUNSEL... C-1 APPENDIX D APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE...D-1 FRESNO COUNTY INVESTMENT POLICIES AND PRACTICES; DESCRIPTION OF INVESTMENT POOL... E-1 APPENDIX F BOOK-ENTRY ONLY SYSTEM... F-1 ii

7 $5,000,000 * KERMAN UNIFIED SCHOOL DISTRICT (Fresno County, California) General Obligation Bonds, Election of 2016, Series 2018 (Bank Qualified) INTRODUCTION This introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page and appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Official Statement. The offering of the Series 2018 Bonds to potential investors is made only by means of the entire Official Statement. General This Official Statement, which includes the cover page and appendices hereto, is provided to furnish information in connection with the sale of $5,000,000 * aggregate principal amount of Kerman Unified School District (Fresno County, California) General Obligation Bonds, Election of 2016, Series 2018 (the Series 2018 Bonds ), all as indicated on the inside front cover hereof, to be offered by the Kerman Unified School District (the District ). This Official Statement speaks only as of its date, and the information contained herein is subject to change. The District has no obligation to update the information in this Official Statement, except as required by the Continuing Disclosure Certificate to be executed by the District. See OTHER LEGAL MATTERS Continuing Disclosure. The purpose of this Official Statement is to supply information to prospective buyers of the Series 2018 Bonds. Quotations from and summaries and explanations of the Series 2018 Bonds, the resolution of the Board of Trustees of the District relating to the Series 2018 Bonds, and the constitutional provisions, statutes and other documents described herein, do not purport to be complete, and reference is hereby made to said documents, constitutional provisions and statutes for the complete provisions thereof. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the District and the purchasers or owners of any of the Series 2018 Bonds. Copies of documents referred to herein and information concerning the Series 2018 Bonds are available from the District by contacting: Kerman Unified School District, 151 South First Street, Kerman, California 93630, Attention: Assistant Superintendent, Business Services/Chief Business Official. The District may impose a charge for copying, handling and mailing such requested documents. The District The District was established as a unified school district on July 1, 1983 and is located in the western portion of Fresno County, California (the County ). The District is located 17 miles southwest of Fresno in the city of Kerman. The District encompasses approximately 173 miles and the current enrollment for * Preliminary; subject to change.

8 the District is approximately 5,321 students. The District currently operates four elementary schools serving grades pre-kindergarten through grade six, one middle school serving grades seven and eight, one high school serving grades nine through twelve and one alternative education program. Total assessed valuation of taxable property in the District in fiscal year is $1,658,805,334. The District operates under the jurisdiction of the Fresno County Superintendent of Schools 1. For additional information about the District, see APPENDIX A INFORMATION RELATING TO THE DISTRICT S OPERATIONS AND BUDGET and APPENDIX B FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, Authority for Issuance; Purpose THE SERIES 2018 BONDS The Series 2018 Bonds are issued under the provisions of California Government Code Section et seq., including Section thereof, and California Education Code Section and Article XIIIA of the California Constitution and pursuant to a resolution adopted by the Board of Trustees of the District on September 20, 2018 (the Resolution ). At an election held on November 8, 2016, the District received authorization under Measure K to issue general obligation bonds of the District in an aggregate principal amount not to exceed $27,000,000 to upgrade classrooms and science labs, to keep pace with educational technology and support student achievement in math, science, engineering and skilled trades; acquire land and construct new classrooms to reduce overcrowding at existing schools; replace aging portables with permanent classrooms; and improve student safety and campus security systems (collectively, the 2016 Authorization ). Measure K required approval by at least 55% of the votes cast by eligible voters within the District and received an approval vote of approximately 76.92%. The Series 2018 Bonds represent the second series of authorized bonds to be issued under the 2016 Authorization and are being issued to finance authorized projects. See Application and Investment of Series 2018 Bond Proceeds herein. Possible Municipal Bond Insurance In connection with the issuance of the Series 2018 Bonds, the District has applied for, and may obtain a municipal bond insurance policy to guarantee the scheduled payment of principal of and interest on all or a portion of the Series 2018 Bonds as such payments shall become due. No assurance can be given as to whether a commitment will be issued by an insurer to the District and, if a commitment is issued by an insurer to the District, no assurance can be given as to (a) whether the District will decide to obtain an insurance policy from an insurer in connection with the issuance of the Series 2018 Bonds, or (b) whether the District will insure all or less than all of the Series 2018 Bonds. If a commitment is issued by an insurer to the District, the District s decision as to whether or not the insurance policy will be obtained from an insurer with respect to all or a portion of the Series 2018 Bonds will be made at or about the time of the pricing of the Series 2018 Bonds and will be based upon, among other things, market conditions at the time of such pricing. If the District does decide to obtain an insurance policy from an insurer, it will be a condition to the issuance of the Series 2018 Bonds that such insurance policy be issued concurrently with the issuance of the Series 2018 Bonds. In the event the District does decide to obtain a municipal bond insurance policy from an insurer, the insured Series 2018 Bonds (the Insured Bonds ) would be assigned an insured rating from the rating 1 The Superintendent of Schools of the County is independent from, and not an officer of, the County. 2

9 agency assigning the underlying rating to the Series 2018 Bonds based solely as a result of the issuance of such insurance policy, and such rating would reflect the rating agency s views of the claims-paying ability and financial strength of the applicable insurer. The financial strength and claims paying ability of any insurer are predicated upon a number of factors which could change over time. Neither the District nor the Underwriter has made any independent investigation into the claims paying ability of any insurer, and no assurance or representation regarding the financial strength or projected financial strength of any insurer is given. In addition, no assurance is made that any insured rating of the Insured Bonds would not be subject to downgrade. The existence of any insurance policy will not, of itself, negatively affect the underlying rating assigned to the Series 2018 Bonds. Without regard to any bond insurance, the Series 2018 Bonds are payable from the proceeds of an ad valorem tax approved by the voters of the District pursuant to all applicable laws and constitutional requirements, and required to be levied by the County on property within the District in an amount sufficient for the timely payment of principal of and interest on the Series 2018 Bonds. See SECURITY AND SOURCE OF PAYMENT FOR THE SERIES 2018 BONDS. However, any downward revision or withdrawal of any rating of an insurer may have an adverse effect on the market price of the Insured Bonds or the marketability (liquidity) for the Insured Bonds. In the event of default of the payment of principal of or interest on the Insured Bonds, if any, when all or some becomes due, any owner of the Insured Bonds would have a claim under any applicable municipal bond insurance policy for such payments. However, in the event of any acceleration of the due date of such principal by reason of optional redemption or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments would be made in such amounts and at such times as such payments would have been due had there not been any such acceleration. No municipal bond insurance policy would insure against redemption premium, if any. The payment of principal and interest in connection with mandatory or optional redemption of the Insured Bonds by the issuer which is recovered from an Insured Bond owner as a voidable preference under applicable bankruptcy law would be covered by any municipal bond insurance policy; however, such payments would be made by the applicable insurer at such time and in such amounts as would have been due absent such redemption unless the insurer were to choose to pay such amounts at an earlier date. In the event any insurer becomes obligated to make payments with respect to any Insured Bonds, no assurance is given that such event will not adversely affect the market price of the Insured Bonds or the marketability (liquidity) for the Insured Bonds. The obligations of any insurer are contractual obligations and, in an event of default by an insurer, the remedies available may be limited by applicable bankruptcy law or state law related to insolvency of insurance companies. Form and Registration The Series 2018 Bonds will be issued in fully registered form only, without coupons, in denominations of $5,000 principal amount or integral multiples thereof. The Series 2018 Bonds will initially be registered in the name of Cede & Co., as nominee of The Depository Trust Company ( DTC ), New York, New York. DTC will act as securities depository of the Series 2018 Bonds. Purchases of Series 2018 Bonds under the DTC book-entry system must be made by or through a DTC participant, and ownership interests in Series 2018 Bonds will be recorded as entries on the books of said participants. Except in the event that use of this book-entry system is discontinued for the Series 2018 Bonds, beneficial owners ( Beneficial Owners ) will not receive physical certificates representing their ownership interests. See APPENDIX F BOOK-ENTRY ONLY SYSTEM. Payment of Principal and Interest Interest. The Series 2018 Bonds will be dated as of their date of delivery, and bear interest at the rates set forth on the inside front cover page of this Official Statement, payable on February 1 and August 1 3

10 of each year (each, an Interest Payment Date ), commencing on February 1, 2019, computed on the basis of a 360-day year consisting of twelve 30-day months. Each Series 2018 Bond will bear interest from the Interest Payment Date next preceding the date of authentication thereof, unless it is authenticated after the close of business on the 15 th day of the calendar month immediately preceding an Interest Payment Date (the Record Date ) and on or prior to the succeeding Interest Payment Date, in which event it will bear interest from such Interest Payment Date, or unless it is authenticated on or before the Record Date preceding the first Interest Payment Date, in which event it will bear interest from its dated date; provided, however, that if, at the time of authentication of any Series 2018 Bond, interest is in default on any outstanding Series 2018 Bonds, such Series 2018 Bond will bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment on the outstanding Series 2018 Bonds. Payment of Series 2018 Bonds. The principal of the Series 2018 Bonds is payable in lawful money of the United States of America upon the surrender thereof at the principal corporate trust office of U.S. Bank National Association as paying agent (the Paying Agent ) at the maturity thereof or upon redemption prior to maturity. Interest on the Series 2018 Bonds is payable in lawful money of the United States of America by check mailed on each Interest Payment Date (if a business day, or on the next business day if the Interest Payment Date does not fall on a business day) to the registered owner thereof (the Owner ) at such Owner s address as it appears on the bond registration books kept by the Paying Agent or at such address as the Owner may have filed with the Paying Agent for that purpose, except that the payment shall be made by wire transfer of immediately available funds to any Owner of at least $1,000,000 of outstanding Series 2018 Bonds who shall have requested in writing such method of payment of interest prior to the close of business on a Record Date. So long as the Series 2018 Bonds are held by Cede & Co., as nominee of DTC, payment shall be made by wire transfer. See APPENDIX F BOOK-ENTRY ONLY SYSTEM. Redemption * Optional Redemption. The Series 2018 Bonds maturing on or after August 1, 2029, are subject to redemption prior to their respective stated maturity dates, at the option of the District, from any source of available funds, as a whole or in part on any date on or after August 1, 2028, at a redemption price equal to the principal amount of the Series 2018 Bonds called for redemption, together with interest accrued thereon to the date of redemption, without premium. Mandatory Sinking Fund Redemption. The $ term Series 2018 Bonds maturing on August 1, 20 are subject to mandatory sinking fund redemption on August 1 in each of the years and in the respective principal amounts as set forth in the following schedule, at a redemption price equal to 100% of the principal amount thereof to be redeemed, together with interest accrued thereon to the date fixed for redemption, without premium: Mandatory Sinking Fund Redemption Date (August 1) Principal Amount to be Redeemed $ Maturity. * Preliminary; subject to change. 4

11 The principal amount of the $ term Series 2018 Bonds maturing on August 1, 20, to be redeemed in each year shown above will be reduced proportionately, or as otherwise directed by the District, in integral multiples of $5,000, by any portion of such term Series 2018 Bonds optionally redeemed prior to the mandatory sinking fund redemption date. The $ term Series 2018 Bonds maturing on August 1, 20 are subject to mandatory sinking fund redemption on August 1 in each of the years and in the respective principal amounts as set forth in the following schedule, at a redemption price equal to 100% of the principal amount thereof to be redeemed, together with interest accrued thereon to the date fixed for redemption, without premium: Mandatory Sinking Fund Redemption Date (August 1) Principal Amount to be Redeemed $ Maturity. The principal amount of the $ term Series 2018 Bonds maturing on August 1, 20, to be redeemed in each year shown above will be reduced proportionately, or as otherwise directed by the District, in integral multiples of $5,000, by any portion of such term Series 2018 Bonds optionally redeemed prior to the mandatory sinking fund redemption date. Selection of Series 2018 Bonds for Redemption. If less than all of the Series 2018 Bonds are called for redemption, the Series 2018 Bonds shall be redeemed in inverse order of maturities or as otherwise directed by the District. Whenever less than all of the outstanding Series 2018 Bonds of any one maturity are designated for redemption, the Paying Agent shall select the outstanding Series 2018 Bonds of such maturity to be redeemed by lot in any manner deemed fair by the Paying Agent. For purposes of such selection, each Series 2018 Bond shall be deemed to consist of individual Series 2018 Bonds of denominations of $5,000 principal amount, each, which may be separately redeemed. Notice of Redemption. Notice of redemption of any Series 2018 Bond will be given by the Paying Agent not less than 30 nor more than 60 days prior to the redemption date (i) by first class mail to the County and the respective Owners thereof at the addresses appearing on the bond registration books, and (ii) as may be further required in accordance with the Continuing Disclosure Certificate with respect to the Series 2018 Bonds. See APPENDIX D FORM OF CONTINUING DISCLOSURE CERTIFICATE. Each notice of redemption will contain the following information: (i) the date of such notice; (ii) the name of the Series 2018 Bonds and the date of issue of the Series 2018 Bonds; (iii) the redemption date; (iv) the redemption price; (v) the dates of maturity or maturities of Series 2018 Bonds to be redeemed; (vi) if less than all of the Series 2018 Bonds of any maturity are to be redeemed, the distinctive numbers of the Series 2018 Bonds of each maturity to be redeemed; (vii) in the case of Series 2018 Bonds redeemed in part only, the respective portions of the principal amount of the Series 2018 Bonds of each maturity to be redeemed; (viii) the CUSIP number, if any, of each maturity of Series 2018 Bonds to be redeemed; (ix) a statement that such Series 2018 Bonds must be surrendered by the Owners at the principal corporate trust office of the Paying Agent or at such other place or places designated by the Paying Agent; (x) notice that further interest on such Series 2018 Bonds will not accrue after the designated redemption date; and (xi) in the case of a conditional notice, that such notice is conditioned upon certain circumstances and the manner of rescinding such conditional notice. The actual receipt by the Owner of any Series 2018 Bond or by any securities depository or information service of notice of redemption shall not be a condition precedent to 5

12 redemption, and failure to receive such notice, or any defect in the notice given, shall not affect the validity of the proceedings for the redemption of such Series 2018 Bonds or the cessation of interest on the date fixed for redemption. Effect of Notice of Redemption. When notice of redemption has been given substantially as described above and when the redemption price of the Series 2018 Bonds called for redemption is set aside, the Series 2018 Bonds designated for redemption shall become due and payable on the specified redemption date and interest shall cease to accrue thereon as of the redemption date, and upon presentation and surrender of such Series 2018 Bonds at the place specified in the notice of redemption, such Series 2018 Bonds shall be redeemed and paid at the redemption price thereof out of the money provided therefor. The Owners of such Series 2018 Bonds so called for redemption after such redemption date shall look for the payment of such Series 2018 Bonds and the redemption premium thereon, if any, only to moneys on deposit for the purpose in the interest and sinking fund of the District within the County treasury (the Interest and Sinking Fund ) or the trust fund established for such purpose. All Series 2018 Bonds redeemed shall be cancelled forthwith by the Paying Agent and shall not be reissued. Right to Rescind Notice. The District may rescind any optional redemption and notice thereof for any reason on any date prior to the date fixed for redemption by causing written notice of the rescission to be given to the owners of the Series 2018 Bonds so called for redemption. Any optional redemption and notice thereof shall be rescinded if for any reason on the date fixed for redemption moneys are not available in the Interest and Sinking Fund of the District or otherwise held in trust for such purpose in an amount sufficient to pay in full on said date the principal of, interest, and any premium due on the Series 2018 Bonds called for redemption. Notice of rescission of redemption shall be given in the same manner in which notice of redemption was originally given. The actual receipt by the owner of any Series 2018 Bond of notice of such rescission shall not be a condition precedent to rescission, and failure to receive such notice or any defect in such notice shall not affect the validity of the rescission. Defeasance of Series 2018 Bonds The District may pay and discharge any or all of the Series 2018 Bonds by depositing in trust with the Paying Agent or an escrow agent at or before maturity, money or non-callable direct obligations of the United States of America or other non-callable obligations the payment of the principal of and interest on which is guaranteed by a pledge of the full faith and credit of the United States of America, in an amount which will, together with the interest to accrue thereon and available moneys then on deposit in the Interest and Sinking Fund of the District, be fully sufficient to pay and discharge the indebtedness on such Series 2018 Bonds (including all principal, interest and redemption premiums) at or before their respective maturity dates. Unclaimed Moneys Any money held in any fund or by the Paying Agent or an escrow agent in trust for the payment of the principal of, redemption premium, if any, or interest on the Series 2018 Bonds and remaining unclaimed for two years after the principal of such Series 2018 Bonds has become due and payable (whether by maturity or upon prior redemption) is required to be transferred to the Interest and Sinking Fund of the District for payment of any outstanding bonds of the District payable from said fund; or, if no such bonds of the District are at such time outstanding, said moneys is required to be transferred to the general fund of the District as provided and permitted by law. 6

13 Application and Investment of Series 2018 Bond Proceeds The proceeds of the Series 2018 Bonds are expected to be applied as follows: KERMAN UNIFIED SCHOOL DISTRICT (Fresno County, California) General Obligation Bonds, Election of 2016, Series 2018 Estimated Sources and Uses of Funds Sources of Funds: Principal Amount of Series 2018 Bonds $ [Plus/Less] [Net] Original Issue [Premium/Discount] Total Sources of Funds $ Uses of Funds: Deposit to Building Fund $ Deposit to Interest and Sinking Fund (1) Costs of Issuance (2) Underwriter s Discount Total Uses of Funds $ (1) Consists of premium received by the District. (2) Includes legal fees, municipal advisor fees, rating agency fees, printing fees, bond insurance premium, if applicable and other miscellaneous expenses the Underwriter has contracted to pay. Under California law, all money received by or apportioned to a school district must generally be paid into and held in the county treasury. Thus, the proceeds from the sale of the Series 2018 Bonds will be deposited in the County treasury to the credit of the building fund of the District (the Building Fund ) and shall be accounted for together with the proceeds of other bonds of the District separately from all other District and County funds. Such proceeds shall be applied solely for the purposes for which the Series 2018 Bonds were authorized. Any premium or accrued interest on the Series 2018 Bonds received by the District will be deposited in the Interest and Sinking Fund of the District in the County treasury. Interest and earnings on each fund will accrue to that fund. All funds held by the County Auditor-Controller/Treasurer- Tax Collector (the County Treasurer ) in the Building Fund and the Interest and Sinking Fund of the District are expected to be invested at the sole discretion of the County Treasurer on behalf of the District in such investments as are authorized by Section and following of the California Government Code and the investment policy of the County, as either may be amended or supplemented from time to time. See APPENDIX E FRESNO COUNTY INVESTMENT POLICIES AND PRACTICES; DESCRIPTION OF INVESTMENT POOL for a description of the permitted investments under the investment policy of the County. In addition, to the extent permitted by law, the District may request in writing that all or any portion of the funds held in the Building Fund may be invested in investment agreements, including guaranteed investment contracts, float contracts or other investment products which comply with the requirements of each rating agency then rating the Series 2018 Bonds. The County Treasurer does not monitor such investments for arbitrage compliance and does not perform any arbitrage calculations with respect to such investments. 7

14 Debt Service Debt service on the Series 2018 Bonds, assuming no early redemptions, is as set forth in the following table. KERMAN UNIFIED SCHOOL DISTRICT (Fresno County, California) General Obligation Bonds, Election of 2016, Series 2018 Year Ending August 1, Principal Interest 2019 $ $ $ Total: $ $ $ Total Debt Service 8

15 Outstanding Bonds In addition to the Series 2018 Bonds, the District has six additional series of general obligation bonds outstanding, each of which is secured by ad valorem taxes upon all property subject to taxation by the District on a parity with the Series 2018 Bonds. The District received authorization at an election held on November 2, 2004, to issue bonds of the District in an aggregate principal amount not to exceed $11 million (the 2004 Authorization ). On December 16, 2004, the District issued its General Obligation Bonds, Election of 2004, Series 2004 (the Series 2004 Bonds ), in the aggregate initial principal amount of $6,002,953.85, as its first series of bonds issued under the 2004 Authorization. On June 15, 2007, the District issued its General Obligation Bonds, Election of 2004, Series 2006 B (the Series 2006 Bonds ) in the aggregate initial principal amount of $2,570,903.50, as its second series of bonds issued under the 2004 Authorization. On March 14, 2007, the District issued its General Obligation Bonds, Election of 2004, Series 2007 C (the Series 2007 Bonds ), in the aggregate initial principal amount of $2,426,015.90, as its third and final series of bonds issued under the 2004 Authorization. On March 31, 2015, the District issued its General Obligation Refunding Bonds, Series 2015 (the Series 2015 Refunding Bonds ), in the aggregate principal amount of $4,140,000 to advance refund a portion of the outstanding Series 2004 Bonds. The District received authorization at an election held on June 3, 2008, to issue bonds of the District in an aggregate principal amount not to exceed $24.9 million (the 2008 Authorization ). On August 11, 2009, the District issued its General Obligation Bonds, Election of 2008, Series 2009 (the Series 2009 Bonds ), in the aggregate initial principal amount of $6,254,805.15, as its first series of bonds issued under the 2008 Authorization. Currently, the amount of $18,645, remains authorized under the 2008 Authorization but unissued. The District could consider issuing additional bonds under the 2008 Authorization as early as fiscal year However, such issuance is dependent on a number of factors, including receipt of state matching funds and priorities of the District, which are subject to change. On May 11, 2017, the District issued its General Obligation Bonds, Election of 2016, Series 2017 (the Series 2017 Bonds ) in the aggregate principal amount of $12,000,000, as its first series of bonds to be issued under the 2016 Authorization. [Remainder of page left intentionally blank.] 9

16 Aggregate Debt Service 10 The following table sets forth the annual aggregate debt service requirements of all outstanding general obligation bonds of the District, assuming no early redemptions. Year Ending August 1, Series 2004 Bonds Series 2006 Bonds KERMAN UNIFIED SCHOOL DISTRICT (Fresno County, California) General Obligation Bonds Aggregate Debt Service 2004 Authorization Series 2007 Bonds Series 2015 Refunding Bonds 2008 Authorization Series 2009 Bonds Series 2017 Bonds 2016 Authorization Series 2018 Bonds $ 225, $ 445, $ 380, $ 979, $ $ , , , , , , , , , , , , , , , , , , , , , , , , $ 630, , $ 265, , , , , , , , , , , , , , , , , , ,115, , , , ,505, , , ,390, , ,145, , ,255, , ,365, , ,485, , ,610, , ,740, , ,875, , ,020, , ,170, , ,330, , ,495, ,018, ,670, ,055, ,093, ,131, Total $2,670, $4,269, $5,445, $3,536, $39,575, $21,204, $ $ Source: KNN Public Finance, LLC. Aggregate Total Debt Service

17 SECURITY AND SOURCE OF PAYMENT FOR THE SERIES 2018 BONDS General In order to provide sufficient funds for repayment of principal and interest when due on the Series 2018 Bonds, the Board of Supervisors of the County is empowered and is obligated to levy ad valorem taxes upon all property subject to taxation by the District, without limitation as to rate or amount (except as to certain personal property which is taxable at limited rates). Such taxes are in addition to other taxes levied upon property within the District. When collected, the tax revenues will be deposited by the County in the Interest and Sinking Fund of the District, which is required to be maintained by the County and to be used solely for the payment of bonds of the District. The Series 2018 Bonds are payable from ad valorem taxes to be levied within the District pursuant to the California Constitution and other State law, and are not a debt or obligation of the County. No fund of the County is pledged or obligated to repayment of the Series 2018 Bonds. Statutory Lien on Taxes (Senate Bill 222) Pursuant to Section of the California Government Code (which became effective on January 1, 2016), all general obligation bonds issued by local agencies, including refunding bonds, will be secured by a statutory lien on all revenues received pursuant to the levy and collection of the tax. Section provides that the lien will automatically arise, without the need for any action or authorization by the local agency or its governing board, and will be valid and binding from the time the bonds are executed and delivered. Section further provides that the revenues received pursuant to the levy and collection of the tax will be immediately subject to the lien, and the lien will immediately attach to the revenues and be effective, binding and enforceable against the local agency, its successor, transferees and creditors, and all others asserting rights therein, irrespective of whether those parties have notice of the lien and without the need for physical delivery, recordation, filing or further act. Pledge of Tax Revenues The District has pledged all revenues from the property taxes collected from the levy by the Board of Supervisors of the County for the payment of all bonds, including the Series 2018 Bonds (collectively, the Bonds ), of the District heretofore or hereafter issued pursuant to voter approved measures of the District and amounts on deposit in the Interest and Sinking Fund of the District to the payment of the principal or redemption price of and interest on the Bonds. The Resolution provides that the property taxes and amounts held in the Interest and Sinking Fund of the District shall be immediately subject to this pledge, and the pledge shall constitute a lien and security interest which shall immediately attach to the property taxes and amounts held in the Interest and Sinking Fund of the District to secure the payment of the Bonds and shall be effective, binding, and enforceable against the District, its successors, creditors and all others irrespective of whether those parties have notice of the pledge and without the need of any physical delivery, recordation, filing, or further act. The Resolution provides that this pledge constitutes an agreement between the District and the owners of Bonds to provide security for the Bonds in addition to any statutory lien that may exist, and the Bonds secured by the pledge are or were issued to finance (or refinance) one or more of the projects specified in the applicable voter-approved measure. Property Taxation System Property tax revenues result from the application of the appropriate tax rate to the total assessed value of taxable property in the District. School districts receive property taxes for payment of voterapproved bonds as well as for general operating purposes. 11

18 Local property taxation is the responsibility of various county officers. For each school district located in a county, the county assessor computes the value of locally assessed taxable property. Based on the assessed value of property and the scheduled debt service on outstanding bonds in each year, the county auditor-controller computes the rate of tax necessary to pay such debt service, and presents the tax rolls (including rates of tax for all taxing jurisdictions in the county) to the county board of supervisors for approval. The county treasurer-tax collector prepares and mails tax bills to taxpayers and collects the taxes. In addition, the county treasurer-tax collector, the superintendent of schools of which has jurisdiction over the school district holds school district funds, including taxes collected for payment of school bonds, and is charged with payment of principal and interest on the bonds when due, as ex officio treasurer of the school district. Assessed Valuation of Property Within the District Taxable property located in the District has a fiscal year assessed value of $1,658,805,334. All property (real, personal and intangible) is taxable unless an exemption is granted by the California Constitution or United States law. Under the State Constitution, exempt classes of property include household and personal effects, intangible personal property (such as bank accounts, stocks and bonds), business inventories, and property used for religious, hospital, scientific and charitable purposes. The State Legislature may create additional exemptions for personal property, but not for real property. Most taxable property is assessed by the assessor of the county in which the property is located. Some special classes of property are assessed by the State Board of Equalization, as described below. Taxes are levied for each fiscal year on taxable real and personal property assessed as of the preceding January 1, at which time the lien attaches. The assessed value is required to be adjusted during the course of the year when property changes ownership or new construction is completed. State law also affords an appeal procedure to taxpayers who disagree with the assessed value of any property. When necessitated by changes in assessed value during the course of a year, a supplemental assessment is prepared so that taxes can be levied on the new assessed value before the next regular assessment roll is completed. See Appeals of Assessed Valuation; Blanket Reductions of Assessed Values below. Under the State Constitution, the State Board of Equalization assesses property of State-regulated transportation and communications utilities, including railways, telephone and telegraph companies, and companies transmitting or selling gas or electricity. The Board of Equalization also is required to assess pipelines, flumes, canals and aqueducts lying within two or more counties. The value of property assessed by the Board of Equalization is allocated by a formula to local jurisdictions in the county, including school districts, and taxed by the local county tax officials in the same manner as for locally assessed property. Taxes on privately owned railway cars, however, are levied and collected directly by the Board of Equalization. Property used in the generation of electricity by a company that does not also transmit or sell that electricity is taxed locally instead of by the Board of Equalization. Thus, the reorganization of regulated utilities and the transfer of electricity-generating property to non-utility companies, as often occurred under electric power deregulation in California, affects how those assets are assessed, and which local agencies benefit from the property taxes derived. In general, the transfer of State-assessed property located in the District to non-utility companies will increase the assessed value of property in the District, since the property s value will no longer be divided among all taxing jurisdictions in the County. The transfer of property located and taxed in the District to a State-assessed utility will have the opposite effect: generally reducing the assessed value in the District, as the value is shared among the other jurisdictions in the County. The District is unable to predict future transfers of State-assessed property in the District and the County, the impact of such transfers on its utility property tax revenues, or whether future legislation or litigation may affect ownership of utility assets, the State s methods of assessing utility property, or the method by which tax revenues of utility property is allocated to local taxing agencies, including the District. 12

19 Locally taxed property is classified either as secured or unsecured, and is listed accordingly on separate parts of the assessment roll. The secured roll is that part of the assessment roll containing Stateassessed property and property (real or personal) for which there is a lien on real property sufficient, in the opinion of the county assessor, to secure payment of the taxes. All other property is unsecured, and is assessed on the unsecured roll. Secured property assessed by the State Board of Equalization is commonly identified for taxation purposes as utility property. The following table sets forth the assessed valuation of the various classes of property in the District s boundaries from fiscal year through KERMAN UNIFIED SCHOOL DISTRICT (Fresno County, California) Assessed Valuations Fiscal Years through Fiscal Year Ending Local Secured Utility Unsecured Total Valuation $ 875,553,723 $1,195,887 $25,578,916 $ 902,328, ,038,625, ,812 27,040,118 1,066,336, ,077,781, ,252 31,953,805 1,110,230, ,027,506, ,252 45,087,335 1,073,089, ,044,049, ,252 48,408,024 1,092,952, ,120,445, ,718 48,362,063 1,169,205, ,143,208, ,140 50,046,545 1,193,642, ,265,091, ,140 45,118,827 1,310,597, ,295,311, ,140 49,626,661 1,345,325, ,354,533, ,970 58,926,538 1,413,861, ,471,927, ,970 62,697,580 1,535,027, ,524,615, ,970 65,550,406 1,590,567, ,584,348, ,970 74,055,333 1,658,805,334 Source: California Municipal Statistics, Inc. Assessments may be adjusted during the course of the year when real property changes ownership or new construction is completed. Assessments may also be appealed by taxpayers seeking a reduction as a result of economic and other factors beyond the District s control, such as a general market decline in property values, reclassification of property to a class exempt from taxation, whether by ownership or use (such as exemptions for property owned by State and local agencies and property used for qualified educational, hospital, charitable or religious purposes), or the complete or partial destruction of taxable property caused by natural or manmade disaster, such as earthquake, drought, flood, fire, toxic dumping, etc. When necessitated by changes in assessed value in the course of a year, taxes are pro-rated for each portion of the tax year. See also Appeals of Assessed Valuation; Blanket Reductions of Assessed Values below. Appeals of Assessed Valuation; Blanket Reductions of Assessed Values. There are two basic types of property tax assessment appeals provided for under State law. The first type of appeal, commonly referred to as a base year assessment appeal, involves a dispute on the valuation assigned by the assessor immediately subsequent to an instance of a change in ownership or completion of new construction. If the base year value assigned by the assessor is reduced, the valuation of the property cannot increase in subsequent years more than 2% annually unless and until another change in ownership and/or additional new construction or reconstruction activity occurs. 13

20 The second type of appeal, commonly referred to as a Proposition 8 appeal (which Proposition 8 was approved by the voters in 1978), can result if factors occur causing a decline in the market value of the property to a level below the property s then current taxable value (escalated base year value). Pursuant to State law, a property owner may apply for a Proposition 8 reduction of the property tax assessment for such owner s property by filing a written application, in the form prescribed by the State Board of Equalization, with the appropriate county board of equalization or assessment appeals board. A property owner desiring a Proposition 8 reduction of the assessed value of such owner s property in any one year must submit an application to the county assessment appeals board (the Appeals Board ). Following a review of the application by the county assessor s office, the county assessor may offer to the property owner the opportunity to stipulate to a reduced assessment, or may confirm the assessment. If no stipulation is agreed to, and the applicant elects to pursue the appeal, the matter is brought before the Appeals Board (or, in some cases, a hearing examiner) for a hearing and decision. The Appeals Board generally is required to determine the outcome of appeals within two years of each appeal s filing date. Any reduction in the assessment ultimately granted applies only to the year for which application is made and during which the written application is filed. The assessed value increases to its pre-reduction level (such pre-reduction level escalated to the inflation rate of no more than 2%) following the year for which the reduction application is filed. However, the county assessor has the power to grant a reduction not only for the year for which application was originally made, but also for the then current year and any intervening years as well. In practice, such a reduced assessment may and often does remain in effect beyond the year in which it is granted. In addition, Article XIIIA of the State 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 2% increase for any given year, or may be reduced to reflect a reduction in the consumer price index or comparable local data. This measure is computed on a calendar year basis. According to representatives of the County assessor s office, the County has in the past, pursuant to Article XIIIA of the State Constitution, ordered blanket reductions of assessed property values and corresponding property tax bills on single family residential properties when the value of the property has declined below the current assessed value as calculated by the County. No assurance can be given that property tax appeals and/or blanket reductions of assessed property values will not significantly reduce the assessed valuation of property within the District in the future. See APPENDIX A INFORMATION RELATING TO THE DISTRICT S OPERATIONS AND BUDGET CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Limitations on Revenues for a discussion of other limitations on the valuation of real property with respect to ad valorem taxes. Bonding Capacity. As a unified school district, the District may issue bonds in an amount up to 2.50% of the assessed valuation of taxable property within its boundaries. The District s fiscal year gross bonding capacity (also commonly referred to as the bonding limit or debt limit ) is approximately $41.47 million and its net bonding capacity is approximately $18.07 million (taking into account current outstanding debt before issuance of the Series 2018 Bonds). Refunding bonds may be issued without regard to this limitation; however, once issued, the outstanding principal of any refunding bonds is included when calculating the District s bonding capacity. 14

21 Assessed Valuation by Jurisdiction. The following table describes the percentage and value of the total assessed valuation of the property within the District s boundaries that reside in the city of Kerman and unincorporated portions of the County for fiscal year Jurisdiction KERMAN UNIFIED SCHOOL DISTRICT (Fresno County, California) Assessed Valuation by Jurisdiction Assessed Valuation in District % of District Assessed Valuation of Jurisdiction % of Jurisdiction in District City of Kerman $755,371, % $755,371, % Unincorporated Fresno County 903,433, $23,176,026, % Total District $1,658,805, % Fresno County $1,658,805, % $78,519,340, % Source: California Municipal Statistics, Inc. Assessed Valuation by Land Use. The following table sets forth a distribution of taxable property located in the District on the fiscal year tax roll by principal purpose for which the land is used, and the assessed valuation and number of parcels for each use. KERMAN UNIFIED SCHOOL DISTRICT (Fresno County, California) Assessed Valuation and Parcels by Land Use Assessed Valuation (1) % of Total No. of Parcels % of Total Non-Residential: Agricultural $830,636, % 1, % Commercial 48,107, Industrial 67,323, Government/Social/Institutional 4,102, Miscellaneous 4,476, Subtotal Non-Residential $954,646, % 2, % Residential: Single Family Residence $557,251, % 3, % Mobile Home 5,560, Mobile Home Park 2,642, Residential Units/Apartments 52,963, Vacant Residential 11,283, Subtotal Residential $629,701, % 3, % TOTAL $1,584,348, % 5, % (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 assessed valuation of single-family homes in the District s boundaries for fiscal year KERMAN UNIFIED SCHOOL DISTRICT (Fresno County, California) Per Parcel Assessed Valuation of Single Family Homes Number of Parcels Assessed Valuation Average Assessed Valuation Median Assessed Valuation Single Family Residential 3,197 $557,251,037 $174,304 $170, Assessed Valuation No. of Parcels (1) % of Total Cumulative % of Total Total Valuation % of Total Cumulative % of Total $0 - $24, % 1.126% $ 663, % 0.119% $25,000 - $49, ,605, $50,000 - $74, ,779, $75,000 - $99, ,285, $100,000 - $124, ,443, $125,000 - $149, ,173, $150,000 - $174, ,809, $175,000 - $199, ,733, $200,000 - $224, ,520, $225,000 - $249, ,953, $250,000 - $274, ,364, $275,000 - $299, ,895, $300,000 - $324, ,283, $325,000 - $349, ,125, $350,000 - $374, ,368, $375,000 - $399, ,336, $400,000 - $424, ,667, $425,000 - $449, ,769, $450,000 - $474, ,282, $475,000 - $499, , $500,000 and greater ,215, Total 3, % $557,251, % (1) Improved single family residential parcels. Excludes condominiums and parcels with multiple family units. Source: California Municipal Statistics, Inc. 16

23 Largest Taxpayers in District. The following table sets forth the 20 taxpayers with the greatest combined ownership of taxable property in the District on the fiscal year tax roll, and the assessed valuation of all property owned by those taxpayers in all taxing jurisdictions within the District, are set forth below. Property Owner KERMAN UNIFIED SCHOOL DISTRICT (Fresno County, California) Largest Local Secured Taxpayers Primary Land Use Assessed Valuation Percent of Total (1) La Brea LLC Agricultural $ 59,632, % 2. GF Land Company LP Agricultural 25,790, Perfect PAC LP Warehouse 20,705, George & Brenda Holland Farms LLC Agricultural 20,094, Fresno Farming LLC Agricultural 18,058, Wal-Mart Real Estate Business Trust Commercial 17,565, Casaca Vineyards Agricultural 15,474, Burford Family Farming Company LP Agricultural 15,253, PI Properties No. 50 Partners LLC Apartments 15,059, Toste Family Farms LP Agricultural 13,366, Baker Commodities Inc. Industrial 12,555, Hardy Farms LP Agricultural 10,982, Steven D. & Barbara L. Schaad, Trustees Agricultural 10,509, Larry Shehadey Farms LLC Agricultural 10,056, Kalpakoff Properties LLC Warehouse 9,121, West California Avenue LP Apartments 9,075, Kerman Shopping Plaza LLC Shopping Center 8,608, Navdep Singh & Sukhwinder Sran, Trustees Agricultural 8,574, Samarin Farms Agricultural 8,123, Pebble Brook LLC Apartments 8,106, $316,713, % (1) local secured assessed valuation: $1,584,348,031 Source: California Municipal Statistics, Inc. The more property (by assessed value) owned by a single taxpayer, the more tax collections are exposed to weakness, if any, in such taxpayer s financial situation and ability or willingness to pay property taxes in a timely manner. Furthermore, assessments may be appealed by taxpayers seeking a reduction as a result of economic and other factors beyond the District s control. See Appeals of Assessed Valuation; Blanket Reductions of Assessed Values above. Tax Rates The State Constitution permits the levy of an ad valorem tax on taxable property not to exceed 1% of the full cash value of the property, and State law requires the full 1% tax to be levied. The levy of special ad valorem property taxes in excess of the 1% levy is permitted as necessary to provide for debt service payments on school bonds and other voter-approved indebtedness. The rate of tax necessary to pay fixed debt service on the Series 2018 Bonds in a given year depends on the assessed value of taxable property in that year. (The rate of tax imposed on unsecured property for repayment of the Series 2018 Bonds is based on the prior year s secured property tax rate.) Economic and other factors beyond the District s control, such as a general market decline in property values, reclassification of property to a class exempt from taxation, whether by ownership or use (such as exemptions for property owned by State and local agencies and property used for qualified educational, 17

24 hospital, charitable or religious purposes), or the complete or partial destruction of taxable property caused by natural or manmade disaster, such as earthquake, flood, fire, toxic dumping, etc., could cause a reduction in the assessed value of taxable property within the District and necessitate a corresponding increase in the annual tax rate to be levied to pay the principal of and interest on the Series 2018 Bonds. Issuance of additional authorized bonds in the future might also cause the tax rate to increase. Typical Tax Rate Area. The following table sets forth ad valorem property tax rates for the last five fiscal years in a typical Tax Rate Area of the District (TRA ). The assessed valuation for this Tax Rate Area for fiscal year is $225,342,067, which comprises approximately 13.58% of the total assessed value of the District. KERMAN UNIFIED SCHOOL DISTRICT (Fresno County, California) Typical Total Tax Rates per $100 of Assessed Valuation Fiscal Years through General Tax Rate % % % % % Kerman Unified School District State Center Community College District Total Tax Rate % % % % % Source: California Municipal Statistics, Inc. In accordance with the California Constitution and the Education Code, bonds approved pursuant to the 2016 Authorization may not be issued unless the District projects that repayment of all outstanding bonds approved under the 2016 Authorization will require a tax rate no greater than $60.00 per $100,000 of assessed value. Based on the assessed value of taxable property in the District at the time of issuance of the Series 2018 Bonds, the District projects that the maximum tax rate required to repay the Series 2018 Bonds and all other outstanding bonds approved at the 2016 Authorization will be within that legal limit. The tax rate limitation applies only when new bonds are issued and does not restrict the authority of the County Board of Supervisors to levy taxes at such rate as may be necessary to pay debt service on the Series 2018 Bonds and any other series of bonds issued under the 2016 Authorization in each year. Tax Charges and Delinquencies A school district s share of the 1% countywide tax is based on the actual allocation of property tax revenues to each taxing jurisdiction in the county in fiscal year , as adjusted according to a complicated statutory process enacted since that time. Revenues derived from special ad valorem taxes for voter-approved indebtedness, including the Series 2018 Bonds, are reserved to the taxing jurisdiction that approved and issued the debt, and may only be used to repay that debt. The County Treasurer prepares the property tax bills. Property taxes on the regular secured assessment roll are due in two equal installments: the first installment is due on November 1, and becomes delinquent after December 10. The second installment is due on February 1 and becomes delinquent after April 10. If taxes are not paid by the delinquent date, a 10% penalty attaches and a $10 cost is added to unpaid second installments. If taxes remain unpaid by June 30, the tax is deemed to be in default, and a $15 state redemption fee applies. Interest then begins to accrue at the rate of 1.5% per month. The property owner has the right to redeem the property by paying the taxes, accrued penalties, and costs within five years of the date the property went into default. If the property is not redeemed within five years, it is subject to sale at a public auction by the County Treasurer. 18

25 Property taxes on the unsecured roll are due in one payment on the lien date, January 1, and become delinquent after August 31. A 10% penalty attaches to delinquent taxes on property on the unsecured roll, and an additional penalty of 1.5% per month begins to accrue on November 1. To collect unpaid taxes, the County Treasurer may obtain a judgment lien upon and cause the sale of all property owned by the taxpayer in the County, and may seize and sell personal property, improvements and possessory interests of the taxpayer. The County Treasurer may also bring a civil suit against the taxpayer for payment. The date on which taxes on supplemental assessments are due depends on when the supplemental tax bill is mailed. The following table sets forth real property tax charges and corresponding delinquencies with respect to the property located in the District for fiscal years through The secured tax charges and delinquencies for fiscal year are not yet available. Fiscal Year KERMAN UNIFIED SCHOOL DISTRICT (Fresno County, California) Secured Tax Charges and Delinquencies Fiscal Years through Secured Tax Charge (1) Amount Delinquent June 30 Percent Delinquent June $15,413, $180, % ,839, , ,428, , ,625, , (1) All taxes collected by the County within the District. Source: California Municipal Statistics, Inc. Teeter Plan. The County has adopted the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the Teeter Plan ), as provided for in Section 4701 and following of the California Revenue and Taxation Code. Under the Teeter Plan, each participating local agency levying property taxes in the County, including the District, receives the full amount of uncollected taxes credited to its fund (including delinquent taxes, if any), in the same manner as if the full amount due from taxpayers had been collected. In return, the County receives and retains delinquent payments, penalties and interest as collected, that would have been due the local agency. The County applies the Teeter Plan to taxes levied for repayment of school district bonds. The Teeter Plan is to remain in effect unless the County 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 receives a petition for its discontinuance from two-thirds of the participating revenue districts in the County. The Board of Supervisors may also, after holding a public hearing on the matter, discontinue the Teeter Plan with respect to any tax levying agency or assessment levying agency in the County if the rate of secured tax delinquency in that agency in any year exceeds 3% of the total of all taxes and assessments levied on the secured roll in that agency. Direct and Overlapping Debt Set forth below is a schedule of direct and overlapping debt prepared by California Municipal Statistics Inc. effective September 17, 2018 for debt outstanding as of September 1, The table is included for general information purposes only. The District has not reviewed this table for completeness or accuracy and makes no representations in connection therewith. The first column in the table names each 19

26 public agency which has outstanding debt as of the date of the schedule and whose territory overlaps the District in whole or in part. Column two sets forth the percentage of each overlapping agency s assessed value located within the boundaries of the District. This percentage, multiplied by the total outstanding debt of each overlapping agency (which is not set forth in the table) produces the amount set forth in column three, which is the apportionment of each overlapping agency s outstanding debt to taxable property in the District. The schedule generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the District. 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: $1,658,805,334 KERMAN UNIFIED SCHOOL DISTRICT (Fresno County, California) Statement of Direct and Overlapping Bonded Debt September 17, 2018 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable (1) Debt 9/1/18 State Center Community College District 1.940% $ 2,803,009 Kerman Unified School District ,399,922 (1) TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $26,202,931 OVERLAPPING GENERAL FUND DEBT: Fresno County General Fund Obligations 2.113% $829,775 Fresno County Pension Obligations ,394,019 City of Kerman General Fund Obligations ,110,000 TOTAL OVERLAPPING GENERAL FUND DEBT $9,333,794 COMBINED TOTAL DEBT $35,536,725 (2) Ratios to Assessed Valuation: Direct Debt ($23,399,922) % Total Direct and Overlapping Tax and Assessment Debt % Combined Total Debt % (1) Excludes the Series 2018 Bonds; excludes accreted value. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations. Source: California Municipal Statistics, Inc. 20

27 TAX MATTERS In the opinion of Orrick, Herrington & Sutcliffe LLP, bond counsel to the District ( Bond Counsel ), based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Series 2018 Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the Code ) and is exempt from State of California personal income taxes. Bond Counsel is of the further opinion that interest on the Series 2018 Bonds is not a specific preference item for purposes of the federal alternative minimum tax. A complete copy of the proposed form of opinion of Bond Counsel is set forth in Appendix C hereto. To the extent the issue price of any maturity of the Series 2018 Bonds is less than the amount to be paid at maturity of such Series 2018 Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Series 2018 Bonds), the difference constitutes original issue discount, the accrual of which, to the extent properly allocable to each Beneficial Owner thereof, is treated as interest on the Series 2018 Bonds which is excluded from gross income for federal income tax purposes and State of California personal income taxes. For this purpose, the issue price of a particular maturity of the Series 2018 Bonds is the first price at which a substantial amount of such maturity of the Series 2018 Bonds is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue discount with respect to any maturity of the Series 2018 Bonds accrues daily over the term to maturity of such Series 2018 Bonds on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Series 2018 Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Series 2018 Bonds. Beneficial Owners of the Series 2018 Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Series 2018 Bonds with original issue discount, including the treatment of Beneficial Owners who do not purchase such Series 2018 Bonds in the original offering to the public at the first price at which a substantial amount of such Series 2018 Bonds is sold to the public. Series 2018 Bonds purchased, whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (or, in some cases, at their earlier call date) ( Premium Bonds ) will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of obligations, like the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax-exempt interest received, and a Beneficial Owner s basis in a Premium Bond, will be reduced by the amount of amortizable bond premium properly allocable to such Beneficial Owner. Beneficial Owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances. The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Series 2018 Bonds. The District has made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the Series 2018 Bonds will not be included in federal gross income. Inaccuracy of these representations or failure to comply with these covenants may result in interest on the Series 2018 Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Series 2018 Bonds. The opinion of Bond Counsel assumes the accuracy of these representations and compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken), or events occurring (or not occurring), or any other matters coming to Bond Counsel s attention after the date of issuance of the Series 2018 Bonds may adversely affect the value of, or the tax status of interest on, the Series 2018 Bonds. 21

28 Accordingly, the opinion of Bond Counsel is not intended to, and may not, be relied upon in connection with any such actions, events or matters. Although Bond Counsel is of the opinion that interest on the Series 2018 Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes, the ownership or disposition of, or the accrual or receipt of amounts treated as interest on, the Series 2018 Bonds may otherwise affect a Beneficial Owner s federal, state or local tax liability. The nature and extent of these other tax consequences depends upon the particular tax status of the Beneficial Owner or the Beneficial Owner s other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences. Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the Series 2018 Bonds to be subject, directly or indirectly, in whole or in part, to federal income taxation or to be subject to or exempted from state income taxation, 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 or clarification of the Code or court decisions may also affect, perhaps significantly, the market price for, or marketability of, the Series 2018 Bonds. Prospective purchasers of the Series 2018 Bonds should consult their own tax advisors regarding the potential impact of any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel is expected to express no opinion. The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel s judgment as to the proper treatment of the Series 2018 Bonds for federal income tax purposes. It is not binding on the Internal Revenue Service ( IRS ) or the courts. Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the District or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. The District has covenanted, however, to comply with the requirements of the Code. Bond Counsel s engagement with respect to the Series 2018 Bonds ends with the issuance of the Series 2018 Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the District or the Beneficial Owners regarding the tax-exempt status of the Series 2018 Bonds in the event of an audit examination by the IRS. Under current procedures, parties other than the District and its appointed counsel, including the Beneficial Owners, would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of taxexempt bonds is difficult, obtaining an independent review of IRS positions with which the District legitimately disagrees, may not be practicable. Any action of the IRS, including but not limited to selection of the Series 2018 Bonds for audit, or the course or result of such audit, or an audit of bonds presenting similar tax issues may affect the market price for, or the marketability of, the Series 2018 Bonds, and may cause the District or the Beneficial Owners to incur significant expense. Legal Opinion OTHER LEGAL MATTERS The validity of the Series 2018 Bonds and certain other legal matters are subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the District. Bond Counsel expects to deliver an opinion with respect to the Series 2018 Bonds at the time of issuance substantially in the form set forth in Appendix C hereto. Bond Counsel, as such, undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement. Certain legal matters will be passed upon for the District by Orrick, Herrington & Sutcliffe LLP, as Disclosure Counsel to the District. 22

29 Legality for Investment in California Under the provisions of the California Financial Code, the Series 2018 Bonds are legal investments for commercial banks in California to the extent that the Series 2018 Bonds, in the informed opinion of the bank, are prudent for the investment of funds of depositors, and, under provisions of the California Government Code, the Series 2018 Bonds are eligible securities for deposit of public moneys in the State. Continuing Disclosure The District has covenanted for the benefit of the holders and Beneficial Owners of the Series 2018 Bonds to provide, or to cause to be provided, to the Municipal Securities Rulemaking Board through its Electronic Municipal Market Access system or such other electronic system designated by the Municipal Securities Rulemaking Board (the EMMA System ) certain annual financial information and operating data relating to the District (the Annual Report ) by not later than nine months following the end of the District s fiscal year (currently ending June 30), commencing with the report for the fiscal year (which is due no later than March 31, 2019) and notice of the occurrence of certain enumerated events ( Notice Events ) in a timely manner not in excess of ten business days after the occurrence of such a Notice Event. The specific nature of the information to be contained in the Annual Report and the notices of Notice Events is set forth in APPENDIX D FORM OF CONTINUING DISCLOSURE CERTIFICATE. These covenants have been made in order to assist the Underwriter in complying with Rule 15c2-12(b)(5) (the Rule ) of the Securities and Exchange Commission (the SEC ). In the preceding five years, the District failed to timely file notices of insurer rating changes. The District has since filed the notices of insurer rating changes. In order to assist the District in complying with its continuing disclosure obligations for its outstanding general obligation bonds, including the Series 2018 Bonds, the District has engaged KNN Public Finance, LLC as its dissemination agent. Recent Payment Default In order to provide sufficient funds for the District s repayment of principal and interest when due on the Series 2009 Bonds, the Board of Supervisors of the County is empowered and is obligated to levy ad valorem taxes upon all property subject to taxation by the District, without limitation as to rate or amount (except as to certain personal property which is taxable at limited rates). When collected, the tax revenues are deposited by the County in the interest and sinking fund of the District, which is required to be maintained by the County and to be used solely for the payment of bonds of the District. On August 1, 2018, there were sufficient funds held by the County to make the August 1, 2018, debt service payment on the Series 2009 Bonds. On August 1, 2018, there was a payment default with respect to the District s Series 2009 Bonds, maturing on August 1, 2018, due to a delay in the wire transfer of funds from the bank used by the County to U.S. Bank National Association, as paying agent for the Series 2009 Bonds (the Series 2009 Bonds Paying Agent ). The wire to the Series 2009 Bonds Paying Agent, originally authorized by the County on July 30, 2018 for scheduled payment by the County s bank on July 31, 2018, was held up by the County s bank and was not processed as originally scheduled. By the time the payment was cleared by the County s bank, the wire to the Series 2009 Bonds Paying Agent was received too late to make timely payment on the Series 2009 Bonds. The debt service payment on the Series 2009 Bonds was subsequently made on August 2,

30 While the District has been informed that the delay in the wire transfer by the County s bank has been resolved for future payments, the District cannot provide any assurances as to the timely payment of the Series 2018 Bonds by the County s bank. Litigation No litigation is pending or threatened concerning or contesting the validity of the Series 2018 Bonds or the District s ability to receive ad valorem taxes and to collect other revenues, or contesting the District s ability to issue and retire the Series 2018 Bonds. The District is not aware of any litigation pending or threatened questioning the political existence of the District or contesting the title to their offices of District officers who will execute the Series 2018 Bonds or District officials who will sign certifications relating to the Series 2018 Bonds, or the powers of those offices. A certificate (or certificates) to that effect will be furnished to the Underwriter at the time of the original delivery of the Series 2018 Bonds. The District is occasionally subject to lawsuits and claims. In the opinion of the District, the aggregate amount of the uninsured liabilities of the District under these lawsuits and claims will not materially affect the financial position or operations of the District. Bank Qualified The District has designated the Series 2018 Bonds as qualified tax exempt obligations within the meaning of Section 265(b)(3)(B) of the Code. Pursuant to that section, a qualifying financial institution will be allowed a deduction from its own federal corporate income tax for the portion of interest expense the financial institution is able to allocate to designated bank qualified investments. Rating MISCELLANEOUS S&P Global Ratings has assigned a rating of A+ to the Series 2018 Bonds. Rating agencies generally base their ratings on their own investigations, studies and assumptions as well as information and materials furnished to them (which may include information and materials from the District, which are not included in this Official Statement). The rating reflects only the view of the rating agency furnishing the same, and any explanation of the significance of the rating should be obtained only from the rating agency providing the same. The rating is not a recommendation to buy, sell or hold the Series 2018 Bonds. There is no assurance that the rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely by the rating agency providing the same, if, in the judgment of such rating agency, circumstances so warrant. Any such downward revision or withdrawal of the rating may have an adverse effect on the market price of the Series 2018 Bonds. Neither the Underwriter nor the District has undertaken any responsibility after the offering of the Series 2018 Bonds to assure the maintenance of the rating or to oppose any such revision or withdrawal. Professionals Involved in the Offering Orrick, Herrington & Sutcliffe LLP is acting as Bond Counsel and Disclosure Counsel with respect to the Series 2018 Bonds, and will receive compensation from the District contingent upon the sale and delivery of the Series 2018 Bonds. KNN Public Finance, LLC is acting as the District s municipal advisor with respect to the Series 2018 Bonds. Payment of the fees and expenses of the District s municipal advisor is also contingent upon the sale and delivery of the Series 2018 Bonds. From time to time, Bond Counsel represents the Underwriter on matters unrelated to the Series 2018 Bonds. 24

31 Underwriting The Series 2018 Bonds are being purchased for reoffering to the public by Piper Jaffray & Co. (the Underwriter ) pursuant to the terms of a bond purchase agreement executed on, 2018 (the Purchase Agreement ), by and between the District and the Underwriter. The Underwriter has agreed to purchase the Series 2018 Bonds at a price of $. The Purchase Agreement provides that the Underwriter will purchase all of the Series 2018 Bonds, subject to certain terms and conditions set forth in the Purchase Agreement, including the approval of certain legal matters by counsel. The Underwriter may offer and sell the Series 2018 Bonds to certain securities dealers and dealer banks and banks acting as agent at prices lower than the public offering prices stated on the inside front cover page of this Official Statement. The public offering prices may be changed from time to time by the Underwriter. The Underwriter has entered into a distribution agreement (the Schwab Agreement ) with Charles Schwab & Co., Inc. ( CS&Co. ) for the retail distribution of certain securities offerings at the original issue prices. Pursuant to the Schwab Agreement, CS&Co. will purchase the Series 2018 Bonds from the Underwriter at the original issue price less a negotiated portion of the selling concession applicable to any Series 2018 Bonds that CS&Co. sells. ADDITIONAL INFORMATION The purpose of this Official Statement is to supply information to purchasers of the Series 2018 Bonds. Quotations from and summaries and explanations of the Series 2018 Bonds and of the statutes and documents contained herein do not purport to be complete, and reference is made to such documents and statutes for full and complete statements of their provisions. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the District and the purchasers or Owners of any of the Series 2018 Bonds. The District has duly authorized the delivery of this Official Statement. KERMAN UNIFIED SCHOOL DISTRICT By: Superintendent 25

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33 APPENDIX A INFORMATION RELATING TO THE DISTRICT S OPERATIONS AND BUDGET The information in this appendix concerning the operations of the Kerman Unified School District (the District ), the District s finances, and State of California (the State ) funding of education, is provided as supplementary information only, and it should not be inferred from the inclusion of this information in this Official Statement that the principal of or interest on the Series 2018 Bonds are payable from the general fund of the District or from State revenues. The Series 2018 Bonds are payable from the proceeds of an ad valorem tax approved by the voters of the District pursuant to all applicable laws and State Constitutional requirements, and required to be levied by the County of Fresno on property within the District in an amount sufficient for the timely payment of principal of and interest on the Series 2018 Bonds. See SECURITY AND SOURCE OF PAYMENT FOR THE SERIES 2018 BONDS in the front portion of this Official Statement. Introduction THE DISTRICT The District was established as a unified school district on July 1, 1983 and is located in the western portion of Fresno County, California (the County ). The District is located 17 miles southwest of Fresno in the city of Kerman. The District encompasses approximately 173 miles and the current enrollment for the District is approximately 5,321 students. The District currently operates four elementary schools serving grades pre-kindergarten through grade six, one middle school serving grades seven and eight, one high school serving grades nine through twelve and one alternative education program. Total assessed valuation of taxable property in the District in fiscal year is $1,658,805,334. The District operates under the jurisdiction of the Fresno County Superintendent of Schools 1. Board of Trustees The District is governed by a five-member Board of Trustees (the Board ), each member of which is elected by voters within the District to serve alternating four-year terms. The five voting members are elected to four-year terms in alternate slates of two and three, and elections are held every two years. Each December the Board elects a President, Vice President and Clerk to serve one-year terms. Current voting members of the Board, together with their office and the date their current term expires, are listed below. KERMAN UNIFIED SCHOOL DISTRICT (Fresno County, California) Board of Trustees Name Office Term Expires Daniel Babshoff President December 2020 Vicki Blair Vice President December 2018 Maria Cantu Clerk December 2020 Efrain Guizar Member December 2018 Darrell Yates Member December The Superintendent of Schools of the County is independent from, and not an officer of, the County. A-1

34 Superintendent and Business Services Personnel The Superintendent of the District is appointed by the Board and reports to the Board. The Superintendent is responsible for management of the District s day-to-day operations and supervises the work of other key District administrators. Mr. Frausto was appointed by the Board to serve as Superintendent in September Information concerning the District s Superintendent and the Chief Financial Officer is set forth below. Robert Frausto, Superintendent. Robert Frausto was the Associate Superintendent of the Merced City School District before joining the District as the Superintendent in September During his tenure as an educator, Mr. Frausto has worked in both Merced City School District and Madera Unified School District serving in the positions of Associate Superintendent, Assistant Superintendent, Elementary and Middle School Teacher, Middle School Assistant Principal as well as elementary and middle school principal. Mr. Frausto earned his Bachelor of Science Degree from California State University, Fresno and his Master of Arts Degree from Fresno Pacific University. Kraig Magnussen, Assistant Superintendent, Business Services, Chief Business Official. Kraig is the Assistant Superintendent/Chief Business Official for Kerman Unified School District, and has over twenty-five years of experience in management level positions throughout his career. Kraig spent the first decade of his management career working for a Fortune 500 company, and the last sixteen for California public school districts. He has managed all aspects of school business operations and finance. He holds a Master of Business Administration, and has specialized training and experience in school finance, facilities, project management, and strategic planning. DISTRICT FINANCIAL MATTERS State Funding of Education; State Budget Process General. As is true for all school districts in California, the District s operating income consists primarily of two components: a State portion funded from the State s general fund in accordance with the Local Control Funding Formula (see Allocation of State Funding to School Districts; Local Control Funding Formula herein) and a local portion derived from the District s share of the 1% local ad valorem tax authorized by the State Constitution (see Local Sources of Education Funding herein). In addition, school districts may be eligible for other special categorical funding from State and federal government programs. The District has budgeted to receive approximately 83.32% of its general fund revenues from State funds (not including the local portion derived from the District s share of the local ad valorem tax), budgeted at approximately $54.10 million in fiscal year Such amount includes both the State funding provided under the LCFF as well as other State revenues (see Allocation of State Funding to School Districts; Local Control Funding Formula Attendance and LCFF and Other District Revenues Other State Revenues below). As a result, decreases or deferrals in State revenues, or in State legislative appropriations made to fund education, may significantly affect the District s revenues and operations. Under Proposition 98, a constitutional and statutory amendment adopted by the State s voters in 1988 and amended by Proposition 111 in 1990 (now found at Article XVI, Sections 8 and 8.5 of the Constitution), a minimum level of funding is guaranteed to school districts, community college districts, and other State agencies that provide direct elementary and secondary instructional programs. Recent years have seen frequent disruptions in State personal income taxes, sales and use taxes, and corporate taxes, making it increasingly difficult for the State to meet its Proposition 98 funding mandate, which normally commands about 45% of all State general fund revenues, while providing for other fixed State costs and priority programs and services. Because education funding constitutes such a large part of the State s general fund expenditures, it is generally at the center of annual budget negotiations and adjustments. A-2

35 In connection with the State Budget Act for fiscal year , the State and local education agencies therein implemented the funding formula for school finance system called the Local Control Funding Formula (the Local Control Funding Formula or LCFF ). Funding from the LCFF replaced the revenue limit funding system and most categorical programs. See Allocation of State Funding to School Districts; Local Control Funding Formula herein for more information. State Budget Process. According to the State Constitution, the Governor must propose a budget to the State Legislature no later than January 10 of each year, and a final budget must be adopted no later than June 15. The budget requires a simple majority vote of each house of the State Legislature for passage. The budget becomes law upon the signature of the Governor, who may veto specific items of expenditure. A two thirds vote of the State Legislature is required to override any veto by the Governor. School district budgets must generally be adopted by July 1, and revised by the school board within 45 days after the Governor signs the budget act to reflect any changes in budgeted revenues and expenditures made necessary by the adopted State budget. The Governor signed the fiscal year State budget on June 27, When the State budget is not adopted on time, basic appropriations and the categorical funding portion of each school district s State funding are affected differently. Under the rule of White v. Davis (also referred to as Jarvis v. Connell), a State Court of Appeal decision reached in 2002, there is no constitutional mandate for appropriations to school districts without an adopted budget or emergency appropriation, and funds for State programs cannot be disbursed by the State Controller until that time, unless the expenditure is (i) authorized by a continuing appropriation found in statute, (ii) mandated by the State Constitution (such as appropriations for salaries of elected State officers), or (iii) mandated by federal law (such as payments to State workers at no more than minimum wage). The State Controller has consistently stated that basic State funding for schools is continuously appropriated by statute, but that special and categorical funds may not be appropriated without an adopted budget. Should the State Legislature fail to pass a budget or emergency appropriation before the start of any fiscal year, the District might experience delays in receiving certain expected revenues. The District is authorized to borrow temporary funds to cover its annual cash flow deficits, and as a result of the White v. Davis decision, the District might find it necessary to increase the size or frequency of its cash flow borrowings, or to borrow earlier in the fiscal year. The District does not expect the White v. Davis decision to have any long-term effect on its operating budgets. Aggregate State Education Funding. The Proposition 98 guaranteed amount for education is based on prior-year funding, as adjusted through various formulas and tests that take into account State proceeds of taxes, local property tax proceeds, school enrollment, per-capita personal income, and other factors. The State s share of the guaranteed amount is based on State general fund tax proceeds and is not based on the general fund in total or on the State budget. The local share of the guaranteed amount is funded from local property taxes. The total guaranteed amount varies from year to year and throughout the stages of any given fiscal year s budget, from the Governor s initial budget proposal to actual expenditures to post-year-end revisions, as better information regarding the various factors becomes available. Over the long run, the guaranteed amount will increase as enrollment and per capita personal income grow. If, at year-end, the guaranteed amount is calculated to be higher than the amount actually appropriated in that year, the difference becomes an additional education funding obligation, referred to as settle-up. If the amount appropriated is higher than the guaranteed amount in any year, that higher funding level permanently increases the base guaranteed amount in future years. The Proposition 98 guaranteed amount is reduced in years when general fund revenue growth lags personal income growth, and may be suspended for one year at a time by enactment of an urgency statute. In either case, in subsequent years when State general fund revenues grow faster than personal income (or sooner, as the Legislature may determine), the funding level must be restored to the guaranteed amount, the obligation to do so being referred to as maintenance factor. A-3

36 Although the California Constitution requires the State to approve a balanced State Budget Act each fiscal year, the State s response to fiscal difficulties in some years has had a significant impact upon the Proposition 98 minimum guarantee and the treatment of settle-up payments with respect to years in which the Proposition 98 minimum guarantee was suspended. The State has sought to avoid or delay paying settle-up amounts when funding has lagged the guaranteed amount. In response, teachers unions, the State Superintendent and others sued the State or Governor in 1995, 2005, 2009 and 2011 to force them to fund schools in the full amount required. The settlement of the 1995 and 2005 lawsuits has so far resulted in over $4 billion in accrued State settle-up obligations. However, legislation enacted to pay down the obligations through additional education funding over time, including the Quality Education Investment Act of 2006, have also become part of annual budget negotiations, resulting in repeated adjustments and deferrals of the settle-up amounts. The State has also sought to preserve general fund cash while avoiding increases in the base guaranteed amount through various mechanisms: by treating any excess appropriations as advances against subsequent years Proposition 98 minimum funding levels rather than current year increases; by temporarily deferring apportionments of Proposition 98 funds from one fiscal year to the next; by permanently deferring apportionments of Proposition 98 funds from one fiscal year to the next; by suspending Proposition 98, as the State did in fiscal year , fiscal year , fiscal year and fiscal year ; and by proposing to amend the State Constitution s definition of the guaranteed amount and settle-up requirement under certain circumstances. The District cannot predict how State income or State education funding will vary over the term to maturity of the Series 2018 Bonds, and the District takes no responsibility for informing owners of the Series 2018 Bonds as to actions the State Legislature or Governor may take affecting the current year s budget after its adoption. Information about the State budget and State spending for education is regularly available at various State-maintained websites. Text of proposed and adopted budgets may be found at the website of the Department of Finance, under the heading California Budget. An impartial analysis of the budget is posted by the Office of the Legislative Analyst at In addition, various State of California official statements, many of which contain a summary of the current and past State budgets and the impact of those budgets on school districts in the State, may be found at the website of the State Treasurer, The information referred to is prepared by the respective State agency maintaining each website and not by the District, and the District can take no responsibility for the continued accuracy of these internet addresses or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated herein by these references State Budget. The Governor signed the fiscal year State Budget (the State Budget ) on June 27, The State Budget sets forth a balanced budget for fiscal year that projects approximately $ billion in revenues, and $83.82 billion in non-proposition 98 expenditures and $54.87 billion in Proposition 98 expenditures. The State Budget includes a $1.96 billion reserve in the Special Fund for Economic Uncertainties. The State Budget uses dedicated proceeds from Proposition 2 to pay down approximately $1.75 billion in past budgetary borrowing and State employee pension liabilities. The State Budget includes total funding of $97.2 billion ($56.1 billion General Fund and $41.1 billion other funds) for all K-12 education programs. The State Budget provides $3.7 billion in new funding for the LCFF, which fully implements the school district and charter school formula two years earlier than originally scheduled, including both 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 also provides $300 million one-time Proposition 98 General Fund resources for the Low-Performing Students Block Grant, which will provide resources in addition to LCFF funds to local educational agencies with students who perform at the lowest levels on the State s academic assessments and do not generate supplemental LCFF funds or State or federal special education resources. A-4

37 Certain budgeted adjustments for K-12 education set forth in the State Budget include the following: Statewide System of Support. The State Budget includes $57.8 million in Proposition 98 General Fund resources for county offices of education to provide technical assistance to school districts, of which $4 million will go towards geographical regional leads to build systemwide capacity to support school district improvement. Multi-Tiered Systems of Support (MTSS). The State Budget includes $15 million one-time Proposition 98 General Fund resources to expand the State s MTSS framework to foster positive school climate in both academic and behavioral areas. Community Engagement Initiative. The State Budget includes $13.3 million onetime Proposition 98 General Fund resources for the California Collaborative for Educational Excellence and a co-lead county office of education to help school districts build capacity for community engagement in the LCAP process. California Collaborative for Educational Excellence. The State Budget includes $11.5 million Proposition 98 General Fund resources to support the California Collaborative for Educational Excellence in its role within the statewide system of support. Special Education Local Plan Area (SELPA) Technical Assistance. The State Budget includes $10 million Proposition 98 General Fund resources for SELPAs to assist county offices of education in providing technical assistance to school districts identified for differentiated assistance (specific to students with exceptional needs) within the statewide system of support. Dashboard Improvement. The State Budget includes $300,000 one-time Proposition 98 General Fund resources to improve the user interface of the California School Dashboard. LCFF Budget Summary for Parents. The State Budget includes $200,000 onetime Proposition 98 General Fund resources to develop the electronic template for the LCFF Budget Summary for Parents, which will help stakeholders better understand funding decisions made within the LCAP. LCAP Redesign. The State Budget includes $200,000 one-time Proposition 98 General Fund resources to support intended future legislation to streamline the LCAP. Strong Workforce Program. The State Budget includes $164 million ongoing Proposition 98 General Fund resources to establish a K-12 specific component within the Strong Workforce Program designed to encourage local educational agencies to offer highquality career technical education programs that are aligned with needed industry skills and regional workforce development efforts occurring through the existing Strong Workforce Program. Career Technical Education Incentive Grant Program. The State Budget includes $150 million ongoing Proposition 98 General Fund resources to make permanent the Career Technical Education Incentive Grant Program. A-5

38 Inclusive Early Education Expansion Program. The State Budget creates the Inclusive Early Education Expansion Program, providing $167.2 million one-time Proposition 98 General Fund resources through a competitive grant program to increase the availability of inclusive early education and care for children aged zero to five years old, especially in low-income areas and in areas with relatively low access to care. The complete State Budget is available from the California Department of Finance website at The District can take no responsibility for the continued accuracy of this internet address or for the accuracy, completeness or timeliness of information posted therein, and such information is not incorporated herein by such reference. Future Budgets and Budgetary Actions. The District cannot predict what future actions will be taken by the State Legislature and the Governor to address changing State revenues and expenditures or the impact such actions will have on State revenues available in the current or future years for education. The State budget will be affected by national and State economic conditions and other factors beyond the District s ability to predict or control. Certain actions could result in a significant shortfall of revenue and cash, and could impair the State s ability to fund schools during fiscal year and in future fiscal years. Certain factors, like an economic recession, could result in State budget shortfalls in any fiscal year and could have a material adverse financial impact on the District. As the Series 2018 Bonds are payable from ad valorem property taxes, the State budget is not expected to have an impact on the payment of the Series 2018 Bonds. Prohibitions on Diverting Local Revenues for State Purposes. Beginning in , the State satisfied a portion of its Proposition 98 obligations by shifting part of the property tax revenues otherwise belonging to cities, counties, special districts, and redevelopment agencies, to school and community college districts through a local Educational Revenue Augmentation Fund ( ERAF ) in each county. Local agencies, objecting to invasions of their local revenues by the State, sponsored a statewide ballot initiative intended to eliminate the practice. In response, the State Legislature proposed an amendment to the State Constitution, which the State s voters approved as Proposition 1A at the November 2004 election. That measure was generally superseded by the passage of an initiative constitutional amendment at the November 2010 election, known as Proposition 22. The effect of Proposition 22 is to prohibit the State, even during a period of severe fiscal hardship, from delaying the distribution of tax revenues for transportation, redevelopment, or local government projects and services. It prevents the State from redirecting redevelopment agency property tax increment to any other local government, including school districts, or from temporarily shifting property taxes from cities, counties and special districts to schools, as in the ERAF program. This is intended to, among other things, stabilize local government revenue sources by restricting the State s control over local property taxes. One effect of this amendment has been to deprive the State of fuel tax revenues to pay debt service on most State bonds for transportation projects, reducing the amount of State general fund resources available for other purposes, including education. Prior to the passage of Proposition 22, the State invoked Proposition 1A to divert $1.935 billion in local property tax revenues in from cities, counties, and special districts to the State to offset State general fund spending for education and other programs, and included another diversion in the adopted State budget of $1.7 billion in local property tax revenues from local redevelopment agencies, which local redevelopment agencies have now been dissolved (see CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Assembly Bill No. 26 & California Redevelopment Association v. Matosantos herein). Redevelopment agencies had sued the State over this latter diversion. However, the lawsuit was decided against the California Redevelopment Association on May 1, Because Proposition 22 reduces the State s A-6

39 authority to use or shift certain revenue sources, fees and taxes for State general fund purposes, the State will have to take other actions to balance its budget in some years such as reducing State spending or increasing State taxes, and school and community college districts that receive Proposition 98 or other funding from the State will be more directly dependent upon the State s general fund. Allocation of State Funding to School Districts; Local Control Funding Formula. Prior to the implementation of the Local Control Funding Formula in fiscal year , under California Education Code Section and following, each school district was determined to have a target funding level: a base revenue limit per student multiplied by the district s student enrollment measured in units of average daily attendance. The base revenue limit was calculated from the district s prior-year funding level, as adjusted for a number of factors, such as inflation, special or increased instructional needs and costs, employee retirement costs, especially low enrollment, increased pupil transportation costs, etc. Generally, the amount of State funding allocated to each school district was the amount needed to reach that district s base revenue limit after taking into account certain other revenues, in particular, locally generated property taxes. This is referred to as State equalization aid. To the extent local tax revenues increased due to growth in local property assessed valuation, the additional revenue was offset by a decline in the State s contribution; ultimately, a school district whose local property tax revenues exceeded its base revenue limit was entitled to receive no State equalization aid, and received only its special categorical aid, which is deemed to include the basic aid of $120 per student per year guaranteed by Article IX, Section 6 of the Constitution. Such districts were known as basic aid districts, which are now referred to as community funded districts. School districts that received some equalization aid were commonly referred to as revenue limit districts, which are now referred to as LCFF districts. The District is an LCFF district. Beginning in fiscal year , the LCFF replaced the revenue limit funding system and most categorical programs, and distributes combined resources to school districts through a base grant ( Base Grant ) per unit of average daily attendance ( A.D.A. ) with additional supplemental funding (the Supplemental Grant ) allocated to local educational agencies based on their proportion of English language learners, students from low-income families and foster youth. The LCFF was projected to have an eight year implementation program to incrementally close the gap between actual funding and the target level of funding, as described below. The LCFF includes the following components: A Base Grant for each local education agency ( LEA ). The Base Grants are based on four uniform, grade-span base rates. For fiscal year , the LCFF provided to school districts and charter schools: (a) a Target Base Grant for each LEA equivalent to $8,235 per A.D.A. for kindergarten through grade 3; (b) a Target Base Grant for each LEA equivalent to $7,571 per A.D.A. for grades 4 through 6; (c) a Target Base Grant for each LEA equivalent to $7,796 per A.D.A. for grades 7 and 8; (d) a Target Base Grant for each LEA equivalent to $9,269 per A.D.A. for grades 9 through 12. However, the amount of actual funding allocated to the Base Grant, Supplemental Grants and Concentration Grants will be subject to the discretion of the State. This amount includes an adjustment of 10.4% to the Base Grant to support lowering class sizes in grades K-3, and an adjustment of 2.6% to reflect the cost of operating career technical education programs in grades Further, this amount also includes the higher costs-of-living adjustment of 3.70% authorized by the State Budget, which is known as super COLA. A 20% Supplemental Grant for the unduplicated number of English language learners, students from low-income families and foster youth to reflect increased costs associated with educating those students. A-7

40 An additional Concentration Grant of up to 50% of a LEA s Base Grant, based on the number of English language learners, students from low-income families and foster youth served by the LEA that comprise more than 55% of enrollment. An Economic Recovery Target (the ERT ) that is intended to ensure that almost every LEA receives at least their pre-recession funding level (i.e., the fiscal year revenue limit per unit of A.D.A.), adjusted for inflation, at full implementation of the LCFF. Upon full implementation, LEAs would receive the greater of the Base Grant or the ERT. Under LCFF, for community funded districts, local property tax revenues would be used to offset up to the entire allocation under the new formula. However, community funded districts would continue to receive the same level of State aid as allocated in fiscal year Local Control Accountability Plans. A feature of the LCFF is a system of support and intervention for local educational agencies. School districts, county offices of education and charter schools are required to develop, implement and annually update a three-year local control and accountability plan ( LCAP ). Each LCAP must be developed with input from teachers, parents and the community, and should describe local goals as they pertain to eight areas identified as state priorities, including student achievement, parent engagement and school climate, as well as detail a course of action to attain those goals. Moreover, the LCAPs must be designed to align with the district s budget to ensure adequate funding is allocated for the planned actions. Each school district must submit its LCAP annually on or before July 1 for approval by its county superintendent. The county superintendent then has until August 15 to seek clarification regarding the contents of the LCAP, and the school district must respond in writing. The county superintendent can submit recommendations for amending the LCAP, and such recommendations must be considered, but are not mandatory. A school district s LCAP must be approved by its county superintendent by October 8 of each year if such superintendent finds (i) the LCAP adheres to the State template, and (ii) the district s budgeted expenditures are sufficient to implement the strategies outlined in the LCAP. Performance evaluations are to be conducted to assess progress toward goals and guide future actions. County superintendents are expected to review and provide support to the school districts under their jurisdiction, while the State Superintendent of Public Instruction performs a corresponding role for county offices of education. The Office of Education of the County is not a department of the County. The California Collaborative for Education Excellence (the Collaborative ), a newly established body of educational specialists, was created to advise and assist local education agencies in achieving the goals identified in their LCAPs. For local education agencies that continue to struggle in meeting their goals, and when the Collaborative indicates that additional intervention is needed, the State Superintendent of Public Instruction would have authority to make changes to a local education agency s LCAP. A-8

41 Attendance and LCFF. The following table sets forth the District s actual and budgeted A.D.A., enrollment (including percentage of students who are English language learners, from low-income families and/or foster youth (collectively, EL/LI Students )), and targeted Base Grant per unit of A.D.A. for fiscal years through , respectively. The A.D.A. and enrollment numbers reflected in the following table include special education. KERMAN UNIFIED SCHOOL DISTRICT (Fresno County, California) Average Daily Attendance, Enrollment and Targeted Base Grant Fiscal Years through A.D.A./Base Grant Enrollment (9) Fiscal Year K Total A.D.A. Total Enrollment Unduplicated Percentage of EL/LI Students A.D.A. (2) : 1, , , , , % Targeted Base Grant (3) : $7,675 $7,056 $7,266 $8, A.D.A. (2) : 1, , , , , % Targeted Base Grant (3)(4) : $7,740 $7,116 $7,328 $8, A.D.A. (2) : 1, , , , , % Targeted Base Grant (3)(5) : $7,083 $7,189 $7,403 $8, A.D.A. (2) : 1, , , , , % Targeted Base Grant (3)(6) : $7,116 $7,223 $7,438 $8, A.D.A. (2) : 1, , , , , % Targeted Base Grant (3)(7) : $7,941 $7,301 $7,518 $8, (1) A.D.A. (1) : 1, , , , , % Targeted Base Grant (3)(8) : $8,235 $7,571 $7,796 $8, (1) Figures are projections. (2) A.D.A. for the second period of attendance, typically in mid-april of each school year. (3) Such amounts represent the targeted amount of Base Grant per unit of A.D.A., and include the grade span adjustment, but do not include any supplemental and concentration grants under the LCFF. Such amounts were not expected to be fully funded in fiscal years , , and (4) Targeted fiscal year Base Grant amount reflects a 0.85% cost-of-living adjustment from targeted fiscal year Base Grant amounts. (5) Targeted fiscal year Base Grant amount reflects a 1.02% cost-of-living adjustment from targeted fiscal year Base Grant amounts. (6) Targeted fiscal year Base Grant amount reflects a 0.00% cost-of-living adjustment from targeted fiscal year Base Grant amounts. (7) Targeted fiscal year Base Grant amount reflects a 1.56% cost-of-living adjustment from targeted fiscal year Base Grant amounts. (8) Targeted fiscal year Base Grant amount reflects a 3.70% cost-of-living adjustment from targeted fiscal year Base Grant amounts. This super COLA amount was authorized by the State Budget and exceeds the statutory 2.71% cost-of-living adjustment. (9) Reflects enrollment as of October report submitted to the California Department of Education through CBEDS for the and school years and California Longitudinal Pupil Achievement Data System ( CALPADS ) for the through school year. For purposes of calculating Supplemental and Concentration Grants, a school district s fiscal year percentage of unduplicated EL/LI Students was expressed solely as a percentage of its fiscal year total enrollment. For fiscal year , the percentage of unduplicated EL/LI Students enrollment was based on the two-year average of EL/LI Students enrollment in fiscal years and Beginning in fiscal year , a school district s percentage of unduplicated EL/LI Students was based on a rolling average of such school district s EL/LI Students enrollment for the then-current fiscal year and the two immediately preceding fiscal years. Source: Kerman Unified School District. The District received approximately $51.54 million (unaudited) in aggregate revenues reported under LCFF sources in fiscal year and has budgeted to receive approximately $55.31 million in aggregate revenues under the LCFF in fiscal year (or approximately 85.18% of its general fund A-9

42 revenues in fiscal year ). Such amount includes supplemental grants and concentration grants budgeted to be approximately $7.04 million and $6.20 million, respectively, in fiscal year Local Sources of Education Funding The principal component of local revenues is a school district s property tax revenues, i.e., each 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. California Education Code Section 42238(h) itemizes the local revenues that are counted towards the amount allocated under the LCFF (and formerly, the base revenue limit) before calculating how much the State must provide in State aid. The more local property taxes a district receives, the less State aid it is entitled to receive. Prior to the implementation of the LCFF, a school district whose local property tax revenues exceeded its base revenue limit was entitled to receive no State aid, and received only its special categorical aid which is deemed to include the basic aid of $120 per student per year guaranteed by Article IX, Section 6 of the Constitution. Such districts were known as basic aid districts, which are now referred to as community funded districts. School districts that received some State equalization aid were commonly referred to as revenue limit districts. The District was a revenue limit district and is now referred to as an LCFF District. Under the LCFF, local property tax revenues are used to offset up to the entire State aid collection under the new formula; however, community funded districts would continue to receive, at a minimum, the same level of State aid as allotted in fiscal year See State Funding of Education; State Budget Process Allocation of State Funding to School Districts; Local Control Funding Formula herein for more information about the LCFF. Local property tax revenues account for approximately 9.22% of the District s aggregate revenues reported under LCFF sources and are budgeted to be approximately $5.09 million, or 7.85% of total general fund revenues in fiscal year For information about the property taxation system in California and the District s property tax base, see the sections titled Property Taxation System, Assessed Valuation of Property Within the District, and Tax Charges and Delinquencies under the caption SECURITY AND SOURCE OF PAYMENT FOR THE SERIES 2018 BONDS in the front portion of the Official Statement. For a discussion of legal limitations on the ability of the District to raise revenues through local property taxes, see CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS below. Effect of Changes in Enrollment. Changes in local property tax income and A.D.A. affect LCFF districts and community funded districts differently. In an LCFF district, such as the District, increasing enrollment increases the total amount distributed under the LCFF and thus generally increases a district s entitlement to State equalization aid, while increases in property taxes do nothing to increase district revenues, but only offset the State funding requirement of equalization aid. Operating costs increase disproportionately slowly to enrollment growth; and only at the point where additional teachers and classroom facilities are needed. Declining enrollment has the reverse effect on LCFF districts, generally resulting in a loss of State equalization aid, while operating costs decrease slowly and only when, for example, the district decides to lay off teachers or close schools. In a community funded district, the opposite is generally true: increasing enrollment increases the amount to which the district would be entitled were it an LCFF district, but since all LCFF income (and A-10

43 more) is already generated by local property taxes, there is no increase in State income. Meanwhile, as new students impose increased operating costs, property tax income is stretched further. Declining enrollment does not reduce property tax income, and has a negligible impact on State aid, but eventually reduces operating costs, and thus can be financially beneficial to a community funded district. Other District Revenues Federal Revenues. The federal government provides funding for several District programs, including special education programs. Federal revenues, most of which are restricted, comprise approximately 5.92% (or approximately $3.84 million) of the District s general fund budgeted revenues for fiscal year Other State Revenues. In addition to State apportionments for Proposition 98 funding through the Local Control Funding Formula, the District receives other State revenues, consisting primarily of restricted revenues designed to implement State mandated programs. Beginning in fiscal year , categorical spending restrictions associated with a majority of State mandated programs were eliminated, and funding for these programs was folded into the LCFF. Categorical funding for certain programs was excluded from the LCFF, and school districts will continue to receive restricted State revenues to fund these programs. Other State revenues comprise approximately 5.99% (or approximately $3.89 million) of the District s general fund budgeted revenues for fiscal year A portion of such other State revenues are amounts the District expects to receive from State lottery funds, a portion of which may not be used for non-instructional purposes, such as the acquisition of real property, the construction of facilities, or the financing of research. School districts receive lottery funds proportional to their total A.D.A. The District s State lottery revenue is budgeted at approximately $975,996 for fiscal year Other Local Revenues. In addition to ad valorem property taxes, the District receives additional local revenues from sources, such as interest income, leases and rentals, educational foundations, donations and sales of property. Other local revenues comprise approximately 2.91% (or approximately $1.89 million) of the District s general fund budgeted revenues for fiscal year Significant Accounting Policies and Audited Financial Reports The State Department of Education imposes by law uniform financial reporting and budgeting requirements for K-12 districts. Financial transactions are accounted for in accordance with the Department of Education s California School Accounting Manual. This manual, according to Section of the Education Code, is to be followed by all California school districts, including the District. Significant accounting policies followed by the District are explained in Note 1 to the District s audited financial statements for the fiscal year ended June 30, 2017, which are included as Appendix B. Independently audited financial reports are prepared annually in conformity with generally accepted accounting principles for educational institutions. The annual audit report is generally available about six months after the June 30 close of each fiscal year. The following tables contain data abstracted from financial statements prepared by the District s former independent auditor, Yribarren Group, Certified Public Accountants, Selma, California (the YGCPA ), for fiscal years and , and by the District s current independent auditor, Vavrinek, Trine, Day & Co., LLP, Certified Public Accountants, Fresno, California ( VTDC ), for fiscal years through The District s contract with YGCPA terminated at the end of fiscal year and subsequently, pursuant to a selection process involving requests for proposals from multiple accounting firms, VTDC was selected as the District s auditor. A-11

44 The change in auditors in fiscal year resulted in the District presenting certain financial information differently in its audited financial statements. Thus, the information presented in the tables below for fiscal years and and fiscal years through are categorized differently. Although historical total revenue and expenditure figures are comparatively consistent, the categorical breakdown of revenues and expenditures is different for the revised accounting formats and is not directly comparable. YGCPA and VTDC have not been requested to consent to the use or to the inclusion of their respective reports in this Official Statement, and they have not audited or reviewed this Official Statement. The District is required by law to adopt its audited financial statements after a public meeting to be conducted no later than January 31 following the close of each fiscal year. The following table sets forth the statement of revenues, expenditures and changes in fund balances for the District s general fund for the fiscal years and The table on page A-14 sets forth the statement of revenues, expenditures and changes in fund balances for the District s general fund for fiscal years through [Remainder of page left intentionally blank.] A-12

45 KERMAN UNIFIED SCHOOL DISTRICT (Fresno County, California) Statement of General Fund Revenues, Expenditures and Changes in Fund Balance Fiscal Years through Fiscal Year Fiscal Year REVENUES Revenue Limit Sources/LCFF Sources (1): State Apportionment or State Fund $21,354,409 $23,691,152 Education Protection Account Funds - 5,472,990 Local Sources 3,248,020 3,423,177 Federal Revenue 3,293,971 2,967,858 Other State Revenue 5,242,801 2,516,086 Other Local Revenue 1,617,537 2,100,865 Total Revenues 34,756,738 40,172,128 EXPENDITURES Instruction 20,147,077 21,420,649 Instruction-Related Services 3,437,164 3,720,671 Pupil Services 2,688,349 3,301,926 Ancillary Services 513, ,952 Community Services - 1,515 General Administration 2,236,398 2,621,022 Plant Services 3,867,477 4,220,279 Other Outgo 199, ,418 Debt Service: Principal 41,000 43,000 Interest 5,431 9,199 Total Expenditures 33,136,298 36,049,631 Excess (Deficiency) of Revenues Over (Under) Expenditures 1,620,440 4,122,497 Other Financing Sources (Uses): Transfers In - 3,000,211 Transfers Out (252,712) (3,030,167) Total Other Financing Sources (Uses) (252,712) (29,956) Net Change in Fund Balances 1,367,728 4,092,541 Fund Balance, July 1 7,737,281 9,134,762 Fund Balance, June 30 $ 9,105,009 $13,227,303 (1) The LCFF was implemented beginning in fiscal year Source: Kerman Unified School District Audited Financial Reports for fiscal years through A-13

46 KERMAN UNIFIED SCHOOL DISTRICT (Fresno County, California) Statement of General Fund Revenues, Expenditures and Changes in Fund Balance Fiscal Years through Fiscal Year Fiscal Year Fiscal Year REVENUES LCFF Sources $38,388,185 $46,076,983 $50,038,235 Federal sources 3,522,648 3,202,300 3,398,702 Other State sources 2,819,896 5,630,385 4,453,222 Other local sources 2,158,654 3,104,992 2,821,716 Total Revenues $46,889,383 58,014,660 60,711,875 EXPENDITURES Current Instruction 24,855,627 27,139,713 31,204,083 Instruction-related activities: Supervision of instruction 644, , ,615 Instructional library, media and technology 628, , ,473 School site administration 2,782,202 2,941,352 3,113,041 Pupil services: Home-to-school transportation 1,746,546 1,603,704 2,214,947 Food services 99,691 87, All other pupil services 2,010,816 2,150,473 2,612,092 Administration: Data processing 711, , ,739 All other administration 2,619,653 2,859,057 2,803,356 Plant services 5,319,915 5,406,255 5,792,202 Facility acquisition and construction 1,637,214 4,570, ,173 Ancillary services 464, , ,739 Other outgo 230, , ,090 Debt service Principal Interest and other Total Expenditures 43,750,761 49,734,969 51,445,702 Excess (Deficiency) of Revenues Over (Under) Expenditures 3,138,622 8,279,691 9,266,173 Other Financing Sources (Uses): Transfers in Other sources Transfers out (6,100,484) (7,019,109) (4,203,234) Net Financing Sources (Uses) (6,100,484) (7,019,109) (4,203,232) NET CHANGE IN FUND BALANCES (2,961,862) 1,260,582 5,062,941 Fund Balance, Beginning 12,543,302 9,581,440 10,842,022 Fund Balance, Ending $ 9,581,440 $ 10,842,022 $ 15,904,963 Source: Kerman Unified School District Audited Financial Reports for fiscal years through A-14

47 The following table sets forth the general fund balance sheet of the District for fiscal years and The table on page A-16 sets forth the general fund balance sheet of the District for fiscal years through KERMAN UNIFIED SCHOOL DISTRICT (Fresno County, California) Summary of General Fund Balance Sheet Fiscal Years through Fiscal Year Fiscal Year ASSETS: Cash in County Treasury $6,576,774 $6,374,058 Cash in Revolving Fund 5,500 5,500 Cash with a Fiscal Agent/Trustee 52,183 - Accounts Receivable 7,426,258 7,550,734 Due from Other Funds 1,073, ,675 Stores Inventories 65,930 59,421 Total Assets 15,200,256 14,752,388 LIABILITIES AND FUND BALANCE: Liabilities: Accounts payable $1,154,103 $1,198,139 Due to Other Funds 729, ,284 Tax Revenue Anticipation Notes 4,205,000 - Unearned Revenue 6, ,662 Total Liabilities 6,095,247 1,525,085 Fund Balance: Nonspendable Fund Balances: Revolving Cash 5,500 5,500 Stores Inventories 65,930 59,420 Restricted Fund Balances 449,884 - Assigned Fund Balances - 4,921,570 Unassigned: Reserve for Economic Uncertainty - 1,801,882 Other Unassigned 8,583,695 6,438,931 Total Fund Balance 9,105,009 13,227,303 Total Liabilities and Fund Balances $15,200,256 $14,752,388 Source: Kerman Unified School District Audited Financial Reports for fiscal years through A-15

48 KERMAN UNIFIED SCHOOL DISTRICT (Fresno County, California) Summary of General Fund Balance Sheet Fiscal Years through Fiscal Year Fiscal Year Fiscal Year ASSETS Deposits and investments $9,119,024 $8,543,641 $17,839,020 Receivables 1,921,474 2,785,209 2,155,842 Due from other funds 1,213,031 2,745,240 31,888 Prepaid expenditures 11,003 58,261 24,019 Stores inventories 55,171 66,645 89,242 Total Assets $12,319,703 $14,198,996 $20,140,011 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $2,358,522 $3,228,533 $3,455,665 Due to other funds 379,741 22, ,792 Unearned revenue - 106, ,591 Total Liabilities 2,738,263 3,356,974 4,235,048 Fund Balances: Nonspendable 71, , ,761 Restricted 1,196,691 1,537,619 2,034,174 Assigned 3,042,723 4,090,781 9,552,330 Unassigned 5,270,352 5,083,216 4,199,698 Total Fund Balance 9,581,440 10,842,022 15,904,963 Total Liabilities and Fund Balances $12,319,703 $14,198,996 $20,140,011 Source: Kerman Unified School District Audited Financial Reports for fiscal years through A-16

49 District Budget Process and County Review State law requires school districts to maintain a balanced budget in each fiscal year. The State Department of Education imposes a uniform budgeting and accounting format for school districts. Under current law, a school district governing board must adopt and file with the county superintendent of schools a tentative budget by July 1 in each fiscal year. The District is under the jurisdiction of the County of Fresno Superintendent of Schools. The county superintendent must review and approve, conditionally approve or disapprove the budget no later than August 15. The county superintendent is required to examine the adopted budget for compliance with the standards and criteria adopted by the State Board of Education and identify technical corrections necessary to bring the budget into compliance with the established standards. If the budget is disapproved, it is returned to the District with recommendations for revision. The District is then required to revise the budget, hold a public hearing thereon, adopt the revised budget, and file it with the county superintendent no later than September 8. Pursuant to State law, the county superintendent has available various remedies by which to impose and enforce a budget that complies with State criteria, depending on the circumstances, if a budget is disapproved. After approval of an adopted budget, the school district s administration may submit budget revisions for governing board approval. Subsequent to approval, the county superintendent will monitor each district under its jurisdiction throughout the fiscal year pursuant to its adopted budget to determine on an ongoing basis if the district can meet its current or subsequent year financial obligations. If the county superintendent determines that a district cannot meet its current or the subsequent year s obligations, the county superintendent will notify the district s governing board of the determination and may then do either or both of the following: (a) assign a fiscal advisor to enable the district to meet those obligations, or (b) if a study and recommendations are made and a district fails to take appropriate action to meet its financial obligations, the county superintendent will so notify the State Superintendent of Public Instruction, and then may do any or all of the following for the remainder of the fiscal year: (i) request additional information regarding the district s budget and operations; (ii) develop and impose, after also consulting with the district s governing board, revisions to the budget that will enable the district to meet its financial obligations; and (iii) stay or rescind any action inconsistent with such revisions. However, the county superintendent may not abrogate any provision of a collective bargaining agreement that was entered into prior to the date upon which the county superintendent assumed authority. A State law adopted in 1991 (known as A.B ) imposed additional financial reporting requirements on school districts, and established guidelines for emergency State aid apportionments. Under the provisions of A.B. 1200, each school district is required to file interim certifications with the county superintendent (on December 15, for the period ended October 31, and by mid-march for the period ended January 31) as to its ability to meet its financial obligations for the remainder of the then-current fiscal year and, based on current forecasts, for the subsequent fiscal year. The county superintendent reviews the certification and issues either a positive, negative or qualified certification. A positive certification is assigned to any school district that will meet its financial obligations for the current fiscal year and subsequent two fiscal years. A negative certification is assigned to any school district that is deemed unable to meet its financial obligations for the remainder of the 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. A school district that receives a qualified or negative certification may not issue tax and revenue anticipation notes or certificates of participation without approval by the county superintendent in that fiscal year or in the next succeeding year. A-17

50 For school districts under fiscal distress, the county superintendent of schools is authorized to take a number of actions to ensure that the school district meets its financial obligations, including budget revisions. However, the county superintendent is not authorized to approve any diversion of revenue from ad valorem taxes levied to pay debt service on district general obligation bonds. A school district that becomes insolvent may, upon the approval of a fiscal plan by the county superintendent of schools, receive an emergency appropriation from the State, the acceptance of which constitutes an agreement to submit to management of the school district by a Superintendent appointed administrator. In the event the State elects to provide an emergency appropriation to a school district, such appropriation may be accomplished through the issuance of State School Fund Apportionment Lease Revenue Bonds to be issued by the California Infrastructure and Economic Development Bank, on behalf of the school district. State law provides that so long as such bonds are outstanding, the recipient school district (via its State-appointed administrator) cannot file for bankruptcy. In the last five years, the District has not received a qualified or negative certification in connection with its first interim reports or second interim reports. The following table sets forth the District s adopted general fund budgets for fiscal years through and unaudited actuals for fiscal years through [Remainder of page left intentionally blank.] A-18

51 KERMAN UNIFIED SCHOOL DISTRICT (Fresno County, California) General Fund Budgets for Fiscal Years through and Unaudited Actuals for Fiscal Years through Original Adopted Budget Unaudited Actuals (1) Original Adopted Budget Unaudited Actuals (2) Original Adopted Budget Unaudited Actuals Original Adopted Budget REVENUES LCFF Sources $45,492, $46,242, $50,597, $50,479, $52,367, $51,535, $55,306, Federal Revenue 3,589, ,202, ,561, ,398, ,585, ,542, ,842, Other State Revenue 1,468, ,630, ,761, ,997, ,113, ,717, ,892, Other Local Revenue 1,939, ,056, ,067, ,761, ,053, ,967, ,887, TOTAL REVENUES 52,489, ,131, ,988, ,637, ,120, ,762, ,928, EXPENDITURES Certificated Salaries 19,182, ,542, ,021, ,556, ,725, ,610, ,828, Classified Salaries 6,694, ,712, ,776, ,176, ,649, ,655, ,250, Employee Benefits 9,293, ,720, ,454, ,960, ,480, ,580, ,778, Books and Supplies 4,960, ,531, ,709, ,974, ,265, ,603, ,641, Services, Other Operating Expenses 5,523, ,242, ,335, ,948, ,747, ,567, ,617, Capital Outlay 4,790, ,588, ,132, , ,036, , , Other Outgo (excluding Direct Support/Indirect Costs) 109, , , , , ,172, , Other Outgo - Transfers of Indirect Costs (38,502.00) (177,039.76) (97,494.00) (188,680.12) (188,895.00) (193,049.75) (204,559.00) TOTAL EXPENDITURES 50,515, ,268, ,415, ,960, ,295, ,635, ,316, EXCESS (DEFICIENCY) OF REVENUES OVER 1,974, ,863, ,572, ,676, ,824, ,127, ,612, EXPENDITURES OTHER FINANCING SOURCES (USES) Inter-fund Transfers In 4, Inter-fund Transfers Out (3,000,000.00) (8,019,108.88) (4,500,000.00) (4,703,233.88) (7,081,928.00) (11,657,268.25) (5,500,000.00) Other Sources (Uses) Contributions TOTAL, OTHER FINANCING SOURCES (USES) NET INCREASE (DECREASE) IN FUND BALANCE (2,995,833.00) (8,019,108.88) (4,500,000.00) (4,703,232.06) (7,081,928.00) (11,657,268.25) (5,500,000.00) (1,021,742.00) (155,271.45) 1,072, ,973, (257,475.00) (3,529,697.06) 112, BEGINNING BALANCE, as of July 1 4,905, ,538, ,720, ,383, ,326, ,724, ,327, Audit Adjustments , , , , As of July 1 Audited 4,905, ,538, ,720, ,751, ,859, ,739, ,783, Other Restatements Adjusted Beginning Balance 4,905, ,538, ,720, ,751, ,859, ,739, ,783, ENDING BALANCE $3,883, $6,383, $5,793, $11,724, $5,602, $8,209, $11,895, Unrestricted Ending Balance $2,726, $4,845, $4,377, $10,122, $4,277, $5,873, $8,985, Restricted Ending Balance $1,156, $1,537, $1,416, $1,602, $1,325, $2,336, $2,910, (1) The audited financial statements for fiscal year reflect different revenues, expenditures and ending balances compared to the unaudited actuals for this fiscal year due to the inclusion of Fund 20 Special Reserve Fund for Postemployment Benefits in the General Fund for purposes of the audited financial statements due to GASB Statement No. 54. As a result, the audited financial statements for fiscal year reflect an increase in assets and fund balance of $4,090,780 and revenue of $48,057 in the General Fund. (2) The audited financial statements for fiscal year reflect different revenues, expenditures and ending balances compared to the unaudited actuals for these fiscal year due to the inclusion of Fund 20 Special Reserve Fund for Postemployment Benefits and Fund 14 Deferred Maintenance Fund in the General Fund for purposes of the audited financial statements due to GASB Statement No. 54. As a result, the audited financial statements for fiscal year reflect an increase in assets, liabilities and fund balance of $4,167,129, $1,413, and $4,165,617, respectively, and revenue and expenditures of $60,264 and $485,329, respectively, in the General Fund. Source: Kerman Unified School District adopted general fund budgets for fiscal years through and unaudited actuals for fiscal years through A-19

52 District Debt Structure Long-Term Debt Summary. A schedule of changes in the District s long-term obligations for the year ended June 30, 2017, consisted of the following: Long-Term Debt Balance July 1, 2016 Additions Deductions Balance June 30, 2017 Due Within One Year General Obligation Bonds (1) Series 2004 Bonds Capital Appreciation $754,088 $87,368 - $841,456 - Series 2006 Bonds Capital Appreciation 2,978, , ,000 2,968,924 $175,000 Series 2007 Bonds Current Interest 300, , , ,000 Capital Appreciation 2,704, ,005-2,839,544 - Series 2009 Bonds Capital Appreciation 9,729, , ,000 10,260, ,000 Series 2015 Refunding Bonds 4,080, ,000 3,775, ,000 Series 2017 Bonds Current Interest - 12,000,000-12,000,000 - Bond Premium 1,080, ,395 68,337 1,580,661 - Compensated absences net 75,059-4,131 70,928 - Other postemployment benefits 2,927,165 1,579, ,047 4,010,897 - Total $24,629,297 $15,216,719 $1,308,515 $38,537,501 $830,000 (1) Excludes the Series 2018 Bonds. Source: Kerman Unified School District Audited Financial Report for fiscal year General Obligation Bonds. In addition to the Series 2018 Bonds, the District has outstanding six additional series of general obligation bonds, each of which is secured by ad valorem taxes levied upon all property subject to taxation by the District on a parity with the Series 2018 Bonds. See THE SERIES 2018 BONDS Outstanding Bonds and Aggregate Debt Service in the front portion of this Official Statement for more information about such outstanding bonds. Compensated Absences. The long-term portion of compensated absences for the District at June 30, 2017, amounted to $70,928. Other Post-Employment Benefits (OPEBs). In addition to the retirement plan benefits with the California State Teacher s Retirement System ( CalSTRS ) and the State Public Employees Retirement System ( CalPERS ) (see Retirement Benefits below), the District administers a single-employer defined benefit healthcare plan that provides medical and dental insurance benefits to eligible retirees and their spouses. Membership consists of 23 retirees and beneficiaries currently receiving benefits and 459 active plan members. For a description of the District s program, see Note 12 to the District s financial statements attached hereto as APPENDIX B FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, In June 2015, the Governmental Accounting Standards Board ( GASB ) issued Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions ( Statement Number 75 ). Other post-employment benefits (meaning other than pension benefits) ( OPEB ) generally include post-employment health benefits (medical, dental, vision, prescription drug and mental health), life insurance, disability benefits and long term care benefits. The objective of Statement Number 75 is to improve accounting and financial reporting by the State and local governments for OPEB by requiring the recognition of entire OPEB liability, a more comprehensive measure of OPEB expense, new note A-20

53 disclosures and certain required supplementary information. In addition, Statement Number 75 sets forth additional accounting methods to improve the usefulness of information about OPEB included in the general purpose external financial reports of State and local governmental OPEB plans for making decisions and assessing accountability. Statement Number 75 results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for all postemployment benefits (pensions and OPEB) with regard to providing decision-useful information, supporting assessments of accountability and inter-period equity, and creating additional transparency. Statement Number 75 replaces GASB Statements Number 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, as amended, and Number 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans. The contribution requirements of plan members and the District are established and may be amended by the District and its bargaining units. The annual required contributions are based on projected pay-as-you-go financing requirements. For fiscal year the District contributed $209,312, all of which was used for current premiums. Plan members receiving benefits contributed $47,194, or approximately 18% of the total premiums. In fiscal year , interest on the net OPEB obligation and adjustments to the annual required contribution were $131,722 and $(286,735), respectively, which resulted in an increase to the net OPEB obligation of $1,083,732. As of June 30, 2017, the net OPEB obligation was $4,010,897. The District s annual OPEB cost, actual OPEB cost contributed to the plan, the percentage of annual OPEB cost contributed to the plan and the net OPEB obligation for fiscal years through are as follows: Year Ended June 30, Annual OPEB Cost Actual Contribution Percentage Contributed Net OPEB Obligation 2015 $ 803,949 $361, % $1,797, ,352, , ,927, ,293, , ,010,897 Source: Kerman Unified School District Audited Financial Report for fiscal year For more information about the District s annual required contribution for fiscal year and the District s net OPEB obligation and prefunding of benefits at June 30, 2017, see Note 12 to the District s financial statements attached hereto as APPENDIX B FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, Total Compensation Systems, Inc. has prepared an actuarial valuation (the Actuarial Valuation ) covering the District s retiree health benefits and reports that, as of June 30, 2017 valuation date, the District had 20 eligible retirees as well as approximately 392 eligible active plan members. The Actuarial Valuation reports that, as of June 30, 2017, the District had a total OPEB liability of $9,171,330. For the year beginning June 30, 2017, the annual required pay-as-you-go contribution was estimated to be $354,062 under the Actuarial Valuation. The Actuarial Valuation assumes, among other things, 2.75% inflation per year, 3.5% discount rate per year and 2.75% payroll increase per year. Tax and Revenue Anticipation Notes. The most recent fiscal year in which the District issued tax and revenue anticipation notes ( TRANS ) was fiscal year The District does not expect to issue TRANS or borrow funds to supplement the District s cash flow in fiscal year The District may issue TRANS or borrow funds in future fiscal years as and if necessary to supplement cash flow. A-21

54 Employment As of September 6, 2018, the District employed 282 full-time certificated employees and 139 fulltime classified employees. In addition, the District employed 122 part-time faculty and staff. For fiscal year , the total certificated and classified payrolls for the general fund were approximately $22.61 million (unaudited) and $7.66 million (unaudited), respectively, and are budgeted to be approximately $24.83 million and $8.25 million, respectively, in fiscal year These employees, except management and some part-time employees, are represented by the bargaining units as noted below. Name of Bargaining Unit Number of FTEs Represented Current Contract Expiration Date Kerman Unified Teachers Association (KUTA) June 30, 2020 California School Employees Association (CSEA) (1) June 30, 2019 (1) The District is currently at an impasse with CSEA in the contractual negotiations for its annual re-opener related to salaries and benefits. Source: Kerman Unified School District. Retirement Benefits The District participates in retirement plans with CalSTRS, which covers all full-time certificated District employees, and CalPERS, which covers certain classified employees. Classified school personnel who are employed four or more hours per day may participate in CalPERS. CalSTRS. Contributions to CalSTRS are fixed in statute. For fiscal year , covered employees contributed 8.00% of salary to CalSTRS, while school districts contributed 8.25%. In addition to the teacher and school contributions, the State contributed 4.517% of teacher payroll to CalSTRS (calculated on payroll data from two fiscal years ago). Prior to fiscal year and unlike typical defined benefit programs such as those administered by CalPERS, neither the CalSTRS employer nor the State contribution rate varied annually to make up funding shortfalls or assess credits for actuarial surpluses. The State does pay a surcharge when the member and school district contributions are not sufficient to fully fund the basic defined benefit pension (generally consisting of 2% of salary for each year of service at age 60 referred to herein as pre-enhancement benefits ) within a 30-year period. However, this surcharge does not apply to system-wide unfunded liability resulting from recent benefit enhancements. As part of the State Budget, the Governor signed Assembly Bill 1469 which implemented a new funding strategy for CalSTRS and increased the employer contribution rate in fiscal year from 8.25% to 8.88% of covered payroll. Such rate increased by 1.85% beginning in fiscal year until the employer contribution rate is 19.10% of covered payroll as further described below. AB 1469 increased member contributions, which were previously set at 8.00% of pay, to 10.25% of pay for members hired on or before December 31, 2012 and 9.205% of pay for members hired on or after January 1, 2013 effective July 1, However, on July 1, 2018, for members hired on or after January 1, 2013, the rate increased from 9.205% of pay to % of pay. The State s total contribution also increased from approximately 3% in fiscal year to 6.828% of payroll in fiscal year , plus the continued payment of 2.5% of payroll annual for a supplemental inflation protection program for a total of 9.328%. In addition, AB 1469 provides the State Teachers Retirement Board with authority to modify the percentages paid by employers and employees for fiscal year and each fiscal year thereafter to eliminate the CalSTRS unfunded liability by June 30, The State Teachers Retirement Board would also have authority to reduce employer and State contributions if they are no longer necessary. A-22

55 On February 1, 2017, the State Teachers Retirement Board voted to adopt revised actuarial assumptions reflecting members increasing life expectancies and current economic trends. The revised assumptions include a decrease from 7.50% to a 7.25% investment rate of return for the June 30, 2016 actuarial valuation, a decrease from 7.25% to a 7.00% investment rate of return for the June 30, 2017 actuarial valuation, a decrease from 3.75% to a 3.50% projected wage growth, and a decrease from 3.00% to a 2.75% price inflation factor. As of June 30, 2017, an actuarial valuation (the 2017 CalSTRS Actuarial Valuation ) for the entire CalSTRS defined benefit program showed an estimated unfunded actuarial liability of $107.3 billion, an increase of approximately $10.6 million from the June 30, 2016 valuation. The funded ratios of the actuarial value of valuation assets over the actuarial accrued liabilities as of June 30, 2017, June 30, 2016 and June 30, 2015, based on the actuarial assumptions, were approximately 62.6%, 63.7%, and 68.5%, respectively. Future estimates of the actuarial unfunded liability may change due to market performance, legislative actions and other experience that may differ from the actuarial assumptions. The following are certain of the actuarial assumptions set forth in the 2017 CalSTRS Actuarial Valuation: measurement of accruing costs by the Entry Age Normal Actuarial Cost Method, a 7.00% investment return assumption consistent with the State Teachers Retirement Board s decision on February 1, 2017, 3.00% interest on member accounts, projected 3.50% wage growth, projected 2.75% inflation and demographic assumptions relating to mortality rates, length of service, rates of disability, rates of withdrawal, probability of refund, and merit salary increases. The 2017 CalSTRS Actuarial Valuation also assumes that all members hired on or after January 1, 2013 are subject to the provisions of PEPRA (as defined herein). See Governor s Pension Reform below for a discussion of the pension reform measure signed by the Governor in August 2012 expected to help reduce future pension obligations of public employers with respect to employees hired on or after January 1, Future estimates of the actuarial unfunded liability may change due to market performance, legislative actions, changes in actuarial assumptions and other experiences that may differ from the actuarial assumptions. Pursuant to Assembly Bill 1469, a school district s contribution rates will increase in accordance with the following schedule: Effective Date (July 1) School District Contribution Rate % Source: Assembly Bill A-23

56 The following table sets forth the District s total employer contributions to CalSTRS for fiscal years through and the budgeted contribution for fiscal year KERMAN UNIFIED SCHOOL DISTRICT (Fresno County, California) Contributions to CalSTRS for Fiscal Years through Fiscal Year Contribution (3) STRS On-Behalf Amounts $1,639,219 $ 867, ,086,201 1,139, ,701,723 1,177, (1) 4,988,700 1,776, (2) 5,215,559 1,177,307 (1) Unaudited actuals for fiscal year (2) Original adopted budget for fiscal year (3) Figures reflect contributions from the General Fund of the District. Source: Kerman Unified School District The District s total employer contributions to CalSTRS for fiscal years through were equal to 100% of the required contributions for each year. With the implementation of AB 1469, the District anticipates that its contributions to CalSTRS will increase in future fiscal years as compared to prior fiscal years. The District, nonetheless, is unable to predict all factors or any changes in law that could affect its required contributions to CalSTRS in future fiscal years. CalSTRS produces a comprehensive annual financial report and actuarial valuations which include financial statements and required supplementary information. Copies of the CalSTRS comprehensive annual financial report and actuarial valuations may be obtained from CalSTRS. The information presented in these reports is not incorporated by reference in this Official Statement. CalPERS. All qualifying classified employees of K-12 districts in the State are members in CalPERS, and all of such districts participate in the same plan. As such, all such districts share the same contribution rate in each year. However, unlike school districts participating in CalSTRS, the school districts contributions to CalPERS fluctuate each year and include a normal cost component and a component equal to an amortized amount of the unfunded liability. Accordingly, the District cannot provide any assurances that the District s required contributions to CalPERS in future years will not significantly vary from any current projected levels of contributions to CalPERS. The districts are currently required to contribute to PERS at an actuarially determined rate, which was %, % and % of eligible salary expenditures for fiscal years , , and , respectively, and % of eligible salary expenditures for fiscal year Plan participants enrolled in PERS prior to January 1, 2013 contribute 7% of their respective salaries, while participants enrolled after January 1, 2013 contribute at an actuarially determined rate, which was 6% of their respective salaries in fiscal years and , 6.50% in fiscal year and 7.00% in fiscal year On April 17, 2013, the PERS board of administration (the PERS Board ) approved new actuarial policies aimed at returning PERS to fully-funded status within 30 years. The policies include a rate smoothing method with a 30-year amortization period for gains and losses and a five-year ramp-up of rates at the start and a five year ramp-down of rates at the end. The PERS Board delayed the implementation of A-24

57 the new policies until fiscal year for the State, schools and all other public agencies. In December 2016, the PERS Board voted to lower the discount rate from 7.5% to 7.375% for fiscal year , 7.25% for fiscal year and 7.0% beginning in fiscal year The new discount rate for the State went into effect beginning July 1, 2017 and the new discount rate for school districts became effective July 1, With regards to districts that contract with PERS to administer their pension plans, the change in the assumed rate of return is expected to result in increases in such districts normal costs and unfunded actuarial liabilities. Also, on February 20, 2014, the PERS Board approved new demographic assumptions reflecting (i) expected longer life spans of public agency employees and related increases in costs for the PERS system and (ii) trends of higher rates of retirement for certain public agency employee classes, including police officers and firefighters. The cost of the revised assumptions shall be amortized over a 20 year period and related increases in public agency contribution rates shall be affected over a three year period, beginning in fiscal year The new demographic assumptions affect the State, school districts and all other public agencies. The PERS Board is required to undertake an experience study every four years under its Actuarial Assumptions Policy and State law. As a result of the most recent experience study, on December 20, 2017, the PERS Board approved new actuarial assumptions, including (i) lowering the inflation assumption rate from 2.75% to 2.625% for the June 30, 2018 actuarial valuation and to 2.50% for the June 30, 2019 actuarial valuation, (ii) lowering the payroll growth rate to 2.875% for the June 30, 2018 actuarial valuation and 2.75% for the June 30, 2019 actuarial valuation, (iii) and certain changes to demographic assumptions relating to the salary scale for most constituent groups, and modifications to the mortality, retirement, and disability retirement rates. On February 14, 2018, the PERS Board approved modifying the PERS amortization policy for investment gains/losses from 30 years to 20 years, requiring that the amortization payments for all unfunded accrued liability bases established after the effective date be computed to remain a level dollar amount throughout the amortization period, and eliminating the 5-year ramp-up/ramp-down policy for all gains/losses except for the ramp-up policy for investment gains/losses. Such policy changes will be reflected in actuarial valuations beginning June 30, 2019, and will be implemented starting with fiscal year contributions. Such policy applies only to prospective accumulation of amortization and will not affect current accrued unfunded liabilities, with the exception that, with regards to the PERS Schools Pool Actuarial Valuation, the impact of the discount rate change from 7.25% to 7.00% in the June 30, 2019 valuation will be amortized under the old policy. Shortening the amortization period will increase employer contributions and help pay down the pension fund s unfunded liability faster, which may result in interest cost savings. On April 18, 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 prior to the Implementation Date (defined below), 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 A-25

58 The following table sets forth the District s total employer contributions to CalPERS for fiscal years through and the budgeted contribution for fiscal year KERMAN UNIFIED SCHOOL DISTRICT (Fresno County, California) Contributions to CalPERS for Fiscal Years through Fiscal Year Contribution (3) $ 729, , ,034, (1) 1,106, (2) 1,438,127 (1) Unaudited actuals for fiscal year (2) Original adopted budget for fiscal year (3) Figures reflect contributions from the General Fund of the District. Source: Kerman Unified School District. The District s total employer contributions to CalPERS for fiscal years through were equal to 100% of the required contributions for each year. With the change in actuarial assumptions described above, the District anticipates that its contributions to CalPERS will increase in future fiscal years as the increased costs are phased in. The implementation of PEPRA (see Governor s Pension Reform below), however, is expected to help reduce certain future pension obligations of public employers with respect to employees hired on or after January 1, The District cannot predict the impact these changes will have on its contributions to CalPERS in future years. CalPERS produces a comprehensive annual financial report and actuarial valuations that include financial statements and required supplementary information. Copies of the CalPERS comprehensive annual financial report and actuarial valuations may be obtained from CalPERS Financial Services Division. The information presented in these reports is not incorporated by reference in this Official Statement. Governor s Pension Reform. On August 28, 2012, Governor Brown and the State Legislature reached agreement on a new law that reforms pensions for State and local government employees. AB 340, which was signed into law on September 12, 2012, established the California Public Employees Pension Reform Act of 2012 ( PEPRA ) which governs pensions for public employers and public pension plans on and after January 1, For new employees, PEPRA, among other things, caps pensionable salaries at the Social Security contribution and wage base, which is $127,200 for 2017, or 120% of that amount for employees not covered by Social Security, increases the retirement age by two years or more for all new public employees while adjusting the retirement formulas, requires state employees to pay at least half of their pension costs, and also requires the calculation of benefits on regular, recurring pay to stop income spiking. For all employees, changes required by PEPRA include the prohibition of retroactive pension increases, pension holidays and purchases of service credit. PEPRA applies to all State and local public retirement systems, including county and district retirement systems. PEPRA only exempts the University of California system and charter cities and counties whose pension plans are not governed by State law. Although the District anticipates that PEPRA would not increase the District s future pension obligations, the District is unable to determine the extent of any impact PEPRA would have on the District s pension obligations at this time. Additionally, the District cannot predict if PEPRA will be challenged in court and, if so, whether any challenge would be successful. A-26

59 The District is unable to predict what the amount of State pension liabilities will be in the future, or the amount of the contributions which the District may be required to make. CalSTRS and CalPERS are more fully described in Note 14 to the District s financial statements attached hereto as APPENDIX B FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, GASB 67 and 68. In June 2012, the Governmental Accounting Standards Board approved a pair of related statements, Statement Number 67, Financial Reporting for Pension Plans ( Statement Number 67 ), which addresses financial reporting for pension plans, and Statement Number 68, Accounting and Financial Reporting for Pensions ( Statement Number 68 ), which establishes new accounting and financial reporting requirements for governments that provide their employees with pensions. The guidance contained in these statements will change how governments calculate and report the costs and obligations associated with pensions. Statement Number 67 replaces the current requirements of Statement Number 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, for most public employee pension plans, and Statement Number 27 replaces the current requirements of Statement Number 27, Accounting for Pensions by State and Local Governmental Employers, for most government employers. The new statements also replace the requirements of Statement Number 50, Pension Disclosures, for those governments and pension plans. Certain of the major changes include: (i) the inclusion of unfunded pension liabilities on the government s balance sheet (such unfunded liabilities were typically included as notes to the government s financial statements); (ii) full pension costs are shown as expenses regardless of actual contribution levels; (iii) lower actuarial discount rates are required to be used for most plans for certain purposes of the financial statements, resulting in increased liabilities and pension expenses; and (iv) shorter amortization periods for unfunded liabilities are required to be used for certain purposes of the financial statements, which generally increases pension expenses. Statement Number 67 became effective beginning in fiscal year , and Statement Number 68 became effective beginning in fiscal year Insurance, Risk Pooling and Joint Powers Agreements and Joint Ventures The District participates in three joint ventures under joint powers agreements ( JPAs ): Central Valley Trust ( CVT ), the Fresno County Self Insurance Group ( FCSIG ) and the Organization of Self Insured Schools ( OSS ). The District pays an annual premium to the applicable entity for its health and welfare, workers compensation and property and liability coverage. Payments are made directly to the JPAs. The Relationship between the District and the JPAs are such that they are not component units of the District for financial reporting purposes. These entities have budgeting and financial reporting requirements independent of member units. The District has no appointed board members of the governing CVT. During fiscal year , the District made payment of $4,775,296 to CVT for health and welfare benefits. The District has appointed one board member to the governing board of FCSIG. During fiscal year , the District made payment of $619,659 to FCSIG for worker s compensation insurance. The District has appointed one member to the governing board of OSS. During fiscal year , the District made payment of $412,710 to OSS for property and liability insurance. See Note 16 to the District s audited financial statements attached hereto as APPENDIX B FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2017 for more information. A-27

60 Limitations on Revenues CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS 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) 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, and (iii) 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. County of Orange v. Orange County Assessment Appeals Board No. 3. Section 51 of the Revenue and Taxation Code permits county assessors who have reduced the assessed valuation of a property as a result of natural disasters, economic downturns or other factors, to subsequently recapture such value (up to the pre-decline value of the property) at an annual rate higher than 2%, depending on the assessor s measure of the restoration of value of the damaged property. The constitutionality of this procedure was challenged in a lawsuit brought in 2001 in the Orange County Superior Court, and in similar lawsuits brought in other counties, on the basis that the decrease in assessed value creates a new base year value for purposes of Proposition 13 and that subsequent increases in the assessed value of a property by more than 2% in a single year violate Article XIIIA. On appeal, the California Court of Appeal upheld the recapture practice in 2004, and the State Supreme Court declined to review the ruling, leaving the recapture law in place. Legislation Implementing Article XIIIA. Legislation has been enacted and amended a number of times since 1978 to implement Article XIIIA. Under current law, local agencies are no longer permitted to levy directly any property tax (except to pay voter-approved indebtedness). The 1% property tax is automatically levied by the county and distributed according to a formula among taxing agencies. The formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the 2% annual adjustment 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. The tax rate is expressed as $1 per $100 of taxable value. All taxable property value included in this Official Statement is shown at 100% of market value (unless noted differently) and all tax rates reflect the $1 per $100 of taxable value. A-28

61 Article XIIIB of the California Constitution An initiative to amend the State Constitution entitled Limitation of Government Appropriations was approved on September 6, 1979, thereby adding Article XIIIB to the State Constitution ( Article XIIIB ). Under Article XIIIB state and local governmental entities have an annual appropriations limit and are not permitted to spend certain moneys which are called appropriations subject to limitation (consisting of tax revenues, state subventions and certain other funds) in an amount higher than the appropriations limit. Article XIIIB does not affect the appropriation of moneys which are excluded from the definition of appropriations subject to limitation, including debt service on indebtedness existing or authorized as of January 1, 1979, or bonded indebtedness subsequently approved by the voters. In general terms, the appropriations limit is to be based on certain expenditures, and is to be adjusted annually to reflect changes in consumer prices, populations, and services provided by these entities. Among other provisions of Article XIIIB, if these entities revenues in any year exceed the amounts permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years. Any proceeds of taxes received by the District in excess of the allowable limit are absorbed into the State s allowable limit. Article XIIIC and Article 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 ( Article XIIIC and Article XIIID, respectively), 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 4. 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. The District does not impose any taxes, assessments, or property-related fees or charges which are subject to the provisions of Proposition 218. It does, however, receive a portion of the basic 1% ad valorem property tax levied and collected by the County pursuant to Article XIIIA of the California Constitution. 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. Statutory Limitations On November 4, 1986, State voters approved Proposition 62, an initiative statute limiting the imposition of new or higher taxes by local agencies. The statute (a) requires new or higher general taxes to A-29

62 be approved by two-thirds of the local agency s governing body and a majority of its voters; (b) requires the inclusion of specific information in all local ordinances or resolutions proposing new or higher general or special taxes; (c) penalizes local agencies that fail to comply with the foregoing; and (d) required local agencies to stop collecting any new or higher general tax adopted after July 31, 1985, unless a majority of the voters approved the tax by November 1, Appellate court decisions following the approval of Proposition 62 determined that certain provisions of Proposition 62 were unconstitutional. However, the California Supreme Court upheld Proposition 62 in its decision on September 28, 1995 in Santa Clara County Transportation Authority v. Guardino. This decision reaffirmed the constitutionality of Proposition 62. Certain matters regarding Proposition 62 were not addressed in the Supreme Court s decision, such as whether the decision applies retroactively, what remedies exist for taxpayers subject to a tax not in compliance with Proposition 62, and whether the decision applies to charter cities. Proposition 98 and Proposition 111 On November 8, 1988, voters approved Proposition 98, a combined initiative constitutional amendment and statute called the Classroom Instructional Improvement and Accountability Act (the Accountability Act ). The Accountability Act changed 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 districts and community college districts (collectively, K-14 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 , which percentage is equal to 40.9%, or (b) the amount actually appropriated to such districts from the general fund in the previous fiscal year, adjusted for growth in enrollment and inflation. Since the Accountability Act is unclear in some details, there can be no assurance that the Legislature or a court might not interpret the Accountability Act to require a different percentage of general fund revenues to be allocated to K-14 districts than the 40.9%, or to apply the relevant percentage to the State s budgets in a different way than is proposed in the Governor s Budget. In any event, the Governor and other fiscal observers expect the Accountability Act to place increasing pressure on the State s budget over future years, potentially reducing resources available for other State programs, especially to the extent the Article XIIIB spending limit would restrain the State s ability to fund such other programs by raising taxes. The Accountability Act also changes how tax revenues in excess of the State Appropriations Limit are distributed. Any excess State tax revenues up to a specified amount would, instead of being returned to taxpayers, be transferred to K-14 districts. Such transfer would be excluded from the Appropriations Limit for K-14 districts and the K-14 districts Appropriations Limits 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 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 schools is 4% of the minimum State spending for education mandated by the Accountability Act, as described above. On June 5, 1990, California voters approved Proposition 111 (Senate Constitutional Amendment 1), which further modified the Constitution to alter the spending limit and education funding provisions of Proposition 98. Most significantly, Proposition 111 (1) liberalized the annual adjustments to the spending limit by measuring the change in the cost of living by the change in State per capita personal income rather than the Consumer Price Index, and specified that a portion of the State s spending limit would be adjusted to reflect changes in school attendance; (2) provided that 50% of the excess tax revenues, A-30

63 determined based on a two-year cycle, would be transferred to K-14 districts with the balance returned to taxpayers (rather than the previous 100% but only up to a cap of 4% of the districts minimum funding level), and that any such transfer to K-14 districts would not be built into the school districts base expenditures for calculating their entitlement for State aid in the following year and would not increase the State s appropriations limit; (3) excluded from the calculation of appropriations that are subject to the limit appropriations for certain qualified capital outlay projects and certain increases in gasoline taxes, sales and use taxes, and receipts from vehicle weight fees; (4) provided that the Appropriations Limit for each unit of government, including the State, would be recalculated beginning in the fiscal year, based on the actual limit for fiscal year , adjusted forward to as if Senate Constitutional Amendment 1 had been in effect; and (5) adjusted the Proposition 98 formula that guarantees K-14 districts a certain amount of general fund revenues, as described below. Under prior law, K-14 districts were guaranteed the greater of (a) 40.9% of general fund revenues (the first test ) or (b) 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, school districts would receive the greater of (a) the first test, (b) the second test or (c) a third test, which would replace the second test in any year when growth in per capita general fund revenues from the prior year was less than the annual growth in State per capita personal income. Under the third test, school districts would receive the amount appropriated in the prior year adjusted for change in enrollment and per capita general fund revenues, plus an additional small adjustment factor. If the third test were used in any year, the difference between the third test and the second test would become a credit to be paid in future years when general fund revenue growth exceeds personal income growth. Assembly Bill No. 26 & California Redevelopment Association v. Matosantos On February 1, 2012, pursuant to the California Supreme Court s decision in California Redevelopment Association v. Matosantos, Assembly Bill No. 26 (First Extraordinary Session) ( AB1X 26 ) dissolved all redevelopment agencies in existence and designated successor agencies and oversight boards to satisfy enforceable obligations of the former redevelopment agencies and administer dissolution and wind down of the former redevelopment agencies. With limited exceptions, all assets, properties, contracts, leases, records, buildings and equipment, including cash and cash equivalents of a former redevelopment agency were transferred to the control of its successor agency and, unless otherwise required pursuant to the terms of an enforceable obligation, distributed to various related taxing agencies pursuant to AB1X 26. It is possible that there will be additional legislation proposed and/or enacted to clarify various inconsistencies contained in AB1X 26 and there may be additional legislation proposed and/or enacted in the future affecting the current scheme of dissolution and winding up of redevelopment agencies currently contemplated by AB1X 26. For example, AB 1484 was signed by the Governor on June 27, 2012, to clarify and amend certain aspects of AB1X 26. AB 1484, among other things, attempts to clarify the role and requirements of successor agencies, provides successor agencies with more control over agency bond proceeds and properties previously owned by redevelopment agencies and adds other new and modified requirements and deadlines. AB 1484 also provides for a tax claw back provision, wherein the State is authorized to withhold sales and use tax revenue allocations to local successor agencies to offset payment of property taxes owed and not paid by such local successor agencies to other local taxing agencies. This tax claw back provision has been challenged in court by certain cities and successor agencies. The District cannot predict the outcome of such litigation and what effect, if any, it will have on the District. Additionally, no assurances can be given as to the effect of any such future proposed and/or enacted legislation on the District. A-31

64 Proposition 30 and Proposition 55 On November 6, 2012, voters approved Proposition 30, also referred to as the Temporary Taxes to Fund Education, Guaranteed Local Public Safety Funding, Initiative Constitutional Amendment. Proposition 30 temporarily (a) increased the personal income tax on certain of the State s income taxpayers by one to three percent for a period of seven years beginning with the 2012 tax year and ending with the 2019 tax year, and (b) increased the sales and use tax by one-quarter percent for a period of four years beginning on January 1, 2013 and ending with the 2016 tax year. The revenues generated from such tax increases are included in the calculation of the Proposition 98 minimum funding guarantee (see Proposition 98 and Proposition 111 above). The revenues generated from such temporary tax increases are deposited into a State account created pursuant to Proposition 30 (the Education Protection Account), and 89% of the amounts therein are allocated to school districts and 11% of the amounts therein are allocated to community college districts. The Proposition 30 sales and use tax increases expired at the end of the 2016 tax year. Under Proposition 30, the personal income tax increases were set to expire at the end of the 2018 tax year. However, the California Tax Extension to Fund Education and Healthcare Initiative ( Proposition 55 ), approved by voters on November 8, 2016, extends by twelve years the temporary personal income tax increases on incomes over $250,000 that was first enacted by Proposition 30; Proposition 55 did not extend the sales tax increases imposed by Proposition 30. Revenues from the income tax increase under Proposition 55 will be allocated to school districts and community colleges in the State. Applications of Constitutional and Statutory Provisions The application of Proposition 98 and other statutory regulations has become increasingly difficult to predict accurately in recent years. For a discussion of how the provisions of Proposition 98 have been applied to school funding see DISTRICT FINANCIAL MATTERS State Funding of Education; State Budget Process. Proposition 2 General. Proposition 2, which included certain constitutional amendments to the Rainy Day Fund and, upon its approval, triggered the implementation of certain provisions which could limit the amount of reserves that may be maintained by a school district, was approved by the voters in the November 2014 election. Rainy Day Fund. The Proposition 2 constitutional amendments related to the Rainy Day Fund (i) require deposits into the Rainy Day Fund whenever capital gains revenues rise to more than 8% of general fund tax revenues; (ii) set the maximum size of the Rainy Day Fund at 10% of general fund revenues; (iii) for the next 15 years, require half of each year s deposit to be used for supplemental payments to pay down the budgetary debts or other long-term liabilities and, thereafter, require at least half of each year s deposit to be saved and the remainder used for supplemental debt payments or savings; (iv) allow the withdrawal of funds only for a disaster or if spending remains at or below the highest level of spending from the past three years; (v) require the State to provide a multiyear budget forecast; and (vi) create a Proposition 98 reserve (the Public School System Stabilization Account ) to set aside funds in good years to minimize future cuts and smooth school spending. The State may deposit amounts into such account only after it has paid all amounts owing to school districts relating to the Proposition 98 maintenance factor for fiscal years prior to fiscal year The State, in addition, may not transfer funds to the Public School System Stabilization Account unless the State is in a Test 1 year under Proposition 98 or in any year in which a maintenance factor is created. A-32

65 SB 858. Senate Bill 858 ( SB 858 ) became effective upon the passage of Proposition 2. SB 858 includes provisions which could limit the amount of reserves that may be maintained by a school district in certain circumstances. Under SB 858, in any fiscal year immediately following a fiscal year in which the State has made a transfer into the Public School System Stabilization Account, any adopted or revised budget by a school district would need to contain a combined unassigned and assigned ending fund balance that (a) for school districts with an A.D.A. of less than 400,000, is not more than two times the amount of the reserve for economic uncertainties mandated by the Education Code, or (b) for school districts with an A.D.A. that is more than 400,000, is not more than three times the amount of the reserve for economic uncertainties mandated by the Education Code. In certain cases, the county superintendent of schools may grant a school district a waiver from this limitation on reserves for up to two consecutive years within a three-year period if there are certain extraordinary fiscal circumstances. The District, which has an A.D.A. of less than 400,000, is required to maintain a reserve for economic uncertainty in an amount equal to 3% of its general fund expenditures and other financing uses. SB 751. Senate Bill 751 ( SB 751 ), enacted on October 11, 2017, alters the reserve requirements imposed by SB 858. Under SB 751, in a fiscal year immediate after a fiscal year in which the amount of moneys in the Public School System Stabilization Account is equal to or exceeds 3% of the combined total general fund revenues appropriated for school districts and allocated local proceeds of taxes for that fiscal year, a school district budget that is adopted or revised cannot have an assigned or unassigned ending fund balance that exceeds 10% of those funds. SB 751 excludes from the requirements of those provisions basic aid school districts (also known as community funded districts) and small school districts having fewer than 2,501 units of average daily attendance. The Series 2018 Bonds are payable from ad valorem taxes to be levied within the District pursuant to the California Constitution and other State law. Accordingly, the District does not expect SB 858 or SB 751 to adversely affect its ability to pay the principal of and interest on the Series 2018 Bonds as and when due. Future Initiatives Article XIIIA, Article XIIIB, Article XIIIC, Article XIIID, as well as Propositions 2, 30, 55, 62, 98, 111 and 218, were each adopted as measures that qualified for the ballot pursuant to 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. A-33

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

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69 KERMAN UNIFIED SCHOOL DISTRICT ANNUAL FINANCIAL REPORT JUNE 30, 2017

70 KERMAN UNIFIED SCHOOL DISTRICT TABLE OF CONTENTS JUNE 30, 2017 FINANCIAL SECTION Independent Auditor's Report 2 Management's Discussion and Analysis 5 Basic Financial Statements Government-Wide Financial Statements Statement of Net Position 15 Statement of Activities 16 Fund Financial Statements Governmental Funds - Balance Sheet 17 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position 18 Governmental Funds - Statement of Revenues, Expenditures, and Changes in Fund Balances 19 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities 20 Fiduciary Funds - Statement of Net Position 22 Fiduciary Funds - Statement of Changes in Net Position 23 Notes to Financial Statements 24 REQUIRED SUPPLEMENTARY INFORMATION General Fund - Budgetary Comparison Schedule 62 Child Development Fund - Budgetary Comparison Schedule 63 Schedule of Other Postemployment Benefits (OPEB) Funding Progress 64 Schedule of the District's Proportionate Share of the Net Pension Liability 65 Schedule of District Contributions 66 Notes to Required Supplementary Information 67 SUPPLEMENTARY INFORMATION Schedule of Expenditures of Federal Awards 69 Local Education Agency Organization Structure 70 Schedule of Average Daily Attendance 71 Schedule of Instructional Time 72 Reconciliation of Annual Financial and Budget Report With Audited Financial Statements 73 Schedule of Financial Trends and Analysis 74 Combining Statements - Non-Major Governmental Funds Combining Balance Sheet 75 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 76 Note to Supplementary Information 77 INDEPENDENT AUDITOR'S REPORTS Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards 80 Report on Compliance for Each Major Program and Report on Internal Control Over Compliance Required by the Uniform Guidance 82 Report on State Compliance 84

71 KERMAN UNIFIED SCHOOL DISTRICT TABLE OF CONTENTS JUNE 30, 2017 SCHEDULE OF FINDINGS AND QUESTIONED COSTS Summary of Auditor's Results 88 Financial Statement Findings 89 Federal Awards Findings and Questioned Costs 90 State Awards Findings and Questioned Costs 91 Summary Schedule of Prior Audit Findings 96 Management Letter 99

72 FINANCIAL SECTION 1

73 INDEPENDENT AUDITOR'S REPORT Governing Board Kerman Unified School District Kerman, 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 Kerman Unified 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; and the Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting, issued by the California Education Audit Appeals Panel as regulations. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the District's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the District's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 2

74 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 the Kerman Unified 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. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 5 through 14, budgetary comparison schedules on pages 62 and 63, schedule of other postemployment benefits funding progress on page 64, schedule of the district's proportionate share of net pension liability on page 65, and the schedule of district contributions on page 66, 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 Kerman Unified School District's basic financial statements. The accompanying supplementary information such as the combining and individual non-major fund financial statements and Schedule of Expenditures of Federal Awards, as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) and the other supplementary information as listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. The accompanying supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the accompanying supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. 3

75 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated _November 22, 2017, on our consideration of the Kerman Unified 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 solely 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 the effectiveness of Kerman Unified School District's 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 Kerman Unified School District's internal control over financial reporting and compliance. Fresno, California November 22,

76 Kerman Unified School District Robert Frausto, District Superintendent Mark Ruiz, Assistant Superintendent Personnel Kraig L. Magnussen, Assistant Superintendent/Chief Business Official Pamela Millspaugh, Assistant Superintendent Educational Services Board of Trustees Daniel Babshoff Vicki A. Blair Maria S. Cantu Efrain Guizar Darrell Yates Management's Discussion and Analysis This section of Kerman Unified School District's (the District) annual financial report presents our discussion and analysis of the District's financial performance during the fiscal year that ended on June 30, Please read it in conjunction with the District's financial statements, which immediately follow this section. OVERVIEW OF THE FINANCIAL STATEMENTS The Financial Statements The financial statements presented herein include all of the activities of the District and its component units using the integrated approach as prescribed by Governmental Accounting Standards Board (GASB) Statement No. 34. The Government-Wide Financial Statements present the financial picture of the District from the economic resources measurement focus using the accrual basis of accounting. They present governmental activities and business-type activities separately. These statements include all assets of the District (including capital assets), as well as all liabilities (including long-term obligations). Additionally, certain eliminations have occurred as prescribed by the statement in regards to interfund activity, payables, and receivables. The Fund Financial Statements include statements for each of the three categories of activities: governmental, business-type, and fiduciary. The Governmental Funds are prepared using the current financial resources measurement focus and modified accrual basis of accounting. The Fiduciary Funds are trust and agency funds. Trust funds focus reporting on net position and changes in net position, and agency funds report only a balance sheet and do not have a measurement focus. Reconciliation of the Fund Financial Statements to the Government-Wide Financial Statements is provided to explain the differences created by the integrated approach. The Primary unit of the government is the Kerman Unified School District. 5 Notice of Nondiscrimination in District Programs and Activities: The Kerman Unified School District prohibits discrimination, harassment, intimidation, and bullying based on actual or perceived ancestry, age, color, disability, gender, gender identity, gender expression, national origin, nationality, race or ethnicity, ethnic group identification, religion, marital or parental status, sex, sexual orientation or association with a person or a group with one or more of these actual or perceived characteristics. (Designated Compliance Officer: Assistant Superintendent Personnel, Address: 151 S. First Street, Kerman, CA 93630, Phone Number: (559) ) 151 South First Street Kerman, California Home of the Lions Phone (559) Fax (559)

77 KERMAN UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2017 REPORTING THE DISTRICT AS A WHOLE The Statement of Net Position and the Statement of Activities The Statement of Net Position and the Statement of Activities report information about the District as a whole and about its activities. These statements include all assets and liabilities of the District using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year's revenues and expenses are taken into account regardless of when cash is received or paid. These two statements report the District's net position and changes in them. Net position is the difference between assets and deferred outflows of resources, and liabilities and deferred inflows of resources, which is one way to measure the District's financial health, or financial position. Over time, increases or decreases in the District's net position will serve as a useful indicator of whether the financial position of the District is improving or deteriorating. Other factors to consider are changes in the District's property tax base and the condition of the District's facilities. The relationship between revenues and expenses is the District's operating results. Since the governing board's responsibility is to provide services to our students and not to generate profit as commercial entities do, one must consider other factors when evaluating the overall health of the District. The quality of the education and the safety of our schools will likely be an important component in this evaluation. In the Statement of Net Position and the Statement of Activities, we separate the District activities as follows: Governmental Activities - The District reports all of its services in this category. This includes the education of kindergarten through grade twelve students, the operation of child development activities, and the on-going effort to improve and maintain buildings and sites. Property taxes, State income taxes, user fees, interest income, Federal, State, and local grants, as well as general obligation bonds, finance these activities. REPORTING THE DISTRICT'S MOST SIGNIFICANT FUNDS Fund Financial Statements The fund financial statements provide detailed information about the most significant funds - not the District as a whole. Some funds are required to be established by State law and by bond covenants. However, management establishes many other funds to help it control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants, and other money that it receives from the U.S. Department of Education. 6

78 KERMAN UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2017 Governmental Funds - All of the District's basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the District's general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance the District's programs. The differences of results in the governmental fund financial statements to those in the government-wide financial statements are explained in a reconciliation following each governmental fund financial statement. THE DISTRICT AS A TRUSTEE Reporting the Districts Fiduciary Responsibilities The District is the trustee, or fiduciary, for funds held on behalf of others, like our funds for associated student body activities and scholarships. The District's fiduciary activities are reported in the Statements of Fiduciary Net Position and Statement of Revenues, Expenses, and Changes in Fiduciary Net Position. We exclude these activities from the District's other financial statements because the District cannot use these assets to finance its operations. The District is responsible for ensuring that the assets reported in these funds are used for their intended purposes. FINANCIAL HIGHLIGHTS The District's total net position increased from $15.3 million to $20.6 million. The District's governmental activities revenues increased from $63.1 million to $66.7 million. The District's governmental activities expenses increased from $53.6 million to $61.4 million. The General Fund reported an increase in fund balance this year of $5.1 million. 7

79 KERMAN UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2017 THE DISTRICT AS A WHOLE Net Position The District's net position was $20.6 million for the fiscal year ended June 30, Of this amount, $8.8 million was restricted. Restricted net position is reported separately to shows legal constraints from debt covenants and enabling legislation that limit the governing board's ability to use net position for day-to-day operations. Our analysis below, in summary form, focuses on the net position (Table 1) and change in net position (Table 2) of the District's governmental activities. Table 1 (Amounts in millions) Governmental Activities Difference Assets Current and other assets $ 41.7 $ 27.2 $ 14.5 Capital assets Total Assets Deferred Outflows of Resources Liabilities Current liabilities Long-term obligations Net pension liability Total Liabilities Deferred Inflows of Resources (5.6) Net Position Net investment in capital assets Restricted Unrestricted (22.7) (17.4) (5.3) Total Net Position $ 20.6 $ 15.3 $ 5.3 The $20.6 million in net position of governmental activities represents the accumulated results of all past years' operations. 8

80 KERMAN UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2017 Changes in Net Position The results of this year's operations for the District as a whole are reported in the Statement of Activities. Table 2 takes the information from the Statement, rounds off the numbers, and rearranges them slightly so you can see our total revenues for the year. Table 2 (Amounts in millions) Governmental Activities Difference Revenues Program revenues: Charges for services $ 0.6 $ 0.6 $ - Operating grants and contributions General revenues: Federal and State aid not restricted Property taxes Other general revenues Total Revenues Expenses Instruction related (5.9) Student support services (0.9) Administration Plant services (0.5) Other (0.7) Total Expenses (7.8) Change in Net Position $ 5.3 $ 9.5 $ (4.2) Governmental Activities As reported in the Statement of Activities, the cost of all of our governmental activities this year was $61.4 million. However, the amount that our taxpayers ultimately financed for these activities through local taxes was only $6.2 million because the cost was paid by those who benefited from the programs ($0.6 million) or by other governments and organizations who subsidized certain programs with grants and contributions ($10.4 million). We paid for the remaining "public benefit" portion of our governmental activities with $49.5 million in Federal and State funds, and other revenues, like interest and general entitlements. In Table 3, we have presented the net cost of each of the District's largest functions. As discussed above, net cost shows the financial burden that was placed on the District's taxpayers by each of these functions. Providing this information allows our citizens to consider the cost of each function in comparison to the benefits they believe are provided by that function. 9

81 KERMAN UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2017 Table 3 (Amounts in millions) Net Cost of Services Instruction $ 28.6 $ 23.5 Instruction-related activities Other pupil services General administration Plant services Other Total $ 50.3 $ 43.1 THE DISTRICT'S FUNDS As the District completed this year, our governmental funds reported a combined fund balance of $36.5 million, which is an increase of $13.8 million from last year (Table 4). Table 4 (Amounts in millions) Fund Balances June 30, 2017 June 30, 2016 General $ 15.9 $ 10.8 Child Development Building Special Reserve Capital Outlay Non-Major Governmental Funds Total $ 36.5 $ 22.7 The fund balance in the General Fund increased from $10.8 million to $15.9 million. This increase was primarily due to increased funding and reduced transfers out. The fund balance in the Building Fund increased by $12.0 million primarily due issuance on General Obligation bonds. The fund balance in the Special Reserve Capital Projects Fund decreased by $7.7 million primarily due to project construction costs. The remaining funds reflected an increase of $4.4 million primarily due to transfers from the General Fund to the County School Facilities Fund for capital projects. 10

82 KERMAN UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2017 General Fund Budgetary Highlights Over the course of the year, the District revises its budget as it attempts to deal with unexpected changes in revenues and expenditures. The final amendment to the budget was adopted on September 21, A schedule showing the District's original and final budget amounts compared with amounts actually paid and received is provided in our annual report. The District budgeted a decrease in General Fund balance of approximately $1.5 million. Although revenues were approximately $0.3 million less than budgeted, expenditures and transfers out were approximately $6.9 million less than budgeted, leaving the fund with an increase of approximately $5.1 million. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets At June 30, 2017, the District had $57.0 million in a broad range of capital assets (net of depreciation), including land, buildings, furniture, and equipment. This amount represents a net increase (including additions, deductions, and depreciation) of approximately $6.6 million (Table 5). Table 5 (Amounts in millions) Governmental Activities Difference Land and construction in process $ 8.9 $ 7.4 $ 1.5 Buildings and improvements Equipment Total $ 57.0 $ 50.4 $ 6.6 We present more detailed information about our capital assets in the Notes to Financial Statements. 11

83 KERMAN UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2017 Long-Term Obligations At the end of this year, the District had $38.6 million in long-term obligations outstanding versus $24.6 million last year, an increase of 56.9 percent which was primarily due to an issuance of General Obligation bonds during the year. The obligations consisted of: Table 6 (Amounts in millions) Governmental Activities Difference General obligation bonds (Financed with property taxes) $ 34.5 $ 21.6 $ 12.9 Other postemployment benefits Compensated absences Total long-term obligations $ 38.6 $ 24.6 $ 14.0 We present more detailed information regarding our long-term obligations in the Notes to Financial Statements. Net Pension Liability (NPL) As of June 30, 2015, the District implemented GASB Statement No. 68, Accounting and Financial Reporting for Pensions an amendment of GASB Statement No. 27, which required the District to recognize its proportionate share of the unfunded pension obligation for CalSTRS and CalPERS. As of June 30, 2017, the District reported Deferred Outflows from pension activities of $9.7 million, Deferred Inflows from pension activities of $1.2 million, and a Net Pension Liability of $42.8 million. We present more detailed information regarding our net pension liability in the Notes to Financial Statements. SIGNIFICANT EVENTS OF FISCAL YEAR ARE NOTED BELOW: The nation's economy has continued to expand, albeit at a slow rate. This has been a welcome change for schools in the State of California with respect to School District budgets. We have completed our third cycle of the Local Control Accountability Plan (LCAP), and our fifth year of the State adopted Local Control Funding Formula (LCFF) which has brought into play a much higher community involvement with respect to developing the School District's annual budget. LCFF has provided significant financial relief to Kerman Unified School District, and many LEAs throughout the State. There are two significant events that are more of a continuation for last year and into the future that will have significant impacts on our budgets. First the State adopted Common Core Standards (CCS). The significant impact to budget from Common Core is the large one time and ongoing investment in technology and infrastructure. The second significant impact to budget is in the need for modernization and the construction of new facilities. What compounds the potential impacts to the Districts current and future financial positions is the lack of State contribution funding for school facilities. While Prop. 51 has passed and has authorized $7 billion in general obligation bonds for K-12 public school facilities. However, currently there is a significant back log of projects that are waiting funding and current projects do not look to be funded for several years out. These State match construction funds are desperately needed school facilities in Kerman and LEAs throughout the state. 12

84 KERMAN UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2017 STUDENT ENROLLMENT AND DEMOGRAPHIC TRENDS The City of Kerman and Kerman Unified are currently the fastest growing community and district in Fresno County Kerman Unified School District had an enrollment of approximately 5,096 students for the school year up 64 students from school year. In addition to tracking enrollment, the District also closely monitors actual Average Daily Attendance (ADA). Ada is a lower number than enrollment and typically comes in around 95 percent of enrollment. ADA is used to calculate the funding the District receives from the State under the LCFF. Along with ADA the District receives additional grant funding through LCFF from its unduplicated student counts. This is the number of students that fall into social economic and demographic groups of English Learners, Federal Lunch Program, Foster Youth and Homeless students which is expressed in a percent of total enrollment. For Kerman Unified this unduplicated number is over 86 percent of the enrollment thus qualifying Kerman Unified for significant amounts of this additional grant funding to better service out student population. Needless to say School Districts place great importance on the accurate projection of student enrollment, ADA, and unduplicated count for the budget due to the funding impacts associated to these student counts. STUDENT ACHIEVEMENT District schools continue to make progress and show growth on the academic achievement goals that have been set by the Board of Trustees and meet the rigorous demand of the California Common Core State Standards. The District is now in year six of full implementation of the California Common Core State Standards. We continue our three cycles of district-wide teacher professional development in the content areas of English Language Development, Mathematics, History Social Science, Technology and Science through our collaborative partnership with the Fresno County Superintendent of Schools emphasizing the following: Oral and Written Language Development Language Objectives Utilization of strategies/structures that maximize student engagement and learning opportunities Incorporate adopted core materials and supplemental materials into all sessions and content CAASPP Rubrics and Assessment Digital Library Connection Each professional development session is supported with follow-up coaching sessions for each participating teacher, academic coach and site principal emphasizing lesson design and delivery. The District has worked collaboratively with parents, staff and the community to implement a spending plan for both the eight state priorities as embedded in the Local Control Funding Formula and Common Core funds. Common learning goals provided a clear vision of what all stakeholders strive for. These learning goals will support the desired outcome that all students meet college and career readiness and are prepared to succeed in a global economy. 13

85 KERMAN UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2017 Student achievement is assessed using multiple measures for accountability purposes. Pre-assessments are utilized to determine what the student already knows. Formative Assessments check student learning as new standard is being taught. Interim Assessments are flexible and open and are used for actionable feedback. Summative Assessments are culminating and assess the taught standards for the entire year. CONTACTING THE DISTRICT'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, students, and investors and creditors with a general overview of the District's finances and to show the District's accountability for the money it receives. If you have questions about this report or need any additional financial information, contact Peggy Rodgers, Director of Fiscal Services at (559) Kraig Magnussen -Assistant Superintendent CBO Kerman Unified School District 151 South First Street Kerman, California

86 KERMAN UNIFIED SCHOOL DISTRICT STATEMENT OF NET POSITION JUNE 30, 2017 Governmental Activities ASSETS Deposits and investments $ 39,281,094 Receivables 2,294,911 Prepaid expenses 24,019 Stores inventories 127,606 Nondepreciable capital assets 8,917,789 Capital assets being depreciated 82,541,053 Accumulated depreciation (34,504,961) Total Assets 98,681,511 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows of resources related to pensions 9,694,040 LIABILITIES Accounts payable 4,914,529 Unearned revenue 282,591 Long-term obligations: Current portion of long-term obligations other than pensions 830,000 Noncurrent portion of long-term obligations other than pensions 37,707,501 Total Long-Term Obligations 38,537,501 Aggregate net pension liability 42,796,649 Total Liabilities 86,531,270 DEFERRED INFLOWS OF RESOURCES Deferred inflows of resources related to pensions 1,239,497 NET POSITION Net investment in capital assets 34,524,293 Restricted for: Debt service 1,362,651 Capital projects 4,846,788 Educational programs 2,094,437 Other activities 475,157 Unrestricted (22,698,542) Total Net Position $ 20,604,784 The accompanying notes are an integral part of these financial statements. 15

87 KERMAN UNIFIED SCHOOL DISTRICT STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2017 Net (Expenses) Revenues and Program Revenues Changes in Charges for Operating Net Position Services and Grants and Governmental Functions/Programs Expenses Sales Contributions Activities Governmental Activities: Instruction $ 34,935,152 $ 195,700 $ 6,167,064 $ (28,572,388) Instruction-related activities: Supervision of instruction 787, ,895 (487,966) Instructional library, media, and technology 906, (906,706) School site administration 3,521, ,038 (3,366,961) Pupil services: Home-to-school transportation 2,478, (2,478,322) Food services 3,221, ,357 2,636,522 (216,983) All other pupil services 2,751, ,352 (2,076,838) Administration: Data processing 740, (740,868) All other administration 3,184,169 29, ,153 (2,726,366) Plant services 6,365,500 2,174 16,766 (6,346,560) Ancillary services 518, (518,997) Interest on long-term obligations 1,382, (1,382,378) Other outgo 537,090-33,127 (503,963) Total Governmental Activities $ 61,332,094 $ 595,881 $ 10,410,917 (50,325,296) General revenues and subventions: Property taxes, levied for general purposes 4,993,092 Property taxes, levied for debt service 915,345 Taxes levied for other specific purposes 248,365 Federal and State aid not restricted to specific purposes 47,499,750 Interest and investment earnings 338,131 Miscellaneous 1,691,602 Subtotal, General Revenues 55,686,285 Change in Net Position 5,360,989 Net Position - Beginning 15,243,795 Net Position - Ending $ 20,604,784 The accompanying notes are an integral part of these financial statements. 16

88 KERMAN UNIFIED SCHOOL DISTRICT GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2017 Child General Development Building Fund Fund Fund ASSETS Deposits and investments $ 17,839,020 $ 1,280,289 $ 12,000,000 Receivables 2,155,842 6,497 26,088 Due from other funds 31,888 24,389 - Prepaid expenditures 24, Stores inventories 89, Total Assets $ 20,140,011 $ 1,311,175 $ 12,026,088 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 3,455,665 $ 1,242,113 $ - Due to other funds 496,792 8,799 - Unearned revenue 282, Total Liabilities 4,235,048 1,250,912 - Fund Balances: Nonspendable 118, Restricted 2,034,174 60,263 12,026,088 Assigned 9,552, Unassigned 4,199, Total Fund Balances 15,904,963 60,263 12,026,088 Total Liabilities and Fund Balances $ 20,140,011 $ 1,311,175 $ 12,026,088 The accompanying notes are an integral part of these financial statements. 17

89 Special Reserve Non-Major Total Capital Outlay Governmental Governmental Fund Funds Funds $ 1,429,326 $ 6,732,459 $ 39,281,094 7,227 99,257 2,294, , , ,019-38, ,606 $ 1,908,561 $ 6,870,475 $ 42,256,310 $ 53,961 $ 162,790 $ 4,914,529-23, , ,591 53, ,879 5,725,800-38, ,125-6,646,232 20,766,757 1,854,600-11,406, ,199,698 1,854,600 6,684,596 36,530,510 $ 1,908,561 $ 6,870,475 $ 42,256,310 17

90 KERMAN UNIFIED SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION JUNE 30, 2017 Total Fund Balance - Governmental Funds $ 36,530,510 Amounts Reported for Governmental Activities in the Statement of Net Position are Different Because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported as assets in governmental funds. The cost of capital assets is $ 91,458,842 Accumulated depreciation is (34,504,961) Net Capital Assets 56,953,881 Expenditures relating to contributions made to pension plans were recognized on the modified accrual basis, but are not recognized on the accrual basis. 3,736,493 The net change in proportionate share of net pension liability as of the measurement date is not recognized as an expenditure under the modified accrual basis, but is recognized on the accrual basis over the expected average remaining service life of members receiving pension benefits. 1,057,918 The difference between projected and actual earnings on pension plan investment are not recognized on the modified accrual basis, but are recognized on the accrual basis as an adjustment to pension expense. 4,273,821 The differences between expected and actual experience in the measurement of the total pension liability are not recognized on the modified accrual basis, but are recognized on the accrual basis over the expected average remaining service life of members receiving pension benefits. (267,658) The changes of assumptions is not recognized as an expenditure under the modified accrual basis, but is recognized on the accrual basis over the expected average remaining service life of members receiving pension benefits. (346,031) Net pension liability is not due and payable in the current period, and is not reported as a liability in the funds. (42,796,649) Long-term obligations, including bonds payable, are not due and payable in the current period and, therefore, are not reported as liabilities in the funds. General obligation bonds, including premiums 34,455,676 Other postemployment benefits 4,010,897 Compensated absences 70,928 Total Long-Term Obligations (38,537,501) Total Net Position - Governmental Activities $ 20,604,784 The accompanying notes are an integral part of these financial statements. 18

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92 KERMAN UNIFIED SCHOOL DISTRICT GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2017 Child General Development Fund Fund REVENUES Local Control Funding Formula $ 50,038,235 $ - Federal sources 3,398,702 - Other State sources 4,453, ,771 Other local sources 2,821,716 44,057 Total Revenues 60,711, ,828 EXPENDITURES Current Instruction 31,204, ,491 Instruction-related activities: Supervision of instruction 746,615 - Instructional library, media and technology 859,473 - School site administration 3,113, ,227 Pupil services: Home-to-school transportation 2,214,947 - Food services All other pupil services 2,612,092 - Administration: Data processing 771,739 - All other administration 2,803,356 49,623 Plant services 5,792,202 - Facility acquisition and construction 271,173 - Ancillary services 519,739 - Other outgo 537,090 - Debt service Principal - - Interest and other - - Total Expenditures 51,445, ,341 Excess (Deficiency) of Revenues Over Expenditures 9,266,173 (39,513) Other Financing Sources (Uses) Transfers in 2 24,389 Other sources - - Transfers out (4,203,234) - Net Financing Sources (Uses) (4,203,232) 24,389 NET CHANGE IN FUND BALANCES 5,062,941 (15,124) Fund Balance - Beginning 10,842,022 75,387 Fund Balance - Ending $ 15,904,963 $ 60,263 The accompanying notes are an integral part of these financial statements. 19

93 Special Reserve Non-Major Total Building Capital Outlay Governmental Governmental Fund Fund Funds Funds $ - $ - $ - $ 50,038, ,570,240 5,968, ,800 5,364,793 26,089 77,580 1,807,775 4,777,217 26,089 77,580 4,569,815 66,149, ,788, , , ,282, ,214, ,962,747 2,962, ,612, , ,057 2,992, ,800 6,028,002-8,146,687 19,563 8,437, , , , , , , , ,048 8,146,687 4,230,289 64,875,067 (222,959) (8,069,107) 339,526 1,274, ,008 3,706,837 4,203,236 12,249, ,347 12,568,395 (2) - - (4,203,236) 12,249, ,008 4,026,184 12,568,395 12,026,087 (7,597,099) 4,365,710 13,842, ,451,699 2,318,886 22,687,995 $ 12,026,088 $ 1,854,600 $ 6,684,596 $ 36,530,510 19

94 KERMAN UNIFIED SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2017 Total Net Change in Fund Balances - Governmental Funds $ 13,842,515 Amounts Reported for Governmental Activities in the Statement of Activities are Different Because: Capital outlays to purchase or build capital assets are reported in governmental funds as expenditures; however, for governmental activities, those costs are shown in the Statement of Net Position and allocated over their estimated useful lives as annual depreciation expenses in the Statement of Activities. This is the amount by which capital outlays exceed depreciation in the period. Capital outlays $ 9,334,687 Depreciation expense (2,805,233) Net Expense Adjustment 6,529,454 Loss on disposal of capital assets is reported in the government-wide Statement of Net Position, but is not recorded in the governmental funds. (4,528) In the Statement of Activities, compensated absences (vacations) are measured by the amounts earned during the year. In the governmental funds, however, expenditures are measured by the amount of financial resources used (essentially, the amounts actually paid). This year, vacation earned was less than the amounts paid by $4,131. 4,131 Expenditures relating to contributions made to pension plans were recognized on the modified accrual basis, but are not recognized on the accrual basis. (1,098,248) Postemployment benefits other than pensions (OPEB): In governmental funds, OPEB costs are recognized when employer contributions are made. In the Statement of Activities, OPEB costs are recognized on the accrual basis. This year, the difference between OPEB costs and actual employer contributions was: (1,083,732) Proceeds received from the sale of bonds is a revenue in the governmental funds, but it increases long-term obligations in the Statement of Net Position and does not affect the Statement of Activities. (12,000,000) In the government-wide financial statements, debt premiums are deferred and amortized over the life of the debt using the straight line method. Premium on debt issuance (500,058) Payment of principal on long-term obligations is an expenditure in the governmental funds, but it reduces long-term obligations in the Statement of Net Position and does not affect the Statement of Activities: General obligation bonds 740,000 The accompanying notes are an integral part of these financial statements. 20

95 KERMAN UNIFIED SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES, Continued FOR THE YEAR ENDED JUNE 30, 2017 Interest on long-term obligations in the Statement of Activities differs from the amount reported in the governmental funds because interest is recorded as an expenditure in the funds when it is due, and thus requires the use of current financial resources. In the Statement of Activities, however, interest expense is recognized as the interest accrues, regardless of when it is due. The additional interest reported in the Statement of Activities includes additional accumulated interest that was accreted on the District's capital appreciation general obligation bonds. $ (1,068,545) Change in Net Position of Governmental Activities $ 5,360,989 The accompanying notes are an integral part of these financial statements. 21

96 KERMAN UNIFIED SCHOOL DISTRICT FIDUCIARY FUNDS STATEMENT OF NET POSITION JUNE 30, 2017 Scholarship Agency Trust Funds ASSETS Deposits and investments $ 1,078,166 $ 172,586 Receivables 4,165 - Total Assets 1,082, ,586 LIABILITIES Due to student groups - $ 172,586 NET POSITION Restricted for scholarships $ 1,082,331 The accompanying notes are an integral part of these financial statements. 22

97 KERMAN UNIFIED SCHOOL DISTRICT FIDUCIARY FUNDS STATEMENT OF CHANGES IN NET POSITION FOR THE YEAR ENDED JUNE 30, 2017 Scholarship ADDITIONS Trust Private donations $ 2,000 Interest 15,725 Total Additions 17,725 DEDUCTIONS Scholarships awarded 7,650 Change in Net Position 10,075 Net Position - Beginning 1,072,256 Net Position - Ending $ 1,082,331 The accompanying notes are an integral part of these financial statements. 23

98 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Financial Reporting Entity The Kerman Unified School District (the District) was established on July 1, 1983, under the laws of the State of California. The District operates under a locally elected five-member Board form of government and provides educational services to grades K - 12 as mandated by the State and/or Federal agencies. The District operates four elementary schools, one middle school, one high school, and one continuation/opportunity school. A reporting entity is comprised of the primary government and other organizations that are included to ensure the financial statements are not misleading. The primary government of the District consists of all funds, departments, boards, and agencies that are not legally separate from the District. For Kerman Unified School District, this includes general operations, food service, and student related activities of the District. Basis of Presentation - Fund Accounting The accounting system is organized and operated on a fund basis. A fund is defined as a fiscal and accounting entity with a self-balancing set of accounts, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. The District's funds are grouped into two broad fund categories: governmental and fiduciary. Governmental Funds Governmental funds are those through which most governmental functions typically are financed. Governmental fund reporting focuses on the sources, uses, and balances of current financial resources. Expendable assets are assigned to the various governmental funds according to the purposes for which they may or must be used. Current liabilities are assigned to the fund from which they will be paid. The difference between governmental fund assets and liabilities is reported as fund balance. The following are the District's major and non-major governmental funds: Major Governmental Funds General Fund The General Fund is the chief operating fund for all districts. It is used to account for the ordinary operations of the District. All transactions except those accounted for in another fund are accounted for in this fund. Two funds currently defined as special revenue funds in the California State Accounting Manual (CSAM) do not meet the GASB Statement No. 54 special revenue fund definition. Specifically, Fund 14, Deferred Maintenance Fund and Fund 20, Special Reserve Fund for Postemployment Benefits, are not substantially composed of restricted or committed revenue sources. While these funds are authorized by statute and will remain open for internal reporting purposes, these funds function effectively as extensions of the General Fund, and accordingly have been combined with the General Fund for presentation in these audited financial statements. As a result, the General Fund reflects an increase in assets, liabilities, and fund balance of $4,167,129, $1,413, and $4,165,716, respectively, and revenue and expenditures of $60,264 and $485,329, respectively. 24

99 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Child Development Fund The Child Development Fund is used to account separately for Federal, State, and local revenues to operate child development programs and is to be used only for expenditures for the operation of child development programs. Building Fund The Building Fund exists primarily to account separately for proceeds from the sale of bonds (Education Code Section 15146) and may not be used for any purposes other than those for which the bonds were issued. Special Reserve Capital Outlay Fund The Special Reserve Capital Outlay Fund exists primarily to provide for the accumulation of General Fund monies for capital outlay purposes (Education Code Section 42840). Non-Major Governmental Funds Special Revenue Funds The Special Revenue funds are used to account for the proceeds from specific revenue sources (other than trusts, major capital projects, or debt service) that are restricted or committed to expenditures for specified purposes and that compose a substantial portion of the inflows of the fund. Additional resources that are restricted, committed, or assigned to the purpose of the fund may also be reported in the fund. Cafeteria Fund The Cafeteria Fund is used to account separately for Federal, State, and local resources to operate the food service program (Education Code Sections ) and is used only for those expenditures authorized by the governing board as necessary for the operation of the District's food service program (Education Code Sections and 38100). Capital Project Funds The Capital Project funds are used to account for financial resources that are restricted, committed, or assigned to the acquisition or construction of major capital facilities and other capital assets (other than those financed by proprietary funds and trust funds). Capital Facilities Fund The Capital Facilities Fund is used primarily to account separately for monies received from fees levied on developers or other agencies as a condition of approving a development (Education Code Sections ). Expenditures are restricted to the purposes specified in Government Code Sections or to the items specified in agreements with the developer (Government Code Section 66006). County School Facilities Fund The County School Facilities Fund is established pursuant to Education Code Section to receive apportionments from the 1998 State School Facilities Fund (Proposition la), the 2002 State School Facilities Fund (Proposition 47), the 2004 State School Facilities Fund (Proposition 55), or the 2006 State Schools Facilities Fund (Proposition 1D) authorized by the State Allocation Board for new school facility construction, modernization projects, and facility hardship grants, as provided in the Leroy F. Greene School Facilities Act of 1998 (Education Code Section et seq.). 25

100 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Debt Service Funds The Debt Service funds are used to account for the accumulation of restricted, committed, or assigned resources for, and the payment of, principal and interest on general long-term obligations. Bond Interest and Redemption Fund The Bond Interest and Redemption Fund is used for the repayment of bonds issued for a district (Education Code Sections ). Fiduciary Funds Fiduciary funds are used to account for assets held in trustee or agent capacity for others that cannot be used to support the District's own programs. The fiduciary fund category is split into two classifications: a scholarship trust fund and agency funds. The key distinction between trust and agency funds is that trust funds are subject to a trust agreement that affects the degree of management involvement and the length of time that the resources are held. Trust funds are used to account for the assets held by the District under a trust agreement for individuals, private organizations, or other governments and are therefore, not available to support the District's own programs. Agency funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. Such funds have no equity accounts since all assets are due to individuals or entities at some future time. The District's agency fund accounts for student body activities. Basis of Accounting - Measurement Focus Government-Wide Financial Statements The government-wide financial statements are prepared using the economic resources measurement focus and the accrual basis of accounting. The government-wide statement of activities presents a comparison between expenses, both direct and indirect, and program revenues for each governmental function, and exclude fiduciary activity. Direct expenses are those that are specifically associated with a service, program, or department and are therefore, clearly identifiable to a particular function. The District does not allocate indirect expenses to functions in the Statement of Activities, except for depreciation. Program revenues include charges paid by the recipients of the goods or services offered by the programs and grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues are presented as general revenues. The comparison of program revenues and expenses identifies the extent to which each program is self-financing or draws from the general revenues of the District. Eliminations have been made to minimize the double counting of internal activities. Net position should be reported as restricted when constraints placed on net position are either externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or imposed by law through constitutional provisions or enabling legislation. The net position restricted for other activities result from special revenue funds and the restrictions on their use. Fund Financial Statements Fund financial statements report detailed information about the District. The focus of governmental fund financial statements is on major funds rather than reporting funds by type. Each major fund is presented in a separate column. Non-major funds are aggregated and presented in a single column. 26

101 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Governmental Funds All governmental funds are accounted for using the flow of current financial resources measurement focus and the modified accrual basis of accounting. With this measurement focus, only current assets and current liabilities generally are included on the balance sheet. The statement of revenues, expenditures, and changes in fund balances reports on the sources (revenues and other financing sources) and uses (expenditures and other financing uses) of current financial resources. This approach differs from the manner in which the governmental activities of the government-wide financial statements are prepared. Governmental fund financial statements, therefore, include reconciliations with brief explanations to better identify the relationship between the government-wide financial statements, prepared using the economic resources measurement focus and the accrual basis of accounting, and the governmental fund financial statements, prepared using the flow of current financial resources measurement focus and the modified accrual basis of accounting. Fiduciary Funds Fiduciary funds are accounted for using the flow of economic resources measurement focus and the accrual basis of accounting. Fiduciary funds are excluded from the government-wide financial statements because they do not represent resources of the District. Revenues Exchange and Non-Exchange Transactions Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded on the accrual basis when the exchange takes place. On a modified accrual basis, revenue is recorded in the fiscal year in which the resources are measurable and become available. Available means that the resources will be collected within the current fiscal year or are expected to be collected soon enough thereafter, to be used to pay liabilities of the current fiscal year. Generally, available is defined as collectible within 60 days. However, to achieve comparability of reporting among California districts and so as not to distort normal revenue patterns, with specific respect to reimbursement grants and corrections to State-aid apportionments, the California Department of Education has defined available for districts as collectible within one year. The following revenue sources are considered to be both measurable and available at fiscal year-end: State apportionments, interest, certain grants, and other local sources. Non-exchange transactions, in which the District receives value without directly giving equal value in return, include property taxes, certain grants, entitlements, and donations. Revenue from property taxes is recognized in the fiscal year in which the taxes are received. Revenue from certain grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. Eligibility requirements include time and purpose restrictions. On a modified accrual basis, revenue from non-exchange transactions must also be available before it can be recognized. Unearned Revenue Unearned revenue arises when potential revenue does not meet both the "measurable" and "available" criteria for recognition in the current period or when resources are received by the District prior to the incurrence of qualifying expenditures. In subsequent periods, when both revenue recognition criteria are met, or when the District has a legal claim to the resources, the liability for unearned revenue is removed from the balance sheet and revenue is recognized. Certain grants received before the eligibility requirements are met are recorded as unearned revenue. On the governmental fund financial statements, receivables that will not be collected within the available period are also recorded as unearned revenue. 27

102 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Expenses/Expenditures On the accrual basis of accounting, expenses are recognized at the time they are incurred. The measurement focus of governmental fund accounting is on decreases in net financial resources (expenditures) rather than expenses. Expenditures are generally recognized in the accounting period in which the related fund liability is incurred, if measurable, and typically paid within 60 days. Principal and interest on longterm obligations, which has not matured, are recognized when paid in the governmental funds as expenditures. Allocations of costs, such as depreciation and amortization, are not recognized in the governmental funds but are recognized in the entity-wide statements. Investments Investments held at June 30, 2017, with original maturities greater than one year are stated at fair value. Fair value is estimated based on quoted market prices at year-end. All investments not required to be reported at fair value are stated at cost or amortized cost. Fair values of investments in county and State investment pools are determined by the program sponsor. Prepaid Expenditures Prepaid expenditures (expenses) represent amounts paid in advance of receiving goods or services. The District has the option of reporting an expenditure in governmental funds for prepaid items either when purchased or during the benefiting period. The District has chosen to report the expenditures when incurred. Stores Inventories Inventories consist of expendable food and supplies held for consumption. Inventories are stated at cost, on the first-in, first-out basis. The costs of inventory items are recorded as expenditures in the governmental funds. Capital Assets and Depreciation The accounting and reporting treatment applied to the capital assets associated with a fund are determined by its measurement focus. Capital assets are long-lived assets of the District. The District maintains a capitalization threshold of $5,000. The District does not possess any infrastructure. Improvements are capitalized; the costs of normal maintenance and repairs that do not add to the value of the asset or materially extend an asset's life are not capitalized, but are expensed as incurred. When purchased, such assets are recorded as expenditures in the governmental funds and capitalized in the government-wide statement of net position. The valuation basis for capital assets is historical cost, or where historical cost is not available, estimated historical cost based on replacement cost. Donated capital assets are capitalized at acquisition cost. Depreciation is computed using the straight-line method. Estimated useful lives of the various classes of depreciable capital assets are as follows: buildings, 20 to 50 years; improvements/infrastructure, 5 to 50 years; equipment, 2 to 15 years. 28

103 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Interfund Balances On fund financial statements, receivables and payables resulting from short-term interfund loans are classified as "interfund receivables/payables". These amounts are eliminated in the governmental activities column of the statement of net position. Compensated Absences Compensated absences are accrued as a liability as the benefits are earned. The entire compensated absence liability is reported on the government-wide statement of net position. Sick leave is accumulated without limit for each employee at the rate of one day for each month worked. Leave with pay is provided when employees are absent for health reasons; however, the employees do not gain a vested right to accumulated sick leave. Employees are never paid for any sick leave balance at termination of employment or any other time. Therefore, the value of accumulated sick leave is not recognized as a liability in the District's financial statements. However, credit for unused sick leave is applicable to all classified school members who retire after January 1, At retirement, each member will receive.004 year of service credit for each day of unused sick leave. Credit for unused sick leave is applicable to all certificated employees and is determined by dividing the number of unused sick days by the number of base service days required to complete the last school year, if employed full-time. Accrued Liabilities and Long-Term Obligations All payables, accrued liabilities, and long-term obligations are reported in the government-wide fund financial statements. In general, governmental fund payables and accrued liabilities that, once incurred, are paid in a timely manner and in full from current financial resources are reported as obligations of the governmental funds. However, compensated absences and contractually required pension contributions that will be paid from governmental funds are reported as a liability in the governmental fund financial statements only to the extent that they are due for payment during the current year. Bonds and other long-term obligations are recognized as liabilities in the governmental fund financial statements when due. Premiums In the government-wide financial statements, long-term obligations are reported as liabilities in the applicable governmental activities fund statement of net position. Debt premiums are amortized over the life of the bonds using the straight-line method. In governmental fund financial statements, debt premiums are recognized in the current period. The face amount of the debt is reported as other financing sources. Premiums received on debt issuance are also reported as other financing sources. 29

104 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Deferred Outflows/Inflows of Resources In addition to assets, the Statement of Net Position also reports deferred outflows of resources. This separate financial statement element represents a consumption of net position that applies to a future period and so will not be recognized as an expense or expenditure until then. The District reports deferred outflows of resources for pension related items. In addition to liabilities, the Statement of Net Position reports a separate section for deferred inflows of resources. This separate financial statement element represents an acquisition of net position that applies to a future period and so will not be recognized as revenue until then. The District reports deferred inflows of resources for pension related items. Pensions For purposes of measuring the net pension liability and deferred outflows/inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the California State Teachers' Retirement System (CalSTRS) and the California Public Employees' Retirement System (CalPERS) plan for schools (Plans) and additions to/deductions from the Plans' fiduciary net position have been determined on the same basis as they are reported by CalSTRS and CalPERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Member contributions are recognized in the period in which they are earned. Investments are reported at fair value. Fund Balances - Governmental Funds As of June 30, 2017, fund balances of the governmental funds are classified as follows: Nonspendable - amounts that cannot be spent either because they are in nonspendable form or because they are legally or contractually required to be maintained intact. Restricted - amounts that can be spent only for specific purposes because of constitutional provisions or enabling legislation or because of constraints that are externally imposed by creditors, grantors, contributors, or the laws or regulations of other governments. Committed - amounts that can be used only for specific purposes determined by a formal action of the governing board. The governing board is the highest level of decision-making authority for the District. Commitments may be established, modified, or rescinded only through resolutions or other action as approved by the governing board. The District currently does not have any committed funds. Assigned - amounts that do not meet the criteria to be classified as restricted or committed but that are intended to be used for specific purposes. Under the District's adopted policy, only the governing board or chief business officer/assistant superintendent of business services may assign amounts for specific purposes. Unassigned - all other spendable amounts. 30

105 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Spending Order Policy When an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available, the District considers restricted funds to have been spent first. When an expenditure is incurred for which committed, assigned, or unassigned fund balances are available, the District considers amounts to have been spent first out of committed funds, then assigned funds, and finally unassigned funds, as needed, unless the governing board has provided otherwise in its commitment or assignment actions. Minimum Fund Balance Policy In fiscal year , the governing board adopted a minimum fund balance policy for the General Fund in order to protect the district against revenue shortfalls or unpredicted on-time expenditures. The policy requires a Reserve for Economic Uncertainties consisting of unassigned amounts equal to no less than ten percent of General Fund expenditures and other financing uses. Net Position Net position represents the difference between assets and liabilities. Net position net of investment in capital assets consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for the acquisition, construction, or improvement of those assets. Net position is reported as restricted when there are limitations imposed on their use either through the enabling legislation adopted by the District or through external restrictions imposed by creditors, grantors, or laws or regulations of other governments. The District first applies restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net position is available. The government-wide financial statements report $8,779,033 of restricted net position. Interfund Activity Transfers between governmental activities in the government-wide financial statements are reported in the same manner as general revenues. Exchange transactions between funds are reported as revenues in the seller funds and as expenditures in the purchaser funds. Flows of cash or goods from one fund to another without a requirement for repayment are reported as interfund transfers. Interfund transfers are reported as other financing sources/uses in governmental funds. Repayments from funds responsible for particular expenditures to the funds that initially paid for them are not presented in the financial statements. Interfund transfers are eliminated in the governmental activities column of the Statement of Activities. Estimates The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. 31

106 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Budgetary Data The budgetary process is prescribed by provisions of the California Education Code and requires the governing board to hold a public hearing and adopt an operating budget no later than July 1 of each year. The District governing board satisfied these requirements. The adopted budget is subject to amendment throughout the year to give consideration to unanticipated revenue and expenditures primarily resulting from events unknown at the time of budget adoption with the legal restriction that expenditures cannot exceed appropriations by major object account. The amounts reported as the original budgeted amounts in the budgetary statements reflect the amounts when the original appropriations were adopted. The amounts reported as the final budgeted amounts in the budgetary statements reflect the amounts after all budget amendments have been accounted for. For budget purposes, on behalf payments have not been included as revenue and expenditures as required under generally accepted accounting principles. Property Tax Secured property taxes attach as an enforceable lien on property as of January 1. Taxes are payable in two installments on November 1 and February 1 and become delinquent on December 10 and April 10, respectively. Unsecured property taxes are payable in one installment on or before August 31. The County of Fresno bills and collects the taxes on behalf of the District. Local property tax revenues are recorded when received. Change in Accounting Principles In June 2015, the GASB issued Statement No. 74, 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 results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for all postemployment benefits (pensions and OPEB) with regard to providing decision-useful information, supporting assessments of accountability and inter-period equity, and creating additional transparency. 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 No. 43, and Statement No. 50, Pension Disclosures. The District has implemented the provisions of this Statement as of June 30, In December 2015, the GASB issued Statement No. 78, Pensions Provided Through Certain Multiple-Employer Defined Benefit Pension Plans. The objective of this Statement is to address a practice issue regarding the scope and applicability of Statement No. 68, Accounting and Financial Reporting for Pensions. This issue is associated with pensions provided through certain multiple-employer defined benefit pension plans and to state or local governmental employers whose employees are provided with such pensions. 32

107 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Prior to the issuance of this Statement, the requirements of Statement No. 68 applied to the financial statements of all state and local governmental employers whose employees are provided with pensions through pension plans that are administered through trusts that meet the criteria in paragraph 4 of that Statement. This Statement amends the scope and applicability of Statement No. 68 to exclude pensions provided to employees of state or local governmental employers through a cost-sharing multiple-employer defined benefit pension plan that (1) is not a state or local governmental pension plan, (2) is used to provide defined benefit pensions both to employees of state or local governmental employers and to employees of employers that are not state or local governmental employers, and (3) has no predominant state or local governmental employer (either individually or collectively with other state or local governmental employers that provide pensions through the pension plan). This Statement establishes requirements for recognition and measurement of pension expense, expenditures, and liabilities; note disclosures; and required supplementary information for pensions that have the characteristics described above. The District has implemented the provisions of this Statement as of June 30, In March 2016, the GASB issued Statement No. 82, Pension Issues - An Amendment of GASB Statements 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 No. 68, and Amendments to Certain Provisions of GASB Statements No. 67 and No. 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. The District has implemented the provisions of this Statement as of June 30, 2017, except for the requirements of this Statement for the selection of assumptions in a circumstance in which an employer's pension liability is measured as of a date other than the employer's most recent fiscal year-end. In that circumstance, the requirements for the selection of assumptions are effective for that employer in the first reporting period in which the measurement date of the pension liability is on or after June 15, New Accounting Pronouncements In June 2015, the GASB issued Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pension. 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 results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for all postemployment benefits (pensions and OPEB) with regard to providing decision-useful information, supporting assessments of accountability and inter-period equity, and creating additional transparency. 33

108 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 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 for OPEB plans. The requirements of this Statement are effective for financial statements for periods beginning after June 15, Early implementation is encouraged. In January 2017, the GASB issued Statement No. 84, Fiduciary Activities. The objective of this Statement is to improve guidance regarding the identification of fiduciary activities for accounting and financial reporting purposes and how those activities should be reported. This Statement establishes criteria for identifying fiduciary activities of all state and local governments. The focus of the criteria generally is on (1) whether a government is controlling the assets of the fiduciary activity and (2) the beneficiaries with whom a fiduciary relationship exists. Separate criteria are included to identify fiduciary component units and postemployment benefit arrangements that are fiduciary activities. The requirements of this Statement are effective for reporting periods beginning after December 15, Early implementation is encouraged. In March 2017, the GASB issued Statement No. 85, Omnibus 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 other postemployment benefits [OPEB]). Specifically, this Statement addresses the following topics: 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; Reporting amounts previously reported as goodwill and "negative" goodwill; Classifying real estate held by insurance entities; Measuring certain money market investments and participating interest-earning investment contracts at amortized cost; Timing of the measurement of pension or OPEB liabilities and expenditures recognized in financial statements prepared using the current financial resources measurement focus; Recognizing on-behalf payments for pensions or OPEB in employer financial statements; Presenting payroll-related measures in required supplementary information for purposes of reporting by OPEB plans and employers that provide OPEB; Classifying employer-paid member contributions for OPEB; Simplifying certain aspects of the alternative measurement method for OPEB; 34

109 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Accounting and financial reporting for OPEB provided through certain multiple-employer defined benefit OPEB plans. The requirements of this Statement are effective for reporting periods beginning after June 15, Early implementation is encouraged. In May 2017, the GASB issued Statement No. 86, 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 to financial statements for debt that is defeased in substance. The requirements of this Statement are effective for reporting periods beginning after June 15, Early implementation is encouraged. In June 2017, the GASB issued Statement No. 87, Leases. The objective of this Statement is to better meet the information needs of financial statement users by improving accounting and financial reporting for leases by governments. This Statement increases the usefulness of governments' financial statements by requiring recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. Under this Statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about governments' leasing activities. The requirements of this Statement are effective for the reporting periods beginning after December 15, Early implementation is encouraged. 35

110 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 NOTE 2 - DEPOSITS AND INVESTMENTS Summary of Deposits and Investments Deposits and investments as of June 30, 2017, are classified in the accompanying financial statements as follows: Governmental activities $ 39,281,094 Fiduciary funds 1,250,752 Total Deposits and Investments $ 40,531,846 Deposits and investments as of June 30, 2017, consist of the following: Cash on hand and in banks $ 172,586 Cash in revolving 5,500 Investments 40,353,760 Total Deposits and Investments $ 40,531,846 Policies and Practices The District is authorized under California Government Code to make direct investments in local agency bonds, notes, or warrants within the State; U.S. Treasury instruments; registered State warrants or treasury notes; securities of the U.S. Government, or its agencies; bankers acceptances; commercial paper; certificates of deposit placed with commercial banks and/or savings and loan companies; repurchase or reverse repurchase agreements; medium term corporate notes; shares of beneficial interest issued by diversified management companies, certificates of participation, obligations with first priority security; and collateralized mortgage obligations. Investment in County Treasury - The District is considered to be an involuntary participant in an external investment pool as the District is required to deposit all receipts and collections of monies with their County Treasurer (Education Code Section 41001). The fair value of the District's investment in the pool is reported in the accounting financial statements at amounts based upon the District's pro-rata share of the fair value provided by the County Treasurer for the entire portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by the County Treasurer, which is recorded on the amortized cost basis. 36

111 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 General Authorizations Limitations as they relate to interest rate risk, credit risk, and concentration of credit risk are indicated in the schedules below: Maximum Maximum Maximum Authorized Remaining Percentage Investment Investment Type Maturity of Portfolio in One Issuer Local Agency Bonds, Notes, Warrants 5 years None None Registered State Bonds, Notes, Warrants 5 years None None U.S. Treasury Obligations 5 years None None U.S. Agency Securities 5 years None None Banker's Acceptance 180 days 40% 30% Commercial Paper 270 days 25% 10% Negotiable Certificates of Deposit 5 years 30% None Repurchase Agreements 1 year None None Reverse Repurchase Agreements 92 days 20% of base None Medium-Term Corporate Notes 5 years 30% None Mutual Funds N/A 20% 10% Money Market Mutual Funds N/A 20% 10% Mortgage Pass-Through Securities 5 years 20% None County Pooled Investment Funds N/A None None Local Agency Investment Fund (LAIF) N/A None None Joint Powers Authority Pools N/A None None Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. The District does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. The District manages its exposure to interest rate risk by investing in the County Pool and having the Pool purchase a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. Segmented Time Distribution Information about the sensitivity of the fair values of the District's investments to market interest rate fluctuations is provided by the following schedule that shows the distribution of the District's investments by maturity: Fair 12 Months More Than Investment Type Value or Less Months Months 60 Months County Pool $ 40,359,978 $ - $ 40,359,978 $ - $ - 37

112 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 NOTE 3 - FAIR VALUE MEASUREMENTS The District categorizes the fair value measurements of its investments based on the hierarchy established by generally accepted accounting principles. The fair value hierarchy, which has three levels, is based on the valuation inputs used to measure an asset's fair value. The following provides a summary of the hierarchy used to measure fair value: Level 1 - Quoted prices in active markets for identical assets that the District has the ability to access at the measurement date. Level 1 assets may include debt and equity securities that are traded in an active exchange market and that are highly liquid and are actively traded in over-the-counter markets. Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets in active markets, quoted prices for identical or similar assets in markets that are not active, or other inputs that are observable, such as interest rates and curves observable at commonly quoted intervals, implied volatilities, and credit spreads. For financial reporting purposes, if an asset has a specified term, a Level 2 input is required to be observable for substantially the full term of the asset. Level 3 - Unobservable inputs should be developed using the best information available under the circumstances, which might include the District's own data. The District should adjust that data if reasonably available information indicates that other market participants would use different data or certain circumstances specific to the District are not available to other market participants. Uncategorized - Investments in the Fresno County Treasury Investment Pool are not measured using the input levels above because the District's transactions are based on a stable net asset value per share. All contributions and redemptions are transacted at $1.00 net asset value per share. NOTE 4 - RECEIVABLES Receivables at June 30, 2017, consisted of intergovernmental grants, entitlements, interest and other local sources. All receivables are considered collectible in full. Child Special Reserve Non-Major Total General Development Building Capital Outlay Governmental Governmental Trust Fund Fund Fund Fund Funds Activities Fund Federal Government Categorical aid $ 661,302 $ - $ - $ - $ 79,982 $ 741,284 $ - State Government State grants and entitlements 1,070, ,732 1,076,567 - Local Sources 423,705 6,497 26,088 7,227 13, ,060 4,165 Total $ 2,155,842 $ 6,497 $ 26,088 $ 7,227 $ 99,257 $ 2,294,911 $ 4,165 38

113 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 NOTE 5 - CAPITAL ASSETS Capital asset activity for the fiscal year ended June 30, 2017, was as follows: Balance Balance July 1, 2016 Additions Deductions June 30, 2017 Governmental Activities Capital Assets Not Being Depreciated Land $ 2,015,050 $ 5,808,856 $ - $ 7,823,906 Construction in process 5,391,988 8,367,600 12,665,705 1,093,883 Total Capital Assets Not Being Depreciated 7,407,038 14,176,456 12,665,705 8,917,789 Capital Assets Being Depreciated Land improvements 8,828,621 54,295-8,882,916 Buildings and improvements 61,241,566 6,802,554-68,044,120 Furniture and equipment 4,797, , ,931 5,614,017 Total Capital Assets Being Depreciated 74,868,048 7,823, ,931 82,541,053 Less Accumulated Depreciation Land improvements 4,215, ,145-4,659,721 Buildings and improvements 24,125,581 2,047,247-26,172,828 Furniture and equipment 3,504, , ,403 3,672,412 Total Accumulated Depreciation 31,846,131 2,805, ,403 34,504,961 Governmental Activities Capital Assets, Net $ 50,428,955 $ 19,195,159 $ 12,670,233 $ 56,953,881 Depreciation expense was charged to governmental functions as follows: Governmental Activities Instruction $ 1,290,406 School site administration 56,105 Home-to-school transportation 729,361 Food services 224,419 Data processing services 56,105 All other general administration 84,157 Plant services 364,680 Total Depreciation Expenses, Governmental Activities $ 2,805,233 39

114 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 NOTE 6 - INTERFUND TRANSACTIONS Interfund Receivables/Payables (Due To/Due From) Interfund receivable and payable balances arise from interfund transactions and are recorded by all funds affected in the period in which transactions are executed. Interfund receivable and payable balances at June 30, 2017, between major and non-major governmental funds are as follows: Interfund Interfund Receivables Payables Major Governmental Funds General $ 31,888 $ 496,792 Child Development 24,389 8,799 Special Reserve Capital Outlay 472,008 - Total Major Governmental Funds 528, ,591 Non-Major Governmental Fund Cafeteria ,089 Total All Governmental Funds $ 528,680 $ 528,680 The General Fund owes the Special Reserve Capital Outlay Fund for reclassed expenditures. The General Fund owes the Child Development Fund for excess operating costs. The Cafeteria Non-Major Governmental Fund owes the General Fund for indirect costs. The Child Development Fund owes the General Fund for indirect costs. The Cafeteria Non-Major Governmental Fund owes the General Fund for miscellaneous $ 472,008 24,389 22,562 8,692 costs. 527 The General Fund owes the Cafeteria Non-Major Governmental Fund for catering. 395 The Child Development Fund owes the General Fund for miscellaneous costs. 107 Total $ 528,680 40

115 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Operating Transfers Interfund transfers are used to (1) move revenues from the fund that statute or budget requires to collect them to the fund that statute or budget requires to expend them, (2) move receipts restricted to debt service from the funds collecting the receipts to the debt service fund as debt service payments become due, and (3) use unrestricted revenues collected in the General Fund to finance various programs accounted for in other funds in accordance with budgetary authorizations. Interfund transfers for the year ended June 30, 2017, consisted of the following: The General Fund transferred to the County School Facilities Non-Major Governmental Fund for maintenance expenditures. $ 3,706,837 The General Fund transferred to the Special Reserve Capital Outlay Fund for capital expenditures. 472,008 The General Fund transferred to the Child Development Fund for excess costs. 24,389 The Building Fund transferred to the General Fund to clear the subaccounts. 2 Total $ 4,203,236 NOTE 7 - PREPAID EXPENDITURES Prepaid expenditures at June 30, 2017, consist of the following: General Fund Prepaid goods and services $ 24,019 NOTE 8 - ACCOUNTS PAYABLE Accounts payable at June 30, 2017, consisted of the following: Child Special Reserve Non-Major Total General Development Capital Outlay Governmental Governmental Fund Fund Fund Funds Activities Vendor payables $ 1,264,167 $ - $ 53,961 $ 152,393 $ 1,470,521 Deferred payroll 925, , ,582 Accrued payroll 885,201 9, ,209 State principal apportionment 381,112 1,233, ,614,217 Total $ 3,455,665 $ 1,242,113 $ 53,961 $ 162,790 $ 4,914,529 41

116 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 NOTE 9 - UNEARNED REVENUE Unearned revenue at June 30, 2017, consisted of the following: General Fund Federal financial assistance $ 98,591 State financial assistance 184,000 Total $ 282,591 NOTE 10 - LONG-TERM OBLIGATIONS Summary The changes in the District's long-term obligations during the year consisted of the following: General Obligation Bonds Series 2004 Capital Appreciation 754,088 Balance Balance Due in July 1, 2016 Additions Deductions June 30, 2017 One Year $ $ 87,368 $ - $ 841,456 $ Series 2006B Capital Appreciation 2,978, , ,000 2,968, , Series 2007C Current Interest 300, , , ,000 Capital Appreciation 2,704, ,005-2,839, Series 2009 Capital Appreciation 9,729, , ,000 10,260, , Refunding 4,080, ,000 3,775, , Series 2017 Current Interest - 12,000,000-12,000,000 - Bond Premium 1,080, ,395 68,337 1,580,661 - Compensated absences - net 75,059-4,131 70,928 - Other postemployment benefits 2,927,165 1,579, ,047 4,010,897 - Total $ 24,629,297 $ 15,216,719 $ 1,308,515 $ 38,537,501 $ 830,000 Payments on the general obligation bonds are made by the Bond Interest and Redemption Fund with local revenues. The compensated absences and other postemployment benefits will be paid by the fund for which the employee worked. 42

117 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Bonded Debt The outstanding general obligation bonded debt is as follows: Bonds Issued/ Bonds Issue Maturity Interest Original Outstanding Accreted Outstanding Date Date Rate % Issue July 1, 2016 Interest Redeemed June 30, /1/ $ 212,954 $ 754,088 $ 87,368 $ - $ 841, /1/ ,063,376 2,978, , ,000 2,968, /1/ , , , , /1/ ,711,016 2,704, ,005-2,839, /1/ ,254,805 9,729, , ,000 10,260, /1/ ,140,000 4,080, ,000 3,775, /1/ ,000,000-12,000,000-12,000,000 Total $ 20,546,470 $ 13,068,545 $ 740,000 $ 32,875,015 Debt Service Requirements to Maturity The Series 2004 Capital Appreciation Bonds mature as follows: Final Accreted Unaccreted Maturity Maturity Obligation Interest 2027 $ 630,000 $ 235,242 $ 394, , , , , , , , , ,080 Total $ 2,645,000 $ 841,456 $ 1,803,544 The Series 2006B Capital Appreciation Bonds mature as follows: Final Accreted Unaccreted Maturity Maturity Obligation Interest 2018 $ 175,000 $ 175,000 $ , ,497 9, , ,335 19, , ,685 30, , ,546 41, , ,920 54, ,635,000 1,768,941 1,866,059 Total $ 4,990,000 $ 2,968,924 $ 2,021,076 43

118 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 The Series 2007C Current Interest Bonds mature as follows: Maturity Principal Interest Total 2018 $ 125,000 $ 7,600 $ 132, ,000 2,600 67,600 Total $ 190,000 $ 10,200 $ 200,200 The Series 2007C Capital Appreciation Bonds mature as follows: Final Accreted Unaccreted Maturity Maturity Obligation Interest 2027 $ 265,000 $ 170,819 $ 94, , , , , , , , , , , , , ,895,000 1,937,817 1,957,183 Total $ 5,445,000 $ 2,839,544 $ 2,605,456 The Series 2009 Capital Appreciation Bonds mature as follows: Final Accreted Unaccreted Maturity Maturity Obligation Interest 2018 $ 205,000 $ 205,000 $ , ,152 14, , ,708 39, , ,144 62, , ,646 89, ,325,000 1,520, , ,875, ,414 1,041, ,860,000 3,191,840 8,668, ,135,000 2,364,844 12,770, ,165, ,364 6,319,636 Total $ 40,070,000 $ 10,260,091 $ 29,809,909 44

119 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 The 2015 Refunding Bonds mature as follows: Maturity Principal Interest Total 2018 $ 325,000 $ 110,542 $ 435, , , , ,000 90, , ,000 79, , ,000 67, , ,985, ,069 2,112,069 Total $ 3,775,000 $ 574,593 $ 4,349,593 The 2016, Series 2017 Current Interest Bonds mature as follows: Maturity Principal Interest Total 2018 $ - $ 109,746 $ 109, , ,856 1,143, , , , , , , , , ,000 2,241,780 2,651, ,045,000 2,108,030 3,153, ,860,000 1,890,138 3,750, ,965,000 1,486,200 4,451, ,540, ,388 5,285,388 Total $ 12,000,000 $ 10,457,806 $ 22,457,806 Compensated Absences The long-term portion of compensated absences for the District at June 30, 2017, amounted to $70,928. Other Postemployment Benefits (OPEB) Obligation The District's annual required contribution for the year ended June 30, 2017, was $1,448,057, and contributions made by the District during the year were $209,312. Interest on the net OPEB obligation and adjustments to the annual required contribution were $131,722 and $(286,735), respectively, which resulted in an increase to the net OPEB obligation of $1,083,732. As of June 30, 2017, the net OPEB obligation was $4,010,897. See Note 12 for additional information regarding the OPEB obligation and the postemployment benefits plan. 45

120 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 NOTE 11 - FUND BALANCES Fund balances are composed of the following elements: Child Special Reserve Non-Major Total General Development Building Capital Outlay Governmental Governmental Fund Fund Fund Fund Funds Funds Nonspendable Revolving cash $ 5,500 $ - $ - $ - $ - $ 5,500 Stores inventory 89, , ,606 Prepaid expenditures 24, ,019 Total Reserved 118, , ,125 Restricted Legally restricted programs 2,034,174 60, ,094,437 Food service , ,793 Capital projects ,026,088-4,846,788 16,872,876 Debt service ,362,651 1,362,651 Total Restricted 2,034,174 60,263 12,026,088-6,646,232 20,766,757 Assigned Facilities master plan 5,386, ,386,613 Other postemployment benefits 4,151, ,151,046 Deferred maintenance 14, ,671 Capital projects ,854,600-1,854,600 Total Assigned 9,552, ,854,600-11,406,930 Unassigned Reserve for economic uncertainties 2,548, ,548,019 Unassigned 1,651, ,651,679 Total Unassigned 4,199, ,199,698 Total $ 15,904,963 $ 60,263 $ 12,026,088 $ 1,854,600 $ 6,684,596 $ 36,530,510 NOTE 12 - POSTEMPLOYMENT HEALTH CARE PLAN AND OTHER POSTEMPLOYMENT BENEFITS (OPEB) OBLIGATION Plan Description The Postemployment Benefits Plan (the "Plan") is a single-employer defined benefit healthcare plan administered by the Kerman Unified School District. The Plan provides medical and dental insurance benefits to eligible retirees and their spouses. Membership of the Plan consisted of 23 retirees and beneficiaries currently receiving benefits and 459 active plan members as of the last actuarial study. 46

121 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Contribution Information The contribution requirements of plan members and the District are established and may be amended by the District and the Kerman Unified Teachers Association (KUTA), the local California Service Employees Association (CSEA), and unrepresented groups. The required contribution is based on projected pay-as-you-go financing requirements. For fiscal year , the District contributed $209,312 to the plan, all of which was used for current premiums (approximately 82 percent of total premiums). Plan members receiving benefits contributed $47,194, or approximately 18 percent of the total premiums. Annual OPEB Cost and Net OPEB Obligation The District's annual OPEB cost is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial accrued liabilities (UAAL) (or funding excess) over a period not to exceed thirty years. The following table shows the components of the District's annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the District's net OPEB obligation to the Plan: Annual required contribution $ 1,448,057 Interest on net OPEB obligation 131,722 Adjustment to annual required contribution (286,735) Annual OPEB cost 1,293,044 Contributions made (209,312) Increase in net OPEB obligation 1,083,732 Net OPEB obligation, beginning of year 2,927,165 Net OPEB obligation, end of year $ 4,010,897 Trend Information Trend information for annual OPEB cost, the percentage of annual OPEB cost contributed to the Plan, and the net OPEB obligation is as follows: Year Ended Annual OPEB Actual Percentage Net OPEB June 30, Cost Contribution Contributed Obligation 2017 $ 1,293,044 $ 209, % $ 4,010, ,352, , % 2,927, , , % 1,797,080 47

122 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Funded Status and Funding Progress A schedule of funding progress as of the most recent actuarial valuation is as follow: Actuarial Accrued UAAL as a Liability Unfunded Percentage Actuarial Actuarial (AAL) - AAL Funded of Covered Valuation Value of Entry Age (UAAL) Ratio Covered Payroll Date Assets (a) Normal (b) (b - a) (a / b) Payroll (c) ([b - a] / c) September 1, 2015 $ - $ 9,425,242 $ 9,425, % $ 26,407, % Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, investment returns, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the Plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the September 1, 2015, actuarial valuation, the entry age normal method was used. The actuarial assumptions included a 4.75 percent investment rate of return (net of administrative expenses), based on the plan being funded in an irrevocable employee benefit trust invested in a combined equity and fixed income portfolio. Healthcare cost trend rates were four percent. The cost trend rate used for the Dental and Vision programs was also four percent. The UAAL is being amortized at a level dollar method. The remaining amortization period at July 1, 2017, was 28 years. 48

123 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 NOTE 13 - RISK MANAGEMENT Property and Liability The District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees and natural disasters. During fiscal year ending June 30, 2017, the District contracted with Organization of Self Insured Schools (OSS) for property and liability insurance coverage. Settled claims have not exceeded this commercial coverage in any of the past three years. There has not been a significant reduction in coverage from the prior year. Workers' Compensation For fiscal year 2017, the District participated in the Fresno County Self Insurance Group (FCSIG), an insurance purchasing pool. The intent of the Fresno County Self Insurance Group is to achieve the benefit of a reduced premium for the District by virtue of its grouping and representation with other participants in the Fresno County Self Insurance Group. The workers' compensation experience of the participating districts is calculated as one experience and a common premium rate is applied to all districts in the Fresno County Self Insurance Group. Each participant pays its workers' compensation premium based on its individual rate. Total savings are then calculated and each participant's individual performance is compared to the overall savings percentage. A participant will then either receive money from or be required to contribute to the "equity-pooling fund". This "equity pooling" arrangement insures that each participant shares equally in the overall performance of the Fresno County Self Insurance Group. Participation in the Fresno County Self Insurance Group is limited to districts that can meet the Fresno County Self Insurance Group's selection criteria. Employee Medical Benefits The District has contracted with the Central Valley Trust (CVT) to provide employee health benefits. CVT is a shared risk pool comprised of other member Districts. Rates are set through an annual calculation process. The District pays a monthly contribution, which is placed in a common fund from which claim payments are made for all participating districts. Claims are paid for all participants regardless of claims flow. The Board of Directors has a right to return monies to a district subsequent to the settlement of all expenses and claims if a district withdraws from the pool. NOTE 14 - EMPLOYEE RETIREMENT SYSTEMS Qualified employees are covered under multiple-employer defined benefit pension plans maintained by agencies of the State of California. Academic employees are members of the California State Teachers' Retirement System (CalSTRS) and classified employees are members of the California Public Employees' Retirement System (CalPERS). 49

124 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 For the fiscal year ended June 30, 2017, the District reported net pension liabilities, deferred outflows of resources, deferred inflows of resources, and pension expense for each of the above plans as follows: Collective Collective Collective Net Deferred Outflows Deferred Inflows Collective Pension Plan Pension Liability of Resources of Resources Pension Expense CalSTRS $ 31,279,184 $ 5,967,346 $ 893,466 $ 3,182,048 CalPERS 11,517,465 3,726, ,031 1,652,693 Total $ 42,796,649 $ 9,694,040 $ 1,239,497 $ 4,834,741 The details of each plan are as follows: California State Teachers' Retirement System (CalSTRS) Plan Description The District contributes to the State Teachers Retirement Plan (STRP) administered by the California State Teachers' Retirement System (CalSTRS). STRP is a cost-sharing multiple-employer public employee retirement system defined benefit pension plan. Benefit provisions are established by State statutes, as legislatively amended, within the State Teachers' Retirement Law. A full description of the pension plan regarding benefit provisions, assumptions (for funding, but not accounting purposes), and membership information is listed in the June 30, 2015, annual actuarial valuation report, Defined Benefit Program Actuarial Valuation. This report and CalSTRS audited financial information are publically available reports that can be found on the CalSTRS website under Publications at: Benefits Provided The STRP provides retirement, disability and survivor benefits to beneficiaries. Benefits are based on members' final compensation, age, and years of service credit. Members hired on or before December 31, 2012, with five years of credited service are eligible for the normal retirement benefit at age 60. Members hired on or after January 1, 2013, with five years of credited service are eligible for the normal retirement benefit at age 62. The normal retirement benefit is equal to 2.0 percent of final compensation for each year of credited service. The STRP is comprised of four programs: Defined Benefit Program, Defined Benefit Supplement Program, Cash Balance Benefit Program, and Replacement Benefits Program. The STRP holds assets for the exclusive purpose of providing benefits to members and beneficiaries of these programs. CalSTRS also uses plan assets to defray reasonable expenses of administering the STRP. Although CalSTRS is the administrator of the STRP, the state is the sponsor of the STRP and obligor of the trust. In addition, the state is both an employer and nonemployer contributing entity to the STRP. The District contributes exclusively to the STRP Defined Benefit Program, thus disclosures are not included for the other plans. 50

125 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 The STRP provisions and benefits in effect at June 30, 2017, are summarized as follows: STRP Defined Benefit Program On or before On or after Hire date December 31, 2012 January 1, 2013 Benefit formula 2% at 60 2% at 62 Benefit vesting schedule 5 years of service 5 years of service Benefit payments Monthly for life Monthly for life Retirement age Monthly benefits as a precentage of eligible compensation 2.0% - 2.4% 2.0% - 2.4% Required employee contribution rate 10.25% 9.205% Required employer contribution rate 12.58% 12.58% Required state contribution rate 8.828% 8.828% Contributions Required member, District and State of California contributions rates are set by the California Legislature and Governor and detailed in Teachers' Retirement Law. The contributions rates are expressed as a level percentage of payroll using the entry age normal actuarial method. In accordance with AB 1469, employer contributions into the CalSTRS will be increasing to a total of 19.1 percent of applicable member earnings phased over a seven-year period. The contribution rates for each plan for the year ended June 30, 2017, are presented above and the District's total contributions were $2,701,723. Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions At June 30, 2017, the District reported a liability for its proportionate share of the net pension liability that reflected a reduction for State pension support provided to the District. The amount recognized by the District as its proportionate share of the net pension liability, the related state support and the total portion of the net pension liability that was associated with the District were as follows: Total net pension liability, including State share: District's proportionate share of net pension liability $ 31,279,184 State's proportionate share of the net pension liability associated with the District 17,806,682 Total $ 49,085,866 The net pension liability was measured as of June 30, 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 plan relative to the projected contributions of all participating school districts and the State, actuarially determined. The District's proportionate share for the measurement period June 30, 2016 and June 30, 2015, respectively was percent and percent, resulting in a net decrease in the proportionate share of percent. 51

126 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 For the year ended June 30, 2017, the District recognized pension expense of $3,182,048. In addition, the District recognized pension expense and revenue of $1,721,203 for support provided by the State. At June 30, 2017, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows Deferred Inflows of Resources of Resources Pension contributions subsequent to measurement date $ 2,701,723 $ - Net change in proportionate share of net pension liability 778, ,446 Difference between projected and actual earnings on pension plan investments 2,486,680 - Differences between expected and actual experience in the measurement of the total pension liability - 763,020 Total $ 5,967,346 $ 893,466 The deferred outflows of resources related to pensions resulting from District contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the subsequent fiscal year. The deferred outflows of resources related to the difference between projected and actual earnings on pension plan investments will be amortized over a closed five-year period and will be recognized in pension expense as follows: Year Ended Deferred Outflows June 30, of Resources 2018 $ 54, , ,445, ,662 Total $ 2,486,680 52

127 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 The deferred outflows/(inflows) of resources related to the net change in proportionate share of net pension liability and differences between expected and actual experience in the measurement of the total pension liability will be amortized over the Expected Average Remaining Service Life (EARSL) of all members that are provided benefits (active, inactive, and retirees) as of the beginning of the measurement period. The EARSL for the measurement period is seven years and will be recognized in pension expense as follows: Deferred Year Ended Outflows/(Inflows) June 30, of Resources 2018 $ (5,207) 2019 (5,207) 2020 (5,207) 2021 (5,207) 2022 (5,209) Thereafter (88,486) Total $ (114,523) Actuarial Methods and Assumptions Total pension liability for STRP was determined by applying update procedures to a financial reporting actuarial valuation as of June 30, 2015, and rolling forward the total pension liability to June 30, The financial reporting actuarial valuation as of June 30, 2015, used the following methods and assumptions, applied to all prior periods included in the measurement: Valuation date June 30, 2015 Measurement date June 30, 2016 Experience study July 1, 2006 through June 30, 2010 Actuarial cost method Entry age normal Discount rate 7.60% Investment rate of return 7.60% Consumer price inflation 3.00% Wage growth 3.75% CalSTRS uses custom mortality tables to best fit the patterns of mortality among its members. These custom tables are based on RP2000 series tables adjusted to fit CalSTRS experience. 53

128 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 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. The best estimate ranges were developed using capital market assumptions from CalSTRS general investment consultant. Based on the model for CalSTRS consulting actuary's investment practice, a best estimate range was determined by assuming the portfolio is re-balanced annually and that the annual returns are lognormally distributed and independent from year to year to develop expected percentiles for the long-term distribution of annualized returns. The assumed asset allocation is based on Teachers' Retirement Board of the California State Teachers' Retirement System (board) policy for target asset allocation in effect on February 2, 2012, the date the current experience study was approved by the board. Best estimates of ten-year geometric real rates of return and the assumed asset allocation for each major asset class used as input to develop the actuarial investment rate of return are summarized in the following table: Long-Term Assumed Asset Expected Real Asset Class Allocation Rate of Return Global equity 47% 6.30% Fixed income 12% 0.30% Real estate 13% 5.20% Private equity 13% 9.30% Absolute Return/Risk Mitigating Strategies 9% 2.90% Inflation sensitive 4% 3.80% Cash/liquidity 2% -1.00% Discount Rate The discount rate used to measure the total pension liability was 7.60 percent. The projection of cash flows used to determine the discount rate assumed the contributions from plan members and employers will be made at statutory contribution rates. Projected inflows from investment earnings were calculated using the long-term assumed investment rate of return (7.60 percent) and assuming that contributions, benefit payments and administrative expense occurred midyear. Based on these assumptions, the STRP's fiduciary net position was projected to be available to make all projected future benefit payments to current plan members. Therefore, the long-term assumed investment rate of return was applied to all periods of projected benefit payments to determine total pension liability. The following presents the District's proportionate share of the net pension liability calculated using the current discount rate as well as what the net pension liability would be if it were calculated using a discount rate that is one percent lower or higher than the current rate: Net Pension Discount Rate Liability 1% decrease (6.60%) $ 45,017,801 Current discount rate (7.60%) $ 31,279,184 1% increase (8.60%) $ 19,868,688 54

129 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 California Public Employees Retirement System (CalPERS) Plan Description Qualified employees are eligible to participate in the School Employer Pool (SEP) under the California Public Employees' Retirement System (CalPERS), a cost-sharing multiple-employer public employee retirement system defined benefit pension plan administered by CalPERS. Benefit provisions are established by State statutes, as legislatively amended, within the Public Employees' Retirement Law. A full description of the pension plan regarding benefit provisions, assumptions (for funding, but not accounting purposes), and membership information is listed in the June 30, 2015 annual actuarial valuation report, Schools Pool Actuarial Valuation. This report and CalPERS audited financial information are publically available reports that can be found on the CalPERS website under Forms and Publications at: Benefits Provided CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of service credit, a benefit factor and the member's final compensation. Members hired on or before December 31, 2012, with five years of total service are eligible to retire at age 50 with statutorily reduced benefits. Members hired on or after January 1, 2013, with five years of total service are eligible to retire at age 52 with statutorily reduced benefits. All members are eligible for non-duty disability benefits after five years of service. The Basic Death Benefit is paid to any member's beneficiary if the member dies while actively employed. An employee's eligible survivor may receive the 1957 Survivor Benefit if the member dies while actively employed, is at least age 50 (or 52 for members hired on or after January 1, 2013), and has at least five years of credited service. The cost of living adjustments for each plan are applied as specified by the Public Employees' Retirement Law. The CalPERS provisions and benefits in effect at June 30, 2017, are summarized as follows: School Employer Pool (CalPERS) On or before On or after Hire date December 31, 2012 January 1, 2013 Benefit formula 2% at 55 2% at 62 Benefit vesting schedule 5 years of service 5 years of service Benefit payments Monthly for life Monthly for life Retirement age Monthly benefits as a precentage of eligible compensation 1.1% - 2.5% 1.0% - 2.5% Required employee contribution rate 7.00% 6.00% Required employer contribution rate % % 55

130 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Contributions 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. Total plan contributions are calculated through the 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 District is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. The contributions rates are expressed as percentage of annual payroll. The contribution rates for each plan for the year ended June 30, 2017, are presented above and the total District contributions were $1,034,770. Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions As of June 30, 2017, the District reported net pension liabilities for its proportionate share of the CalPERS net pension liability totaling $11,517,465. The net pension liability was measured as of June 30, 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 plan relative to the projected contributions of all participating school districts, actuarially determined. The District's proportionate share for the measurement period June 30, 2016 and June 30, 2015, respectively was percent and percent, resulting in a net increase in the proportionate share of percent. For the year ended June 30, 2017, the District recognized pension expense of $1,652,693. 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 Deferred Inflows of Resources of Resources Pension contributions subsequent to measurement date $ 1,034,770 $ - Net change in proportionate share of net pension liability 409,421 - Difference between projected and actual earnings on pension plan investments 1,787,141 - Differences between expected and actual experience in the measurement of the total pension liability 495,362 - Changes of assumptions - 346,031 Total $ 3,726,694 $ 346,031 56

131 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 The deferred outflows of resources related to pensions resulting from District contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the subsequent fiscal year. The deferred outflows of resources related to the difference between projected and actual earnings on pension plan investments will be amortized over a closed five-year period and will be recognized in pension expense as follows: Year Ended Deferred Outflows June 30, of Resources 2018 $ 250, , , ,428 Total $ 1,787,141 The deferred outflows/(inflows) of resources related to the net change in proportionate share of net pension liability, changes of assumptions, and differences between expected and actual experience in the measurement of the total pension liability will be amortized over the Expected Average Remaining Service Life (EARSL) of all members that are provided benefits (active, inactive, and retirees) as of the beginning of the measurement period. The EARSL for the measurement period is 3.9 years and will be recognized in pension expense as follows: Deferred Year Ended Outflows/(Inflows) June 30, of Resources 2018 $ 220, , ,379 Total $ 558,752 Actuarial Methods and Assumptions Total pension liability for the SEP was determined by applying update procedures to a financial reporting actuarial valuation as of June 30, 2015, and rolling forward the total pension liability to June 30, The financial reporting actuarial valuation as of June 30, 2015, used the following methods and assumptions, applied to all prior periods included in the measurement: Valuation date June 30, 2015 Measurement date June 30, 2016 Experience study July 1, 1997 through June 30, 2011 Actuarial cost method Entry age normal Discount rate 7.65% Investment rate of return 7.65% Consumer price inflation 2.75% Wage growth Varies by entry age and service 57

132 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Mortality assumptions are based on mortality rates resulting from the most recent CalPERS experience study adopted by the CalPERS Board. For purposes of the post-retirement mortality rates, those revised rates include five years of projected ongoing mortality improvement using Scale AA published by the Society of Actuaries. In determining the long-term expected rate of return, CalPERS took into account both short-term 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 short-term (first ten years) and the longterm (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 one quarter of one percent. The target asset allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: Long-Term Assumed Asset Expected Real Asset Class Allocation Rate of Return Global equity 51% 5.71% Global debt securities 20% 2.43% Inflation assets 6% 3.36% Private equity 10% 6.95% Real estate 10% 5.13% Infrastructure and Forestland 2% 5.09% Liquidity 1% -1.05% Discount Rate The discount rate used to measure the total pension liability was 7.65 percent. The projection of cash flows used to determine the discount rate assumed the contributions from plan members and employers will be made at statutory contribution rates. Based on these assumptions, the School Employer Pool fiduciary net position was projected to be available to make all projected future benefit payments to current plan members. Therefore, the long-term assumed investment rate of return was applied to all periods of projected benefit payments to determine total pension liability. The following presents the District's proportionate share of the net pension liability calculated using the current discount rate as well as what the net pension liability would be if it were calculated using a discount rate that is one percent lower or higher than the current rate: Net Pension Discount rate Liability 1% decrease (6.65%) $ 17,184,122 Current discount rate (7.65%) $ 11,517,465 1% increase (8.65%) $ 6,798,858 58

133 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 On Behalf Payments The State of California makes contributions to CalSTRS on behalf of the District. These payments consist of State General Fund contributions to CalSTRS in the amount of $1,177,307 ( percent of the total State's contribution of $1,939,901,665). Contributions are no longer appropriated in the annual Budget Act for the legislatively mandated benefits to CalPERS. Therefore, there is no on behalf contribution rate for CalPERS. Under accounting principles generally accepted in the United States of America, these amounts are to be reported as revenues and expenditures. Accordingly, these amounts have been recorded in these financial statements. NOTE 15 - COMMITMENTS AND CONTINGENCIES Grants The District received financial assistance from Federal and State agencies in the form of grants. The disbursement of funds received under these programs generally requires compliance with terms and conditions specified in the grant agreements and are subject to audit by the grantor agencies. Any disallowed claims resulting from such audits could become a liability of the General Fund or other applicable funds. However, in the opinion of management, any such disallowed claims will not have a material adverse effect on the overall financial position of the District at June 30, Litigation The District is not currently a party to any legal proceedings. Construction Commitments As of June 30, 2017, the District had the following commitments with respect to the unfinished capital projects: Remaining Expected Construction Date of Capital Projects Commitment Completion Two-story academic and administrative building $ 19,000,000 January

134 KERMAN UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 NOTE 16 - PARTICIPATION IN JOINT POWERS AUTHORITIES The District is a member of the Central Valley Trust (CVT), the Fresno County Self Insurance Group (FCSIG), and the Organization of Self Insured Schools (OSS) joint powers authorities (JPAs). The District pays an annual premium to the applicable entity for its health and welfare, workers' compensation, and property and liability coverage. Payments are made directly to the JPAs. The relationships between the District and the JPAs are such that they are not component units of the District for financial reporting purposes. These entities have budgeting and financial reporting requirements independent of member units and their financial statements are not presented in these financial statements; however, fund transactions between the entities and the District are included in these statements. Audited financial statements are generally available from the respective entities. The District has no appointed board members to the governing board of Central Valley Trust. During the year ended June 30, 2017, the District made payment of $4,775,296 to the Central Valley Trust for health and welfare benefits. The District has appointed one member to the governing board of Fresno County Self Insurance Group. During the year ended June 30, 2017, the District made payment of $619,659 to the Fresno County Self Insurance Group for worker's compensation insurance. The District has appointed one member to the governing board of Organization of Self Insured Schools. During the year ended June 30, 2017, the District made payment of $412,710 to the Organization of Self Insured Schools for property and liability insurance. 60

135 REQUIRED SUPPLEMENTARY INFORMATION 61

136 KERMAN UNIFIED SCHOOL DISTRICT GENERAL FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30, 2017 Variances - Favorable (Unfavorable) Budgeted Amounts Final Original Final Actual to Actual REVENUES Local Control Funding Formula $ 50,597,858 $ 50,510,107 $ 50,038,235 $ (471,872) Federal sources 3,561,226 3,809,807 3,398,702 (411,105) Other State sources 4,761,858 4,235,907 4,453, ,315 Other local sources 2,067,732 2,479,713 2,821, ,003 Total Revenues 1 60,988,674 61,035,534 60,711,875 (323,659) EXPENDITURES Current Certificated salaries 21,021,653 21,406,892 21,556,624 (149,732) Classified salaries 6,776,732 7,353,391 7,176, ,226 Employee benefits 10,454,534 11,358,747 10,960, ,513 Books and supplies 5,709,000 5,917,536 5,000, ,095 Services and operating expenditures 6,335,341 6,124,250 5,317, ,952 Other outgo (14,294) 705, , ,914 Capital outlay 5,132,880 5,467,578 1,086,533 4,381,045 Total Expenditures 1 55,415,846 58,333,715 51,445,702 6,888,013 Excess of Revenues Over Expenditures 5,572,828 2,701,819 9,266,173 6,564,354 Other Financing Sources (Uses) Transfers in Transfers out (4,500,000) (4,206,837) (4,203,234) 3,603 Net Financing Sources (Uses) (4,500,000) (4,206,837) (4,203,232) 3,605 NET CHANGE IN FUND BALANCES 1,072,828 (1,505,018) 5,062,941 6,567,959 Fund Balance - Beginning 10,842,022 10,842,022 10,842,022 - Fund Balance - Ending $ 11,914,850 $ 9,337,004 $ 15,904,963 $ 6,567,959 1 Due to the consolidation of Fund 14, Deferred Maintenance Fund and Fund 20, Special Reserve Fund for Postemployment Benefits, for reporting purposes into the General Fund, additional revenues and expenditures pertaining to this fund are included in the actual revenues and expenditures, however, are not included in the original and final General Fund budgets. See accompanying note to required supplementary information. 62

137 KERMAN UNIFIED SCHOOL DISTRICT CHILD DEVELOPMENT FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30, 2017 Variances - Favorable (Unfavorable) Budgeted Amounts Final Original Final Actual to Actual REVENUES Other State sources $ 827,380 $ 866,941 $ 719,771 $ (147,170) Other local sources 4,673 34,986 44,057 9,071 Total Revenues 832, , ,828 (138,099) EXPENDITURES Current Certificated salaries 297, , ,734 4,192 Classified salaries 255, , ,830 47,918 Employee benefits 206, , ,007 11,757 Books and supplies 22,531 18,614 3,170 15,444 Services and operating expenditures 8,858 10,158 7,977 2,181 Other outgo 38,502 37,908 49,623 (11,715) Capital outlay - 1,400-1,400 Total Expenditures 829, , ,341 71,177 Excess (Deficiency) of Revenues Over Expenditures 2,132 27,409 (39,513) (209,276) Other Financing Sources Transfers in ,389 24,389 NET CHANGE IN FUND BALANCES 2,132 27,409 (15,124) (184,887) Fund Balance - Beginning 75,387 75,387 75,387 - Fund Balance - Ending $ 77,519 $ 102,796 $ 60,263 $ (42,533) See accompanying note to required supplementary information. 63

138 KERMAN UNIFIED SCHOOL DISTRICT SCHEDULE OF OTHER POSTEMPLOYMENT BENEFITS (OPEB) FUNDING PROGRESS FOR THE YEAR ENDED JUNE 30, 2017 Actuarial Accrued UAAL as a Liability Unfunded Percentage Actuarial Actuarial (AAL) - AAL Funded of Covered Valuation Value of Entry Age (UAAL) Ratio Covered Payroll Date Assets (a) Normal (b) (b - a) (a / b) Payroll (c) ([b - a] / c) Sept. 1, 2015 $ - $ 9,425,242 $ 9,425, % $ 26,407, % Sept. 1, 2013 $ - $ 6,295,714 $ 6,295, % $ 24,655, % March 1, 2009 $ - $ 4,433,939 $ 4,433, % Not Available 1 Not Available 1 1 The information was not presented by the prior auditing firm within the auditor's report. See accompanying note to required supplementary information. 64

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140 KERMAN UNIFIED SCHOOL DISTRICT SCHEDULE OF THE DISTRICT'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY FOR THE YEAR ENDED JUNE 30, 2017 CalSTRS District's proportion of the net pension liability (asset) % % District's proportionate share of the net pension liability (asset) $ 31,279,184 $ 26,174,849 State's proportionate share of the net pension liability (asset) associated with the District 17,806,682 13,843,609 Total $ 49,085,866 $ 40,018,458 District's covered - employee payroll $ 19,442,693 $ 18,459,899 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 70% 74% CalPERS District's proportion of the net pension liability (asset) % % District's proportionate share of the net pension liability (asset) $ 11,517,465 $ 8,297,362 District's covered - employee payroll $ 6,964,767 $ 6,195,463 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 74% 79% Note : In the future, as data become available, ten years of information will be presented. See accompanying note to required supplementary information. 65

141 % $ $ $ 21,844,635 13,190,734 35,035,369 16,871, % 77% % $ $ 6,117,080 6,373, % 83% 65

142 KERMAN UNIFIED SCHOOL DISTRICT SCHEDULE OF DISTRICT CONTRIBUTIONS FOR THE YEAR ENDED JUNE 30, 2017 CalSTRS Contractually required contribution $ 2,701,723 $ 2,086,201 Contributions in relation to the contractually required contribution 2,701,723 2,086,201 Contribution deficiency (excess) $ - $ - District's covered - employee payroll $ 21,476,335 $ 19,442,693 Contributions as a percentage of covered - employee payroll 12.58% 10.73% CalPERS Contractually required contribution $ 1,034,770 $ 825,116 Contributions in relation to the contractually required contribution 1,034, ,116 Contribution deficiency (excess) $ - $ - District's covered - employee payroll $ 7,450,821 $ 6,964,767 Contributions as a percentage of covered - employee payroll % % Note : In the future, as data become available, ten years of information will be presented. See accompanying note to required supplementary information. 66

143 2015 $ $ $ 1,639,219 1,639,219-18,459, % $ $ $ 729, ,268-6,195, % 66

144 KERMAN UNIFIED SCHOOL DISTRICT NOTE TO REQUIRED SUPPLEMENTARY INFORMATION JUNE 30, 2017 NOTE 1 - PURPOSE OF SCHEDULES Budgetary Comparison Schedules These schedules present information for the original and final budgets and actual results of operations, as well as the variances from the final budget to actual results of operations. Schedule of Other Postemployment Benefits (OPEB) Funding Progress This schedule is intended to show trends about the funding progress of the District's actuarially determined liability for postemployment benefits other than pensions. Schedule of the District's Proportionate Share of the Net Pension Liability This schedule presents information on the District's proportionate share of the net pension liability (NPL), the plans' fiduciary net position and, when applicable, the State's proportionate share of the NPL associated with the District. In the future, as data becomes available, ten years of information will be presented. Changes in Benefit Terms There were no changes in benefit terms since the previous valuations for both CalSTRS and CalPERS. Changes in Assumptions There were no changes in economic assumptions for either the CalSTRS or CalPERS plans from the previous valuations. Schedule of District Contributions This schedule presents information on the District's required contribution, the amounts actually contributed, and any excess or deficiency related to the required contribution. In the future, as data becomes available, ten years of information will be presented. 67

145 SUPPLEMENTARY INFORMATION 68

146 KERMAN UNIFIED SCHOOL DISTRICT SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2017 Federal Pass-Through Federal Grantor/Pass-Through Catalog Identification Program Grantor/Program Number Number Expenditures U.S. DEPARTMENT OF EDUCATION Passed Through California Department of Education: Title I - Part A, Basic $ 1,746,434 Title I - Part A, Program Improvement (68,063) Title I - Part C, Migrant Education ,338 Title I - Part C, Migrant Education-Summer ,063 Title I - Advance Placement Incentive Program ,928 Title II - Part A, Supporting Effective Instruction ,191 Title III - English Language Acquisition - LEP ,928 Title III - English Language Acquisition - IEP ,527 Vocational Education - Technology Secondary II ,883 Special Education Cluster Special Education, Basic Local Assistance ,532 Special Education, Basic Local Assistance - Private School ISP ,794 Special Education, Part B, Preschool Grants ,804 Special Education, Part B, Preschool Local Entitlement A ,690 Subtotal Special Education Cluster 984,820 Total U.S. Department of Education 3,247,049 U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES Passed Through California Department of Education: Care Services: Medi-Cal Billing Option ,358 Medi-Cal Administrative Activities ,295 Total U.S. Department of Health and Human Services 151,653 U.S. DEPARTMENT OF AGRICULTURE Passed Through California Department of Education: Child Nutrition Cluster National School Lunch ,637,169 Especially Needy Breakfast ,634 Meals Supplements - Snacks ,929 Summer Food Program ,662 Food Distribution - Commodities ,846 Subtotal Child Nutrition Cluster 2,570,240 Total U.S. Department of Agriculture 2,570,240 Total Expenditures of Federal Awards $ 5,968,942 See accompanying note to supplementary information. 69

147 KERMAN UNIFIED SCHOOL DISTRICT LOCAL EDUCATION AGENCY ORGANIZATION STRUCTURE JUNE 30, 2017 ORGANIZATION The Kerman Unified School District was established on July 1, 1983, and consists of an area comprising 146 square miles located in Fresno County. The District operates four elementary schools, one middle school, one high school, and one continuation/opportunity school. There were no boundary changes during the year. GOVERNING BOARD MEMBER OFFICE TERM EXPIRES Daniel Babshoff President 2020 Vicki A. Blair Vice President 2018 Maria Cantu Clerk 2020 Efrain Guizar Member 2018 Darrell Yates Member 2018 ADMINISTRATION Robert Frausto Mark Ruiz Kraig Magnussen Peggy Rodgers Superintendent Assistant Superintendent Personnel Assistant Superintendent/Chief Business Official Director of Fiscal Services See accompanying note to supplementary information. 70

148 KERMAN UNIFIED SCHOOL DISTRICT SCHEDULE OF AVERAGE DAILY ATTENDANCE FOR THE YEAR ENDED JUNE 30, 2017 As Adusted per Audit Final Report Second Period Annual Second Period Report Report Report Regular ADA Transitional kindergarten through third 1, , , Fourth through sixth 1, , , Seventh and eighth Ninth through twelfth 1, , , Total Regular ADA 4, , , Special Education, Nonpublic, Nonsectarian Schools Ninth through twelfth Total ADA 4, , , See accompanying note to supplementary information. 71

149 KERMAN UNIFIED SCHOOL DISTRICT SCHEDULE OF INSTRUCTIONAL TIME FOR THE YEAR ENDED JUNE 30, Number of Days Minutes Actual Traditional Multitrack Grade Level Requirement Minutes Calendar Calendar Status Kindergarten 36,000 59, N/A Complied Grades ,400 Grade 1 56, N/A Complied Grade 2 56, N/A Complied Grade 3 56, N/A Complied Grades ,000 Grade 4 56, N/A Complied Grade 5 56, N/A Complied Grade 6 56, N/A Complied Grades ,000 Grade 7 64, N/A Complied Grade 8 64, N/A Complied Grades ,800 Grade 9 65, N/A Complied Grade 10 65, N/A Complied Grade 11 65, N/A Complied Grade 12 65, N/A Complied N/A - Not Applicable See accompanying note to supplementary information. 72

150 KERMAN UNIFIED SCHOOL DISTRICT RECONCILIATION OF ANNUAL FINANCIAL AND BUDGET REPORT WITH AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2017 Summarized below are the fund balance reconciliations between the Unaudited Actual Financial Report and the audited financial statements. General Fund FUND BALANCE Balance, June 30, 2017, Unaudited Actuals $ 15,890,526 Increase in: Accounts receivable (California Clean Energy) 455,651 Accounts payable (Local Control Funding Formula) (381,112) Decrease in: Accounts receivable (Local Control Funding Formula) (60,102) Balance, June 30, 2017, Audited Financial Statement $ 15,904,963 See accompanying note to supplementary information. 73

151 KERMAN UNIFIED SCHOOL DISTRICT SCHEDULE OF FINANCIAL TRENDS AND ANALYSIS FOR THE YEAR ENDED JUNE 30, 2017 GENERAL FUND (Budget) , Revenues and other sources 3 $ 62,442,451 $ 60,651,613 $ 57,966,602 $ 46,847,828 Expenditures 55,883,058 50,960,373 49,734,969 43,750,760 Other uses and transfers out 7,081,928 4,703,234 8,019,109 6,100,484 Total Expenditures and Other Uses 3 62,964,986 55,663,607 57,754,078 49,851,244 INCREASE/(DECREASE) IN FUND BALANCE $ (522,535) $ 4,988,006 $ 212,524 $ (3,003,416) PRIOR PERIOD RESTATEMENT 5 $ - $ - $ - $ (684,001) ENDING FUND BALANCE $ 11,216,712 $ 11,739,247 $ 6,751,241 $ 6,538,717 AVAILABLE RESERVES 2 $ 9,219,791 $ 4,199,698 $ 5,083,216 $ 5,270,352 AVAILABLE RESERVES AS A PERCENTAGE OF TOTAL OUTGO 14.6% 7.5% 8.8% 10.6% LONG-TERM OBLIGATIONS Not Available $ 38,537,501 $ 24,629,297 $ 23,246,439 AVERAGE DAILY ATTENDANCE AT P-2 5,058 4,940 4,890 4,833 The General Fund balance has increased by $5,200,530 over the past two years. The fiscal year budget projects a decrease of $522,535 (4.5 percent). For a district this size, the State recommends available reserves of at least three percent of total General Fund expenditures, transfers out, and other uses (total outgo). The District has incurred operating surpluses in two of the past three years but anticipates incurring an operating deficit during the fiscal year. Total long-term obligations have increased by $15,291,062 over the past two years due to the issuance of General Obligation Bonds. Average daily attendance has increased by 107 over the past two years. Additional growth of 118 ADA is anticipated during fiscal year Budget 2018 is included for analytical purposes only and has not been subjected to audit. 2 Available reserves consist of unassigned fund balance contained within the General Fund. 3 On behalf payments have been excluded from revenues and expenditures in this schedule for the 2015 fiscal year. 4 General Fund amounts do not include activity related to the consolidation of the Deferred Maintenance Fund and Special Reserve for Postemployment Benefits Fund as required by GASB Statement No The beginning fund balance in the General Fund was restated in See accompanying note to supplementary information. 74

152 KERMAN UNIFIED SCHOOL DISTRICT NON-MAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2017 Capital County School Cafeteria Facilities Facilities Fund Fund Fund ASSETS Deposits and investments $ 451,414 $ 1,216,252 $ 3,706,877 Receivables 86,818 4,702 3,002 Due from other funds Stores inventories 38, Total Assets $ 576,991 $ 1,220,954 $ 3,709,879 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 78,745 $ 84,045 $ - Due to other funds 23, Total Liabilities 101,834 84,045 - Fund Balances: Nonspendable 38, Restricted 436,793 1,136,909 3,709,879 Total Fund Balances 475,157 1,136,909 3,709,879 Total Liabilities and Fund Balances $ 576,991 $ 1,220,954 $ 3,709,879 See accompanying note to supplementary information. 75

153 Bond Interest and Redemption Fund Total Non-Major Governmental Funds $ 1,357,916 $ 6,732,459 4,735 99, ,364 $ 1,362,651 $ 6,870,475 $ - $ 162,790-23, ,879-38,364 1,362,651 6,646,232 1,362,651 6,684,596 $ 1,362,651 $ 6,870,475 75

154 KERMAN UNIFIED SCHOOL DISTRICT NON-MAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2017 Capital County School Cafeteria Facilities Facilities Fund Fund Fund REVENUES Federal sources $ 2,570,240 $ - $ - Other State sources 183, Other local sources 412, ,586 3,008 Total Revenues 3,167, ,586 3,008 EXPENDITURES Current Pupil services: Food services 2,962, Administration: All other administration 139, Plant services 17, ,312 - Facility acquisition and construction - 19,563 - Debt service Principal Interest and other Total Expenditures 3,119, ,875 - Excess of Revenues Over Expenditures 47, ,711 3,008 Other Financing Sources Transfers in - - 3,706,837 Other sources Net Financing Sources - - 3,706,837 NET CHANGE IN FUND BALANCES 47, ,711 3,709,845 Fund Balance - Beginning 427, , Fund Balance - Ending $ 475,157 $ 1,136,909 $ 3,709,879 See accompanying note to supplementary information. 76

155 Bond Interest and Redemption Fund Total Non-Major Governmental Funds $ - $ 2,570,240 7, , ,316 1,807, ,156 4,569,815-2,962, , ,800-19, , , , , ,122 4,230,289 53, ,526-3,706, , , ,347 4,026, ,381 4,365, ,270 2,318,886 $ 1,362,651 $ 6,684,596 76

156 KERMAN UNIFIED SCHOOL DISTRICT NOTE TO SUPPLEMENTARY INFORMATION JUNE 30, 2017 NOTE 1 - PURPOSE OF SCHEDULES Schedule of Expenditures of Federal Awards The accompanying Schedule of Expenditures of Federal Awards includes the Federal grant activity of the District and is presented on the modified accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the financial statements. The District has not elected to use the ten percent de minimis cost rate as covered in Section Indirect (F&A) costs of the Uniform Guidance. Local Education Agency Organization Structure This schedule provides information about the District's boundaries and schools operated, members of the governing board, and members of the administration. Schedule of Average Daily Attendance (ADA) Average daily attendance (ADA) is a measurement of the number of pupils attending classes of the District. The purpose of attendance accounting from a fiscal standpoint is to provide the basis on which apportionments of State funds are made to school districts. This schedule provides information regarding the attendance of students at various grade levels and in different programs. Schedule of Instructional Time The District has received incentive funding for increasing instructional time as provided by the Incentives for Longer Instructional Day. The District neither met nor exceeded its target funding. This schedule presents information on the amount of instructional time offered by the District and whether the District complied with the provisions of Education Code Sections through Districts must maintain their instructional minutes at the requirements as required by Education Code Section Reconciliation of Annual Financial and Budget Report With Audited Financial Statements This schedule provides the information necessary to reconcile the fund balance of all funds reported on the Unaudited Actual Financial Report to the audited financial statements. Schedule of Financial Trends and Analysis This schedule discloses the District's financial trends by displaying past years' data along with current year budget information. These financial trend disclosures are used to evaluate the District's ability to continue as a going concern for a reasonable period of time. 77

157 KERMAN UNIFIED SCHOOL DISTRICT NOTE TO SUPPLEMENTARY INFORMATION JUNE 30, 2017 Non-Major Governmental Funds - Balance Sheet and Statement of Revenues, Expenditures, and Changes in Fund Balances The Non-Major Governmental Funds Combining Balance Sheet and Combining Statement of Revenues, Expenditures, and Changes in Fund Balances is included to provide information regarding the individual funds that have been included in the Non-Major Governmental Funds column on the Governmental Funds Balance Sheet and Statement of Revenues, Expenditures, and Changes in Fund Balances. 78

158 INDEPENDENT AUDITOR'S REPORTS 79

159 INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Governing Board Kerman Unified School District Kerman, California We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Kerman Unified 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 Kerman Unified School District's basic financial statements, and have issued our report thereon dated November 22, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Kerman Unified 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 Kerman Unified School District's internal control. Accordingly, we do not express an opinion on the effectiveness of Kerman Unified School District's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the District's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. 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. 80

160 Compliance and Other Matters As part of obtaining reasonable assurance about whether Kerman Unified School District's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. We noted certain matters that we reported to management of Kerman Unified School District in a separate letter dated November 22, 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 District's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Fresno, California November 22,

161 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE Governing Board Kerman Unified School District Kerman, California Report on Compliance for Each Major Federal Program We have audited Kerman Unified School District's compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of Kerman Unified School District's (the District) major Federal programs for the year ended June 30, Kerman Unified School District's major Federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Management's Responsibility Management is responsible for compliance with the federal statutes, regulations, and the terms and conditions of its Federal awards applicable to its Federal programs. Auditor's Responsibility Our responsibility is to express an opinion on compliance for each of Kerman Unified School District's major Federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about Kerman Unified School District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major Federal program. However, our audit does not provide a legal determination of Kerman Unified School District's compliance. 82

162 Opinion on Each Major Federal Program In our opinion, Kerman Unified School District complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major Federal programs for the year ended June 30, Report on Internal Control Over Compliance Management of Kerman Unified School District is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered Kerman Unified School District's internal control over compliance with the types of requirements that could have a direct and material effect on each major Federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major Federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of Kerman Unified School District's internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a Federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a Federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a Federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Fresno, California November 22,

163 INDEPENDENT AUDITOR'S REPORT ON STATE COMPLIANCE Governing Board Kerman Unified School District Kerman, California Report on State Compliance We have audited Kerman Unified School District's compliance with the types of compliance requirements as identified in the Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting that could have a direct and material effect on each of the Kerman Unified School District's State government programs as noted below for the year ended June 30, Management's Responsibility Management is responsible for compliance with the requirements of State laws, regulations, and the terms and conditions of its State awards applicable to its State programs. Auditor's Responsibility Our responsibility is to express an opinion on compliance of each of the Kerman Unified School District's State programs based on our audit of the types of compliance requirements referred to above. We conducted our audit in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting. These standards require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the compliance requirements referred to above that could have a material effect on the applicable government programs noted below. An audit includes examining, on a test basis, evidence about Kerman Unified School District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions. Our audit does not provide a legal determination of Kerman Unified School District's compliance with those requirements. Basis for Qualified Opinion on Attendance Accounting and Reporting, School Accountability Report Card, and Unduplicated Local Control Funding Formula Pupil Count As described in the accompanying Schedule of Findings and Questioned Costs as items through , Kerman Unified School District did not comply with requirements regarding Attendance Accounting and Reporting, School Accountability Report Card, and Unduplicated Local Control Funding Formula Pupil Count. Compliance with such requirements is necessary, in our opinion, for Kerman Unified School District to comply with the requirements applicable to that program. 84

164 Qualified Opinion on Attendance Accounting and Reporting, School Accountability Report Card, and Unduplicated Local Control Funding Formula Pupil Count In our opinion, except for the noncompliance described in the Basis for Qualified Opinion paragraph, Kerman Unified School District complied, in all material respects, with the types of compliance requirements referred to above for the year ended June 30, Unmodified Opinion on Each of the Other Programs In our opinion, Kerman Unified School District complied, in all material respects, with the compliance requirements referred to above that are applicable to the government programs noted below that were audited for the year ended June 30, 2017, except as described in the Schedule of State Awards Findings and Questioned Costs section of the accompanying Schedule of Findings and Questioned Costs. In connection with the audit referred to above, we selected and tested transactions and records to determine the Kerman Unified School District's compliance with the State laws and regulations applicable to the following items: Procedures Performed LOCAL EDUCATION AGENCIES OTHER THAN CHARTER SCHOOLS Attendance Yes Teacher Certification and Misassignments Yes Kindergarten Continuance Yes Independent Study No (see below) Continuation Education No (see below) Instructional Time Yes Instructional Materials Yes Ratios of Administrative Employees to Teachers Yes Classroom Teacher Salaries Yes Early Retirement Incentive No (see below) Gann Limit Calculation Yes School Accountability Report Card Yes Juvenile Court Schools No (see below) Middle or Early College High Schools No (see below) K-3 Grade Span Adjustment Yes Transportation Maintenance of Effort Yes Mental Health Expenditures Yes SCHOOL DISTRICTS, COUNTY OFFICES OF EDUCATION, AND CHARTER SCHOOLS Educator Effectiveness California Clean Energy Jobs Act After School Education and Safety Program: General Requirements After School Before School Proper Expenditure of Education Protection Account Funds Unduplicated Local Control Funding Formula Pupil Counts Local Control Accountability Plan Independent Study - Course Based Immunizations Yes Yes No (see below) Yes No (see below) Yes Yes Yes No (see below) Yes 85

165 Procedures Performed CHARTER SCHOOLS Attendance Mode of Instruction Non Classroom-Based Instruction/Independent Study for Charter Schools Determination of Funding for Non Classroom-Based Instruction Annual Instruction Minutes Classroom-Based Charter School Facility Grant Program No (see below) No (see below) No (see below) No (see below) No (see below) No (see below) We did not perform procedures for Independent Study or Continuation Education because the ADA generated by the programs was under the level that requires testing. The District did not have any employees retire under the CalSTRS Early Retirement Incentive program; therefore, testing was not required. The District does not have any Juvenile Court Schools; therefore, we did not perform procedures related to Juvenile Court Schools. The District does not have any Middle or Early College High Schools; therefore, we did not perform procedures related to Middle or Early College High Schools. We did not perform procedures for the General Requirements of the After School Education and Safety Program because the grantee, Fresno County Office of Education, administers the program and has its own audit. The District does not offer a Before School Education and Safety Program; therefore, we did not perform procedures related to the Before School Education and Safety Program. The District does not offer Independent Study - Course Based program; therefore, we did not perform any procedures related to Independent Study - Course Based Program. Additionally, the District does not operate any Charter Schools; therefore, we did not perform procedures for Charter School Programs. Fresno, California November 22,

166 SCHEDULE OF FINDINGS AND QUESTIONED COSTS 87

167 KERMAN UNIFIED SCHOOL DISTRICT SUMMARY OF AUDITOR'S RESULTS FOR THE YEAR ENDED JUNE 30, 2017 FINANCIAL STATEMENTS Type of auditor's report issued: Internal control over financial reporting: Material weakness identified? Significant deficiency identified? Noncompliance material to financial statements noted? FEDERAL AWARDS Internal control over major Federal programs: Material weakness identified? Significant deficiency identified? Type of auditor's report issued on compliance for major Federal programs: Any audit findings disclosed that are required to be reported in accordance with Section (a) of the Uniform Guidance? Identification of major Federal programs: Unmodified No None reported No No None reported Unmodified No CFDA Numbers Name of Federal Program or Cluster , , Child Nutrition Cluster , A, Special Education Cluster Dollar threshold used to distinguish between Type A and Type B programs: Auditee qualified as low-risk auditee? $ 750,000 Yes STATE AWARDS Type of auditor's report issued on compliance for programs: Unmodified for all programs except for the following program which was qualified: Unmodified Name of Program Attendance Accounting and Reporting School Accountabilty Report Card Unduplicate Local Control Funding Formula Pupil Count 88

168 KERMAN UNIFIED SCHOOL DISTRICT FINANCIAL STATEMENT FINDINGS FOR THE YEAR ENDED JUNE 30, 2017 None reported. 89

169 KERMAN UNIFIED SCHOOL DISTRICT FEDERAL AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2017 None reported. 90

170 KERMAN UNIFIED SCHOOL DISTRICT STATE AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2017 The following findings represent instances of noncompliance and questioned costs relating to State program laws and regulations. The findings have been coded as follows: Five Digit Code AB 3627 Finding Type Attendance State Compliance Attendance Accounting and Reporting Criteria According to Standards and Procedures for Audits of California K-12 Local Educational Agencies , prescribed in the California Code of Regulations and published by the Education Audit Appeals Panel, attendance reports must be amended for any change in ADA. [Education Code Sections (a)(1) and (a)] Condition During our audit of the Second Period Attendance Report, we determined the high school ADA was understated by 3.62 due to incorrect attendance reports generated for the continuation program. Effect The District will need to revise their Second Period Attendance Report by an increase in ADA of 3.62 for high school continuation attendance. The fiscal impact amounted to an increase of approximately $32,537 in State apportionment funding. Cause The hourly monthly attendance summaries used by District was converting the apportionment hours to ADA using six hours rather than three hours. Recommendation The District needs to revise their Second Period Attendance Report to reflect the correct ADA. Corrective Action Plan The Second Period Attendance Report was revised and the corrected attendance has been included in the audited financial statements. In addition, when using the hourly monthly attendance summaries for calculating continuation apportionment hours to ADA the District will use three hours opposed to six hours. 91

171 KERMAN UNIFIED SCHOOL DISTRICT STATE AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, School Accountability Report Card Criteria According to Education Code Section 33126(a), the School Accountability Report Card (SARC) shall provide data by which parents can make meaningful comparisons between public schools, enabling them to make informed decisions on which school to enroll their children. Included in the SARC is information regarding the conditions, safety, cleanliness, and adequacy of the school facilities For all school sites at the District, a facilities inspection should be conducted and a report prepared. For Decile 1-3 schools, the County Superintendent is charged with the responsibility of performing these inspections. For Decile 4-10 schools the District must complete the inspections. The information reported in the SARC should be consistent with the information in the facilities inspection reports. Since SARCs for most School Districts are usually not completed until six months after the end of the fiscal year, we were auditing compliance for the SARCs. Also, SARCs must include the most current information available, even if it subsequent to the fiscal year of the SARC. Condition Information noted in Facilities Inspection Tool Report (FIT) is inconsistent with the information in the School Accountability Report Card (SARC) for Kerman Floyd Elementary, Kerman Middle School, and Kerman High School. The SARC reported that the inspections were performed in December However, the FIT reports obtained indicated that they were performed in December This indicates that the Facility Inspection section of the SARC reports were not updated from the prior year. Effect There is no questioned cost associated with this exception. Cause Inconsistencies between the SARC and FIT report occurred due to a lack of communication between the District and school sites. When the FIT report was completed by the District or County Office of Education and submitted to the SARC preparer, the SARC was not updated. This leads to incorrect information being reported in the SARC reports. Recommendation When FIT reports are completed by the District or County Office of Education a copy should to be sent from the District to the site administrator who creates the SARC. The District Office should also review completed SARC reports and double check data for accuracy. 92

172 KERMAN UNIFIED SCHOOL DISTRICT STATE AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2017 Corrective Action Plan To minimize and address any data conflicts in SARCs by our schools, the following action plan will be implemented effective with the school year: All SARCs will be developed using the Document Tracking Services (DTS) template as has been the procedure for past SARCs using the most current data available including FIT data. All SARCs in final draft form are to be submitted to the Director of Pupil Personnel Services for review and confirm data accuracy by November 9, After the approval from the Director of PPS, the final drafts will be submitted to DTS for SARC creation. All SARCs will be submitted for approval by the KUSD Governing Board at the January 2018 meeting. All SARCs will be published at all school sites throughout the District in both English and Spanish by February 1, KERMAN UNIFIED SCHOOL DISTRICT Unduplicated Local Control Funding Formula Pupil Count Criteria With the Local Control Funding Formula, school districts receive supplemental funding known as the Supplement Grant and Concentration Grant. The amount of funding received is generated by the number of students who are either English Learners (EL) or participants in the Free/Reduced meal program in accordance with Educational Code sections 2574(b)(3)(C), (b)(3)(b), and Condition During the audit of the unduplicated local control funding formula pupil count, numerous pupils were incorrectly reported as free/reduced on the CalPADS report because the application stated the student was denied for the free/reduced classification. Effect Forty pupils were initially selected as a sample and two were denied based on income information provided. Through extrapolation, the auditor calculated 11 students were incorrectly reported overall. The below table summarizes the effect of students who were incorrectly reported. 93

173 KERMAN UNIFIED SCHOOL DISTRICT STATE AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2017 Kerman Unified School District (excluding County programs) Certified total enrollment 5,131 Certified total unduplicated pupil count 4,358 Unduplicated pupil count adjustment based on eligibility for FRPM (11) Adjusted total enrollment 5,131 Adjusted total unduplicated pupil count 4,347 Cause During the annual updating process of student records, applications are collected and verified by the Food Services department of the District and the appropriate designations are input to the Mealtime software. The list of these students is then forwarded to the Testing and Information Services department to be uploaded to the Powerschools attendance software. Once all changes have been made, the updated pupil records are uploaded to the Calpads database via internet. The error occurred due to the Food Service department incorrectly calculating income eligibility to determine participants of the Free/Reduced meal program. Questioned Cost The above mention net effect has an estimated questioned cost of $10,799 as a reduction to revenue. The estimated questioned cost was calculated using the California Department of Education provided "Audit Finding Calculator for Fiscal Year and Each Year Thereafter." Recommendation The District must have procedures in place to verify the status of the students reported on the CalPads database when the students are designated as an English Learner or participants of the Free/Reduced meal program. Corrective Action Plan Child Nutrition Center staff shall be trained annually on the necessary data required to accurately process the paper applications: Number of household members. First and last names of all students. Last 4 digits of SS # or indication that household adult does not have a social security number. Income of al household members. Frequency of income (Weekly, bi-weekly, twice a month, or monthly). Signature of adult completing the application 94

174 KERMAN UNIFIED SCHOOL DISTRICT STATE AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2017 All paper applications shall be processed within ten days through our USDA approved Nutrikids Software program. Paper applications will be scanned through an electronic scanner that will identify errors, and/or missing information on improperly filled out paper applications. The CNC secretary and/or Coordinator will contact those families to complete the application. Prior to December 1 each paper application will be verified and matched up to confirm the correct status of each student reported to CalPads. 95

175 KERMAN UNIFIED SCHOOL DISTRICT SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS FOR THE YEAR ENDED JUNE 30, 2017 Except as specified in previous sections of this report, summarized below is the current status of all audit findings reported in the prior year's schedule of financial statement findings. State Awards Findings and Questioned Costs Attendance Accounting and Reporting Criteria According to Standards and Procedures for Audits of California K-12 Local Educational Agencies , prescribed in the California Code of Regulations and published by the Education Audit Appeals Panel, attendance reports must be amended for any change in ADA. [Education Code Sections (a)(1) and (a)] Condition During our audit of the Second Period Attendance Report, we determined the high school ADA was understated by 2.65 due to incorrect attendance reports generated for the continuation program. Effect The District will need to revise their Second Period Attendance Report by a net increase in ADA of 2.65 for high school continuation attendance. The fiscal impact amounted to an increase of approximately $22,000 in State apportionment funding. Cause The District was not using the hourly monthly attendance summaries to calculate the continuation ADA. Recommendation The District needed to revise their Second Period Attendance Report to reflect the correct ADA. Current Status Not implemented. See current year findings and recommendations. 96

176 KERMAN UNIFIED SCHOOL DISTRICT SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS FOR THE YEAR ENDED JUNE 30, Unduplicated Local Control Funding Formula Pupil Count Criteria With the Local Control Funding Formula, school districts receive supplemental funding known as the Supplement Grant and Concentration Grant. The amount of funding received is generated by the number of students who are either English Learners (EL) or participants in the Free/Reduced meal program in accordance with Educational Code Sections 2574(b)(3)(C), (b)(3)(b), and Condition During the audit of the unduplicated local control funding formula pupil count, numerous pupils were incorrectly reported as free/reduced on the CalPADS report with either no current application available for review or the application stated the student was denied for the free/reduced classification. Effect Forty pupils were initially selected as a sample and five were either missing an application on file or were denied based on income information provided. The district provided a list of pupils identified as Paid status, per their Nutrakids software, and that list was compared to pupils on the Calpads 1.18 report that were not direct certified, not foster/homeless, were participants in the free/reduced program, not migrant, and not designated as EL. The two lists were compared to identify pupils that were marked paid on the Nutrakids database but reported as free/reduced on the Calpads database. As a result, one hundred thirty (130) pupils were identified as being incorrectly designated as free/reduced on the Calpads database. The below table summarizes the effect of students who were incorrectly reported. Kerman Unified School District (excluding County programs) Certified total enrollment 5,060 Certified total unduplicated pupil count 4,492 Unduplicated pupil count adjustment based on eligibility for FRPM (130) Adjusted total enrollment 5,060 Adjusted total unduplicated pupil count 4,362 Cause During the annual updating process of student records, applications are collected and verified by the Food Services department of the District and the appropriate designations are updated in the CalPads system. The error occurred due to only pupils that changed to free/reduced were updated while pupils that changed to the paid status were not updated accordingly. 97

177 KERMAN UNIFIED SCHOOL DISTRICT SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS FOR THE YEAR ENDED JUNE 30, 2017 Questioned Cost The above mention net effect has a questioned cost of approximately $122,000 in reduced State apportionment revenue. Recommendation The District must have procedures in place to verify the status of the pupils reported on the CalPads database when students are designated as an English Learner or participants of the Free/Reduced meal program. Current Status Not implemented. See current year findings and recommendations. 98

178 Governing Board Kerman Unified School District Kerman, California In planning and performing our audit of the financial statements of Kerman Unified School District for the year ended June 30, 2017, we considered its internal control structure in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control structure. However, during our audit we noted matters that are opportunities for strengthening internal controls and operating efficiency. The following items represent conditions noted by our audit that we consider important enough to bring to your attention. This letter does not affect our report dated November 22, 2017, on the government-wide financial statements of the District. KERMAN HIGH SCHOOL - ASSOCIATED STUDENT BODY (ASB) Timely Deposits Observation During our audit of the cash receipts, we discovered deposits are not always made timely by the teachers/advisors to the ASB bookkeeper. The three deposits selected for testing each contained sub-receipts dated 14 days to 35 days prior to the bank deposit date. This could result in large cash balances (including checks) being maintained by teachers/advisors which can hinder the safeguarding of ASB assets. Recommendation At a minimum, teachers/advisors should submit collections to the ASB bookkeeper on a weekly basis. During weeks of high activity there may be a need to make more than one deposit. The District and the school site should establish guidelines for this procedure including the maximum cash and checks held by teachers/advisors before submission to the ASB bookkeeper. Cash Receipts Observation During the audit of the cash receipts system, we discovered club advisors/teachers are not consistently using subreceipt books or a tally sheet/class roster (there is no supporting documentation) to document when funds are being turned in, how much, and by which students. Without this supporting documentation we cannot determine if a deposit is intact or if club advisors/teachers are forwarding funds to the ASB bookkeeper in a timely manner. Since there are no sub-receipts attached to the funds turned in, the bookkeeper cannot reconcile the funds back to any documentation to determine the accuracy of the cash count sheet to the actual amount turned in. 99

179 Governing Board Kerman Unified School District Recommendation Prenumbered receipts or tally sheets/class rosters should be used for all collections by club advisors/teachers that include date funds received and specific description of the source of the funds. A copy of the receipts or supporting documentation which has been reconciled to the deposit by the club advisor/teacher should be forwarded to the bookkeeper as documentation that all funds collected have been turned in. Stale Dated Check Observation During our audit of the outstanding check listing for the September 2016 bank reconciliation, we discovered checks totaling $2,206.41which were over six months old making for a low probability that they will clear the account. Recommendation Outstanding checks and deposit adjustments over six months old should be credited back to the appropriate account and taken off the subsequent bank reconciliation. If the check clears in the future, the amount should be charged against the appropriate account and supported with documentation from the initial check. Revenue Potentials Observation Revenue potential forms are consistently used to approve and document fundraising activities as they occur. However, many of the forms reviewed did not include actual expenses and revenues or an analysis of whether or not the fundraiser was successful. The forms offer the clubs an element of internal control without which it is not possible to determine the success or failure of a fundraiser or to track fundraising funds as it is spent and received. Recommendation The revenue potential form is a vital internal control tool; it should be used to document potential revenues and expenditures and also to document actual revenue and expenditures. This allows an analysis of the fundraiser to be conducted, indicating to the staff the success or failure of the completed project. The revenue potential can also identify weak control areas in the fundraising process at the site, including lost or stolen merchandise, problems with collecting all funds due and so forth. The revenue potential form used at the site should contain four major elements. These are: Potential Expense/Income-This lists the selling price of the item multiplied by the number of items purchased to compute the total income that should be deposited from the fundraiser if all the items were sold and all the funds were turned in. This element should also be utilized to track the cost of the items, check numbers used to purchase the items, and the purchase dates. This purchasing information is a good reference source for future sales and also tracks cost so profits can be determined. Expenditures/Receipts/Fundraiser Deposits-This records all expenditures and deposits turned in which are from funds generated from the sale. The check numbers and receipt numbers issued to the advisor from the bookkeeper, date, and deposit amount should be documented on the form. This is necessary to perform a recap of the expenses and income from deposits. It also creates a trail of checks and deposits that can be traced to the appropriate accounts. 100

180 Governing Board Kerman Unified School District Analysis-This section is used to compare the potential income as calculated in the potential income section to the actual funds raised as calculated in the Receipts/Fundraiser Deposits section. The difference between these two amounts should be documented explained. The explanation can consist of merchandise not sold, merchandise lost or destroyed, or funds lost or stolen. Recap-This section figures the net profit of the sale. Fundraisers of this type can be planned or canceled depending on the information calculated in this section. Ticket Sales Recap Form and Master Ticket Log Observation The site is using a ticket sales recap form, however; it is not consistently being completed or balanced to the cash collected. In addition, a master ticket log is not being used by the site for sporting events to account for all tickets on hand and used during the year. Recommendation Ticket sales forms should be properly completed noting the beginning and ending ticket numbers sold, the amount of tickets sold and corresponding price or each ticket. Tickets sold should be reconciled to the master ticket log. A master ticket log should be maintained which notes the type of ticket, color, and current beginning ticket number in the roll. The tickets should be safeguarded as if they were cash because stolen tickets would equate to lost revenue for the site because these tickets could be presented for admission rather than an individual paying for admission. When ticket rolls are issued, they should be logged out noting the beginning ticket number in the roll and to whom the roll was issued. Cash Disbursements Observation During our audit of the cash disbursements, we discovered four of eleven disbursements did not have an approval prior to the purchase. Purchase orders and purchase requests reviewed had approval signatures dated after the date shown on the invoices. Recommendation All purchases must be pre-approved by a board-designated official, a student organization representative, and the certificated employee who is the student organization advisor. In order to provide proper controls over spending, the site should take the necessary steps to ensure that purchase orders or purchase requests are approved prior to items or services being purchased. 101

181 Governing Board Kerman Unified School District GOLDENROD ELEMENTARY SCHOOL - ASSOCIATED STUDENT BODY (ASB) Cash Receipts Observation As discussed in the prior year audit report, when teachers make deposits to the office, the receipts being issued by the office to teachers are not prenumbered. Additionally, during our follow-up we discovered the receipts for the June 16, 2017, deposit tested was dated between March 2017 and May This indicates that bank deposits are not being made timely. Recommendation The District should provide the site with policies/procedures or an in-service regarding the District's established ASB cash receipting procedures to ensure that the site has a sufficient understanding of what is required to properly handle and account for cash deposits. We will review the status of the current year comments during our next audit engagement. Fresno, California November 22,

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183 APPENDIX C PROPOSED FORM OF OPINION OF BOND COUNSEL Upon issuance and delivery of the Series 2018 Bonds, Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the District, proposes to render its final approving opinion with respect to the Series 2018 Bonds in substantially the following form: [Date of Delivery] Kerman Unified School District Kerman, California Ladies and Gentlemen: Kerman Unified School District (Fresno County, California) General Obligation Bonds, Election of 2016, Series 2018 (Final Opinion) We have acted as bond counsel to the Kerman Unified School District (the District ), which is located in the County of Fresno (the County ), in connection with the issuance by the District of $ aggregate principal amount of bonds designated as Kerman Unified School District (Fresno County, California) General Obligation Bonds, Election of 2016, Series 2018 (the Series 2018 Bonds ), representing part of an issue in the aggregate principal amount of $27,000,000 authorized at an election held in the District on November 8, The Series 2018 Bonds are issued under and pursuant to a resolution of the Board of Trustees of the District adopted on September 20, 2018 (the Resolution ). In such connection, we have reviewed the Resolution, the Tax Certificate of the District, dated the date hereof (the Tax Certificate ), certificates of the District, the County and others, and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein. The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after the date hereof. Accordingly, this letter speaks only as of its date and is not intended to, and may not, be relied upon or otherwise used in connection with any such actions, events or matters. Our engagement with respect to the Series 2018 Bonds has concluded with their issuance, and we disclaim any obligation to update this letter. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or as copies) and the due and legal execution and delivery thereof by, and validity against, any parties other than the District. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents referred to in the second paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Resolution and the Tax Certificate, including, without limitation, covenants and agreements compliance with which is necessary to ensure that future actions, omissions or events will not cause interest on the Series 2018 Bonds to be included in gross income for federal income tax purposes. We call attention to the fact that the rights and obligations under the Series 2018 Bonds, the Resolution and the Tax Certificate and their enforceability may be subject to bankruptcy, C-1

184 insolvency, receivership, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against school districts or counties in the State of California. We express no opinion with respect to any indemnification, contribution, liquidated damages, penalty (including any remedy deemed to constitute a penalty), right of set-off, arbitration, judicial reference, choice of law, choice of forum, choice of venue, non-exclusivity of remedies, waiver or severability provisions contained in the foregoing documents, nor do we express any opinion with respect to the state or quality of title to or interest in any of the assets described in or as subject to the lien of the Resolution, or the accuracy or sufficiency of the description contained therein of, or the remedies available to enforce liens on, any such assets. Our services did not include financial or other non-legal advice. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement, dated, 2018, or other offering material relating to the Series 2018 Bonds and express no opinion with respect thereto. Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions: 1. The Series 2018 Bonds constitute valid and binding obligations of the District. 2. The Resolution has been duly and legally adopted and constitutes a valid and binding obligation of the District. 3. The Board of Supervisors of the County has power and is obligated to levy ad valorem taxes without limitation as to rate or amount upon all property within the District s boundaries subject to taxation by the District (except certain personal property which is taxable at limited rates) for the payment of the Series 2018 Bonds and the interest thereon. 4. Interest on the Series 2018 Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. Interest on the Series 2018 Bonds is not a specific preference item for purposes of the federal alternative minimum tax. We express no opinion regarding other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Series 2018 Bonds. Faithfully yours, ORRICK, HERRINGTON & SUTCLIFFE LLP C-2

185 APPENDIX D FORM OF CONTINUING DISCLOSURE CERTIFICATE THIS CONTINUING DISCLOSURE CERTIFICATE (this Disclosure Certificate ) is executed and delivered by the Kerman Unified School District (the District ) in connection with the issuance of $ aggregate principal amount of Kerman Unified School District (Fresno County, California) General Obligation Bonds, Election of 2016, Series 2018 (the Bonds ). The Bonds are being issued pursuant to a resolution adopted by the Board of Trustees of the District on September 20, 2018 (the District Resolution ). The District covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the District for the benefit of the Holders and Beneficial Owners of the Bonds and in order to assist the Participating Underwriters in complying with Securities and Exchange Commission Rule 15c2-12(b)(5). Section 2. Definitions. In addition to the definitions set forth in the District 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 shall mean any Annual Report provided by the District pursuant to, and as described in, Sections 3 and 4 hereof. Beneficial Owner shall mean any person which has or shares the power, directly or indirectly, to make investment decisions concerning ownership of any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries). Dissemination Agent shall mean KNN Public Finance, LLC, or any successor Dissemination Agent designated in writing by the District and which has filed with the District a written acceptance of such designation. Holder shall mean the person in whose name any Bond shall be registered. Listed Events shall mean any of the events listed in Section 5(a) or (b) hereof. MSRB shall mean the Municipal Securities Rulemaking Board or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to the Rule. Until otherwise designated by the MSRB or the Securities and Exchange Commission, filings with the MSRB are to be made through the Electronic Municipal Market Access (EMMA) website of the MSRB, currently located at Official Statement shall mean the Official Statement, dated, 2018 (including all exhibits or appendices thereto), relating to the offer and sale of Bonds. Participating Underwriter shall mean any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds. Rule shall mean 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. D-1

186 Section 3. Provision of Annual Reports. (a) The District shall, or shall cause the Dissemination Agent to, not later than nine months following the end of the District s fiscal year (which due date shall be March 31 of each year, so long as the fiscal year ends on June 30), commencing with the report for the Fiscal Year (which is due not later than March 31, 2019), provide to the MSRB an Annual Report which is consistent with the requirements of Section 4 hereof. The Annual Report must be submitted in electronic format, accompanied by such identifying information as is prescribed by the MSRB, and may cross-reference other information as provided in Section 4 hereof; provided, however, that the audited financial statements of the District may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. If the District s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(e) hereof. The Annual Report shall be submitted on a standard form in use by industry participants or other appropriate form and shall identify the Bonds by name and CUSIP number. (b) Not later than 15 business days prior to the date specified in subsection (a), the District shall provide the Annual Report to the Dissemination Agent (if other than the District). If the District is unable to provide to the MSRB an Annual Report by the date required in subsection (a), the District shall send, in a timely manner, a notice to the MSRB, in substantially the form attached as Exhibit A. (c) The Dissemination Agent shall: (i) (if the Dissemination Agent is other than the District), provide any Annual Report received by it to the MSRB as provided herein; and (ii) (if the Dissemination Agent is other than the District), file a report with the District certifying that the Annual Report has been provided to the MSRB pursuant to this Disclosure Certificate, stating the date it was provided to the MSRB. Section 4. Content of Annual Reports. The District s Annual Report shall contain or include by reference the following: (a) Audited financial statements of the District for the preceding fiscal year, prepared in accordance with the laws of the State of California and including all statements and information prescribed for inclusion therein by the Controller of the State of California. If the District s audited financial statements are not available by the time the Annual Report is required to be provided to the MSRB pursuant to Section 3(a) hereof, 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 provided to the MSRB in the same manner as the Annual Report when they become available. (b) To the extent not included in the audited financial statements of the District, the Annual Report shall also include the following: (i) The adopted budget of the District for the then current fiscal year, or a summary thereof. (ii) (iii) The District s average daily attendance for the last completed fiscal year. The District s outstanding debt. (iv) Information regarding total assessed valuation (secured, unsecured and total) of taxable properties within the District for the then current fiscal year, if and to the extent made available by the County of Fresno (the County ). If and to the extent such D-2

187 information is not made available by the County, a statement to that effect shall be included in the Annual Report. (v) Information regarding twenty taxpayers with the greatest combined ownership of taxable property in the District for the then current fiscal year, if and to the extent made available by the County. If and to the extent such information is not made available by the County, a statement to that effect shall be included in the Annual Report. (c) In addition to any of the information expressly required to be provided under subsections (a) and (b), the District shall provide such further information, if any, as may be necessary to make the specifically required statements, in light of the circumstances under which they are made, not misleading. Any or all of the items listed above may be set forth in one or a set of documents or may be included by specific reference to other documents, including official statements of debt issues of the District or related public entities, which have been made available to the public on the MSRB s website. 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 events with respect to the Bonds not later than ten business days after the occurrence of the event: (i) (ii) difficulties; (iii) difficulties; (iv) principal and interest payment delinquencies; unscheduled draws on debt service reserves reflecting financial unscheduled draws on credit enhancements reflecting financial substitution of the credit or liquidity providers or their failure to perform; (v) adverse tax opinions or issuance by the Internal Revenue Service of proposed or final determination of taxability or of a Notice of Proposed Issue (IRS Form 5701 TEB); (vi) (vii) tender offers; defeasances; (viii) rating changes; or (ix) person. bankruptcy, insolvency, receivership or similar event of the obligated For the purposes of the event identified in subparagraph (ix), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a D-3

188 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 obligated person. (b) The District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material, not later than ten business days after the occurrence of the event: (i) unless described in paragraph 5(a)(v) hereof, other material notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other material events affecting the tax status of the Bonds; (ii) (iii) (iv) (v) modifications to rights of Bond Holders; Bond calls; release, substitution, or sale of property securing repayment of the Bonds; non-payment related defaults; (vi) the consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, 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; or (vii) appointment of a successor or additional paying agent or the change of name of a paying agent. (c) The District shall give, or cause to be given, in a timely manner, notice of a failure to provide the annual financial information on or before the date specified in Section 4 hereof, as provided in Section 4(b) hereof. (d) Whenever the District obtains knowledge of the occurrence of a Listed Event described in Section 5(b) hereof, the District shall determine if such event would be material under applicable federal securities laws. (e) If the District learns of the occurrence of a Listed Event described in Section 5(a) hereof, or determines that knowledge of a Listed Event described in Section 5(b) hereof would be material under applicable federal securities laws, the District shall within ten business days of occurrence file a notice of such occurrence with the MSRB in electronic format, accompanied by such identifying information as is prescribed by the MSRB. Notwithstanding the foregoing, notice of the Listed Event described in subsections (a)(vii) or (b)(iii) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Holders of affected Bonds pursuant to the District Resolution. Section 6. Termination of Reporting Obligation. The District s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the District shall give notice of such termination in the same manner as for a Listed Event under Section 5(e) hereof. D-4

189 Section 7. Dissemination Agent. The District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the District pursuant to this Disclosure Certificate. The initial Dissemination Agent shall be KNN Public Finance, LLC. Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the District may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: (a) if the amendment or waiver relates to the provisions of Section 3(a) hereof, Section 4 hereof, or Section 5(a) or (b) hereof, it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the Bonds, or the type of business conducted; (b) the undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver either (i) is approved by the Holders in the same manner as provided in the District Resolution for amendments to the District Resolution with the consent of Holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the Bonds. In the event of any amendment or waiver of a provision of this Disclosure Certificate, the District shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the District. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 5(e) hereof, and (ii) the Annual Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in 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 Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Section 10. Default. In the event of a failure of the District to comply with any provision of this Disclosure Certificate, any Holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under this Disclosure Certificate; provided, that any such action may D-5

190 be instituted only in Superior Court of the State of California in and for the County of Fresno or in U.S. District Court in or nearest to the County of Fresno. A default under this Disclosure Certificate shall not be deemed an event of default under the District 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 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and (if the Dissemination Agent is other than the District), the District agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent s negligence or willful misconduct. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. Section 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, the Dissemination Agent, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. Dated:, 2018 KERMAN UNIFIED SCHOOL DISTRICT By: ACCEPTED AND AGREED TO: KNN PUBLIC FINANCE, LLC, as Dissemination Agent By: Authorized Signatory D-6

191 EXHIBIT A NOTICE TO THE MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Name of Issue: KERMAN UNIFIED SCHOOL DISTRICT Kerman Unified School District (Fresno County, California) General Obligation Bonds, Election of 2016, Series 2018 Date of Issuance:, 2018 NOTICE IS HEREBY GIVEN that the District has not provided an Annual Report with respect to the above-named Bonds as required by Section 4 of the Continuing Disclosure Certificate of the District, dated, [The District anticipates that the Annual Report will be filed by.] Dated: KERMAN UNIFIED SCHOOL DISTRICT D-7

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193 APPENDIX E FRESNO COUNTY INVESTMENT POLICIES AND PRACTICES; DESCRIPTION OF INVESTMENT POOL The following information has been furnished by the Office of the Treasurer-Tax Collector of Fresno. It describes (i) the policies applicable to investment of District funds, including bond proceeds and tax levies, and funds of other agencies held by the County Treasurer and (ii) the composition, carrying amount, market value and other information relating to the investment pool. Further information may be obtained directly from the Treasurer-Tax Collector, Hall of Records, Room 105, 2281 Tulare Street, Fresno, California Neither the District nor the Underwriter has made an independent investigation of the investments in the Pools and has made no assessment of the current Investment Policy. The value of the various investments in the Pools will fluctuate on a daily basis as a result of a multitude of factors, including generally prevailing interest rates and other economic conditions. Additionally, the Treasurer, with the consent of the Treasury Oversight Committee and the County Board of Supervisors, may change the Investment Policy at any time. Therefore, there can be no assurance that the values of the various investments in the Pools will not vary significantly from the values described herein.. E-1

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195 Oscar J. Garcia, CPA Auditor-Controller/Treasurer-Tax Collector County of Fresno Treasury Investment Pool INVESTMENT POLICY Established: 1984 Current Revision: December 5, 2017 (559) Room 105 Hall of Records 2281 Tulare Street Fresno, California 93721

196 COUNTY OF FRESNO AUDITOR-CONTROLLER/TREASURER-TAX COLLECTOR TREASURY INVESTMENT POOL INVESTMENT POLICY TABLE OF CONTENTS Page 1.0 PURPOSE SCOPE OBJECTIVE LEGALITY 3.2 SAFETY 3.3 LIQUIDITY 3.4 RETURN ON INVESTMENT 3.5 LOCAL COMMUNITY REINVESTMENT 4.0 DELEGATION OF AUTHORITY ETHICS AND CONFLICT OF INTEREST PRUDENCE BORROWING FOR PURPOSES OF MAKING INVESTMENTS AUTHORIZED INVESTMENTS AND LIMITS UNITED STATES TREASURY BILLS, NOTES, CERTIFICATES OF INDEBTEDNESS 8.2 FEDERAL AGENCY SECURITIES 8.3 BANKERS ACCEPTANCES 8.4 COMMERCIAL PAPER 8.5 NEGOTIABLE CERTIFICATES OF DEPOSIT 8.6 NON-NEGOTIABLE TIME CERTIFICATES OF DEPOSIT CERTIFICATES OF DEPOSIT USING A PRIVATE SECTOR ENTITY THAT ASSISTS IN THE PLACEMENT OF CERTIFICATES OF DEPOSIT (PRIVATE PLACEMENT) 8.7 REPURCHASE AGREEMENTS 8.8 MEDIUM-TERM NOTES 8.9 LOCAL AGENCY INVESTMENT FUND 8.10 MUTUAL FUNDS 8.11 MORTGAGE-BACKED SECURITIES 2

197 8.12 BOND PROCEEDS 8.13 EXTERNAL INVESTMENT MANAGERS 8.14 STATE OF CALIFORNIA DEBT 9.0 SELECTION OF INVESTMENTS DIVERSIFICATION MAXIMUM MATURITIES SELLING SECURITIES PRIOR TO MATURITY AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS CONFIRMATION SAFEKEEPING AND CUSTODY PERFORMANCE STANDARDS l MARKET YIELD BENCHMARK 17.0 ADMINISTRATIVE COST OF INVESTING CREDIT OF INTEREST EARNINGS LOCAL AGENCY DEPOSIT OF EXCESS FUNDS WITHDRAWAL OF FUNDS FROM THE TREASURY POOL REPORTING INTERNAL CONTROL INVESTMENT POLICY REVIEW DISASTER/BUSINESS CONTINUITY PLAN APPENDIX A APPENDIX B APPENDIX C

198 COUNTY OF FRESNO AUDITOR-CONTROLLER/TREASURER-TAX COLLECTOR TREASURY INVESTMENT POOL INVESTMENT POLICY 1.0 Purpose 2.0 Scope 3.0 Objective The Auditor-Controller/Treasurer-Tax Collector's policy is to invest public funds in a manner that will provide a market average rate of return consistent with the objectives included in this Investment Policy while meeting the daily cash flow demands ofthe County Treasury, and conform to all applicable state laws governing the investment of public funds. Investments differing from this policy shall be made only in circumstances where market timing or economic trends indicate such investments are beneficial. Such investments must comply with all applicable laws and may only be made with written approval by the Auditor-Controller/Treasurer-Tax Collector. This Investment Policy applies to all financial assets deposited and retained in the County of Fresno Treasury Investment Pool. The primary objectives, in priority order, of the County of Fresno's investment activities shall be the following: 3.1 Legality. Investments shall only be made in securities legally permissible by the California Government Code(GC), Sections 53635, et. al. In recognition of a rapidly changing and expanding marketplace, new concepts or securities shall be reviewed for compliance and possible consideration. Legality issues shall be resolved with County Counsel. 3.2 Safety. Investments shall be undertaken in a manner that seeks to ensure preservation of capital in the overall portfolio. Investments should be made in securities of high quality to avoid credit risk and loss of principal. 4

199 3.3 Liquidity. The investment portfolio should remain sufficiently liquid to enable the Treasury Investment Pool to meet all operating requirements which might be reasonably anticipated or respond to opportunities for investments arising from changing market conditions. 3.4 Return on Investment. The investment portfolio shall be designed with the objective of attaining the highest interest revenue, taking into consideration the objectives of this Investment Policy and the cash flow characteristics ofthe portfolio. 3.5 Local Community Reinvestment. When it is in the best interest ofthe investment portfolio, and within the confines of other objectives enumerated in this Investment Policy, the Auditor-Controller/Treasurer-Tax Collector may give preference to local investment opportunities. 4.0 Delegation of Authority The authority ofthe Board of Supervisors to delegate management responsibility for the County offresno Treasury Investment Pool is derived from GC Investment authority, in accordance with this provision, has been delegated to the Auditor-Controller/Treasurer-Tax Collector. The original delegation is in the Ordinance Code of the County of Fresno, Section and is subject to annual renewal by the Board of Supervisors. The Auditor-Controller/Treasurer-Tax Collector shall establish written procedures for the operation of the investment program consistent with this Investment Policy. Such procedures shall include explicit delegation of authority to persons responsible for investment transactions (GC 53607). No person may engage in an investment transaction for the Treasury Investment Pool except as provided under the terms ofthis policy and the procedures established by the Auditor-Controller/Treasurer-Tax Collector. The Auditor-Controller/Treasurer-Tax Collector shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate staff. The County of Fresno Treasury Oversight Committee shall annually review and monitor the Investment Policy. The County of Fresno Treasury Oversight Committee shall also cause an annual audit to determine the Auditor Controller/ Treasurer-Tax Collector's compliance with the Investment Policy. The cost of the audit shall be considered an administrative cost of investing. Audit Reports are available to participants ofthe Treasury Investment Pool upon request (GC 27133, and 27135). 5

200 5.0 Ethics and Conflict of Interest 6.0 Prudence The Auditor-Controller/Treasurer-Tax Collector, the County of Fresno Treasury Oversight Committee and staff involved in the investment process shall refrain from personal business activity that could conflict with proper execution ofthe investment program, or which could impair their ability to make impartial investment decisions. Receipt of honoraria, gifts and gratuities from advisors, brokers, dealers, bankers or other persons with whom the County Treasury conducts business by any member ofthe County offresno Treasury Oversight Committee shall require the completion of an annual Statement of Economic Interests by each member to be filed with the member's respective agency. This policy sets a $470 per current filing limit on the amount of honoraria, gifts and gratuities that a committee member may receive from a single source in a calendar year. Investments shall be made with judgment and care, under the circumstances then prevailing, which persons ofprudence, discretion and intelligence exercise in the management oftheir own affairs, and not for speculation, but for investment, considering the probable safety oftheir capital as well as the probable income to be derived. 6.1 The standard ofprudence to be used by investment officials shall be the "prudent investor" standard and shall be applied in the context of managing an overall portfolio. Investment officers acting in accordance with the investment policy and exercising due diligence shall be relieved ofpersonal responsibility for an individual security's credit risk of market price changes, provided deviations from expectations are reported in a timely fashion and appropriate action is taken to control adverse developments. 7.0 Borrowing for Purposes of Making Investments The Fresno County Auditor-Controller/Treasurer-Tax Collector is prohibited from the practice of borrowing for the sole purpose of making investments. 8.0 Authorized Investments and Limits The following securities are authorized investments for the County of Fresno Treasury Investment Pool. Securities shall be valued at amortized cost when determining their percentage to the money in the County of Fresno Treasury Investment Pool. Additions or deviations from this list, in addition to being permissible under the Government Code, require approval by the Auditor Controller/ Treasurer-Tax Collector. Investments not expressly authorized by law are prohibited. The Auditor-Controller/Treasurer-Tax Collector interprets the authorized investment limits to be based upon the portfolio allocation at the time a security is purchased. The portfolio allocation may temporarily fall outside of 6

201 these limits due to maturities and fluctuations in the size of the pool after the purchase ofa security. Additionally, the applicable credit ratings are interpreted to be based upon the rating at the time the security is purchased. 8.1 United States Treasury Bills, Notes, Certificates oflndebtedness, or those for which the full faith and credit ofthe United States are pledged for the payment ofprincipal and interest. 8.2 Obligations issued by Federal Farm Credit Banks, Federal Home Loan Banks, the Federal Home Loan Mortgage Company, or in obligations, participations, or other instruments ofor issued by, or fully guaranteed as to principal and interest by, the Federal National Mortgage Association; or in obligations, participations, or other instruments of or issued by a federal agency or a United States Government-sponsored enterprise 8.3 Bills ofexchange or Time Drafts drawn on and accepted by a commercial bank, otherwise known as Bankers Acceptances, both domestic and foreign, which are eligible for purchase by the Federal Reserve System. Any investment in Bankers Acceptances shall be restricted to the top 150 world banks as determined by their total assets and limited to those institutions in this group whose short term debt rating is ofprime quality of the highest ranking or of the highest letter and numerical rating as provided for by a nationally recognized statistical-rating service. Purchases of Bankers Acceptances may not exceed 180 days maturity or 40 percent ofthe money in the Treasury Investment Pool. 8.4 Commercial Paper ofprime quality of the highest ranking or of the highest letter and numerical rating as provided for by Moody's Investors Service, Inc., or Standard and Poor's (P-1; A-1). Eligible paper is further limited to issuing corporations that are organized and operating within the United States and having total assets in excess of five hundred million dollars and having an "A" or higher rating for the issuer's other outstanding debentures by Standard and Poor's, or its equivalent or better ranking by a nationally recognized statistical-rating service and a maximum maturity limit of270 days. Additionally GC limits the assets held by the Treasury Investment Pool in any single issuer to 10 percent and the total Commercial Paper investments may not exceed 40 percent ofthe total assets in the Treasury Investment Pool. 8.5 Negotiable Certificates ofdeposit issued by a nationally or state-chartered bank, savings association, federal association, or state-licensed branch of a foreign bank. Any investment is to be restricted to the top 150 world banks as determined by their total assets and limited to those institutions in this group whose short term debt rating is of prime quality of the highest ranking or of the highest letter and numerical rating as provided for by Moody's Investors 7

202 Service, Inc. or Standard and Poor's (P-1; A-1 ). As an alternative to the credit guidelines above, banks, savings associations or federal associations having a four star rating or higher rating as provided for by Bauer Financial, Inc. or a comparable rating service, shall be considered eligible institutions for these investments. Investments in Negotiable Certificates of Deposit (in combination with section 8.6.1) may not exceed 30 percent ofthe money in the Treasury Investment Pool. No more than 5 percent ofthe money shall be invested in any one institution. 8.6 Non-negotiable Time Certificates of Deposit issued by a nationally or state-chartered bank, savings association or federal association ( GC (n)). Unless fully covered by FDIC insurance, including the interest earned, these investments require full collateralization with government securities totaling 110 percent or mortgages totaling 150 percent ofthe principal amount (GC 53652). Any investment is to be restricted to those institutions whose short term rating is ofprime quality ofthe highest ranking as provided for by Moody's Investors Service, Inc. or Standard and Poor's (P-1; A-1). As an alternative to the credit guidelines above, banks, savings associations or federal associations having a four star rating or higher as provided for by Bauer Financial, Inc. or a comparable rating service, shall be considered eligible institutions for these investments. Any investment will require the approval and execution of a Contract for Deposit by the Auditor Controller/Treasurer-Tax Collector. Investments in Non-negotiable Time Certificates of Deposit may not exceed 50 percent ofthe money in the Treasury Investment Pool. No more than 15 percent ofthe money shall be invested in any one institution l Investments in certificates of deposit at a commercial bank, savings bank, savings and loan association, or credit union that uses a private sector entity that assists in the placement of certificates of deposit. Investments will be made in compliance with GC Investments shall be initially placed with a nationally or state-chartered commercial bank, savings bank, savings and loan association or a credit union in this state, which shall be known as the selected depository institution. Any investment will require the approval and execution of a Deposit Placement Agreement by the Auditor Controller/Treasurer-Tax Collector. Combined purchases under sections 8.5 and 8.6. l shall not exceed 30 percent ofthe portfolio. Additionally, purchases under shall not exceed 15 percent ofthe portfolio. 8.7 Investments in Repurchase Agreements representing United States Treasury Securities, United States Agency discount and coupon securities, domestic and foreign Banker's Acceptances, commercial paper, and domestic bank/savings associations or federal associations Negotiable Certificates of Deposit. 8

203 Investments shall be made only after the execution of a Repurchase and Custody Agreement (Tri-Party Agreement) between the County or the investment manager (if under contract), the dealer and the Custodian. Investments will consist ofovernight Repurchase Agreements, which include weekend placements and maturities; however, securities with longer maturities may be used as collateral for these Agreements. (GC ) Excluding circumstances ofmarket-timing and known cash demands, investments in Repurchase Agreements shall be limited to not more than 15 percent ofthe money in the Treasury Investment Pool. The market value of securities that underlay a repurchase agreement shall be valued at l 02 percent or greater ofthe funds borrowed against these securities. Any exceptions to the maturity or investment amount provisions will require written approval by the Auditor-Controller/Treasurer-Tax Collector. 8.8 Medium-term Notes with a maximum remaining maturity of five years or less issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States. Notes eligible for investment shall be rated in a rating category of "A" or higher, by Standard and Poor's Corporation, or its equivalent or better by a nationally recognized rating service Investments in Medium-term Notes may not exceed 30 percent ofthe money in the Treasury Investment Pool. 8.9 Investment of funds in the Local Agency Investment Fund (LAIF) created by law, which the State Treasurer invests through the Pooled Money Investment Account. Money invested in LAIF is available for overnight liquidity; however, it is also subject to a limited number of transactions per month. Money shall be placed in LAIF as alternative liquid investments under the guidelines of this policy pertaining to yield. The County may invest up to the maximum amount permitted by LAIF, not to exceed 10 percent of the portfolio. The Auditor-Controller/ Treasurer-Tax Collector may invest any portion of debt proceeds in the LAIF Shares of beneficial interest issued by diversified management companies, otherwise known as Mutual Funds, investing in the securities and obligations as authorized by the GC et. seq.. To be eligible for investment, these companies shall either: ( 1) attain the highest ranking or the highest letter and numerical rating provided by two of the largest nationally recognized rating services, or (2) have an investment adviser registered with the Securities and Exchange Commission with at least five years of experience investing in the securities authorized by the GC sections noted above and with assets under management in excess of $500,000,000. 9

204 Shares of beneficial interest issued by diversified management companies that are money market funds registered with the Securities and Exchange Commission under the Investment Company Act of To be eligible for investment, these companies shall either: ( 1) attain the highest ranking or the highest letter and numerical rating provided by not less than two nationally recognized statistical rating organizations, or (2) retain an investment adviser registered or exempt from registration with the Securities and Exchange Commission with not less than five years' experience managing money market mutual funds with assets under management in excess of $500,000,000 (GC 53601). Investment in Mutual Funds shall not include the payment of any commission that these companies may charge and may not exceed 20 percent of the surplus funds in the Treasury Investment Pool. Only 10 percent of the surplus funds may be invested in any one mutual fund (GC 53601, ) Any mortgage pass-through security, collateralized mortgage obligation, mortgage-backed or other pay-through bond of a maximum of five years maturity. Securities eligible for investment shall be issued by an issuer having an "A" or higher rating for the issuer's debt as provided by a nationally recognized rating service and rated "AA" or its equivalent or better by a nationally recognized rating service. Investments in these securities may not exceed 10 percent of the funds in the Treasury Investment Pool Bond proceeds may be invested in accordance with the Government Code provisions, or they may be invested in alternative vehicles if authorized by bond documents (GC and California Debt and Investment Advisory Commission (CDIAC) Local Agency Investment Guidelines) External Investment Managers. The Auditor-Controller/Treasurer-Tax Collector may contract with external investment managers to provide investment management services. These managers may be hired to invest funds not needed for liquidity and to increase the rate of return of the pool by employing an active investment strategy. The external investment manager is allowed to make specific investment decisions within the framework of this investment policy. External investment managers are required to provide timely transaction documentation and investment reports to ensure that the manager's actions comply with the requirements ofthe law and this investment policy. External investment managers shall remit, at least quarterly, the interest earnings to the Pool to allow these earnings to be apportioned to the pool participants. Selection ofexternal Investment Managers is subject to section 13.0 of this investment policy. Additionally, after selection, the manager's performance shall be reviewed against the agreed upon benchmark. 10

205 8.14 Registered state warrants or treasury notes or bonds ofthe State of California, including bonds payable solely out of the revenues from a revenueproducing property owned, controlled, or operated by the state or by a department, board, agency, or authority ofthe state. Investments in these securities may not exceed 10 percent of the surplus funds in the Treasury Investment Pool. 9.0 Selection of Investments Investments, with the exception of California registered state warrants in section 8.14, above, shall only be made following a minimum ofthree competitive comparisons with offerings documented and retained for each type of investment Diversification The Treasury Investment Pool shall be diversified by security type and institution Maximum Maturities To the extent possible, investments shall be made to match anticipated cash requirements. Unless matched to a specific cash flow, normal investments will be in securities such that the average weighted maturity of the Treasury Investment Pool shall not exceed 3.5 years. Proceeds of sales or funds set aside for the repayment of any notes issued for temporary borrowing purposes shall not be invested for a term that exceeds the term ofthe notes Selling Securities Prior to Maturity Securities purchased shall normally be held until maturity. Occasionally, opportunities will exist to sell securities prior to maturity and purchase other securities (swap/trade). Securities that are no longer in compliance with this Investment Policy may be sold prior to maturity. Securities may also be sold in order to maintain the liquidity ofthe Treasury Investment Pool. 11

206 13.0 Authorized Financial Dealers and Institutions The Auditor-Controller/Treasurer-Tax Collector shall maintain a list of financial institutions authorized to provide investment services. In addition, a list shall also be maintained of approved security broker/dealers selected by credit worthiness, who maintain an office in the State of California. These may include "primary" dealers or regional dealers that qualify under Securities and Exchange Commission Rule 15c3-l (uniform net capital rule). No public deposit shall be made except in a qualified public depository as established by state laws. All financial institutions and broker/dealers who desire to become qualified bidders for investment transactions must supply the following: audited financial statements, proof of Financial Industry Regulatory Authority membership, trading resolution, proof of state registration, completed brokerdealer questionnaire, certification of having read the County's Investment Policy, and if applicable, depository contracts. Broker-dealers are evaluated and selected based upon criteria that include: organization experience and credibility, individual broker-dealer qualifications, compliance, product inventory, and economic research. An annual review of the financial conditions and registrations of selected brokers shall be conducted by the Auditor-Controller/Treasurer-Tax Collector. A current audited financial statement is required to be on file for each authorized financial institution and broker-dealer. Investment managers are evaluated and selected based upon criteria that include: organization experience and credibility, staff experience, compliance, and performance. The selection of any broker, brokerage firm, dealer or securities firm that has, within any consecutive 48 month period following January 1, 1996, made a political contribution in an amount exceeding the limitations contained in Rule G-37 of the Municipal Securities Rulemaking Board, to the Auditor Controller/ Treasurer-Tax Collector or member of the Board of Supervisors or any candidate for those offices is prohibited. The County will, to the best of its ability, monitor and comply with this requirement Confirmation Receipts for confirmation of purchase of authorized securities should include the following information: trade date, par value, maturity, rate, price, yield, settlement date, description of securities purchased, agency's name, net amount due, and third party custodian information. Confirmation of all investment transactions should be received by the Auditor-Controller/Treasurer-Tax Collector within five business days of the transaction. 12

207 15.0 Safekeeping and Custody Investments, excluding Non-negotiable Time Certificates of Deposit, Repurchase Agreements and investments that are under the management of contracted parties, shall be held in custody with the Service Bank or its correspondent or other institutions approved by the Auditor Controller/Treasurer-Tax Collector. Investments in Repurchase Agreements shall be held in custody by the Custodian to the Tri-Party Agreement Performance Standards The investment portfolio shall be designed to obtain a market average rate of return during budgetary and economic cycles, taking into account investment risk constraints and cash flow needs. 16. l Market yield benchmark. The investment strategy is passive. Given this strategy, the basis used by the Auditor-Controller/Treasurer-Tax Collector to determine whether market yields are being achieved shall be the one-year U.S. Treasury note rate Administrative Cost of Investing The Auditor-Controller/Treasurer-Tax Collector may deduct actual administrative costs associated with investing, depositing, banking, auditing, reporting, or otherwise handling or managing of funds. The administrative costs shall be segregated and deducted from the interest earnings ofthe Treasury Pool each quarter prior to the distribution of interest earnings Credit of Interest Earnings Interest shall be credited based on the average daily cash balance of money on deposit in the County Treasury for the calendar quarter and shall be paid quarterly Local Agency Deposit of Excess Funds The County Auditor-Controller/Treasurer-Tax Collector is authorized to accept deposits of excess funds from local agencies within Fresno County pursuant to Resolution and in accordance with Government Code section Such deposits will be accepted, if at all, subject to the terms and conditions of a written agreement between the depositing agency and the Auditor-Controller/Treasurer-Tax Collector. In deciding whether to accept such deposits, the Auditor-Controller/ Treasurer-Tax Collector considers 13

208 factors that may include, but are not limited to, the objectives of this policy, the potential effect of such deposits on the volatility ofthe investment portfolio, the human resources available to conduct investment activities, and the best interests of current depositors Withdrawal of Funds from the Treasury Pool The withdrawal of funds by any depositor/participant in the County of Fresno Treasury Investment Pool shall not adversely affect the interests of the other depositors/participants in the County of Fresno Treasury Investment Pool. All withdrawals that are not considered as funds being utilized for operations shall be presented to the Auditor-Controller/Treasurer-Tax Collector for review and approval. The Auditor-Controller/ Treasurer-Tax Collector shall perform an assessment ofthe effect of a proposed withdrawal on the stability and predictability ofthe investments in the Treasury Investment Pool as is required by GC and Prior to the approving a withdrawal, the Auditor Controller/ Treasurer-Tax Collector shall find that the proposed withdrawal will not adversely affect the interests of the other depositors in the Treasury Investment Pool. All requests for withdrawals shall be considered in order of receipt and shall in no way affect the ability of the Auditor Controller/Treasurer-Tax Collector to meet the pool's expenditure requirements. Ifthe assessment of the effect ofthe proposed withdrawal does not negatively impact the stability and predictability of the investments and the interests ofother depositors, the Auditor-Controller/Treasurer-Tax Collector may authorize a total or partial withdrawal of funds from the Treasury Pool. A total withdrawal of funds from the County of Fresno Treasury Investment Pool by a participant requires a 30 day written notice to the Auditor Controller/Treasurer-Tax Collector. Withdrawals involving less than the participant's total funds (other than for operational needs) are subject to all of the following constraints: each withdrawal shall be limited to a maximum of $5,000,000 no more than two withdrawals of a non-operational purpose are allowed per 30 day period at least ten days must lapse before the second withdrawal in any 30 day period will be considered by the Auditor-Controller/Treasurer Tax Collector each withdrawal shall be submitted to the Auditor Controller/Treasurer-Tax Collector at least 2 business days prior to the date ofwithdrawal 14

209 The Auditor-Controller/Treasurer-Tax Collector shall be notified of normal operating expenditures or disbursements in excess of $1,000,000 as early as possible, preferably three business days in advance of disbursement, in order to adjust the cash position to meet disbursement requirements Reporting The Auditor-Controller/Treasurer-Tax Collector shall provide the Board of Supervisors with a monthly inventory report and a monthly transaction report ofthe Treasury Investment Pool. The Auditor-Controller/ Treasurer-Tax Collector shall provide a quarterly investment report to the Board of Supervisors, the County Administrative Officer and the County of Fresno Treasury Oversight Committee. The quarterly report shall be submitted within 30 days following the end ofthe quarter covered by the report. Monthly inventory reports and quarterly investment reports are available to participants ofthe pool upon request (GC 53646) Internal Control As part of the County of Fresno's annual independent audit, the investment program shall be reviewed for appropriate internal controls that provide assurance of compliance with policies and procedures Investment Policy Review This Investment Policy shall be reviewed on an annual basis by the Auditor Controller/Treasurer-Tax Collector and rendered annually to the Board of Supervisors and the County offresno Treasury Oversight Committee, which consists ofthe following members: The County Auditor-Controller/Treasurer-Tax Collector A representative appointed by the County Board of Supervisors The County Superintendent of Schools or designee A representative selected by a majority of the presiding officers ofthe governing bodies ofthe school districts and community college districts in the County A representative selected by a majority of the presiding officers ofthe legislative bodies ofthe special districts in the County that are required or authorized to deposit funds in the County treasury The Board of Supervisors shall accept and approve the investment policy and any changes thereto at a public meeting (GC 27133, 53646). 15

210 24.0 Disaster/Business Continuity Plan The County of Fresno Treasurer's banking and investment functions are critical to the function of Treasury Investment Pool and therefore must have a continuity plan to guide operations in the event of a disaster or business interruption. The objective ofthe Disaster/Business Continuity Plan is to protect and account for all funds on deposit with the county treasurer and to be able to continue banking and investment functions for all participants in the event of an occurrence; i.e. earthquake, fire, flood, or some other event, which disrupts normal operations. The Plan provides for the ability to perform banking and investment functions at an off-site location under less than optimal conditions. Approved Oscar J. Garcia, CP Auditor-Controller/Treasu r-tax Collector )!0-9-t 7 Date 16

211 APPENDIX A Permitted Investments/Deposits Government Code Limits% Investment Policy Limits% Investment Policy Term Limit Minimum Rating Securities of the U.S. Government No Limit No Limit 5 years NIA Securities issued by United States Government Sponsored Enterprises No Limit No Limit 5 years NIA Bankers Acceptances (I) 40% 40% 180 days NIA Commercial Paper 40% 40% 270 days P-1,A-1 Negotiable Certificates of Deposit (2) 30% 30% 13 months P-1, or A-1or4 Star Non-negotiable Certificates of Deposit (2) No Limit 50% 13 months P-1 or A-1 or 4 Star Account Registry Service Deposits (2) 30% 15% 13 months NIA Repurchase Agreements No Limit 15% Overnight/Weekend NIA Medium Term Notes 30% 30% 5 years A LAIF (3) No Limit 10% 5 years NIA Mutual Funds (4) 20% 20% 5 years AAA,Aaa Mortgage-Backed Securities 20% 10% 5 years AA State of California Debt No Limit 10% 5 years NIA 17

212 APPENDIX A (Continued) (1) Investment policy limits any investment in bankers acceptances to the top 150 world banks as determined by their total assets and limited to those institutions in this group whose short term debt is of prime quality and of the highest ranking as provided for by Moody's or Standard and Poor's (P-l, A-1 ). (2) Banks, savings associations or federal associations having a "4 Star" or higher rating as provided by Bauer Financial, Inc. or a comparable rating service. For negotiable certificates of deposit, no more than 5 percent of the money shall be invested in any one institution. Negotiable certificates of deposit and account registry service deposits combined shall not exceed 30% of the portfolio. For non-negotiable certificates of deposit, no more than 15 percent of the money shall be invested in any one institution. (3) LAIF Board ofdirectors currently limits the investment to $65,000,000, excluding bond and note proceeds. Government Code does not place a percentage limit on the amount of money that may be invested in LAIF. (4) Diversified management companies investing in the securities and obligations as authorized by California Government Code, Sections 53601, et seq., shall either (1) attain the highest ranking or the highest letter and numerical rating provided by two of the largest nationally recognized rating services, or (2) have an investment adviser registered with the SEC with at least five years of experience investing in the securities authorized by code sections noted in the policy and with assets under management in excess of $500,000,000. Diversified management companies issuing shares of beneficial interest that are money market funds registered with the Securities and Exchange Commission (SEC) under the Investment Act of 1940 shall either (1) attain the highest ranking or the highest letter and numerical rating provided by not less than two nationally recognized statistical rating organizations, or (2) retain an investment adviser registered or exempt from registration with the SEC with not less than five years of experience managing money market mutual funds with assets under management in excess of $500,000,000. Only 10 percent of the money may be invested in any one mutual fund. 18

213 APPENDIXB RA TING SUMMARY RATING SERVICE RATING CATEGORY RA TING DEFINITION Moody's Moody's Modifiers Moody's Commercial Paper Standard & Poors Standard & Poors - Modifiers Standard & Poors - Commercial Aaa Aa A Baa Ba B Caa Ca c 1,2,and 3 Prime-I Prime-2 Prime-3 Not Prime AAA AA A BBB BB B CCC cc c Cl D (+) or (-) A-1 A-2 A-3 B c D Best Quality High Quality Upper-medium grade Medium grade obligations Judged to have speculative elements Lack characteristics of desirable investment Investment in poor standing Speculative in a high degree Poor prospect of attaining investment standing Rankings within rating category Superior ability for repayment Strong ability for repayment Acceptable ability for repayment Do not fall in top 3 rating categories Highest Rating Strong capacity for repayment Strong capacity for repayment but less than AA category Adequate capacity for repayment Speculative Greater vulnerability to default than BB category Identifiable vulnerability to default Subordinated debt of issues ranked in CCC category Subordinated debt of issues ranked in CCC category Income bonds where no interest is paid Default Rankings within rating category Highest degree of safety Timely repayment characteristics is satisfactory Adequate capacity for repayment Speculative Doubtful repayment Default 19

214 APPENDIXB (Continued) RATING SUMMARY RATING SERVICE Fitch RATING CATEGORY AAA AA A BBB BB B CCC,CC,C DDD,DD,D RATING DEFINITION Highest credit quality Very high credit quality High credit quality Good credit quality Speculative High speculative High default risk Default Fitch Modifiers "+" or"- Relative status within rating categories Fitch Commercial Paper Fl F2 F3 B c D Highest credit quality Good credit quality Fair credit quality Speculative High default risk Default Bauer 5 Star 4 Star 3 Yi Star 3 Star 2 Star I Star Zero Superior Excellent Good Adequate Problematic Troubled Our lowest star rating 20

215 APPENDIXC Glossary of Cash Management Terms The following is a glossary of key investing terms, many of which appear in County of Fresno Treasury Investment Policy. This glossary has been adapted from the Government Finance Officers Association (GFOA) sample investment policy. Accrued Interest - The accumulated interest due on a bond as of the last interest payment made by the issuer. Agency - A debt security issued by a federal or federally sponsored agency. Federal agencies are backed by the full faith and credit of the U.S. Government. Federally sponsored agencies (FSAs) are backed by each particular agency with a market perception that there is an implicit government guarantee. An example of federal agency is the Government National Mortgage Association (GNMA). An example of a FSA is the Federal National Mortgage Association (FNMA). Amortization - The systematic reduction of the amount owed on a debt issue through periodic payments of principal. Average Life - The average length of time that an issue of serial bonds term bonds, or both, with a mandatory sinking fund feature is expected to be outstanding. Bankers' Acceptance -A draft or bill or exchange accepted by a bank or trust company. The accepting institution, as well as the issuer, guarantees payment of the bill. Basis Point - A unit of measurement used in the valuation of fixed-income securities equal to 11100of1 percent of yield, e.g., 1/4of1 percent is equal to 25 basis points. Bid - The indicated price at which a buyer is willing to purchase a security or commodity. Book Value - The value at which a security is carried on the inventory lists or other financial records of an investor. The book value may differ significantly from the security's current value in the market. Callable Bond - A bond issue in which all or part of its outstanding principal amount may be redeemed before maturity by the issuer under specified conditions. Call Price - The price at which an issuer may redeem a bond prior to maturity. The price is usually at a slight premium to the bond's original issue price to compensate the holder for loss of income and ownership. Call Risk - The risk to a bondholder that a bond may be redeemed prior to maturity. Cash Sale/Purchase - A transaction which calls for delivery and payment of securities on the same day that the transaction is initiated. 21

216 APPENDIX C (Continued) Certificate of Deposit (CD) - A short-term, secured deposit in a financial institution that usually returns principal and interest to the lender at the end of the loan period. Certificate of Deposit Account Registry System (CDARS) - A private CD placement service that allows local agencies to purchase more than $100,000 in CDs from a single financial institution (must be a participating institution of CDARS) while still maintaining FDIC insurance coverage. CDARS facilitates the trading of deposits between the California institution and other participating institutions in amounts that are less than $100,000 each, so that FDIC coverage is maintained. Collateralization - Process by which a borrower pledges securities, property, or other deposits for the purpose of securing the repayment of a loan security, or both. Commercial Paper - An unsecured short-term promissory note issued, with maturities ranging from 1 to 270 days. Convexity - A measure of a bond's price sensitivity to changing interest rates. A high convexity indicates greater sensitivity of a bond's price to interest rate changes. Coupon Rate - The annual rate of interest received by an investor from the issuer of certain types of fixed-income securities. Also known as the "interest rate." Credit Quality - The measurement of the financial strength of a bond issuer. This measurement helps an investor to understand an issuer's ability to make timely interest payments and repay the loan principal upon maturity. Generally, the higher the credit quality of a bond issuer, the lower the interest rate paid by the issuer because the risk of default is lower. Credit quality ratings are provided by nationally recognized rating agencies. Credit Risk - The risk to an investor that an issuer will default in the payment of interest principal on a security, or both. Current Yield (Current Return) - A yield calculation determined by dividing the annual interest received on a security by the current market price of that security. Delivery Versus Payment CDVP) - A type of securities transaction in which the purchaser pays for the securities when they are delivered either to the purchaser or his/her custodian. Discount - The amount by which the par value of a security exceeds the price paid for the security. Diversification - A process of investing assets among a range of security types by sector, maturity, and quality rating. Fair Value - The amount at which an investment could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. 22

217 APPENDIXC (Continued) Federal Funds (Fed Funds) - Funds placed in Federal Reserve banks by depository institutions in excess of current reserve requirements. These depository institutions may lend fed funds to each other overnight or on a longer basis. They may also transfer funds among each other on a same-day basis through the Federal Reserve banking system. Fed funds are considered to be immediately available funds. Federal Funds Rate - Interest rate charged by one institution lending federal funds to the other. Financial Industry Regulatory Authority (FINRA) is the largest independent regulator for all securities firms in the United States. Government Securities - An obligation of the U.S. government, backed by the full faith and credit of the government. These securities are regarded as the highest quality of investment securities available in the U.S. securities market. See "Treasury Bills, Notes, and Bonds." Interest Rate - See "Coupon Rate." Interest Rate Risk - The risk associated with declines or rises in interest rates which cause in investment in a fixed-income security to increase or decrease in value. Inverted Yield Curve - A chart formation that illustrates long-term securities having lower yields than short-term securities. This configuration usually occurs during periods of high inflation coupled with low levels of confidence in the economy and a restrictive monetary policy. Investment Company Act of Federal legislation which sets the standards by which investment companies, such as mutual funds, are regulated in the areas of advertising, promotion, performance reporting requirements, and securities valuations. Investment Policy - A concise and clear statement of the objectives and parameters formulated by an investor or investment manager for a portfolio of investment securities. Investment-grade Obligations - An investment instrument suitable for purchase by institutional investors under the prudent person rule. Investment-grade is restricted to those obligations rated BBB or higher by a rating agency. Liquidity - An asset that can be converted easily and quickly into cash without significant loss of value. Local Agency Investment Fund - A voluntary investment fund open to government entities and certain non-profit organizations in California that is managed by the State Treasurer's Office. Local Government Investment Pool (LGIP) - An investment by local governments in which their money is pooled as a method for managing local funds. Mark-to-market - The process whereby the book value or collateral value of a security is adjusted to reflect its current market value. 23

218 APPENDIX C (Continued) Market Risk - The risk that the value of a security will rise or decline as a result of changes in market conditions. Market Value - Current market price of a security. Maturity - The date on which payment of a financial obligation is due. The final stated maturity is the date on which the issuer must retire a bond and pay the face value to the bondholder. See "Weighted Average Maturity." Medium-Term Note - Corporate or depository institution debt securities meeting certain minimum quality standards (as specified in California Government Code) with a remaining maturity of five years or less. Money Market Mutual Fund - Mutual funds that invest solely in money market instruments (short-term debt instruments, such as Treasury bills, commercial paper, bankers' acceptances, repos and federal funds). Mortgage Backed Securities - Mortgage-backed securities (MBS) are created when a purchaser of residential real estate mortgages creates a pool of mortgages and markets undivided interest or participations in the pool. MBS owners receive a prorate share of the interest and principal passed through from the pool of mortgages. Most MBS are issued guaranteed, or both, by federal agencies and instrumentalities. Mortgage Pass-Through Obligations - Securities that are created when residential mortgages are pooled together and undivided interests or participations in the stream of revenues associated with the mortgages are sold. Mutual Fund - An investment company that pools money and can invest in a variety of securities, including fixed-income securities and money market instruments. Mutual funds are regulated by the Investment Company Act of 1940 and must abide by the following Securities and Exchange Commission (SEC) disclosure guidelines: 1. Report standardized performance calculations. 2. Disseminate timely and accurate information regarding the fund's holdings, performance, management and general investment policy. 3. Have the fund's investment policies and activities supervised by a board of trustees, which are independent of the adviser, administrator or other vendor of the fund. 4. Maintain the daily liquidity of the fund's shares. 5. Value their portfolios on a daily basis. 6. Have all individuals who sell SEC-registered products licensed with a selfregulating organization (SRO) such as the National Association of Securities Dealers (NASD). 7. Have an investment policy governed by a prospectus which is updated and filed by the SEC annually. APPENDIX C 24

219 (Continued) Negotiable Certificates of Deposit - Short-term debt instrument that usually pays interest and is issued by a bank, savings or federal association, or state or federal credit union, or state-licensed branch of a foreign bank. Negotiable CDs are traded in a secondary market and are payable upon order to the bearer or initial depositor (investor). Net Asset Value - The market value of one share of an investment company, such as a mutual fund. This figure is calculated by totaling a fund's assets which includes securities, cash, and any accrued earnings, subtracting this from the fund's liabilities and dividing this total by the number of shares outstanding. This is calculated once a day based on the closing price for each security in the fund's portfolio. (See below.) [(Total assets) - (Liabilities)]/(Number of shares outstanding) Nominal Yield - The stated rate of interest that a bond pays its current owner, based on par value of the security. It is also known as the "coupon," "coupon rate," or "interest rate." Non-negotiable Certificates of Deposit - CDs that carry a penalty if redeemed prior to maturity. Non-negotiable CDs issued by banks and savings and loans are insured by the Federal Deposit Insurance Corporation up to $100,000, including principal and interest. Amounts deposited above this amount may be secured with other forms of collateral. Offer - An indicated price at which market participants are willing to sell a security or commodity. Also referred to as the "Ask price." Par - Face value or principal value of a bond, typically $1,000 per bond. Positive Yield Curve - A chart formation that illustrates short-term securities having lower yields than long-term securities. Premium - The amount by which the price paid for a security exceeds the security's par value. Principal - The face value or par value of a debt instrument. Also may refer to the amount of capital invested in a given security. Prospectus - A legal document that must be provided to any prospective purchaser of a new securities offering registered with the SEC. This can include information on the issuer, the issuer's business, the proposed use of proceeds, the experience of the issuer's management, and certain certified financial statements. Prudent Person Rule - An investment standard outlining the fiduciary responsibilities of public funds investors relating to investment practices. APPENDIXC 25

220 (Continued) Regular Way Delivery - Securities settlement that calls for delivery and payment on the third business day following the trade date (T + 3 ); payment on a T + 1 basis is currently under consideration. Mutual funds are settled on a same day basis; government securities are settled on the next business day. Reinvestment Risk - The risk that a fixed-income investor will be unable to reinvest income proceeds from a security holding at the same rate of return currently generated by that holding. Repurchase Agreement (Repo or RP) - An agreement of one party to sell securities at a specified price to a second party and a simultaneous agreement of the first party to repurchase the securities at a specified price or at a specified later date. Reverse Repurchase Agreement (Reverse Repo) - An agreement of one party to purchase securities at a specified price from a second party and a simultaneous agreement by the first party to resell the securities at a specified price to the second party on demand or at a specified date. Rule 2a-7 of the Investment Company Act - The Securities and Exchange Commission regulates money market funds in the United States and this rule restricts quality, maturity and diversity of investments by money market funds in an attempt to provide a safe, liquid alternative to bank deposits, while providing a higher yield. Safekeeping - Holding of assets (e.g., securities) by a financial institution. Swap - Trading one asset for another. Term Bond - Bonds comprising a large part or all of a particular issue which come due in a single maturity. The issuer usually agrees to make periodic payments into a sinking fund for mandatory redemption of term bonds before maturity. Total Return - The sum of all investment income plus changes in the capital value of the portfolio. For mutual funds, return on an investment is composed of share price appreciation plus any realized dividends or capital gains. This is calculated by taking the following components during a certain time period. (Price Appreciation)+ (Dividends paid)+ (Capital gains)= Total Return Treasury Bills - Short-term U.S. government non-interest bearing debt securities with maturities of no longer than one year and issued in minimum denominations of $10,000. Auctions of three- and six-month bills are weekly, while auctions of one-year bills are monthly. The yields on these bills are monitored closely in the money markets for signs of interest rate trends. APPENDIX C 26

221 (Continued) Treasury Notes - Intermediate U.S. government debt securities with maturities of one to 10 years and issued in denominations ranging from $1,000 to $1 million or more. Treasury Bonds - Long-term U.S. government debt securities with maturities of ten years or longer and issued in minimum denominations of $1,000. Currently, the longest outstanding maturity for such securities is 30 years. Uniform Net Capital Rule - SEC Rule 15c3-1 outlining capital requirements for brokerdealers. Volatility - A degree of fluctuation in the price and valuation of securities. Weighted Average Maturity (WAM) - The dollar-weighted average maturity of all the securities that comprise a portfolio. When Issued (WI) - A conditional transaction in which an authorized new security has not been issued. All "when issued" transactions are settled when the actual security is issued. Yield - The current rate of return on an investment security generally expressed as a percentage of the security's current price. Yield-to-call (YTC) - The rate of return an investor earns from a bond assuming the bond is redeemed (called) prior to its nominal maturity date. Yield Curve - A graphic representation that depicts the relationship at a given point in time between yields and maturity for bonds that are identical in every way except maturity. A normal yield curve may be alternatively referred to as a positive yield curve. Yield-to-maturity - The rate of return yielded by a debt security held to maturity when both interest payments and the investor's potential capital gain or loss are included in the calculation of return. Zero-coupon Securities - Security that is issued at a discount and makes no periodic interest payments. The rate of return consists of a gradual accretion of the principal of the security and is payable at par upon maturity. 27

222 Quarterly Investment Report As of June 30, 2018 P.O. Box 1247 Fresno, CA Telephone

223 Table of Contents Portfolio Summary 1 Portfolio Compliance 2 Holdings Allocation by Issuer 11 Portfolio Statistics & Projected Cash Flows 15 Pool Participant Breakdown 16 Holdings Report 17 Monthly Economic and Market Update 35 Board of Supervisors: Andreas Borgeas, Buddy Mendes, Brian Pacheco, Nathan Magsig, Sal Quintero County Administrative Officer: Jean Rousseau

224 Portfolio Summary County of Fresno 6/30/2018 SECTOR ALLOCATION LAIF 1.8% CDs 0.8% Muni 2.8% MATURITY DISTRIBUTION 35% Bank/Cash 7.4% Tsy 9.0% CREDIT QUALITY (MOODY'S) 32.4% P-1 30% AAA 25% Aa1 2.8% Aa2 3.0% Aa3 4.1% A1 5.0% A2 3.8% A3 2.5% 18.6% 20% 16.8% 16.2% 16.1% 15% CP 5.3% Agy 52.8% 10% 5% Corp 20.0% 9.7% 64.6% NR 4.5% 0% 0-1Y Per Book Value 1-2Y 2-3Y 3-4Y ACCOUNT SUMMARY PORTFOLIO BOOK YIELD HISTORY Market Value Book Value* Unrealized G/L $3,602,167,778 $3,657,258,602 -$55,090,823 $3,445,620,926 $3,492,422,560 -$46,801,634 Par Value $3,658,635,216 $3,490,405, % $ $ % 1.89% 1.79% 1.65% Years to Maturity % Effective Duration % Jun-18 May-18 Apr-18 Mar-18 Feb-18 Jan-18 Dec-17 Oct-17 Nov-17 *Book Value is Amortized 1.80% Sep-17 Book Yield 1.85% Aug-17 Net Asset Value 40% 60% 80% TOP ISSUERS 1.90% Jul-17 3/31/18 20% NR: Not Rated 1.95% 6/30/18 0% 4-5Y Per Book Value Issuer FHLB FNMA US TREASURY NOTE FFCB FIDELITY 2642 TOYOTA MOTOR CREDIT FHLMC STATE OF CALIFORNIA APPLE INC US BANK NA BANK OF NEW YORK EXXON MOBIL BANK OF THE WEST CHEVRON CORP LAIF % Portfolio 23.7% 19.5% 9.0% 5.8% 4.6% 4.5% 3.8% 2.8% 2.8% 2.5% 2.5% 2.0% 2.0% 2.0% 1.8% Per Book Value 1

225 Investment Policy Compliance 6/30/2018 County of Fresno Item / Sector Parameters In Compliance 11.0 Weighted Average Maturity Weighted Average Maturity (WAM) must be less than 3.5 years. Yes 2.2 Yrs 8.1 U.S. Treasuries No sector limit, no issuer limit, max maturity 5 years. Yes 9.0% 8.2 U.S. Agencies No sector limit, no issuer limit, max maturity 5 years. Yes 52.8% 8.3 Banker Acceptances 8.4 Commercial Paper 8.5 Negotiable CDs 8.6 Non-Negotiable CDs Placement CDs 8.7 Repurchase Agreements 8.8 Medium-Term Notes 8.9 L.A.I.F 40% limit, Issue is eligible for purchase by Federal Reserve. Issuer is among 150 largest banks based on total asset size; max maturity 180 days; rated A-1 or P-1. 40% limit, corporation organized and operating in the US with total assets of $500mm. 10% of issuer's CP / 10% in any one issuer; max maturity 270 days; minimum short-term rating of A-1 by S&P or P-1 by Moody's, minimum long-term rating of A by S&P or its equivalent or better ranking by a nationally recognized rating service. 30% limit (combined with 8.6.1), Issued by national or state chartered bank or savings assoc., or a state licensed branch of a foreign bank that is among 150 largest banks in total asset size; minimum shortterm rating of P-1 or A-1 or issuer meets rating requirements; 5% in any one issuer, max maturity 13 months. 50% limit, Issued by national or state chartered bank or savings association. FDIC insurance OR full collateralization of 110% government or 150% mortgages. Contract for Deposit in place. 15% in any one issuer; short-term rating is a minimum of A-1 by S&P or P-1 by Moody's, max maturity 13 months. 15% limit (30% combined with 8.5), Issued by national or state chartered bank or savings association or credit union that uses a placement entity. Deposit Placement Agreement in place. 15% limit, Tri-party agreement in place. 102% collateralization of US treasuries or agencies, BAs, CP, Negotiable CD's; Overnight or weekend maturities. 30% limit, organized and operating in the US or state licensed depository institution; max maturity 5 years; rated A or better by S&P, or its equivalent or better by a nationally recognized rating service. California State's deposit limit is $65 million; Current investment policy limit is not to exceed 10% of the portfolio. Yes 0.0% Yes 5.3% Yes 0.8% Yes 0.0% Yes 0.0% Yes 0.0% Yes 20.0% Yes 1.8% 2

226 Investment Policy Compliance (Continued) 6/30/2018 County of Fresno Item / Sector Parameters In Compliance 8.10 Mutual Funds/ Money Markets Funds 8.11 ABS and MBS 20% limit, 10% per issuer; Registered with SEC, 5 years experience, $500mm AUM or rated by AAA-m, Aaa-mf, AAA-m by not less than two nationally recognized rating agencies. 10% limit combined. Security must be AA rated by one rating agency, with an A or better rating for the underlying, max maturity 5 years. Yes 4.6% Yes 0.0% 8.12 Money Held from Pledged Assets Invest according to statutory provision or according to entity providing issuance. Yes 0.0% 8.13 External Managers Invest per policy. Yes 0.0% 8.14 State of California Debt 10% limit, Registered State warrants or CA treasury notes, including revenue producing entities controlled or operated by the State or by a department, board, agency, or authority of the State; 5 years max maturity. Yes 2.8% Cash & Bank Account NA NA 2.7% Compliance The County Treasurer believes the Treasury Investment Pool contains sufficient cash flow from liquid and maturing securities, bank deposits, and incoming cash to meet the next six months of expected expenditures. Review and Monitoring FTN Financial Main Street Advisors, the County s investment advisor, currently monitors the Treasury Department s investment activities. Additional Information Securities are purchased with the expectation that they will be held to maturity, so unrealized gains or losses are not reflected in the yield calculations. The market values of securities were taken from pricing services provided by Interactive Data Corporation. 3

227 Historical Book Values 6/30/2018 County of Fresno $3.8 $3.6 $3.4 $3.2 $3.0 $2.8 $2.6 $2.4 $2.2 $2.0 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 Billions May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Fiscal Year 2014 $2.310 $2.291 $2.319 $2.282 $2.285 $2.551 $2.615 $2.411 $2.411 $2.617 $2.531 $2.335 Fiscal Year 2015 $2.375 $2.256 $2.269 $2.323 $2.333 $2.649 $2.685 $2.519 $2.515 $2.778 $2.790 $2.637 Fiscal Year 2016 $2.531 $2.291 $2.290 $2.354 $2.365 $2.673 $2.842 $2.695 $2.731 $2.993 $2.957 $2.860 Fiscal Year 2017 $2.822 $2.576 $2.530 $2.581 $2.580 $2.905 $3.048 $2.891 $2.940 $3.274 $3.294 $3.247 Fiscal Year 2018 $3.240 $2.992 $2.932 $3.032 $3.004 $3.374 $3.468 $3.321 $3.337 $3.593 $3.550 $3.609 Figures in Billions, Average Daily Balance 4

228 Historical Book Values Per Fiscal Year 6/30/2018 County of Fresno $3.7 FY18 FY17 FY16 FY15 FY14 $3.5 $3.3 $3.1 $2.9 $2.7 $2.5 $2.3 $2.1 Jul Aug Sep Oct Nov Dec Jan Feb Billions Mar Apr May Jun Fiscal Year 2014 Fiscal Year 2015 Fiscal Year 2016 Fiscal Year 2017 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun $2.310 $2.291 $2.319 $2.282 $2.285 $2.551 $2.615 $2.411 $2.411 $2.617 $2.531 $2.335 $2.375 $2.256 $2.269 $2.323 $2.333 $2.649 $2.685 $2.519 $2.515 $2.778 $2.790 $2.637 $2.531 $2.291 $2.290 $2.354 $2.365 $2.673 $2.842 $2.695 $2.731 $2.993 $2.957 $2.860 $2.822 $2.576 $2.530 $2.581 $2.580 $2.905 $3.048 $2.891 $2.940 $3.274 $3.294 $3.247 Fiscal Year 2018 $3.240 $2.992 $2.932 $3.032 $3.004 $3.374 $3.468 $3.321 $3.337 $3.593 $3.550 $3.609 Figures in Billions, Average Daily Balance 5

229 Weighted Average Maturity and Aging Report 6/30/2018 County of Fresno Weighted Average Maturity History Portfolio WAM 2.9 WAM 12 Mon Avg 2.7 Years Month-End Book Yield vs 1-Year Treasury Note Index Yield (24 month moving avg) Percent Portfolio 0.50 Index Index: 24 Month Moving Average of the ICE BofAML 1-Year US Treasury Note Index 6

230 Book Yield per WAM per Percent of Portfolio 6/30/2018 County of Fresno 2.45% Bubble Size = Percent of Portfolio Corp 2.25% Muni 2.05% CP Book Yield 1.85% LAIF Agy Tsy 1.65% CD 1.45% MMF/Cash 1.25% Weighted Average Maturity (Years) 7

231 Book YTM Per 6-Month Maturity Intervals County of Fresno 6/30/ % Years Book Yield % of Portfolio* 0 to % 22.02%.5 to % 10.28% 2.75% 1.0 to % 3.42% 2.60% 1.5 to % 12.72% 2.0 to % 4.95% 2.5 to % 11.07% 3.0 to % 8.18% 3.5 to % 10.56% 4.0 to % 8.02% 4.5 to % 8.79% Bubble Size = Maturity's % of Portfolio 2.90% 2.86% Book Yield 2.45% 2.30% 2.15% 2.10% 2.08% 2.00% 1.85% 1.83% 1.75% 1.70% 1.73% 1.73% 1.70% 1.70% 1.68% *Based on Book Value 1.55% 1.40% Maturity Intervals 8

232 Next Twelve Months Maturities 6/30/2018 County of Fresno $800 $700 $696.9 $600 $500 Millions $400 $300 $200 $100 $0 $116.0 $83.2 $83.0 $60.7 $45.0 $40.0 $26.7 $20.4 $0.7 $1.2 $6.7 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Maturities Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 $696.9 $26.7 $20.4 $0.7 $1.2 $60.7 $45.0 $83.2 $40.0 $6.7 $83.0 $116.0 Par Value in Millions 9

233 Historical Sector Allocation 6/30/2018 County of Fresno 60% 55% 50% 45% 40% 35% 30% 25% 20% 15% AGY TSY CP Bank/Cash CORP ABS CDs 10% 5% 0% Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Sector Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Agency 54.6% 54.7% 51.9% 55.5% 56.3% 51.5% 55.0% 57.0% 54.7% 56.0% 53.6% 52.8% Treasury 10.6% 10.6% 10.1% 10.9% 10.6% 9.4% 9.7% 9.9% 9.5% 9.2% 9.1% 9.0% Commercial Paper 0.7% 0.7% 0.6% 0.7% 0.0% 0.6% 1.7% 1.8% 1.7% 5.8% 3.3% 5.3% LAIF 1.3% 0.2% 2.1% 0.5% 0.8% 1.8% 0.3% 0.9% 0.1% 1.8% 1.8% 1.8% Muni 1.1% 1.1% 1.1% 1.8% 1.7% 2.8% 3.1% 3.1% 3.0% 2.9% 2.9% 2.8% Corporates 24.9% 24.7% 23.0% 23.6% 23.1% 21.7% 22.0% 21.5% 21.3% 21.7% 19.9% 20.0% CDs 2.6% 1.0% 1.0% 1.0% 1.0% 0.9% 0.9% 0.9% 0.9% 0.8% 0.8% 0.8% ABS 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Bank/Cash 4.2% 7.0% 10.3% 6.1% 6.6% 11.3% 7.3% 4.9% 8.9% 1.8% 8.6% 7.4% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 10

234 Holdings Allocation by Issuer 6/30/2018 County of Fresno FEDERAL HOME LOAN BANK FEDERAL NATIONAL MORTGAGE US TREASURY NOTE FEDERAL FARM CREDIT BANK FIDELITY 2642 TOYOTA MOTOR CREDIT FEDERAL HOME MORTGAGE CO STATE OF CALIFORNIA APPLE INC US BANK NA BANK OF NEW YORK EXXON MOBIL BANK OF THE WEST CHEVRON CORP LAIF MICROSOFT WELLS FARGO JOHN DEERE JP MORGAN CATERPILLAR BERKSHIRE HATHAWAY BNP PARIBAS NY BRANCH BANK OF THE WEST MM G.E. CAPITAL BANK OF AMERICA 5.8% 4.6% 4.5% 3.8% 2.8% 2.8% 2.5% 2.5% 2.0% 2.0% 2.0% 1.8% 1.6% 1.6% 1.5% 1.5% 1.1% 1.0% 0.8% 0.7% 0.6% 0.0% 9.0% 19.5% 23.7% 0% 5% 10% 15% 20% 25% 11

235 Historical Earnings and Book Rate of Return Performance 6/30/2018 County of Fresno Millions $70 $60 $50 $40 $30 $20 $10 $0 Fiscal Year-to-Date Earnings FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Fiscal YTD ($Mil) FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun $2.3 $4.7 $7.3 $9.8 $12.2 $15.0 $17.7 $20.7 $23.4 $26.2 $29.0 $31.6 $2.3 $4.9 $7.5 $10.5 $13.3 $16.2 $19.2 $22.1 $25.8 $29.0 $32.5 $35.5 $2.3 $5.1 $7.8 $10.6 $13.4 $17.2 $20.5 $23.7 $26.9 $30.5 $34.2 $37.3 $3.0 $6.0 $9.0 $12.1 $15.3 $18.9 $22.7 $26.5 $30.5 $34.8 $39.2 $43.5 $4.5 $8.7 $12.9 $17.3 $21.6 $26.7 $31.7 $36.7 $41.9 $47.4 $53.0 $ % 1.80% 1.60% 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% Book Rate of Return vs Benchmark Portfolio Benchmark Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Fiscal YTD Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Book Rate of Rtn 1.63% 1.65% 1.68% 1.68% 1.71% 1.71% 1.71% 1.74% 1.75% 1.76% 1.77% 1.79% Benchmark* 0.76% 0.78% 0.79% 0.81% 0.83% 0.86% 0.88% 0.90% 0.93% 0.96% 0.98% 1.01% Variance 0.87% 0.88% 0.89% 0.87% 0.88% 0.86% 0.83% 0.84% 0.82% 0.80% 0.79% 0.78% *Benchmark: ICE BofAML 1-Year US Treasury Note Index (24 Month Moving Average)--Average Builds Over the Fiscal Year Period 12

236 Historical Book Rate of Return Performance 6/30/2018 County of Fresno 2.0% 1.8% 1.6% 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% Portfolio vs Benchmark Portfolio Benchmark FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 2.0% Portfolio vs. Benchmark: Annual Variance 1.5% 1.0% 1.39% 1.26% 1.45% 1.29% 1.16% 0.97% 0.78% 0.5% 0.0% FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 Fiscal YTD FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 Portfolio 1.62% 1.43% 1.62% 1.43% 1.42% 1.51% 1.79% Benchmark* 0.23% 0.17% 0.17% 0.14% 0.26% 0.54% 1.01% Variance 1.39% 1.26% 1.45% 1.29% 1.16% 0.97% 0.78% *Benchmark: ICE BofAML 1-Year US Treasury Note Index (24 Month Moving Average)--Average Builds Over the Fiscal Year Period 13

237 Investment Activity 6/30/2018 County of Fresno 275 Number of Positions at Month End Positions Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Positions Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun Number of Transactions Purchases Redemptions Total Transactions Purchases Redemptions Purchases and Redemptions* (Excluding LGIP & MMF) Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 *Redemptions include maturities, calls, and sells Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun

238 Portfolio Statistics & Projected Cash Flows 6/30/2018 County of Fresno Summary of Portfolio Market Value Amortize Cost Value Unrealized Gain/Loss % on cost Yield (weighted on cost value) Years to Maturity (weighted on cost value) Avg Dollar-Weighted Quality Rating June 2018 $3,602,167,778 $3,657,258, % 1.89% 2.17 AA+ March 2018 $3,445,620,926 $3,492,422, % 1.79% 2.25 AA+ December 2017 $3,507,783,549 $3,528,384, % 1.70% 2.22 AA+ September 2017 $3,114,636,004 $3,113,978, % 1.64% 2.19 AA+ June 2017 $3,301,724,919 $3,301,216, % 1.58% 2.16 AA+ Projection of Future Cash Flows (in millions) Month Beginning Balance (2) Monthly Receipts (1) 9/ Monthly Disburs. 10/ / Difference Required Mat. Invest Balance Actual Inv. Maturities (3) Available to Invest > 6 Months (4) 7/ / / Totals 2, , % 77% Monthly Receipt and Monthly Disbursement amounts are estimates based upon historical cash flows and may change as actual cash flow information becomes available. 2. Beginning balance: is taken from LAIF, Bank of the West MMF, and Bank of the West Service Bank. 3. Actual Investment Maturities: excludes vault. 4. Available to Invest > 6 Months: is calculated as Actual Investment Maturities less Required Investment Maturities. 15

239 Pool Participant Breakdown 6/30/2018 County of Fresno Entity Portfolio $ Portfolio % County 1,016,211, % Property Tax 65,127, % Schools 1,814,647, % Special Districts 391,309, % Voluntary 450,671, % Total 3,737,967, % Special Districts 10.5% Voluntary 12.1% County 27.2% Property Tax 1.7% Schools 48.5% 16

240 County of Fresno Portfolio Management Portfolio Summary June 30, 2018 Fresno County P.O. Box 1247 Fresno, CA (559) Investments Par Value Market Value Book Value %of Portfolio Term Days to Maturity YTM 360 Equiv. Bank Accounts 74,705, Federal Agency Coupons 1,804,075, Medium Term Notes 732,246, Treasury Notes 329,090, Discount Commercial Paper 195,000, Mutual Funds 170,000, Local Agency Investment Funds 65,000, Federal Agency Discounts 130,000, BOW Money Market Account 25,018, Negotiable CDs 30,000, Municipal Bonds 103,500, ,705, ,705, ,767,466, ,802,952, ,327, ,503, ,580, ,559, ,714, ,706, ,000, ,000, ,000, ,000, ,823, ,820, ,018, ,018, ,989, ,000, ,541, ,991, , , , , , Investments 3,658,635, ,602,167, ,657,258, % 1, Total Earnings June 30 Month Ending Current Year 5, 763, Average Daily Balance 3,608,885, Effective Rate of Return 1.94% Fiscal Year To Date Fiscal Year Ending 58,825, ,825, ,287,508, % Oscar J. Garcia, CPA, Treasurer/ Tax Collector Reporting period 06/01/ /30/2018 Run Date: 07/13/ :44 Portfolio FSNO AC PM (PRF_PM1) Report Ver

241 County of Fresno Portfolio Management Portfolio Details - Investments June 30, 2018 Page 1 CUSIP Investment # Issuer Average Balance Purchase Date Par Value Market Value Book Value Stated Rate YTM 365 S&P Moody's Maturity Date Bank Accounts SYS03400B SYS03400A 03400B 03400A BANK OF AMERICA BANK OF THE WEST 4, ,700, , ,700, , ,700, Subtotal and Average 22,587, , 705, , 705, , 705, Federal Agency Coupons 3133EDLR1 3133EEW EFYZ4 3133EFW EGBR5 3133EGYQ2 3133EGZJ7 3133EG5D3 3133EHJT1 3133EEY EHVS9 3133EJBP3 3133EJBP3 3133EH7F BR EE5 3130A2FH EE5 3130A2FH4 3133X72S2 3133X72S HU HU8 3130A7CV XNO 3130A7CV CA1 3130A7CV5 3130A7CV5 3130A1W A7CV FEDERAL FARM CREDIT BANK FEDERAL FARM CREDIT BANK FEDERAL FARM CREDIT BANK FEDERAL FARM CREDIT BANK FEDERAL FARM CREDIT BANK FEDERAL FARM CREDIT BANK FEDERAL FARM CREDIT BANK FEDERAL FARM CREDIT BANK FEDERAL FARM CREDIT BANK FEDERAL FARM CREDIT BANK FEDERAL FARM CREDIT BANK FEDERAL FARM CREDIT BANK FEDERAL FARM CREDIT BANK FEDERAL FARM CREDIT BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK 05/27/ /15/ /29/ /09/ /09/ /27/ /27/ /27/ /18/ /21/ /28/ /07/ /28/ /19/ /03/ /18/ /02/ /10/ /10/ /09/ /19/ /12/ /26/ /03/ /03/ /21/ /21/ /20/ /25/ /15/ /08/2016 5,000, ,000, , ,060, ,000, ,000, ,000, ,000, ,000, ,000, ,500, ,000, , 180, ,869, ,000, ,000, ,000, ,000, ,000, ,000, ,500, ,000, ,615, ,000, , ,000, ,000, ,000, ,000, ,000, ,000, ,970, ,850, ,214, ,035, ,958, ,581, ,569, ,800, ,862, ,865, ,299, ,864, ,488, ,479, ,918, ,963, ,875, ,927, ,937, ,257, ,028, ,674, ,409, ,840, , ,680, ,846, ,840, ,680, ,556, ,680, ,001, ,983, ,772, ,062, , ,981, ,973, ,000, ,995, , ,471, ,963, ,700, ,612, ,986, ,989, ,001, , ,991, ,306, ,135, ,999, ,597, ,980, , ,992, ,000, ,988, ,970, ,854, ,051, AA+ AA+ AA+ AA+ AA+ AA+ AA+ AA+ AA+ AA+ AA+ AA+ AA+ AA+ AA+ AA+ AA+ AA+ AA+ AA+ AA+ AA+ AA+ AA+ AA+ AA+ AA+ AA+ AA+ AA+ AA+ Aaa 05/15/2019 Aaa 06/15/2020 Aaa 02/ Aaa 07/01/2019 Aaa 02/25/2019 Aaa 10/14/2021 Aaa 10/25/2021 Aaa 01/27/2022 Aaa 05/18/2022 Aaa 06/ Aaa 08/23/2022 Aaa 02/ Aaa 02/02/2023 Aaa 01/17/2023 Aaa 12/14/2018 Aaa 06/14/2019 Aaa 06/14/2019 Aaa 06/14/2019 Aaa 06/14/2019 Aaa 05/15/2019 Aaa 05/15/2019 Aaa 06/ 12/2020 Aaa 06/12/2020 Aaa 02/18/2021 Aaa 02/08/2021 Aaa 02/18/2021 Aaa Aaa 02/18/2021 Aaa 02/18/2021 Aaa 06/ Aaa 02/18/2021 Run Date: 07/ :44 Portfolio FSNO AC PM (PRF _PM2) Report Ver

242 County of Fresno Portfolio Management Portfolio Details - Investments June 30, 2018 Page 2 CUSIP Investment # Federal Agency Coupons Issuer Average Balance Purchase Date Par Value Market Value Book Value Stated Rate YTM Maturity 365 S&P Moody's Date 3130A80S RB7 3130A80S5 3130A80S5 3130A80S P1 3130A80S5 3130A80S5 3130A1W A7CV5 3130AAX A80S5 3130AB3M RB AC5A8 3130AC5A ACKC7 3130ACM ACM ACUV4 3130ACUZ5 3130ACYP ACUV A5P ACXH2 3130AEEW6 3130AEAP5 3137EADK2 3137EADK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME LOAN BANK FEDERAL HOME MORTGAGE CO FEDERAL HOME MORTGAGE CO 08/08/ /17/ /29/ /13/ /28/ /05/ /13/ /14/ /29/ /20/ /28/ /06/ /10/ /11/ /28/ /28/ /28/ /07/ /19/ /27/ /27/ /18/ / /19/ /30/ /24/ / / / / / / /07/ /30/ / / ,000, ,000, ,955, ,000, ,000, ,700, ,000, ,000, ,470, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,820, ,470, ,000, ,280, ,000, ,000, ,000, ,455, ,000, ,000, ,000, ,000, ,890, ,900, ,925, ,000, , 150, ,000, ,000, ,000, ,353, ,764, ,784, ,353, ,569, ,824, ,569, ,569, ,196, ,360, ,733, , 138, ,892, ,647, ,872, ,872, , 722, , 126, ,621, ,928, ,490, ,492, ,550, ,321, ,705, ,432, ,507, ,949, ,659, ,851, ,893, ,345, ,032, ,967, ,812, ,749, ,947, , 161, ,932, ,909, ,966, ,065, ,913, ,881, ,683, ,752, ,039, ,603, ,003, ,012, ,043, ,043, ,853, ,531, ,981, ,252, ,183, ,000, ,987, ,445, ,000, ,981, ,984, ,999, ,857, ,892, ,935, ,926, ,027, ,974, ,938, ,918, AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA+ Aaa 07/14/2021 Aaa 06/11/2021 Aaa 07/14/2021 Aaa 07114/2021 Aaa 07/14/2021 Aaa 07 /29/2021 Aaa 07/14/2021 Aaa 07/14/2021 Aaa 06/11/2021 Aaa 02118/2021 Aaa 01/28/2021 Aaa 07/14/2021 Aaa 06/30/2021 Aaa 06/11/2021 Aaa 06/10/2022 Aaa 06/ Aaa 06/ Aaa 06/ Aaa 08/15/2022 Aaa 08/15/2022 Aaa 06/10/2022 Aaa 07/18/2022 Aaa 07111/2022 Aaa 07/11/2022 Aaa 07/29/2022 Aaa 05/24/2022 Aaa 07/27/2022 Aaa 06/10/2022 Aaa 07/29/2022 Aaa 06/10/2022 Aaa 06/10/2022 Aaa 05/25/2022 Aaa 05/30/2023 Aaa 05/30/2023 Aaa 08/01/2019 Aaa 08/01/2019 Run Date: 07/ :44 Portfolio FSNO AC PM (PRF _PM2)

243 County of Fresno Portfolio Management Portfolio Details - Investments June 30, 2018 Page 3 CUSIP Investment# Issuer Average Balance Purchase Date Par Value Market Value Book Value Stated Rate YTM Maturity 365 S&P Moody's Date Federal Agency Coupons 3137EADM8 3137EADM8 3137EADM8 3137EADR7 3137EADR7 3134G44GO 3137EAEB1 3137EAEC9 3134G9M G9N GOYM9 3135GOYM9 3135GOYM9 3135GOYT4 3135GOZA4 3135GOZA4 3135GOZA4 3135GOYT4 3135GOZA4 3135GOZE6 3135GOZA4 3135GOZE6 3136FTZZ5 3135GOZE6 3135GOZE6 3135GOA GOA GOA GOA GOD GOA GORM7 3135GOD GOA GOD GOD FEDERAL HOME MORTGAGE CO FEDERAL HOME MORTGAGE CO FEDERAL HOME MORTGAGE CO FEDERAL HOME MORTGAGE CO FEDERAL HOME MORTGAGE CO FEDERAL HOME MORTGAGE CO FEDERAL HOME MORTGAGE CO FEDERAL HOME MORTGAGE CO FEDERAL HOME MORTGAGE CO FEDERAL HOME MORTGAGE CO FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE 12/19/ / / /06/ /08/ /29/ /11/ /17/ /06/ /11/ /25/ / /27/ /31/ / /03/ /03/ /20/ /20/ /18/ /01/ /01/ / /11/ / /04/ /08/ /08/ /03/ /29/ /29/ /30/ /30/ /04/ /04/ /04/ ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,410, , 170, , ,000, , , ,000, ,000, ,000, , , ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,060, ,950, ,000, ,000, ,000, ,696, ,696, ,848, ,794, ,794, ,901, ,842, ,543, ,306, ,025, , , , , ,977, ,944, ,977, , , ,969, ,988, ,814, ,971, ,938, ,839, ,733, ,866, ,866, ,799, ,594, ,866, ,837, ,829, ,866, ,898, ,898, ,880, ,880, ,940, ,954, ,952, ,997, ,993, ,940, ,409, , 165, , ,000, , , ,008, ,030, ,012, , , ,995, ,004, ,973, ,008, ,013, ,021, ,977, ,000, ,000, ,997, ,986, ,027, ,072, ,942, ,015, ,988, ,987, AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA+ Aaa 10/ Aaa 10/ Aaa 10/ Aaa 05/01/2020 Aaa 05/ Aaa 05/ Aaa 07/19/2019 Aaa 08/ Aaa 07/26/2021 Aaa 07/27/2021 Aaa 09/18/2018 Aaa 09/18/2018 Aaa 09/18/2018 Aaa 11/27/2018 Aaa 02119/2019 Aaa 02119/2019 Aaa 02119/2019 Aaa 11/27/2018 Aaa 02119/2019 Aaa 06/20/2019 Aaa 02/19/2019 Aaa 06/20/2019 Aaa 01/30/2019 Aaa 06/20/2019 Aaa 06/20/2019 Aaa 01/21/2020 Aaa Aaa 01/21/2020 Aaa 01/21/2020 Aaa 06/ Aaa 01/21/2020 Aaa 10/30/2020 Aaa 06/ Aaa Aaa 06/ Aaa 06/ Run Date: 07/ :44 Portfolio FSNO AC PM (PRF_PM2)

244 County of Fresno Portfolio Management Portfolio Details - Investments June 30, 2018 Page4 CUSIP Investment # Issuer Average Balance Purchase Date Par Value Market Value Book Value Stated Rate YTM Maturity 365 S&P Moody's Date Federal Agency Coupons 3135GOA GOD GOD GOD GOD GOA GOA GOD GOA GOH GOK GOJ GON GON GON GOK GOQ GOQ GOQ GOK GOK GOK GOS GOS GOS G2CS4 3135GOS GOS GOT GOT GOT GOT FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE FEDERAL NATIONAL MORTGAGE 11/06/ /06/ / / / / / /20/ /25/ /11/ /29/ /29/ /29/ /28/ / /13/ /27/ /02/ /14/ / /09/ /09/ /28/ /28/ / / /10/ / / /23/ ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,561, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,866, ,898, ,391, ,594, ,797, ,733, ,866, ,797, ,733, ,815, ,620, ,340, ,567, ,567, ,567, ,052, , 171, ,585, ,792, ,620, ,696, ,052, ,493, ,746, ,746, ,873, ,873, ,873, ,354, ,516, ,838, ,096, ,005, ,983, ,844, ,889, ,961, ,003, ,001, ,958, ,001, , 110, ,925, ,582, ,986, ,973, ,967, ,010, , 978, ,961, ,987, ,964, ,939, ,550, ,968, ,983, ,004, ,002, ,028, ,027, ,981, ,984, ,923, ,727, AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA+ Aaa 01/21/2020 Aaa 06/ Aaa 06/ Aaa 06/ Aaa 06/ Aaa 01/21/2020 Aaa 01/21/2020 Aaa 06/ Aaa 01/21/2020 Aaa 12128/2020 Aaa 05/06/2021 Aaa 02126/2019 Aaa 08/17/2021 Aaa 08/17/2021 Aaa 08/17/2021 Aaa 05/06/2021 Aaa 10/07/2021 Aaa 10/07/2021 Aaa 10/07/2021 Aaa 05/06/2021 Aaa 05/06/2021 Aaa 05/06/2021 Aaa 01/05/2022 Aaa 01/05/2022 Aaa 01/ Aaa Aaa 01/05/2022 Aaa 01/05/2022 Aaa 10/05/2022 Aaa 10/05/2022 Aaa 10/05/2022 Aaa 01/19/2023 Subtotal and Average 1,834,976, ,804,075, , 767,466, ,802,952, Run Date: 07/ :44 Portfolio FSNO AC PM (PRF_PM2)

245 County of Fresno Portfolio Management Portfolio Details - Investments June 30, 2018 Page 5 CUSIP Investment # Issuer Average Balance Purchase Date Par Value Market Value Book Value Stated Rate YTM Maturity 365 S&P Moody's Date Medium Term Notes BD CC BS CMO AY CQ BU DE AK AK AK BY BY BL BF HCL HCL HCU HCU HCW HCZO 06406HDD HBP HCR RAA FAB L5T L5T L5T L6J L6UO AY BH BH BG BK APPLE INC APPLE INC APPLE INC APPLE INC APPLE INC APPLE INC APPLE INC APPLE INC APPLE INC APPLE INC APPLE INC BERKSHIRE HATHAWAY BERKSHIRE HATHAWAY BERKSHIRE HATHAWAY BERKSHIRE HATHAWAY BANK OF NEW YORK BANK OF NEW YORK BANK OF NEW YORK BANK OF NEW YORK BANK OF NEW YORK BANK OF NEW YORK BANK OF NEW YORK BANK OF NEW YORK BANK OF NEW YORK BANK OF NEW YORK BANK OF NEW YORK CATERPILLAR CATERPILLAR CATERPILLAR CATERPILLAR CATERPILLAR CHEVRON CORP CHEVRON CORP CHEVRON CORP CHEVRON CORP CHEVRON CORP 12/28/ /13/ /19/ /21/ /18/ / /01/ / /03/ /03/ /22/ /15/ /27/ /01/ /14/ /27/ /13/ /16/ /16/ /01/ /04/ /28/ /28/ /19/ /18/ /18/ /10/ /06/ /26/ /04/ /16/ /28/ /25/ /27/ /25/ /08/ ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,500, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,500, ,000, ,501, ,000, ,000, ,000, ,000, ,000, ,500, ,000, ,675, ,500, ,278, ,294, ,000, ,000, ,000, ,000, ,000, ,859, ,791, ,826, ,711, ,689, ,420, ,843, ,412, ,817, ,817, ,634, ,993, , ,943, ,211, ,998, ,996, ,489, ,979, ,454, ,962, ,950, , 122, ,915, ,794, ,266, ,000, ,675, ,500, ,151, ,647, ,884, ,819, ,909, ,532, ,637, ,998, ,901, ,000, ,973, ,984, ,962, ,914, ,448, ,805, ,805, ,656, ,000, , ,992, ,531, ,999, ,001, ,499, ,999, ,490, , 002, ,017, ,169, , 133, ,059, ,451, ,999, ,682, ,501, ,266, ,187, ,988, ,982, ,991, ,993, ,682, AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA A A A A A A A A A A A A A A A A AA AA AA AA AA- Aa1 05/06/2020 Aa1 08/04/2021 Aa1 02/23/2021 Aa 1 02/09/2022 Aa 1 02/09/2022 Aa1 05/11/2022 Aa1 02/23/2023 Aa1 01/13/2023 Aa1 05/03/2023 Aa 1 05/03/2023 Aa1 05/03/2023 Aa2 08/15/2018 Aa2 08/15/2018 Aa2 08/14/2019 Aa2 01/31/2022 A1 08/01/2018 A1 08/01/2018 A1 05/15/2019 A1 05/15/2019 A1 09/11/2019 A /2020 A1 08/17/2020 A1 01/15/2020 A 1 03/04/2019 A 1 02/ A1 05/03/2021 A3 09/06/2018 A3 09/06/2018 A3 09/06/2018 A3 03/05/2020 A3 08/09/2021 Aa2 11/17/2020 Aa2 05/16/2019 Aa2 05/16/2019 Aa2 05/16/2021 Aa2 05/16/2023 Run Date: 07/13/ :44 Portfolio FSNO AC PM (PRF_PM2)

246 County of Fresno Portfolio Management Portfolio Details - Investments June 30, 2018 Page6 CUSIP Investment# Issuer Average Balance Purchase Date Par Value Market Value Book Value Stated Rate YTM Maturity 365 S&P Moody's Date Medium Term Notes BK G7MO 36962G5J EQV ESF ESK ERY ETF ERH HJR HJR HHL HJR HKA HNX HJH BP BP BW BA BW AT TBP TCP P7F TEL TEL HHL HHL HHL HHL HHL HHL HHP JAA HNL CHEVRON CORP G.E. CAPITAL G.E. CAPITAL JOHN DEERE JOHN DEERE JOHN DEERE JOHN DEERE JOHN DEERE JOHN DEERE JP MORGAN JP MORGAN JP MORGAN JP MORGAN JP MORGAN JP MORGAN JP MORGAN MICROSOFT MICROSOFT MICROSOFT MICROSOFT MICROSOFT MICROSOFT TOYOTA MOTOR CREDIT TOYOTA MOTOR CREDIT TOYOTA MOTOR CREDIT TOYOTA MOTOR CREDIT TOYOTA MOTOR CREDIT US BANK NA US BANK NA US BANK NA US BANK NA US BANK NA US BANK NA US BANK NA US BANK NA US BANK NA 06/ /04/ /16/ /10/ / /05/ / /04/ / /28/ /05/ /23/ /16/ /04/ /04/ /26/ / / / / / /22/ /01/ /11/ /01/ /01/ / / / / /22/ /27/ /27/ / /24/2018 5,000, ,350, ,000, ,500, ,000, ,000, ,000, ,000, ,707, ,000, ,000, ,740, ,000, ,000, , 181, ,000, ,000, ,000, ,725, ,450, ,375, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,634, ,000, ,522, ,000, ,803, ,000, ,004, ,000, ,818, ,226, ,401, ,521, ,938, ,957, ,847, ,937, ,725, ,992, ,984, ,929, ,992, ,871, ,087, ,821, ,383, ,794, , ,306, ,006, ,661, ,939, ,998, ,844, ,868, ,472, ,904, ,545, , ,377, ,808, ,710, ,568, ,775, ,791, ,857, ,383, ,690, , ,991, ,001, ,923, ,047, ,902, ,999, ,007, ,945, ,003, ,985, , 183, ,933, ,993, ,906, ,720, , ,375, ,683, ,992, , 999, ,929, , , 758, ,082, ,647, ,992, ,511, ,005, ,837, ,240, ,131, ,983, AA A A A A A A A A A A A A A A A AAA AAA AAA AAA AAA AAA AA AA AA AA AA A A A A A A A A AA- Aa2 05/16/2023 A2 01/09/2020 A2 10/17/2021 A2 09/10/2018 A /2018 A2 03/04/2019 A2 01/15/2020 A2 01/08/2021 A2 10/15/2021 A3 01/28/2019 A3 01/28/2019 A3 04/23/2019 A3 01/28/2019 A3 01/23/2020 A3 10/29/2020 A3 01/25/2023 Aaa 08/08/2021 Aaa 08/08/2021 Aaa 02106/2022 Aaa Aaa 02106/2022 Aaa 05/01/2023 Aa3 07/18/2019 Aa3 07/13/2018 Aa3 01/10/2023 Aa3 01/11/2023 Aa3 01/11/2023 A1 01/29/2021 A 1 01 /29/2021 A 1 01/29/2021 A1 01/29/2021 A 1 01/29/2021 A1 01/29/2021 A1 01/24/2022 A 1 07/15/2022 A1 01/23/2023 Run Date: 07/13/ :44 Portfolio FSNO AC PM (PRF _PM2)

247 County of Fresno Portfolio Management Portfolio Details - Investments June 30, 2018 Page7 CUSIP Investment# Issuer Average Balance Purchase Date Par Value Market Value Book Value Stated Rate YTM Maturity 365 S&P Moody's Date Medium Tenn Notes 90331HNL HNL BFQ SAO SAO SAO SAO 95000U2B US BANK NA US BANK NA WELLS FARGO WELLS FARGO WELLS FARGO WELLS FARGO WELLS FARGO WELLS FARGO 03/01/ /20/ /15/ /25/ /17/ /15/ /18/ /20/2017 5, ,000, ,000, ,000, ,000, ,232, ,275, ,000, ,895, ,791, ,950, ,608, ,804, ,714, ,794, ,815, ,955, ,936, ,994, ,792, ,946, ,088, , 159, ,998, AA AA A A A A A A- A1 01/23/2023 A1 01/23/2023 A2 01/15/2019 A2 07/26/2021 A2 07/26/2021 A2 07/26/2021 A2 07/26/2021 A2 07/22/2022 Subtotal and Average 730,207, ,246, ,327, ,503, Treasury Notes VQO VQO WD RE C A ND XE XE N XM WN XM L XR L US TREASURY NOTE US TREASURY NOTE US TREASURY NOTE US TREASURY NOTE US TREASURY NOTE US TREASURY NOTE US TREASURY NOTE US TREASURY NOTE US TREASURY NOTE US TREASURY NOTE US TREASURY NOTE US TREASURY NOTE US TREASURY NOTE US TREASURY NOTE US TREASURY NOTE US TREASURY NOTE Subtotal and Average 329,573, /01/ / /21/ /21/ /31/ /21/ /23/ /15/ /13/ /16/ /22/ /28/ /28/ /28/ /27/ /23/ , , , , ,000, , ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,090, , , , , , , ,703, ,710, ,228, , 189, ,246, ,307, ,246, ,220, ,299, ,347, ,580, , , , , , , ,341, ,026, ,936, ,837, ,904, ,005, ,887, ,710, ,931, ,891, ,559, AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA AA Aaa 07/31/2018 Aaa 07/31/2018 Aaa 10/31/2018 Aaa 08/31/2018 Aaa 02/28/2019 Aaa 12/31/2018 Aaa 05/15/2020 Aaa 05/ Aaa 05/31/2020 Aaa 12/ Aaa 07/31/2020 Aaa 05/31/2021 Aaa 07/31/2020 Aaa 09/30/2020 Aaa 05/ Aaa 08/31/2022 Discount Commercial Paper 30229BGP HGW HGX HGX EXXON MOBIL TOYOTA MOTOR CREDIT TOYOTA MOTOR CREDIT TOYOTA MOTOR CREDIT 06/08/ /15/ /04/ /04/ ,000, ,000, ,000, ,000, ,912, ,968, ,933, ,900, ,910, ,972, ,940, ,883, A A A A-1+ P-1 07/23/2018 P-1 07/30/2018 P-1 07/31/2018 P-1 07/31/2018 Subtotal and Average 189,593, ,000, ,714, ,706, Run Date: 07/13/ :44 Portfolio FSNO AC PM (PRF_PM2)

248 County of Fresno Portfolio Management Portfolio Details - Investments June 30, 2018 Page a Average Purchase Stated YTM Maturity CUSIP Investment# Issuer Balance Date Par Value Market Value Book Value Rate 365 S&P Moody's Date Mutual Funds 09248U BLACKROCK PROVIDENT TFUND 07/01/ AAA Aaa SYS BLACKROCK LIQUIDITY FED FUND 07/01/ AAA Aaa SYS FIDELITY /01/ ,000, ,000, ,000, AAA Aaa SYS FIDELITY /01/ AAA Aaa SYS FIDELITY /01/ AAA Aaa Subtotal and Average 240,500, ,000, ,000, ,000, Local Agency Investment Funds SYS LAIF 65,000, ,000, ,000, Subtotal and Average 55,333, ,000, ,000, ,000, Federal Agency Discounts ZZ FEDERAL HOME LOAN BANK 06/19/ ,000, ,927, ,924, AA+ Aaa 07/30/ ZW FEDERAL HOME LOAN BANK 06/28/ ,000, ,896, ,896, AA+ Aaa 07 / Subtotal and Average 57,949, ,000, ,823, ,820, Cash in Vault SYS VAULT 07/01/ Subtotal and Average BOW Money Market Account SYS BANK OF THE WEST MM 25,018, ,018, ,018, Subtotal and Average 14, 167, ,018, ,018, ,018, Negotiable CDs 05582WZV BNP PARIBAS NY BRANCH 07/27/ ,000, ,989, ,000, A-1 P-1 07/27/ Subtotal and Average 30,000, ,000, ,989, ,000, Municipal Bonds 13063CKL STATE OF CALIFORNIA 06/12/ ,000, ,986, ,009, AA- Aa3 05/01/ DADO STATE OF CALIFORNIA 04/27/2017 5,000, ,869, ,000, AA- Aa3 04/01/ DADO STATE OF CALIFORNIA 04/27/ ,500, ,226, ,543, AA- Aa3 04/01/ DADO STATE OF CALIFORNIA 05/03/2017 8,000, ,791, ,022, AA- Aa3 04/01/ DDF STATE OF CALIFORNIA 10/26/ ,000, ,760, ,120, AA- Aa3 10/ DDF STATE OF CALIFORNIA 10/26/ ,000, ,760, , 120, AA- Aa3 10/01/2022 Portfolio FSNO AC Run Dale: 07/13/ :44 PM (PRF _PM2)

249 County of Fresno Portfolio Management Portfolio Details - Investments June 30, 2018 Page9 CUSIP Investment# Issuer Average Balance Purchase Date Par Value Market Value Book Value Stated Rate YTM Maturity 365 S&P Moody's Date Municipal Bonds 13063DDE STATE OF CALIFORNIA 13063DDF STATE OF CALIFORNIA 13063DDF STATE OF CALIFORNIA Subtotal and Average 103,997, /11/ ,000, ,746, /14/ ,000, ,520, /16/2018 5,000, ,880, ,500, ,541, ,135, ,055, ,985, ,991, AA- Aa3 10/01/ AA- Aa3 10/01/ AA- Aa3 10/01 / Total and Average 3,608,885, ,658,635, ,602, 167, ,657,258, Run Date: 07113/ :44 Portfolio FSNO AC PM (PRF _PM2)

250 County of Fresno Portfolio Management Portfolio Details - Cash June 30, 2018 Page 10 CUSIP Investment# Issuer Average Balance Purchase Date Par Value Market Value Book Value Stated Rate YTM 365 S&P Moody's Average Balance 0.00 Total Cash and Investments 3,608,885, ,658,635, ,602, 167, ,657,258, Run Date: 07/ :44 Portfolio FSNO AC PM (PRF _PM2)

251 County of Fresno Inventory by Maturity Report June 30, 2018 Sec. CUSIP Investment # Fund Type Issuer SYS02642 SYS03399 SYS03400A SYS03400B SYS05291 SYS05831 SYS15497 SYS16450 SYS U TCP BGP WZV ZW HGW ZZ VQ VQ HGX HGX HCL HCL BY BY RE L5T L5T L5T EQV4 3135G0YM9 3135G0YM9 3135G0YM WD8 3135G0YT4 3135G0YT A 03400B Purchase Date Book Value Current Rate Maturity Date Maturity Amount Total Par YTM Days to Days Value Maturity TREAS LA1 FIDELITY /01/ ,000, ,000, ,000, TREAS PA2 VAULT 07/01/ TREAS PA1 BANK OF THE WEST 07/01/ ,700, ,700, ,700, TREAS PA1 BANK OF AMERICA 07/01/2017 4, , , TREAS LA5 LAIF 07/01/ ,000, ,000, ,000, TREAS LA1 FIDELITY /01/ TREAS LA1 FIDELITY /01/ TREAS LA1 BLACKROCK LIQUIDITY 07/01/ TREAS LA3 BANK OF THE WEST MM 07/01/ ,018, ,018, ,018, TREAS LA1 BLACKROCK PROVIDENT 07/01/ TREAS MTN TOYOTA MOTOR CREDIT 09/11/2015 5,999, /13/2018 6,000, ,036 6,000, TREAS ACP EXXON MOBIL 06/08/ ,910, /23/ ,000, ,000, TREAS NCB BNP PARIBAS NY BRANCH07/27/ ,000, /27/ ,000, ,000, TREAS AFD FEDERAL HOME LOAN 06/28/ ,896, /27/ ,000, ,000, TREAS ACP TOYOTA MOTOR CREDIT 12/15/ ,972, /30/ ,000, ,000, TREAS AFD FEDERAL HOME LOAN 06/19/ ,924, /30/ ,000, ,000, TREAS TRC US TREASURY NOTE 08/01/ , /31/ , , , TREAS TRC US TREASURY NOTE 12/27/ , /31/ , , , TREAS ACP TOYOTA MOTOR CREDIT 01/04/ ,940, /31/ ,000, ,000, TREAS ACP TOYOTA MOTOR CREDIT 04/04/ ,883, /31/ ,000, ,000, TREAS MTN BANK OF NEW YORK 08/27/2013 4,999, /01/2018 5,000, ,800 5,000, TREAS MTN BANK OF NEW YORK 12/13/ ,001, /01/ ,000, ,692 10,000, TREAS MTN BERKSHIRE HATHAWAY 08/15/ ,000, /15/ ,000, ,826 10,000, TREAS MTN BERKSHIRE HATHAWAY 08/27/ , /15/2018 1,000, ,814 1,000, TREAS TRC US TREASURY NOTE 03/21/ , /31/ , , , TREAS MTN CATERPILLAR 09/10/2013 4,999, /06/2018 5,000, ,822 5,000, TREAS MTN CATERPILLAR 12/06/2013 7,682, /06/2018 7,675, ,735 7,675, TREAS MTN CATERPILLAR 12/26/2013 2,501, /06/2018 2,500, ,715 2,500, TREAS MTN JOHN DEERE 09/10/2013 3,520, /10/2018 3,500, ,826 3,500, TREAS FAC FEDERAL NATIONAL 09/25/ , /18/ , , , TREAS FAC FEDERAL NATIONAL 11/22/2013 1,000, /18/2018 1,000, ,761 1,000, TREAS FAC FEDERAL NATIONAL 11/27/ , /18/ , , , TREAS TRC US TREASURY NOTE 03/21/ , /31/ , , , TREAS FAC FEDERAL NATIONAL 01/31/ , /27/ , , , TREAS FAC FEDERAL NATIONAL 03/20/ , /27/ , , , Portfolio FSNO AC Run Date: 07/18/ :58 IM (PRF_IM) Report Ver

252 County of Fresno Inventory by Maturity Report Page 2 Sec. CUSIP Investment # Fund Type Issuer 24422ESF BR A BFQ HJR HJR HJR2 3136FTZZ5 3135G0ZA4 3135G0ZA4 3135G0ZA4 3135G0ZA4 3135G0ZA4 3133EGBR5 3135G0J C ESK HCR HHL CKL3 3133EDLR HCU HCU1 3133X72S2 3133X72S BH BH EE5 3130A2FH EE5 3130A2FH4 3135G0ZE6 3135G0ZE6 3135G0ZE6 3135G0ZE6 3133EFW TBP9 3137EAEB1 3137EADK2 3137EADK Purchase Date Book Value Current Rate Maturity Date Maturity Amount Total Par YTM Days to Days Value Maturity TREAS MTN JOHN DEERE 12/26/ ,991, /13/ ,000, ,813 20,000, TREAS FAC FEDERAL HOME LOAN 01/03/ ,986, /14/ ,000, ,806 40,000, TREAS TRC US TREASURY NOTE 04/21/ , /31/ , , , TREAS MTN WELLS FARGO 01/15/ ,994, /15/ ,000, ,826 15,000, TREAS MTN JP MORGAN 01/28/2014 4,999, /28/2019 5,000, ,826 5,000, TREAS MTN JP MORGAN 03/05/ ,007, /28/ ,000, ,790 10,000, TREAS MTN JP MORGAN 09/16/2014 5,003, /28/2019 5,000, ,595 5,000, TREAS FAC FEDERAL NATIONAL 12/09/ ,008, /30/ ,000, ,513 10,000, TREAS FAC FEDERAL NATIONAL 02/25/ ,008, /19/ ,000, ,820 10,000, TREAS FAC FEDERAL NATIONAL 03/03/ ,030, /19/ ,000, ,814 25,000, TREAS FAC FEDERAL NATIONAL 03/03/ ,012, /19/ ,000, ,814 10,000, TREAS FAC FEDERAL NATIONAL 03/20/ , /19/ , , , TREAS FAC FEDERAL NATIONAL 10/01/2014 5,004, /19/2019 5,000, ,602 5,000, TREAS FAC FEDERAL FARM CREDIT 06/09/2016 4,999, /25/2019 5,000, ,000, TREAS FAC FEDERAL NATIONAL 08/11/ ,582, /26/ ,561, ,561, TREAS TRC US TREASURY NOTE 03/31/ , /28/2019 1,000, ,795 1,000, TREAS MTN JOHN DEERE 03/05/ ,001, /04/ ,000, ,825 10,000, TREAS MTN BANK OF NEW YORK 05/19/ ,133, /04/ ,000, ,019 30,000, TREAS MTN JP MORGAN 07/23/2014 6,945, /23/2019 6,740, ,735 6,740, TREAS MUN STATE OF CALIFORNIA 06/12/ ,009, /01/ ,000, ,784 10,000, TREAS FAC FEDERAL FARM CREDIT 05/27/2014 5,001, /15/2019 5,000, ,814 5,000, TREAS MTN BANK OF NEW YORK 09/16/2014 2,499, /15/2019 2,500, ,702 2,500, TREAS MTN BANK OF NEW YORK 09/16/2014 4,999, /15/2019 5,000, ,702 5,000, TREAS FAC FEDERAL HOME LOAN 12/09/ ,306, /15/ ,000, ,618 10,000, TREAS FAC FEDERAL HOME LOAN 12/19/ ,135, /15/ ,500, ,608 20,500, TREAS MTN CHEVRON CORP 05/25/ ,982, /16/ ,000, ,086 20,000, TREAS MTN CHEVRON CORP 05/27/2016 9,991, /16/ ,000, ,084 10,000, TREAS FAC FEDERAL HOME LOAN 06/18/2014 4,989, /14/2019 5,000, ,822 5,000, TREAS FAC FEDERAL HOME LOAN 09/02/ ,001, /14/ ,000, ,746 20,000, TREAS FAC FEDERAL HOME LOAN 09/10/2014 9,979, /14/ ,000, ,738 10,000, TREAS FAC FEDERAL HOME LOAN 09/10/2014 9,991, /14/ ,000, ,738 10,000, TREAS FAC FEDERAL NATIONAL 06/18/2014 4,995, /20/2019 5,000, ,828 5,000, TREAS FAC FEDERAL NATIONAL 10/01/ ,973, /20/ ,000, ,723 30,000, TREAS FAC FEDERAL NATIONAL 12/11/ ,013, /20/ ,000, ,652 10,000, TREAS FAC FEDERAL NATIONAL 12/19/ ,021, /20/ ,000, ,644 26,000, TREAS FAC FEDERAL FARM CREDIT 06/09/2016 2,062, /01/2019 2,060, ,117 2,060, TREAS MTN TOYOTA MOTOR CREDIT 10/01/2014 9,992, /18/ ,000, ,751 10,000, TREAS FAC FEDERAL HOME 08/11/2016 9,993, /19/ ,000, ,072 10,000, TREAS FAC FEDERAL HOME 12/11/ ,938, /01/ ,000, ,694 15,000, TREAS FAC FEDERAL HOME 12/11/ ,918, /01/ ,000, ,694 20,000, Portfolio FSNO AC Run Date: 07/18/ :58 IM (PRF_IM) Report Ver

253 County of Fresno Inventory by Maturity Report Page 3 Sec. CUSIP Investment # Fund Type Issuer BL HCW7 3137EADM8 3137EADM8 3137EADM G7M ERY HBP3 3135G0A G0A G0A G0A G0A G0A G0A G0A G0A G0A HKA HCZ L6J5 3137EADR7 3137EADR BD ND8 3134G44G XE XE HU HU8 3133EEW G0D G0D G0D G0D G0D G0D G0D G0D G0D Purchase Date Book Value Current Rate Maturity Date Maturity Amount Total Par YTM Days to Days Value Maturity TREAS MTN BERKSHIRE HATHAWAY 10/01/2014 9,992, /14/ ,000, ,778 10,000, TREAS MTN BANK OF NEW YORK 10/01/2014 8,490, /11/2019 8,501, ,806 8,501, TREAS FAC FEDERAL HOME 12/19/ ,880, /02/ ,000, ,748 20,000, TREAS FAC FEDERAL HOME 12/19/ ,880, /02/ ,000, ,748 20,000, TREAS FAC FEDERAL HOME 12/19/2014 9,940, /02/ ,000, ,748 10,000, TREAS MTN G.E. CAPITAL 03/04/ ,383, /09/ ,350, ,772 10,350, TREAS MTN JOHN DEERE 12/28/2015 8,923, /15/2020 9,000, ,479 9,000, TREAS MTN BANK OF NEW YORK 12/28/2015 5,169, /15/2020 5,000, ,479 5,000, TREAS FAC FEDERAL NATIONAL 03/04/ ,977, /21/ ,000, ,784 20,000, TREAS FAC FEDERAL NATIONAL 05/08/ ,000, /21/ ,000, ,719 10,000, TREAS FAC FEDERAL NATIONAL 05/08/ ,000, /21/ ,000, ,719 10,000, TREAS FAC FEDERAL NATIONAL 06/03/ ,997, /21/ ,000, ,693 15,000, TREAS FAC FEDERAL NATIONAL 10/29/ ,027, /21/ ,000, ,545 10,000, TREAS FAC FEDERAL NATIONAL 11/04/ ,015, /21/ ,000, ,539 10,000, TREAS FAC FEDERAL NATIONAL 11/06/ ,005, /21/ ,000, ,537 10,000, TREAS FAC FEDERAL NATIONAL 12/22/ ,003, /21/ ,000, ,491 20,000, TREAS FAC FEDERAL NATIONAL 12/23/ ,001, /21/ ,000, ,490 10,000, TREAS FAC FEDERAL NATIONAL 12/23/ ,001, /21/ ,000, ,490 20,000, TREAS MTN JP MORGAN 03/04/2015 9,985, /23/ ,000, ,786 10,000, TREAS MTN BANK OF NEW YORK 03/04/2015 3,002, /24/2020 3,000, ,818 3,000, TREAS MTN CATERPILLAR 03/04/2016 8,266, /05/2020 8,278, ,462 8,278, TREAS FAC FEDERAL HOME 05/06/2015 9,954, /01/ ,000, ,822 10,000, TREAS FAC FEDERAL HOME 05/08/2015 9,952, /01/ ,000, ,820 10,000, TREAS MTN APPLE INC 12/28/2015 9,998, /06/ ,000, ,591 10,000, TREAS TRC US TREASURY NOTE 12/23/ ,341, /15/ ,000, ,605 40,000, TREAS FAC FEDERAL HOME 10/29/2015 4,997, /22/2020 5,000, ,667 5,000, TREAS TRC US TREASURY NOTE 11/15/ ,026, /31/ ,000, ,293 15,000, TREAS TRC US TREASURY NOTE 12/13/ ,936, /31/ ,000, ,265 40,000, TREAS FAC FEDERAL HOME LOAN 06/12/ ,999, /12/ ,000, ,827 20,000, TREAS FAC FEDERAL HOME LOAN 06/26/ ,597, /12/ ,615, ,813 12,615, TREAS FAC FEDERAL FARM CREDIT 06/15/2015 9,983, /15/ ,000, ,827 10,000, TREAS FAC FEDERAL NATIONAL 10/29/ ,986, /22/ ,000, ,698 20,000, TREAS FAC FEDERAL NATIONAL 10/30/2015 5,942, /22/2020 5,950, ,697 5,950, TREAS FAC FEDERAL NATIONAL 11/04/2015 4,988, /22/2020 5,000, ,692 5,000, TREAS FAC FEDERAL NATIONAL 11/04/2015 4,987, /22/2020 5,000, ,692 5,000, TREAS FAC FEDERAL NATIONAL 11/06/2015 4,983, /22/2020 5,000, ,690 5,000, TREAS FAC FEDERAL NATIONAL 12/17/ ,844, /22/ ,000, ,649 30,000, TREAS FAC FEDERAL NATIONAL 12/17/ ,889, /22/ ,000, ,649 20,000, TREAS FAC FEDERAL NATIONAL 12/22/2015 9,961, /22/ ,000, ,644 10,000, TREAS FAC FEDERAL NATIONAL 12/23/2015 9,958, /22/ ,000, ,643 10,000, Portfolio FSNO AC Run Date: 07/18/ :58 IM (PRF_IM) Report Ver

254 County of Fresno Inventory by Maturity Report Page 4 Sec. CUSIP Investment # Fund Type Issuer XM XM HDD L DDE HNX4 3135G0RM AY CA1 3135G0H N ETF6 3130AAX HHL HHL HHL HHL HHL HHL XN0 3133EFYZ4 3130A7CV5 3130A7CV5 3130A7CV5 3130A7CV5 3130A7CV5 3130A7CV BS FAB9 3135G0K G0K G0K G0K G0K BG WN6 3130A1W RB7 3130A1W RB Purchase Date Book Value Current Rate Maturity Date Maturity Amount Total Par YTM Days to Days Value Maturity TREAS TRC US TREASURY NOTE 12/22/ ,904, /31/ ,000, ,317 40,000, TREAS TRC US TREASURY NOTE 12/28/ ,887, /31/ ,000, ,311 40,000, TREAS MTN BANK OF NEW YORK 12/28/2015 5,017, /17/2020 5,000, ,694 5,000, TREAS TRC US TREASURY NOTE 12/28/ ,710, /30/ ,000, ,372 30,000, TREAS MUN STATE OF CALIFORNIA 12/11/ ,135, /01/ ,000, ,025 25,000, TREAS MTN JP MORGAN 03/04/2016 6,183, /29/2020 6,181, ,700 6,181, TREAS FAC FEDERAL NATIONAL 10/30/ ,072, /30/ ,060, ,827 10,060, TREAS MTN CHEVRON CORP 12/28/2015 9,988, /17/ ,000, ,786 10,000, TREAS FAC FEDERAL HOME LOAN 04/21/2016 5,000, /11/2020 5,000, ,695 5,000, TREAS FAC FEDERAL NATIONAL 05/20/ ,110, /28/ ,000, ,683 10,000, TREAS TRC US TREASURY NOTE 12/16/ ,837, /31/ ,000, ,476 40,000, TREAS MTN JOHN DEERE 03/04/2016 5,047, /08/2021 5,000, ,771 5,000, TREAS FAC FEDERAL HOME LOAN 03/28/ ,039, /28/ ,000, ,402 15,000, TREAS MTN US BANK NA 08/22/2016 5,082, /29/2021 5,000, ,621 5,000, TREAS MTN US BANK NA 12/13/2016 4,647, /29/2021 4,634, ,508 4,634, TREAS MTN US BANK NA 12/22/2016 4,992, /29/2021 5,000, ,499 5,000, TREAS MTN US BANK NA 12/22/2016 7,511, /29/2021 7,522, ,499 7,522, TREAS MTN US BANK NA 03/22/ ,005, /29/ ,000, ,409 10,000, TREAS MTN US BANK NA 06/27/2017 4,837, /29/2021 4,803, ,312 4,803, TREAS FAC FEDERAL HOME LOAN 03/03/ , /08/ , , , TREAS FAC FEDERAL FARM CREDIT 02/29/ ,772, /10/ ,800, ,808 17,800, TREAS FAC FEDERAL HOME LOAN 03/03/2016 4,980, /18/2021 5,000, ,813 5,000, TREAS FAC FEDERAL HOME LOAN 04/21/2016 9,992, /18/ ,000, ,764 10,000, TREAS FAC FEDERAL HOME LOAN 05/20/2016 4,988, /18/2021 5,000, ,735 5,000, TREAS FAC FEDERAL HOME LOAN 05/25/2016 9,970, /18/ ,000, ,730 10,000, TREAS FAC FEDERAL HOME LOAN 08/08/ ,051, /18/ ,000, ,655 10,000, TREAS FAC FEDERAL HOME LOAN 03/20/ ,752, /18/ ,000, ,431 20,000, TREAS MTN APPLE INC 01/19/ ,000, /23/ ,000, ,496 10,000, TREAS MTN BANK OF NEW YORK 07/18/2017 7,451, /03/2021 7,500, ,385 7,500, ,037 TREAS FAC FEDERAL NATIONAL 05/25/2016 9,925, /06/ ,000, ,807 10,000, ,040 TREAS FAC FEDERAL NATIONAL 09/28/ ,010, /06/ ,000, ,681 25,000, ,040 TREAS FAC FEDERAL NATIONAL 11/02/2016 9,964, /06/ ,000, ,646 10,000, ,040 TREAS FAC FEDERAL NATIONAL 11/14/2016 7,939, /06/2021 8,000, ,634 8,000, ,040 TREAS FAC FEDERAL NATIONAL 12/02/ ,550, /06/ ,000, ,616 25,000, ,040 TREAS MTN CHEVRON CORP 04/25/ ,993, /16/ ,000, ,482 20,000, ,050 TREAS TRC US TREASURY NOTE 12/28/ ,005, /31/ ,000, ,615 40,000, ,065 TREAS FAC FEDERAL HOME LOAN 07/15/ ,854, /11/ ,000, ,792 30,000, ,076 TREAS FAC FEDERAL HOME LOAN 08/17/ ,161, /11/ ,000, ,759 10,000, ,076 TREAS FAC FEDERAL HOME LOAN 11/29/ ,683, /11/ ,470, ,655 18,470, ,076 TREAS FAC FEDERAL HOME LOAN 04/11/ ,012, /11/ ,000, ,522 15,000, ,076 Portfolio FSNO AC Run Date: 07/18/ :58 IM (PRF_IM) Report Ver

255 County of Fresno Inventory by Maturity Report Page 5 Sec. CUSIP Investment # Fund Type Issuer 3130AB3M6 3130A8QS5 3130A8QS5 3130A8QS5 3130A8QS5 3130A8QS5 3130A8QS5 3130A8QS SA0 3134G9M SA SA SA0 3134G9N P CC BP BP L6U0 3137EAEC9 3135G0N G0N G0N G0Q G0Q G0Q EGYQ ERH G5J9 3133EGZJ7 3135G0S G0S G0S G0S G0S HHP8 3133EG5D3 3136G2CS BF BW Purchase Date Book Value Current Rate Maturity Date Maturity Amount Total Par YTM Days to Days Value Maturity TREAS FAC FEDERAL HOME LOAN 04/10/2017 5,003, /30/2021 5,000, ,542 5,000, ,095 TREAS FAC FEDERAL HOME LOAN 08/08/ ,947, /14/ ,000, ,801 15,000, ,109 TREAS FAC FEDERAL HOME LOAN 08/29/2016 3,932, /14/2021 3,955, ,780 3,955, ,109 TREAS FAC FEDERAL HOME LOAN 09/13/ ,909, /14/ ,000, ,765 15,000, ,109 TREAS FAC FEDERAL HOME LOAN 09/28/2016 9,966, /14/ ,000, ,750 10,000, ,109 TREAS FAC FEDERAL HOME LOAN 10/13/2016 9,913, /14/ ,000, ,735 10,000, ,109 TREAS FAC FEDERAL HOME LOAN 11/14/2016 9,881, /14/ ,000, ,703 10,000, ,109 TREAS FAC FEDERAL HOME LOAN 04/06/ ,603, /14/ ,000, ,560 20,000, ,109 TREAS MTN WELLS FARGO 01/25/2017 9,792, /26/ ,000, ,643 10,000, ,121 TREAS FAC FEDERAL HOME 04/06/2017 4,409, /26/2021 4,410, ,572 4,410, ,121 TREAS MTN WELLS FARGO 04/17/2017 4,946, /26/2021 5,000, ,561 5,000, ,121 TREAS MTN WELLS FARGO 05/15/ ,088, /26/ ,232, ,533 13,232, ,121 TREAS MTN WELLS FARGO 07/18/ ,159, /26/ ,275, ,469 12,275, ,121 TREAS FAC FEDERAL HOME 05/11/2017 6,165, /27/2021 6,170, ,538 6,170, ,122 TREAS FAC FEDERAL HOME LOAN 10/05/2016 6,065, /29/2021 5,700, ,758 5,700, ,124 TREAS MTN APPLE INC 12/13/2016 4,901, /04/2021 5,000, ,695 5,000, ,130 TREAS MTN MICROSOFT 08/22/ ,993, /08/ ,000, ,812 15,000, ,134 TREAS MTN MICROSOFT 12/13/2016 4,906, /08/2021 5,000, ,699 5,000, ,134 TREAS MTN CATERPILLAR 09/16/ ,187, /09/ ,294, ,788 15,294, ,135 TREAS FAC FEDERAL HOME 08/17/2016 9,940, /12/ ,000, ,821 10,000, ,138 TREAS FAC FEDERAL NATIONAL 08/29/2016 9,986, /17/ ,000, ,814 10,000, ,143 TREAS FAC FEDERAL NATIONAL 08/29/2016 9,973, /17/ ,000, ,814 10,000, ,143 TREAS FAC FEDERAL NATIONAL 08/29/2016 9,967, /17/ ,000, ,814 10,000, ,143 TREAS FAC FEDERAL NATIONAL 10/07/ ,978, /07/ ,000, ,826 20,000, ,194 TREAS FAC FEDERAL NATIONAL 10/13/2016 9,961, /07/ ,000, ,820 10,000, ,194 TREAS FAC FEDERAL NATIONAL 10/27/2016 4,987, /07/2021 5,000, ,806 5,000, ,194 TREAS FAC FEDERAL FARM CREDIT 10/27/2016 9,981, /14/ ,000, ,813 10,000, ,201 TREAS MTN JOHN DEERE 12/13/2016 8,902, /15/2021 8,707, ,767 8,707, ,202 TREAS MTN G.E. CAPITAL 11/16/ ,690, /17/ ,000, ,431 10,000, ,204 TREAS FAC FEDERAL FARM CREDIT 10/27/2016 9,973, /25/ ,000, ,824 10,000, ,212 TREAS FAC FEDERAL NATIONAL 01/09/ ,968, /05/ ,000, ,822 20,000, ,284 TREAS FAC FEDERAL NATIONAL 01/09/2017 9,983, /05/ ,000, ,822 10,000, ,284 TREAS FAC FEDERAL NATIONAL 03/28/ ,004, /05/ ,000, ,744 10,000, ,284 TREAS FAC FEDERAL NATIONAL 06/02/2017 5,028, /05/2022 5,000, ,678 5,000, ,284 TREAS FAC FEDERAL NATIONAL 06/12/2017 5,027, /05/2022 5,000, ,668 5,000, ,284 TREAS MTN US BANK NA 06/27/ ,240, /24/ ,000, ,672 20,000, ,303 TREAS FAC FEDERAL FARM CREDIT 01/27/ ,000, /27/ ,000, ,826 50,000, ,306 TREAS FAC FEDERAL NATIONAL 03/28/2017 5,002, /27/2022 5,000, ,766 5,000, ,306 TREAS MTN BERKSHIRE HATHAWAY 12/14/ ,531, /31/ ,000, ,509 15,000, ,310 TREAS MTN MICROSOFT 02/21/2017 6,720, /06/2022 6,725, ,811 6,725, ,316 Portfolio FSNO AC Run Date: 07/18/ :58 IM (PRF_IM) Report Ver

256 County of Fresno Inventory by Maturity Report Page 6 Sec. CUSIP Investment # Fund Type Issuer BW RAA CM AY BA DAD DAD DAD CQ1 3133EHJT1 3130ACUZ5 3130ACXH XR Q Q Q Q Q Q Q A5P EEY ACM ACM JAA4 3130ACKC U2B8 3130ACYP3 3130ACUV4 3130ACUV4 3130AC5A8 3130AC5A8 3133EHVS L DDF DDF DDF DDF2 3135G0T G0T Purchase Date Book Value Current Rate Maturity Date Maturity Amount Total Par YTM Days to Days Value Maturity TREAS MTN MICROSOFT 12/21/ ,375, /06/ ,375, ,508 17,375, ,316 TREAS MTN BANK OF NEW YORK 04/18/ ,059, /07/ ,000, ,756 10,000, ,317 TREAS MTN APPLE INC 02/21/ ,973, /09/ ,000, ,814 15,000, ,319 TREAS MTN APPLE INC 04/18/2017 9,984, /09/ ,000, ,758 10,000, ,319 TREAS MTN MICROSOFT 02/21/2017 6,440, /12/2022 6,450, ,817 6,450, ,322 TREAS MUN STATE OF CALIFORNIA 04/27/2017 5,000, /01/2022 5,000, ,800 5,000, ,370 TREAS MUN STATE OF CALIFORNIA 04/27/ ,543, /01/ ,500, ,800 10,500, ,370 TREAS MUN STATE OF CALIFORNIA 05/03/2017 8,022, /01/2022 8,000, ,794 8,000, ,370 TREAS MTN APPLE INC 05/11/ ,962, /11/ ,000, ,826 20,000, ,410 TREAS FAC FEDERAL FARM CREDIT 05/18/2017 4,995, /18/2022 5,000, ,826 5,000, ,417 TREAS FAC FEDERAL HOME LOAN 11/24/ ,981, /24/ ,000, ,642 23,000, ,423 TREAS FAC FEDERAL HOME LOAN 12/04/ ,926, /25/ ,000, ,633 25,000, ,424 TREAS TRC US TREASURY NOTE 09/27/ ,931, /31/ ,000, ,707 20,000, ,430 TREAS FAC FEDERAL HOME LOAN 06/28/2017 5,043, /10/2022 5,000, ,808 5,000, ,440 TREAS FAC FEDERAL HOME LOAN 06/28/2017 5,043, /10/2022 5,000, ,808 5,000, ,440 TREAS FAC FEDERAL HOME LOAN 06/28/2017 3,853, /10/2022 3,820, ,808 3,820, ,440 TREAS FAC FEDERAL HOME LOAN 07/07/ ,531, /10/ ,470, ,799 13,470, ,440 TREAS FAC FEDERAL HOME LOAN 09/27/ ,183, /10/ ,000, ,717 20,000, ,440 TREAS FAC FEDERAL HOME LOAN 12/01/2017 1,999, /10/2022 2,000, ,652 2,000, ,440 TREAS FAC FEDERAL HOME LOAN 12/20/2017 1,892, /10/2022 1,900, ,633 1,900, ,440 TREAS FAC FEDERAL HOME LOAN 12/20/2017 1,935, /10/2022 1,925, ,633 1,925, ,440 TREAS FAC FEDERAL FARM CREDIT 09/21/ ,177, /17/ ,000, ,730 10,000, ,447 TREAS FAC FEDERAL HOME LOAN 10/12/ ,987, /11/ ,000, ,733 15,000, ,471 TREAS FAC FEDERAL HOME LOAN 10/19/2017 4,445, /11/2022 4,455, ,726 4,455, ,471 TREAS MTN US BANK NA 12/21/ ,131, /15/ ,004, ,667 10,004, ,475 TREAS FAC FEDERAL HOME LOAN 10/18/ ,000, /18/ ,000, ,734 50,000, ,478 TREAS MTN WELLS FARGO 10/20/2017 4,998, /22/2022 5,000, ,736 5,000, ,482 TREAS FAC FEDERAL HOME LOAN 12/05/ ,984, /27/ ,000, ,695 20,000, ,487 TREAS FAC FEDERAL HOME LOAN 11/30/ ,000, /29/ ,000, ,702 50,000, ,489 TREAS FAC FEDERAL HOME LOAN 12/06/2017 8,857, /29/2022 8,890, ,696 8,890, ,489 TREAS FAC FEDERAL HOME LOAN 09/19/2017 9,981, /15/ ,000, ,791 10,000, ,506 TREAS FAC FEDERAL HOME LOAN 09/27/2017 9,252, /15/2022 9,280, ,783 9,280, ,506 TREAS FAC FEDERAL FARM CREDIT 09/28/2017 5,471, /23/2022 5,500, ,790 5,500, ,514 TREAS TRC US TREASURY NOTE 10/23/ ,891, /31/ ,000, ,773 20,000, ,522 TREAS MUN STATE OF CALIFORNIA 10/26/ ,120, /01/ ,000, ,801 10,000, ,553 TREAS MUN STATE OF CALIFORNIA 10/26/ ,120, /01/ ,000, ,801 10,000, ,553 TREAS MUN STATE OF CALIFORNIA 12/14/ ,055, /01/ ,000, ,752 20,000, ,553 TREAS MUN STATE OF CALIFORNIA 01/16/2018 4,985, /01/2022 5,000, ,719 5,000, ,553 TREAS FAC FEDERAL NATIONAL 10/10/ ,981, /05/ ,000, ,821 20,000, ,557 TREAS FAC FEDERAL NATIONAL 10/12/ ,984, /05/ ,000, ,819 15,000, ,557 Portfolio FSNO AC Run Date: 07/18/ :58 IM (PRF_IM) Report Ver

257 County of Fresno Inventory by Maturity Report Page 7 Sec. CUSIP Investment # Fund Type Issuer 3135G0T P7F TEL TEL DE7 3133EH7F4 3135G0T HNL HNL HNL HJH4 3133EJBP3 3133EJBP BU AT AK AK AK BK BK5 3130AEEW6 3130AEAP Purchase Date Book Value Current Rate Maturity Date Maturity Amount Total Par YTM Days to Days Value Maturity TREAS FAC FEDERAL NATIONAL 01/11/2018 4,923, /05/2022 5,000, ,728 5,000, ,557 TREAS MTN TOYOTA MOTOR CREDIT 03/01/2018 4,929, /10/2023 5,000, ,776 5,000, ,654 TREAS MTN TOYOTA MOTOR CREDIT 03/01/2018 4,944, /11/2023 5,000, ,777 5,000, ,655 TREAS MTN TOYOTA MOTOR CREDIT 04/02/ ,758, /11/ ,000, ,745 20,000, ,655 TREAS MTN APPLE INC 03/01/2018 2,448, /13/2023 2,500, ,779 2,500, ,657 TREAS FAC FEDERAL FARM CREDIT 04/19/ ,612, /17/ ,869, ,734 19,869, ,661 TREAS FAC FEDERAL NATIONAL 01/23/ ,727, /19/ ,000, ,822 50,000, ,663 TREAS MTN US BANK NA 01/24/2018 9,983, /23/ ,000, ,825 10,000, ,667 TREAS MTN US BANK NA 03/01/2018 4,955, /23/2023 5,000, ,789 5,000, ,667 TREAS MTN US BANK NA 04/20/2018 9,936, /23/ ,000, ,739 10,000, ,667 TREAS MTN JP MORGAN 04/26/2018 9,933, /25/ ,000, ,735 10,000, ,669 TREAS FAC FEDERAL FARM CREDIT 02/07/2018 9,963, /02/ ,000, ,821 10,000, ,677 TREAS FAC FEDERAL FARM CREDIT 02/28/ ,700, /02/ ,180, ,800 51,180, ,677 TREAS MTN APPLE INC 03/01/2018 9,914, /23/ ,000, ,820 10,000, ,698 TREAS MTN MICROSOFT 06/22/2018 9,683, /01/ ,000, ,774 10,000, ,765 TREAS MTN APPLE INC 05/03/2018 4,805, /03/2023 5,000, ,826 5,000, ,767 TREAS MTN APPLE INC 05/03/2018 4,805, /03/2023 5,000, ,826 5,000, ,767 TREAS MTN APPLE INC 06/22/2018 9,656, /03/ ,000, ,776 10,000, ,767 TREAS MTN CHEVRON CORP 06/08/2018 9,682, /16/ ,000, ,803 10,000, ,780 TREAS MTN CHEVRON CORP 06/22/2018 4,857, /16/2023 5,000, ,789 5,000, ,780 TREAS FAC FEDERAL HOME LOAN 06/07/ ,027, /30/ ,150, ,818 21,150, ,794 TREAS FAC FEDERAL HOME LOAN 05/30/ ,974, /30/ ,000, ,826 50,000, ,794 Subtotal and Average 3,657,258, ,658,635, ,658,635, Net Maturities and Average 3,657,258, ,658,635, ,658,635, Portfolio FSNO AC Run Date: 07/18/ :58 IM (PRF_IM) Report Ver

258 Quarterly Economic and Market Update June

259 Economic and Market Update 6/30/2018 Item 6/30/2018 3/31/2018 Change U.S. Payrolls Monthly Change 213, ,000 58,000 Unemployment Rate 4.0% 4.1% -0.1% Labor Force Participation 62.9% 62.9% 0.0% Effective Fed Funds Rate 1.91% 1.68% 0.23% Next Fed Funds Hike** Dec 2018 Jan Months 3 Month T-Bill 1.92% 1.71% 0.21% 2 Year T-Note 2.53% 2.27% 0.26% 3 Year T-Note 2.62% 2.38% 0.24% 5 Year T-Note 2.74% 2.56% 0.18% 10 Year T-Note 2.86% 2.74% 0.12% U.S. Fed Debt Avg Yield* 2.21% 2.20% 0.02% 30 Year Mortgage Rate 4.40% 4.27% 0.13% 1-5 Yr Agency Spread 0.08% 0.07% 0.01% 1-5 Yr Corporate Spread 0.69% 0.69% 0.00% Dow Jones 24,271 24, % S&P 500 2,718 2, % Consumer Price Index YOY* 2.9% 2.4% 0.5% U.S. Avg Regular Unleaded $2.85 $2.66 $0.20 Retail Sales YOY* 5.5% 5.1% 0.4% Case-Shiller Home Prices YOY* 6.6% 6.7% -0.2% Gold (per ounce) $1, $1, $72.90 Dollar Index Consumer Confidence *Estimates for the current quarter/month, some data are lagged **Next Projected Fed Funds Hike is first month Fed Funds Futures are 2.125% or higher Sources: FTN Main Street and Bloomberg 36

260 Economic and Market Update 6/30/ U.S. GDP (Quarter over Quarter Annualized)* Percent Estimates Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q * Real Rate (Inflation Adjusted) Source: Bureau of Economic Analysis Estimate: Bloomberg's Survey of Economists As of: 6/30/18 37

261 Economic and Market Update 6/30/2018 Percent s 4.2% s 4.5% 1970s 3.3% U.S. Annual GDP * s 3.2% 1990s 3.2% 2000s 1.8% 2010s 2.2% * Real Rate (Inflation Adjusted) Source: Bureau of Economic Analysis Estimate: Bloomberg's Survey of Economists As of: 6/30/18 38

262 Economic and Market Update 6/30/ U.S. Monthly Non-Farm Payrolls Change Unemployment Rates Nevada U.S.A California Idaho Washington Thousands Percent Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 2 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun Month Average Job Change 196,500 Source: Bureau of Labor Statistics 39

263 Economic and Market Update 6/30/2018 Millions Jun-08 Jan-09 Aug-09 Mar-10 Oct-10 U.S. Number of Employed Full-Time and Part-TIme May-11 Dec-11 Jul-12 Feb-13 Sep-13 Apr-14 Nov-14 Jun-15 Jan-16 Aug-16 Mar-17 Oct-17 May-18 Percent U.S. Labor Force Participation Rate Jun-08 Jan-09 Aug-09 Mar-10 Oct-10 May-11 Dec-11 Jul-12 Feb-13 Sep-13 Apr-14 Nov-14 Jun-15 Jan-16 Aug-16 Mar-17 Oct-17 May-18 Source: Bureau of Labor Statistics 40

264 Economic and Market Update ######## 6/30/ Weekly Initial Jobless Claims (4 Week Moving Average) Thousands Weekly Initial Jobless Claims is the actual number of people who have filed for Unemployment benefits for the first time. The following five eligibility criteria must be met in order to file for unemployment benefits: 1. Meet the requirements of time worked during a 1 year period (full time or not). 2. Become unemployed through no fault of your own (cannot be fired). 3. Must be able to work; no physical or mental holdbacks. 4. Must be available for work. 5. Must be actively seeking work. Source: Department of Labor and Bloomberg 41

265 Economic and Market Update 6/30/ U.S. Real* Retail Sales YOY % Change 140 U.S. Consumer Confidence Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Percent Index Value Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 *Real: Inflation Adjusted Source: U.S. Census Bureau Source: Conference Board 42

266 Economic and Market Update 6/30/ CPI and CPIX YOY % Change CPI CPIX 2.5 PCE and PCEC YOY % Change PCE PCEC Percent Percent Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 CPIX: Consumer Price Index, excluding food and energy PCEC: Personal Consumption Expenditure Core Source: Bureau of Labor Statistics and Bureau of Economic Analysis 43

267 Economic and Market Update 6/30/ Case-Shiller 20 City U.S. Home Price Index YOY % Increase 6.0 U.S. New and Existing Home Sales YOY Percent Existing-Millions New-Thousands Existing-Left New-Right Jan-10 Jun-10 Nov-10 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Oct-13 Mar-14 Aug-14 Jan-15 Jun-15 Nov-15 Apr-16 Sep-16 Feb-17 Jul-17 Dec Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec Source: Case-Shiller Sources: New (U.S. Census Bureau),Existing (National Assoc. of Realtors) Seasonally Adjusted Annual Rate 44

268 Economic and Market Update 6/30/2018 $22 U.S. Federal Debt Outstanding 4.3 U.S. Treasury Interest Bearing Debt Avg Rate $21 $20 $ $18 Trillions $17 $16 $15 Percent 3.3 $ $13 $12 $ $10 $9 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Source: U.S. Treasury 45

269 Economic and Market Update 6/30/ Fed's Anticipated Rates Fed Funds Futures Fed Funds vs. Fed's Anticipated Fed Funds Rate Percent Jul-2018 Aug-2018 Sep-2018 Oct-2018 Nov-2018 Dec-2018 Jan-2019 Feb-2019 Mar-2019 Apr-2019 May-2019 Jun-2019 Jul-2019 Aug-2019 Sep-2019 Oct-2019 Nov-2019 Dec-2019 Jan-2020 Feb-2020 Mar-2020 Apr-2020 May-2020 Jun-2020 Jul-2020 Aug-2020 Sep-2020 Oct-2020 Nov-2020 Dec-2020 Jan-2021 Feb-2021 Mar-2021 Apr-2021 May-2021 Jun-2021 Fed Funds Anticipated Rate from the June 13, 2018 FOMC Meeting Source: Bloomberg 46

270 Economic and Market Update 6/30/ /29/18 3/29/18 U.S. Treasury Yield Curve Change Maturity 3M 6M 3/29/ /29/ Change Y Percent Y Y Y Y M 6M 1Y 2Y 3Yr 5Y 10Y 30Y 30Y Basis Point Change Basis Points M 6M 1Y 2Y 3Yr 5Y 10Y 30Y Source: Bloomberg Figures may not total due to rounding 47

271 Economic and Market Update 6/30/2018 U.S. Treasury Yields: 3M and 1Y U.S. Treasury Yields: 2Y and 5Y Y 3M Y 2Y Percent Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Percent Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Source: Bloomberg 48

272 Economic and Market Update 6/30/2018 U.S. Treasury Yields 2Yr and 5Yr - Fed Funds Target Rate Yr 2Yr Fed Funds Percent Jan-54 Jan-56 Jan-58 Jan-60 Jan-62 Jan-64 Jan-66 Jan-68 Jan-70 Jan-72 Jan-74 Jan-76 Jan-78 Jan-80 Jan-82 Jan-84 Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18 Source: Bloomberg 49

273 Economic and Market Update 6/30/2018 Global Treasury Rates 2 Year Yields 5 Year Yields 10 Year Yields USA 2.53% USA 2.74% USA 2.86% Australia 1.99% Australia 2.27% Italy 2.67% Canada 1.91% Canada 2.06% Australia 2.63% England 0.72% Italy 1.72% Canada 2.17% Italy 0.68% England 1.02% Portugal 1.78% Japan -0.13% Portugal 0.63% Spain 1.32% Portugal -0.15% Spain 0.40% England 1.28% Spain -0.25% France 0.01% France 0.66% France -0.48% Japan -0.11% Germany 0.30% Germany -0.67% Germany -0.31% Japan 0.03% Switzlnd -0.78% Switzlnd -0.51% Switzlnd -0.11% -4.0% -2.0% 0.0% 2.0% 4.0% -4.0% -2.0% 0.0% 2.0% 4.0% -2.0% 0.0% 2.0% 4.0% Source: Bloomberg 50

274 Economic and Market Update 6/30/2018 Spread: 1-5Yr Agency* vs Treasury Spread: 1-5Yr A-AAA Corporate vs Treasury Basis Points Basis Points May-04 May-05 May-06 May-07 May-08 May-09 May-10 May-11 May-12 May-13 May-14 May-15 May-16 May-17 May-18 May-04 May-05 May-06 May-07 May-08 May-09 May-10 May-11 May-12 May-13 May-14 May-15 May-16 May-17 May-18 Current Spread is 8 Current Spread is 69 *BofA/Merrill Index (option adjusted spread vs. Treasury) Agency (GVP0) *BofA/Merrill Index (option adjusted spread vs. Treasury) Corporate A-AAA (CV10) Source: Bank of America Merrill Lynch Indices 51

275 Economic and Market Update 6/30/2018 Spread: AAA Asset Backed vs Treasury Spread: 0-3Yr Agency CMO vs Treasury Basis Points Basis Points May-04 May-05 May-06 May-07 May-08 May-09 May-10 May-11 May-12 May-13 May-14 May-15 May-16 May-17 May-18 May-04 May-05 May-06 May-07 May-08 May-09 May-10 May-11 May-12 May-13 May-14 May-15 May-16 May-17 May-18 Current Spread is 50 Current Spread is 57 *BofA/Merrill Index (option adjusted spread vs. Treasury) AAA Rated ABS (R0A1) *BofA/Merrill Index (option adjusted spread vs. Treasury) CMO Agency 0-3Yr PAC (CM1P) Source: Bank of America Merrill Lynch Indices 52

276 Economic and Market Update 6/30/2018 ######## Selected Sector Quarterly Total Returns Percent (5) (10) -9.6 (15) Source: Bloomberg 53

277 Economic and Market Update 6/30/2018 ######## Selected Sector Year-Over-YearTotal Returns Percent (5) (15) Source: Bloomberg 54

278 Economic and Market Update 6/30/ Year Treasury Note Yield Percent Combination of solid earnings and hawkish Fed-speak moves rates higher ECB keeps rates and QE unchanged Payroll data disappoints Solid retail sales gives hope for higher Q2 GDP Inflation worry on higher oil prices FOMC Minutes reveal dovish stance on inflation The Fed raises rates and forecasts two additional hikes by year end Talk of potential trade war heats up Concerns on trade war dissipate Political concerns in Italy cause a flight to safety for investors Better-than-expected U.S. Jobs Report Larry Kudlow's trade comments further escalate trade fears 4/1/18 4/4/18 4/7/18 4/10/18 4/13/18 4/16/18 4/19/18 4/22/18 4/25/18 4/28/18 5/1/18 5/4/18 5/7/18 5/10/18 5/13/18 5/16/18 5/19/18 5/22/18 5/25/18 5/28/18 5/31/18 6/3/18 6/6/18 6/9/18 6/12/18 6/15/18 6/18/18 6/21/18 6/24/18 6/27/18 6/30/18 Sources: Bloomberg, FTN Main Street 55

279 Economic and Market Update ######## 6/30/ ,500 25,300 25,100 24,900 24,700 24,500 24,300 24,100 23,900 23,700 Solid earnings alleviate trade concerns Trade disputes causes Boeing stock to tumble China announces reduction in tariffs for foreign autos Caterpillar warns of weaker forward earnings Dow Jones Industrial Index Energy stocks put upward pressure market as Oil tops $70/brl Potential for higher rates spook investors Mnuchin declares a pause on trade war Walmart warns on lower forward guidance Nasdaq closes at record high Italian political turmoil throws the market into a panic ISM indices expand at best pace in four months Trade war concerns brings about negative momentum as stocks turn sharply lower to close out the quarter 23,500 3/31/18 4/3/18 4/6/18 4/9/18 4/12/18 4/15/18 4/18/18 4/21/18 4/24/18 4/27/18 4/30/18 5/3/18 5/6/18 5/9/18 5/12/18 5/15/18 5/18/18 5/21/18 5/24/18 5/27/18 5/30/18 6/2/18 6/5/18 6/8/18 6/11/18 6/14/18 6/17/18 6/20/18 6/23/18 6/26/18 6/29/18 Sources: Bloomberg, FTN Main Street 56