PRELIMINARY OFFICIAL STATEMENT DATED FEBRUARY 20, 2018

Transcription

1 This Preliminary Official Statement and the information contained herein are subject to completion or amendment. These securities may not be sold, nor may offers to buy them be accepted, prior to the time the Official Statement is delivered in final form. 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. NEW ISSUE BOOK-ENTRY ONLY PRELIMINARY OFFICIAL STATEMENT DATED FEBRUARY 20, 2018 Insured Rating: S&P: AA Underlying Rating: S&P: A+ (See RATINGS herein.) In the opinion of Norton Rose Fulbright US LLP, Los Angeles, California, Bond Counsel, under existing statutes, regulations, rulings and court decisions, and subject to the matters described in TAX MATTERS herein, interest on the Bonds is excluded pursuant to section 103(a) of the Internal Revenue Code of 1986 from the gross income for the owners thereof for federal income tax purposes and is not included in the federal alternative minimum tax for individuals or, except as described herein, corporations. It is also the opinion of Bond Counsel that under existing law interest on the Bonds is exempt from personal income taxes of the State of California. See TAX MATTERS herein. $18,000,000* SALINAS CITY ELEMENTARY SCHOOL DISTRICT (County of Monterey, California) 2018 General Obligation Refunding Bonds, Series A Dated: Date of Delivery $20,000,000* SALINAS CITY ELEMENTARY SCHOOL DISTRICT (County of Monterey, California) General Obligation Bonds 2008 Election, Series C Due: July 1, as shown on the inside cover The Salinas City Elementary School District (the District ) is issuing its 2018 General Obligation Refunding Bonds, Series A (the Series A Bonds ) and its General Obligation Bonds 2008 Election, Series C (the Series C Bonds and, together with the Series A Bonds, the Bonds ). The Series C Bonds were authorized at a bond election conducted within the District on June 3, 2008 (the Authorization ), as more fully described herein under the caption THE BONDS Authority for Issuance. The proceeds of the Series C Bonds are being applied to (i) finance the construction, acquisition, furnishing and equipping of District facilities, (ii) pay capitalized interest for the Series C Bonds, and (iii) pay certain costs of issuance associated therewith. The proceeds of the Series A Bonds are being issued to (i) effect the refunding of certain general obligation bonds issued by the District and (ii) pay certain costs of issuance associated therewith. See the caption PLAN OF FINANCE and PLAN OF REFUNDING herein. THE BONDS ARE GENERAL OBLIGATION BONDS OF THE DISTRICT, SECURED AND PAYABLE FROM AD VALOREM PROPERTY TAXES ASSESSED UPON ALL PROPERTY SUBJECT TO TAXATION BY THE DISTRICT, WHICH THE BOARD OF SUPERVISORS OF THE COUNTY OF MONTEREY (THE COUNTY ) IS EMPOWERED AND OBLIGATED TO LEVY WITHOUT LIMITATION AS TO RATE OR AMOUNT (EXCEPT FOR CERTAIN PERSONAL PROPERTY WHICH IS TAXABLE AT LIMITED RATES) ALL AS MORE FULLY DESCRIBED UNDER SECURITY AND SOURCES OF PAYMENT FOR THE BONDS HEREIN. THE BONDS ARE PAYABLE ON A PARITY WITH ALL OTHER GENERAL OBLIGATION BONDS OF THE DISTRICT PAYABLE FROM AD VALOREM TAXES. The Series A Bonds are being issued as current interest bonds (the Current Interest Bonds ). A portion of the Series C Bonds will be issued as Current Interest Bonds and a portion will be issued as capital appreciation bonds (the Capital Appreciation Bonds ). Interest on the Current Interest Bonds accrues from their date of delivery, computed on the basis of a 360-day year comprised of twelve (12) 30-day months, such interest being payable on January 1 and July 1 of each year, commencing July 1, The Capital Appreciation Bonds are dated as of their date of delivery. Interest on the Capital Appreciation Bonds shall accrue at the rates set forth on the inside cover hereof, computed on the basis of a 360-day year comprised of twelve (12) 30-day months, shall be compounded commencing July 1, 2018, and semiannually thereafter on January 1 and July 1 in each year. The Capital Appreciation Bonds will not pay interest on a periodic basis. Each Capital Appreciation Bond will have an accreted value at maturity (the Maturity Value ) equal to the initial principal amount plus interest accrued and compounded to the maturity date. The Bonds will be issued in book-entry form only, in denominations of $5,000 principal amounts, for the Current Interest Bonds, and in denominational amounts of $5,000 Maturity Value for the Capital Appreciation Bonds, or any integral multiple thereof. The Bonds will be initially registered in the name of a nominee of The Depository Trust Company ( DTC ). Purchasers will not receive certificates representing their interests in the Bonds. Payments on the Bonds will be made by The Bank of New York Mellon Trust Company, N.A., as Paying Agent, to DTC for subsequent disbursement to DTC Participants who will remit such payments to the beneficial owners of the Bonds. See APPENDIX F BOOK-ENTRY ONLY SYSTEM herein. The Bonds are subject to redemption as provided herein. See THE BONDS Redemption herein. MATURITY SCHEDULES (On Inside Cover Pages) Concurrently with the issuance of the Bonds, Build America Mutual Assurance Company ( BAM ) will issue its Municipal Bond Insurance Policy for the Bonds (the Policy ). The Policy guarantees the scheduled payment of (or, in the case of Capital Appreciation Bonds, the accreted value) and interest on the Bonds when due as set forth in APPENDIX E SPECIMEN MUNICIPAL BOND INSURANCE POLICY. See also BOND INSURANCE. THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR QUICK REFERENCE ONLY. IT IS NOT A SUMMARY OF THIS ISSUE. INVESTORS MUST READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION. The Bonds will be offered when, as and if issued and received by the Underwriters subject to the approval of legality by Norton Rose Fulbright US LLP, Los Angeles, Bond Counsel, and certain other conditions. Norton Rose Fulbright US LLP, Los Angeles is also acting as Disclosure Counsel for the issue. Certain legal matters will be passed upon for the Underwriters by their counsel, Nossaman LLP, Irvine, California. It is anticipated that the Bonds will be available through the facilities of DTC on or about April 3, Dated: March, 2018 * Preliminary; subject to change.

2 MATURITY SCHEDULES * Maturity Date (July 1) $18,000,000 * SALINAS CITY ELEMENTARY SCHOOL DISTRICT (County of Monterey, California) 2018 General Obligation Refunding Bonds, Series A Principal Amount Interest Rate Yield CUSIP No. (794879) $ % Term Bond Maturing July 1, 20, Priced to Yield % CUSIP No * Preliminary; subject to change. CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, managed by S&P Capital IQ on behalf of The American Bankers Association. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services. Neither the District nor the Underwriters take any responsibility for the accuracy of the CUSIP numbers, which are being provided for reference only.

3 $20,000,000 * SALINAS CITY ELEMENTARY SCHOOL DISTRICT (County of Monterey, California) General Obligation Bonds 2008 Election, Series C $ Current Interest Bonds Maturity Date (July 1) Principal Amount Interest Rate Yield CUSIP No. (794879) $ % Term Bond Maturing July 1, 20, Priced to Yield % CUSIP No $ Capital Appreciation Bonds Maturity Date (July 1) Principal Amount Interest Rate and Yield to Maturity Maturity Value CUSIP (794879) * Preliminary; subject to change. CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, managed by S&P Capital IQ on behalf of The American Bankers Association. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services. Neither the District nor the Underwriters take any responsibility for the accuracy of the CUSIP numbers, which are being provided for reference only.

4 No dealer, broker, salesperson or other person has been authorized by the Salinas City Elementary School District (the District ) to provide any information or to make any representations other than as contained herein and, if given or made, such other information or representation must not be relied upon as having been authorized by this Official Statement, does not constitute an offer to sell, the solicitation of an offer to buy, nor shall there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly described herein, are intended solely as such and are not to be construed as a representation of facts. The District maintains a website. However, the information presented therein is not part of this Official Statement and should not be relied upon in making investment decisions with respect to the Bonds. The references to internet websites in this Official Statement are shown for reference and convenience only; unless explicitly stated to the contrary, the information contained within the websites is not incorporated herein by reference and does not constitute part of this Official Statement. The information set forth herein has been obtained from official sources which are believed to be reliable. The information and expressions of opinion 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. Although certain information set forth in this Official Statement has been provided by the County of Monterey (the County ), the County has not approved this Official Statement and is not responsible for the accuracy or completeness of the statements contained in this Official Statement except for the information set forth under APPENDIX G COUNTY OF MONTEREY POOLED SURPLUS INVESTMENTS. The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their respective responsibility to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or the completeness of such information. The Preliminary Official Statement has been deemed final by the District for purposes of Rule 15c2-12 of the Securities and Exchange Commission. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITERS MAY OFFER AND SELL THE BONDS TO CERTAIN DEALERS, INSTITUTIONAL INVESTORS, BANKS OR OTHERS AT PRICES LOWER OR HIGHER THAN THE PUBLIC OFFERING PRICES STATED ON THE COVER PAGE HEREOF AND SAID PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITERS. Certain statements included or incorporated by reference in this Official Statement constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended (the Exchange Act ), and Section 27A of the United States Securities Act of 1933, as amended (the Securities Act ). Such statements are generally identifiable by the terminology used such as plan, expect, estimate, budget or other similar words. Build America Mutual Assurance Company ( BAM ) makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, BAM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding BAM, supplied by BAM and presented under the heading BOND INSURANCE and APPENDIX E SPECIMEN MUNICIPAL BOND INSURANCE POLICY. See also BOND INSURANCE. 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 ITS EXPECTATIONS, OR EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH SUCH STATEMENTS ARE BASED OCCUR.

5 SALINAS CITY ELEMENTARY SCHOOL DISTRICT (County of Monterey, California) District Board of Education Stephen Kim Robert Foster Hoffman Francisco Estrada Roberto Garcia Amy Ish District Administrators Martha Martinez, Superintendent Gerald Stratton, Assistant Superintendent of Business Services SPECIAL SERVICES Bond and Disclosure Counsel Norton Rose Fulbright US LLP Los Angeles, California Underwriters Piper Jaffray & Co. El Segundo, California Newcomb Williams Financial Group, Securities offered through Stinson Securities, LLC. Carlsbad, California Municipal Advisor Isom Advisors, a Division of Urban Futures, Inc. Walnut Creek, California Paying Agent The Bank of New York Mellon Trust Company, N.A. Los Angeles, California Verification Agent Causey Demgen & Moore Denver, Colorado

6 TABLE OF CONTENTS Page INTRODUCTION... 1 General... 1 The District... 1 Security and Source of Payment for the Bonds... 1 Description of the Bonds... 2 Professionals Involved in the Offering... 2 Other Information... 3 THE BONDS... 3 Authority for Issuance... 3 Bond Insurance... 3 General Provisions... 3 Redemption... 5 Discharge and Defeasance... 8 Book-Entry Only System... 8 Debt Service Schedule... 9 PLAN OF FINANCE PLAN OF REFUNDING ESTIMATED SOURCES AND USES OF FUNDS SECURITY AND SOURCES OF PAYMENT FOR THE BONDS General Assessed Valuations Constitutional and Statutory Initiatives Assessed Valuations of the District Tax Rates, Levies, Collections and Delinquencies Alternative Method of Tax Apportionment Teeter Plan Tax Rates Largest Taxpayers District Debt Pledge of Tax Revenues Statutory Lien for General Obligation Bonds Dedicated Unlimited Ad Valorem Property Tax Collection BOND INSURANCE Bond Insurance Policy Build America Mutual Assurance Company LEGAL MATTERS Possible Limitations on Remedies; Bankruptcy TAX MATTERS General Tax Accounting Treatment of Discount and Premium on Certain Bonds LEGAL OPINION CONTINUING DISCLOSURE LEGALITY FOR INVESTMENT RATINGS UNDERWRITING Underwriter Disclosures i

7 TABLE OF CONTENTS (continued) Page NO LITIGATION VERIFICATION REPORT OTHER INFORMATION APPENDIX A FINANCIAL AND DEMOGRAPHIC INFORMATION RELATING TO THE DISTRICT... A-1 APPENDIX B FORMS OF BOND COUNSEL OPINION... B-1 APPENDIX C AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR FISCAL YEAR ENDED JUNE 30, C-1 APPENDIX D FORM OF CONTINUING DISCLOSURE AGREEMENT... D-1 APPENDIX E SPECIMEN MUNICIPAL BOND INSURANCE POLICY... E-1 APPENDIX F BOOK-ENTRY ONLY SYSTEM... F-1 APPENDIX G COUNTY OF MONTEREY POOLED SURPLUS INVESTMENTS... G-1 APPENDIX H ACCRETION TABLES... H-1 ii

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9 $18,000,000 * SALINAS CITY ELEMENTARY SCHOOL DISTRICT (County of Monterey, California) 2018 General Obligation Refunding Bonds, Series A $20,000,000* SALINAS CITY ELEMENTARY SCHOOL DISTRICT (County of Monterey, California) General Obligation Bonds 2008 Election, Series C INTRODUCTION General The Salinas City Elementary School District (the District ) will issue its 2018 General Obligation Refunding Bonds, Series A (the Series A Bonds) and its General Obligation Bonds, 2008 Election, Series C (the Series C Bonds and, together with the Series A Bonds, the Bonds ). The Series C Bonds are being issued pursuant to the provisions of Article 4.5 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code (commencing with Section 53506) (the New Money Act ), and other applicable laws and regulations of the State of California (the State ) and a resolution adopted by the Board of Education of the District (the Board ) on January 8, 2018 (the New Money Resolution ). The Series A Bonds are being issued pursuant to the provisions of Articles 9 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the of the California Government Code (commencing with Sections and 53580, respectively) (the Refunding Act ) and other applicable laws and regulations of the State, and pursuant to a resolution adopted by the Board on December 11, 2017 (the Refunding Resolution and, together with the New Money Resolution, the Resolutions ). The proceeds of the Series C Bonds will be applied to fund certain capital projects (the Projects ) of the District approved by the voters at an election conducted on June 3, 2008 (the Election ), at which more than 55% of the qualified electors of the District voted to authorize the issuance of $80,000,000 of general obligation bonds (the Authorization ) of the District and to the payment of costs of issuance of the Series C Bonds. In addition to the foregoing uses, a portion of the proceeds of the Series C Bonds will be used to pay capitalized interest for the Series C Bonds. See PLAN OF FINANCE. The proceeds of the Series A Bonds will be applied to refunding the District s General Obligation Bonds, 2008 Election, Series A (the 2008A Bonds ) and to the payment of costs of issuance of the Series A Bonds. See PLAN OF REFUNDING. The District The District is located in the County of Monterey (the County ) and currently operates fourteen elementary schools. The District provides public education to an estimated enrollment of approximately 8,800 students residing in the western region of the County. The District is located east of the City of Monterey. Additional information on the District is contained in APPENDIX A FINANCIAL AND DEMOGRAPHIC INFORMATION RELATING TO THE DISTRICT and in APPENDIX C AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR FISCAL YEAR ENDED JUNE 30, Security and Source of Payment for the Bonds The Bonds are payable from ad valorem taxes upon all property subject to taxation by the District, which the County Board of Supervisors is empowered and obligated to levy without limitation as to rate or amount (except with respect to certain personal property which is taxable at limited rates). Pursuant to Section of the State Education Code, the County is obligated to levy a tax for each year in which general obligation bonds of the District are outstanding, in an amount not less than that sufficient to pay * Preliminary; subject to change.

10 principal of and interest on all outstanding bonds due during that year. See SECURITY AND SOURCES OF PAYMENT FOR THE BONDS. Description of the Bonds Payments. The Series A Bonds are being issued as current interest bonds. Interest on the Current Interest Bonds accrues from their date of delivery, computed on the basis of a 360-day year comprised of twelve (12) 30-day months, and such interest is payable on January 1 and July 1 of each year (each, an Interest Payment Date ), commencing July 1, A portion of the Series C Bonds will be issued as Current Interest Bonds and a portion will be issued as capital appreciation bonds (the Capital Appreciation Bonds ). The Capital Appreciation Bonds are dated as of their date of delivery. Interest on the Capital Appreciation Bonds shall accrue at the rates set forth on the inside cover pages hereof, computed on the basis of a 360-day year comprised of twelve (12) 30-day months, shall be compounded commencing July 1, 2018, and semiannually thereafter on January 1 and July 1 in each year, and shall be payable only upon maturity or upon the prior redemption of the Capital Appreciation Bonds. Each Capital Appreciation Bond will have an accreted value at maturity (the Maturity Value ) equal to the initial principal amount plus interest accrued and compounded to the maturity date. Principal of, and premium, if any, on the Current Interest Bonds is payable when due upon surrender of the Current Interest Bonds at the office of the Paying Agent. The Accreted Value of the Capital Appreciation Bonds is payable when due upon surrender of the Capital Appreciation Bonds at the office of the Paying Agent. As long as DTC (defined below) is the registered owner of the Bonds and DTC s book-entry method is used for the Bonds, the Paying Agent will send any notice of redemption or other notices to Owners only to DTC. The Bonds mature on July 1 in the years indicated on the inside cover pages hereof. Denomination and Registration. The Bonds will be issued in fully registered form only, without coupons, and will be issued in denominations of $5,000 principal amounts for the Current Interest Bonds and in denominational amounts of $5,000 Maturity Value for the Capital Appreciation Bonds, or any integral multiple thereof. The Bonds will be initially registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ). DTC will act as securities depository of the Bonds. Owners will not receive physical certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. See THE BONDS General Provisions and APPENDIX F BOOK-ENTRY ONLY SYSTEM. Professionals Involved in the Offering Norton Rose Fulbright US LLP, Los Angeles, California, is acting as Bond Counsel to the District with respect to the Bonds. Isom Advisors, a Division of Urban Futures, Inc., Walnut Creek, California, is acting as Municipal Advisor to the District with respect to the Bonds. Norton Rose Fulbright US LLP, Los Angeles, California, is also acting as Disclosure Counsel to the District. Nossaman LLP, Irvine, California is acting as counsel to the Underwriters with respect to the Bonds. The Bank of New York Mellon Trust Company, N.A., Los Angeles, California is acting as Paying Agent with respect to the Bonds and as Escrow Agent. Bond Counsel, Disclosure Counsel, and Underwriters Counsel will receive compensation contingent upon the sale and delivery of the Bonds. 2

11 Other Information This Official Statement speaks only as of its date, and the information contained herein is subject to change. Copies of documents referred to herein and information concerning the Bonds are available from the District, 840 South Main Street, Salinas, CA 93901, Attention: Assistant Superintendent of Business Services. The District may impose a fee for copying, handling and mailing such requested documents. Authority for Issuance THE BONDS The Bonds are general obligations of the District. The Series C Bonds were authorized pursuant to the Authorization approved at the Election. The Series C Bonds are being issued by the District under the New Money Act and other applicable laws and regulations of the State, and pursuant to the New Money Resolution and the Authorization. The Series C Bonds represent the third series of bonds issued under the Authorization, following which $35,000,000 * of the Authorization will remain. The Series A Bonds are being issued by the District under the Refunding Act and other applicable laws and regulations of the State, and pursuant to the Refunding Resolution. Pursuant to the Refunding Act, general obligation bonds issued for the purpose of refunding outstanding general obligation bonds previously authorized by the voters that do not increase the debt service obligation of taxpayers do not require additional voter approval, either for issuance of such refunding general obligation bonds or the levy of an ad valorem property tax sufficient to pay principal of and interest as due on the refunding general obligation bonds. The Board of Supervisors of the County has the power and is obligated to levy ad valorem property taxes upon all property subject to taxation by the District, without limitation as to rate or amount (except certain personal property, which is taxable at limited rates), for the payment of principal of and interest on the Bonds. See SECURITY AND SOURCES OF PAYMENT FOR THE BONDS. Bond Insurance Concurrently with the issuance of the Bonds, Build America Mutual Assurance Company ( BAM ) will issue its Municipal Bond Insurance Policy for the Bonds (the Policy ). The Policy guarantees the scheduled payment of (or, in the case of Capital Appreciation Bonds, the accreted value) and interest on the Bonds when due as set forth in APPENDIX E SPECIMEN MUNICIPAL BOND INSURANCE POLICY. See also BOND INSURANCE herein. General Provisions Current Interest Bonds. The Series A Bonds shall be issued as Current Interest Bonds. The Current Interest Bonds shall be issued as fully registered bonds in denominations of $5,000 or any integral multiple thereof. The Current Interest Bonds shall be dated the date of their delivery and shall bear interest at the respective rates set forth on the inside cover pages hereof, payable on January 1 and July 1 of each year, commencing July 1, 2018, until payment of the principal amount thereof. Interest on the Current Interest Bonds shall be calculated on the basis of a 360-day year comprised of twelve (12) 30-day months. Interest on the Current Interest Bonds will be payable from the Interest Payment Date next preceding the date of registration thereof, unless i) it is registered after the close of business on any Record Date and before the close of business on the immediately following Interest Payment Date, in which event interest thereon shall be payable from such following Interest Payment Date; or ii) it is registered prior to * Preliminary; subject to change. 3

12 the close of business on the first Record Date, in which event interest shall be payable from its dated date; provided, however, that if at the time of registration of any Current Interest Bond, interest thereon is in default, interest with respect thereto shall be payable from the Interest Payment Date to which interest has previously been paid or made available for payment. Payments of interest on the Current Interest Bonds will be made on each Interest Payment Date by check or draft of the Paying Agent sent by first-class mail, postage prepaid, to the Owner thereof appearing on the Bond Register on the Record Date, or by wire transfer to any Owner of $1,000,000 aggregate principal amount or more of such Current Interest Bonds, to the account specified by such Owner in a written request delivered to the Paying Agent on or prior to the Record Date for such Interest Payment Date; provided, however, that payments of defaulted interest shall be payable to the person in whose name such Current Interest Bond is registered at the close of business on a special record date fixed therefor by the Paying Agent which shall not be more than fifteen days and not less than ten days prior to the date of the proposed payment of defaulted interest. Record Date means the close of business on the fifteenth calendar day of the month next preceding an Interest Payment Date. Capital Appreciation Bonds. A portion of the Series C Bonds will be issued as Capital Appreciation Bonds. The Capital Appreciation Bonds shall not bear current interest. Interest on the Capital Appreciation Bonds shall accrue at the rates set forth on the inside cover pages hereof, computed on the basis of a 360-day year comprised of twelve (12) 30-day months, shall be compounded commencing July 1, 2018, and semiannually thereafter on January 1 and July 1 in each year and shall be payable only upon maturity or upon the prior redemption of the Capital Appreciation Bonds. Accreted Value means an amount equal to the principal amount of a Capital Appreciation Bond plus interest accrued thereon from the date of such issuance, such interest to accrue at the specified rate for such Capital Appreciation Bond maturity on the basis of a 360-day year comprised of twelve 30-day months, and such interest to compound, commencing on the first Interest Payment Date after issuance, and semi-annually thereafter on the Interest Payment Dates in each year. Accreted Value on any date other than an Interest Payment Date is equal to the ratable portion of the difference between the Accreted Value computed as of the immediately preceding Interest Payment Date and the Accreted Value computed as of the immediately succeeding Interest Payment Date, calculated based on the assumption that the Accreted Value increases during any period in equal daily amounts along a straight-line interpolation between Interest Payment Dates. The Accreted Values of the Capital Appreciation Bonds are set forth in the accretion tables attached hereto as APPENDIX H. The Maturity Value of the Capital Appreciation Bonds shall be payable in lawful money to the Owner thereof upon the surrender thereof at the office of the Paying Agent. So long as Cede & Co. or its registered assigns shall be the registered owner of any of the Capital Appreciation Bonds, payment shall be made to Cede & Co. by wire transfer as provided in the Paying Agent Agreement. General. The Bonds shall be issued in fully registered form only, without coupons, in denominational amounts of $5,000 principal amount or $5,000 Maturity Value or any integral multiple thereof, shall be dated the date of their delivery, shall accrue interest at the rates and shall mature on July 1 in the years and in the Principal Amounts or Maturity Values as set forth on the inside cover pages hereof. No Bond shall have principal maturing on more than one principal maturity date. The Bonds will be initially registered in the name of Cede & Co., as nominee of DTC. DTC will act as securities depository of the Bonds. Interest on and principal or Maturity Value of the Bonds are payable in lawful money of the United States of America to the Owner thereof, upon surrender of the Bonds at the office of the Paying Agent. So long as Cede & Co. or its registered assigns shall be the registered owner of any of the Bonds, payment shall be made to Cede & Co. by wire transfer as provided in the Paying Agent Agreement. The Paying Agent, the District, the County and the Underwriters of the Bonds have no responsibility or liability for any aspects of the records relating to or payments made on account of beneficial ownership, or for maintaining, supervising or reviewing any records relating to beneficial ownership, or interest in the Bonds. For information about the securities depository and DTC s book-entry system, see APPENDIX F BOOK- ENTRY ONLY SYSTEM. 4

13 Registration, Transfer and Exchange of Bonds. The Bonds may be purchased in book-entry form only. See APPENDIX F: BOOK-ENTRY ONLY SYSTEM. In the event the Bonds are not registered with a securities depository, the Bonds may be transferred, in whole or in part, upon the registration book maintained by the Paying Agent, and any Bond may be exchanged for Bonds of a like principal amount of the same series, interest rate, and maturity in other authorized denominations, upon presentation and surrender at the principal corporate trust office of the Paying Agent, together with a request for transfer or exchange signed by the Owner or by a person legally empowered to do so in a form satisfactory to the Paying Agent. Redemption * Optional Redemption of Bonds The Bonds maturing on or before July 1, 20 are not subject to redemption prior to their stated maturity dates. The Bonds maturing on and after July 1, 20, may be redeemed before maturity, at the option of the District, from any source of available funds, in whole or in part on any date on or after July 1, 20 at the principal amount (or Accreted Value of the Capital Appreciation Bonds) thereof, together with interest accrued thereon to the date of redemption, without premium. Mandatory Sinking Fund Redemption The Series A Bonds maturing on July 1, 20 (the 20 Term Bonds ), are subject to mandatory sinking fund redemption prior to their stated maturity from mandatory sinking fund payments on any July 1 on or after July 1, 20, at a redemption price equal to 100% of their principal amount, together with accrued interest thereon to the date fixed for redemption, without premium, on the dates and in the aggregate principal amounts listed below: Mandatory Sinking Fund Payment Date (July 1) Mandatory Sinking Fund Payment (1) (1) Maturity. In the event that a portion of the 20 Term Bond is optionally redeemed prior to maturity, the remaining mandatory sinking fund payments with respect thereto shall be reduced proportionately or as otherwise directed by the District, in integral multiples of $5,000 principal amount, with respect to the portion of such 20 Term Bond optionally redeemed. * Preliminary; subject to change. 5

14 The Series C Bonds maturing on July 1, 20 (the 20 Term Bonds ), are subject to mandatory sinking fund redemption prior to their stated maturity from mandatory sinking fund payments on any July 1 on or after July 1, 20, at a redemption price equal to 100% of their principal amount, together with accrued interest thereon to the date fixed for redemption, without premium, on the dates and in the aggregate principal amounts listed below: Mandatory Sinking Fund Payment Date (July 1) Mandatory Sinking Fund Payment (1) (1) Maturity. In the event that a portion of the 20 Term Bond is optionally redeemed prior to maturity, the remaining mandatory sinking fund payments with respect thereto shall be reduced proportionately or as otherwise directed by the District, in integral multiples of $5,000 principal amount, with respect to the portion of such 20 Term Bond optionally redeemed. Selection of Bonds for Redemption Whenever provision is made for the redemption of Bonds and less than all outstanding Bonds are to be redeemed, the Paying Agent, upon written instruction from the District, shall select Bonds for redemption in such manner as the District shall direct, or, in the absence of such direction, in inverse order of maturity and within a maturity, by lot. Redemption by lot shall be in such manner as the Paying Agent shall determine; provided, however, that the portion of any Bond to be redeemed in part shall be in the principal amount of $5,000 or $5,000 Maturity Value or any integral multiple thereof. Notice of Redemption When redemption is authorized or required pursuant to the Resolutions, the Paying Agent, upon written instruction from the District, shall give notice (each, a Redemption Notice ) of the redemption of the Bonds. Such Redemption Notice shall specify: (a) the Bonds or designated portions thereof (in the case of any Bond to be redeemed in part but not in whole) which are to be redeemed, (b) the date of redemption, (c) the place or places where the redemption will be made, including the name and address of the Paying Agent, (d) the redemption price, (e) the CUSIP numbers (if any) assigned to the Bonds to be redeemed, (f) the Bond numbers of the Bonds to be redeemed in whole or in part and, in the case of any Bond to be redeemed in part only, the principal amount of such Bond to be redeemed, and (g) the original issue date, interest rate and stated maturity date of each Bond to be redeemed in whole or in part. Such Redemption Notice shall further state that on the specified date there shall become due and payable upon each Bond or portion thereof being redeemed the redemption price thereof, together with the interest accrued to the redemption date, and that from and after such date, interest on Bonds shall cease to accrue and be payable. The Paying Agent shall take the following actions with respect to each such Redemption Notice: (i) at least 20 days but not more than 45 days prior to the redemption date, such Redemption Notice shall be given to the respective Owners of the Bonds designated for redemption by first-class mail, postage prepaid, at their addresses appearing on the bond register; (ii) in the event the Bonds shall no longer be held in book-entry form, at least 35 but not more than 45 days prior to the redemption date, such Redemption Notice shall be given by (1) first-class mail, postage prepaid, (2) telephonically confirmed facsimile transmission, or (3) overnight delivery service, to each of the Securities Depositories and the Municipal 6

15 Securities Rulemaking Board ( MSRB ). Such Redemption Notice shall be given to such other persons as may be required by the Continuing Disclosure Agreement. MSRB shall mean the Municipal Securities Rulemaking Board, through its Electronic Municipal Market Access ( EMMA ) website located at or any other entity designated or authorized by the Commission. The Securities Depositories shall mean DTC and, in accordance with then-current guidelines of the Securities and Exchange Commission, such other securities depositories as the District may designate in a certificate delivered to the Paying Agent. A Redemption Notice may be rescinded by written notice given to the Paying Agent by the District and the Paying Agent shall provide notice of such rescission as soon thereafter as practicable in the same manner, and to the same recipients, as notice of such redemption was given, but in no event later than the date set for redemption. Neither failure to receive any Redemption Notice nor any defect in any such Redemption Notice so given shall affect the sufficiency of the proceedings for the redemption of the affected Bonds. Each check issued or other transfer of funds made by the Paying Agent for the purpose of redeeming Bonds shall bear the CUSIP number identifying, by issue and maturity, the Bonds being redeemed with the proceeds of such check or other transfer. Partial Redemption of Bonds Upon the surrender of any Bond redeemed in part only, the Paying Agent shall execute and deliver to the Owner thereof a new Bond or Bonds of like tenor and maturity and of authorized denominations equal in Transfer Amount to the unredeemed portion of the Bond surrendered. Such partial redemption shall be valid upon payment of the amount required to be paid to such Owner, and the District shall be released and discharged thereupon from all liability to the extent of such payment. Transfer Amount shall mean, with respect to any Bonds, the aggregate principal amount of thereof. Effect of Notice of Redemption Notice having been given as required in the Resolutions, and the moneys for redemption (including the interest to the applicable date of redemption) having been set aside in the District s applicable Debt Service Fund or deposited with a duly appointed escrow agent, the Bonds to be redeemed shall become due and payable on such date of redemption. If on such redemption date, money for the redemption of all the Bonds to be redeemed, together with interest to such redemption date, shall be held by the Paying Agent or deposited with a duly appointed escrow agent, so as to be available therefor on such redemption date, and if notice of redemption thereof shall have been given, then from and after such redemption date, interest on the Bonds to be redeemed shall cease to accrue and become payable. 7

16 Discharge and Defeasance ways: All or any portion of the outstanding Bonds shall be paid and discharged in any one of the following (a) by paying or causing to be paid the principal of, premium, if any, and interest on such Bonds outstanding, as and when the same become due and payable; (b) by depositing with the Paying Agent, or with a duly appointed escrow agent, at or before maturity, cash which, together with the amounts then on deposit in the applicable Debt Service Fund plus the interest to accrue thereon without the need for further investment, is fully sufficient to pay all Bonds outstanding at maturity thereof, including any premium and all interest thereon, notwithstanding that any Bonds shall not have been surrendered for payment; or (c) by depositing with an institution which meets the requirements for acting as a successor Paying Agent pursuant to the Resolution selected by the District, in trust, lawful money or noncallable direct obligations issued by the United States Treasury (including State and Local Government Series Obligations) or obligations which are unconditionally guaranteed by the United States of America and permitted under Section 149(b) of the Code and Regulations which, in the opinion of nationally recognized bond counsel, will not impair the exclusion from gross income for federal income tax purposes of interest on the Bonds, in such amount as will, together with the interest to accrue thereon without the need for further investment, be fully sufficient to pay and discharge all Bonds outstanding at maturity thereof, including any premium and all interest thereon, for which notice has been given or provided for, notwithstanding that any Bonds shall not have been surrendered for payment; then all obligations of the District and the Paying Agent under the Resolution with respect to the affected Bonds shall cease and terminate, except only the obligation of the Paying Agent to pay or cause to be paid to the Owners of the Bonds all sums due thereon, and the obligation of the District to pay the Paying Agent amounts owing to the Paying Agent under the Resolution. Book-Entry Only System The Bonds will be issued in fully registered form and, when issued, will be registered in the name of Cede & Co., as registered owner and nominee of DTC. DTC will act as securities depository for the Bonds. So long as Cede & Co. is the registered owner of the Bonds, as nominee of DTC, references herein to the Owners or registered owners shall mean Cede & Co. as aforesaid, and shall not mean the Beneficial Owners of the Bonds. For further information regarding DTC and the book-entry system, see APPENDIX F BOOK-ENTRY ONLY SYSTEM hereto. 8

17 Debt Service Schedule The following table summarizes the debt service requirements of the District for the Series A Bonds assuming no optional redemptions: Year Ending July 1 Principal Interest Total Debt Service TOTAL 9

18 The following table summarizes the debt service requirements of the District for the Series C Bonds assuming no optional redemptions: Year Ending July 1 Principal Interest Total Debt Service TOTAL 10

19 The following table summarizes the debt service requirements of the District for all its outstanding general obligation bonds and the Bonds, assuming no optional redemptions: Year Ending (July 1) 2018 $1,611, ,786, ,865, ,949, ,031, ,117, ,213, ,305, ,399, ,503, ,604, ,715, ,830, ,951, ,073, ,200, Total 38,161, Outstanding General Obligation Bonds (1) Series C Bonds Series A Bonds Total (1) Represents the 2008B Bonds and the Refunded Bonds. The Refunded Bonds are expected to be defeased with proceeds from the Series A Bonds. PLAN OF FINANCE The proceeds of the Series C Bonds are being applied to (i) finance the construction, acquisition, furnishing and equipping of District facilities, all as included in the Project List (defined below) approved at the Election (ii) pay capitalized interest for the Series C Bonds, and (iii) pay certain costs of issuance associated with the Series C Bonds. The Project. The Strict Accountability in Local School Construction Bonds Act of 2000, comprising Section et seq. of the Education Code, controls the method by which the District will expend amounts derived from the sale of the Series C Bonds on its capital improvements. Prior to the Election, the District prepared and submitted to the District Board for approval a master list of capital improvement projects to be built, acquired, constructed or installed with the proceeds of the Series C Bonds (the Project List ). With respect to these projects included in the Project List, the District has evaluated facility needs to continue to provide for modernizing aging facilities; creating safe pick-up/drop-off areas, renovating communications, electrical, plumbing and restroom facilities; acquisition, construction, repair, renovation, furnishing and equipping classrooms and facilities; and the District has appointed an independent citizens oversight committee to oversee the implementation of the projects. The allocation of Series C Bond proceeds and the timely completion of projects could be affected by the District s ability to receive matching funds as well as the final costs of each project. The estimated costs for each Project may be affected by outside factors beyond the District s control. The timing of 11

20 projects will be established and shall be subject to revision by the Board of Education and will be subject to review by the citizen s oversight committee. PLAN OF REFUNDING The net proceeds of the Series A Bonds will be applied to: (i) refund on a current basis the 2008A Bonds maturing on July 1, 2022 through and including July 1, 2033 (the Refunded Bonds ) and (ii) pay the costs of issuance of the Series A Bonds. On the date of delivery of the Series A Bonds, a portion of the net proceeds of the Series A Bonds will be deposited into an Escrow Fund (the Escrow Fund ) established for the purpose of paying when due and/or refunding the Refunded Bonds pursuant to that certain Escrow Agreement, dated April 3, 2018 (the Escrow Agreement ), by and between the District and The Bank of New York Mellon Trust Company, N.A., in the capacity of Escrow Agent (the Escrow Agent ). The net proceeds of the Series A Bonds will be invested under the terms of the Escrow Agreement. Amounts available in the Escrow Fund will be applied to redeem the Refunded Bonds on July 2, 2018 at a redemption price equal to 100% of the principal amount of the Refunded Bonds together with interest accrued thereon. The Escrow Agreement provides for the investment of the proceeds of the Series A Bonds deposited thereunder in noncallable direct obligations issued by the United States Treasury (including State and Local Government Series Obligations) or obligations which are unconditionally guaranteed by the United States of America. Causey Demgen & Moore, certified public accountants (the Verification Agent ) will verify the sufficiency of amounts so deposited and invested to provide for such payments. Summary of Refunded Bonds Maturity Date (July 1) Principal Amount Interest Rate CUSIP Number (1) (794879) 2022 $2,275, % DS ,075, DU ,900, DV ,685, DW ,860, DX1 (1) CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, managed by S&P Capital IQ on behalf of The American Bankers Association. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services. Neither the District nor the Underwriters take any responsibility for the accuracy of the CUSIP numbers, which are being provided for reference only. [Remainder of page intentionally left blank.] 12

21 ESTIMATED SOURCES AND USES OF FUNDS The proceeds of the Series A Bonds are expected to be applied as follows: Sources of Funds Principal Amount Net Original Issue Premium Total Sources Uses of Funds Deposit to Escrow Fund Costs of Issuance (1) Total Uses (1) Includes Underwriters discount, bond insurance premium, legal and rating fees, fees of the Municipal Advisor, Paying Agent and other costs of issuance. The proceeds of the Series C Bonds are expected to be applied as follows: Sources of Funds Principal Amount Net Original Issue Premium Total Sources Uses of Funds Deposit to Building Fund Deposit to Debt Service Fund Costs of Issuance (1) Total Uses (1) Includes Underwriters discount, bond insurance premium, legal and rating fees, fees of the Municipal Advisor, Paying Agent and other costs of issuance. [Remainder of page intentionally left blank.] 13

22 SECURITY AND SOURCES OF PAYMENT FOR THE BONDS General The Bonds are general obligations of the District, and the Board of Supervisors of the County has the power and is obligated to levy and collect ad valorem taxes upon all property within the District subject to taxation by the County, without limitation as to rate or amount (except certain personal property which is taxable at limited rates) for payment of both principal of and interest on the Bonds. Assessed Valuations Constitutional and Statutory Initiatives Article XIIIA of the California Constitution. Article XIIIA of the California Constitution limits the amount of any ad valorem tax on real property, to 1% of the full cash value thereof, except that additional ad valorem taxes may be levied to pay debt service on indebtedness approved by the voters prior to July 1, 1978, and on bonded indebtedness for the acquisition or improvement of real property which has been approved on or after July 1, 1978 by two-thirds of the voters on such indebtedness or 55% of voters voting on 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. The 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. 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. All taxable property is shown at full market value on the tax rolls, with tax rates 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 general tax rates reflect the $1 per $100 of taxable value. Assessed Valuations of the District The assessed valuation of property in the District is established by the County Assessor, except for public utility property which is assessed by the State Board of Equalization. Assessed valuations are reported at 100% of the full value of the property, as defined in Article XIIIA of the California Constitution. The State-reimbursed exemption currently provides a credit of $7,000 of the full value of an owneroccupied dwelling for which application has been made to the County Assessor. The revenue estimated to be lost to local taxing agencies due to the exemption is reimbursed from State sources. Reimbursement is based upon total taxes due upon such exempt value and is not reduced by any amount for estimated or actual delinquencies. 14

23 In addition, certain classes of property such as churches, colleges, not-for-profit hospitals and charitable institutions are exempt from property taxation and do not appear on the tax rolls. No reimbursement is made by the State for such exemptions. Shown in the following tables is information relating to the assessed valuation of property in the District during the current and past five fiscal years, assessed valuation and parcels by land use, per parcel assessed valuation of single-family homes and assessed valuation by jurisdiction. SALINAS CITY ELEMENTARY SCHOOL DISTRICT Summary of Assessed Valuations Local Secured Utility Unsecured Total $4,843,051,791 $3,384,826 $557,108,329 $5,403,544, ,002,495,857 3,384, ,842,674 5,551,723, ,364,008,541 3,934, ,959,367 5,921,902, ,703,974,691 3,934, ,910,225 6,277,819, ,973,025,220 3,470, ,009,957 6,556,505, ,258,023,973 3,470, ,146,336 6,863,640,545 Source: California Municipal Statistics, Inc. SALINAS CITY ELEMENTARY SCHOOL DISTRICT Assessed Valuation and Parcels by Land Use Non-Residential: Assessed Valuation (1) % of Total No. of Parcels % of Total Agricultural $ 28,585, % % Commercial 1,227,991, , Vacant Commercial 24,483, Industrial 778,180, Vacant Industrial 35,366, Government/Social/Institutional 69,207, Miscellaneous 44,388, Subtotal Non-Residential $2,208,204, % 2, % Residential: Single Family Residence $3,086,128, % 12, % Condominium/Townhouse 224,840, , Mobile Home 4,284, Mobile Home Park 21,692, Residential Units 211,392, Residential Units/Apartments 491,437, Vacant Residential 10,044, Subtotal Residential $4,049,819, % 15, % Total $6,258,023, % 17, % (1) Local Secured Assessed Valuation, excluding tax-exempt property. Source: California Municipal Statistics, Inc. 15

24 SALINAS CITY ELEMENTARY SCHOOL DISTRICT Per Parcel Assessed Valuation of Single-Family Homes No. of Average Median Parcels Assessed Valuation Assessed Valuation Assessed Valuation Single-Family Residential 12,558 $3,086,128,399 $245,750 $229, Assessed Valuation No. of Parcels (1) % of Total Cumulative % of Total Total Valuation % of Total Cumulative % of Total $0 - $24, % 0.295% $ 668, % 0.022% $25,000 - $49, ,784, $50,000 - $74, ,694, $75,000 - $99, ,171, $100,000 - $124, ,897, $125,000 - $149, ,434, $150,000 - $174, ,682, $175,000 - $199,999 1, ,502, $200,000 - $224,999 1, ,668, $225,000 - $249,999 1, ,583, $250,000 - $274, ,236, $275,000 - $299, ,881, $300,000 - $324, ,215, $325,000 - $349, ,690, $350,000 - $374, ,644, $375,000 - $399, ,561, $400,000 - $424, ,691, $425,000 - $449, ,702, $450,000 - $474, ,001, $475,000 - $499, ,975, $500,000 and greater ,441, Total 12, % $3,086,128, % (1) Improved single-family residential parcels. Excludes condominiums and parcels with multiple family units. Source: California Municipal Statistics, Inc. [Remainder of page intentionally left blank.] 16

25 Jurisdiction: SALINAS CITY ELEMENTARY SCHOOL DISTRICT Assessed Valuation by Jurisdiction Assessed Valuation in District % of District Assessed Valuation of Jurisdiction % of Jurisdiction in District City of Salinas $6,724,819, % $10,912,115, % Unincorporated Monterey County 138,821, ,367,939, Total District $6,863,640, % Monterey County $6,863,640, % $62,742,174, Source: California Municipal Statistics, Inc. Tax Rates, Levies, Collections and Delinquencies Taxes are levied for each fiscal year on taxable real and personal property which is situated in the County as of the preceding January 1. However, upon a change in ownership of property or completion of new construction, State law permits an accelerated recognition and taxation of increases in real property assessed valuation (known as a floating lien date ). For assessment and collection purposes, property is classified either as secured or unsecured and is listed accordingly on separate parts of the assessment roll. The secured roll is that part of the assessment roll containing State assessed property secured by a lien which is sufficient, in the opinion of the assessor, to secure payment of the taxes. Other property is assessed on the unsecured roll. The County levies a 1% property tax on behalf of all taxing agencies in the County. The taxes collected are allocated on the basis of a formula established by State law enacted in Under this formula, the County and all other taxing entities receive a base year allocation plus an allocation on the basis of situs growth in assessed value (new construction, change of ownership, inflation) prorated among the jurisdictions which serve the tax rate areas within which the growth occurs. Tax rate areas are specifically defined geographic areas which were developed to permit the levying of taxes for less than county-wide or less than city-wide special and school districts and community college districts. In addition, the County levies and collects additional approved property taxes and assessments on behalf of any taxing agency within the County. Property taxes on the secured roll are due in two installments, on November 1 and February 1. If unpaid, such taxes become delinquent after December 10 and April 10, respectively, and a 10% penalty attaches to any delinquent payment. In addition, property on the secured roll with respect to which taxes are delinquent is declared tax-defaulted on or about June 30. Such property may thereafter be redeemed by payment of the delinquent taxes and the delinquency penalty, plus costs and redemption penalty of one and ½% per month to the time of redemption. If taxes are unpaid for a period of five years or more, the taxdefaulted property is subject to sale by the County Treasurer. Property taxes on the unsecured roll are currently due as of the January 1 lien date prior to the commencement of a fiscal year and become delinquent, if unpaid, on August 31. A 10% penalty attaches to delinquent taxes on property on the unsecured roll and an additional penalty of 1 ½% per month begins to accrue on November 1. The taxing authority has four ways of collecting unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer; (3) filing a certificate of delinquency for recordation in the County Recorder s office in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of personal property, improvements, bank accounts or possessory interests belonging or assessed to the taxpayer. 17

26 The County levies and collects all property taxes for property falling within its taxing boundaries. The following table sets forth the Secured Tax Charges and Delinquencies in the District since fiscal year Fiscal Year Secured Tax Charge (1) Amount Delinquent at June 30 Percent Delinquent at June $11,981,703 $202, % ,155, , ,495, , ,324, , ,127, , ,081, , (1) 1% General Fund apportionment. Source: California Municipal Statistics, Inc. Alternative Method of Tax Apportionment Teeter Plan Certain counties in the State operate under a statutory program entitled Alternate Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the Teeter Plan ), as provided for in Section 4701 et. seq. of the California Revenue and Taxation Code. Under the Teeter Plan local taxing entities receive 100% of their tax levies net of delinquencies, but do not receive interest or penalties on delinquent taxes collected by the County. The County has not adopted the Teeter Plan, and consequently the Teeter Plan is not available to taxing entities within the County, such as the District. The District s receipt of property taxes is therefore subject to delinquencies. Tax Rates The following table sets forth typical tax rates levied in Tax Rate Area (5-015) for fiscal years through : SALINAS CITY ELEMENTARY SCHOOL DISTRICT Typical Total Tax Rates Per $100 of Assessed Valuation (TRA 5-015) (1) General Salinas Union High School District Salinas Union High School District SFID Hartnell Community College District Salinas City Elementary School District Total (1) TRA 5-015, Assessed Valuation: $2,630,701,043. Source: California Municipal Statistics, Inc. 18

27 Largest Taxpayers The twenty largest local secured taxpayers in the District and their assessed valuations for are shown in the following table. SALINAS CITY ELEMENTARY SCHOOL DISTRICT Largest Local Secured Taxpayers Property Owner Primary Land Use Assessed Valuation % of Total (1) 1. Northridge Owner LP Industrial $128,013, % 2. Chiquita Brands International Inc. Food Processing 50,426, Mann Packing Company Inc. Food Processing 50,217, Growers Ice Company Food Processing 45,503, California Water Service Co. Water Company 43,565, Casentini Street Apartments LLC Apartments 42,688, The Uni-Kool Partners Food Processing 42,632, CMP-1 LLC Apartments 40,830, Taylor Salinas Property Management Co. Commercial/Office 39,192, EPC Villa Serra LLC Assisted Living Facility 37,328, Southport Cooling Company & Rio Farms Food Processing 30,741, Work Street Investors LLC Food Processing 27,266, Stone Brown Papers Inc. Industrial 26,633, W2005/Fargo Hotels Pool C Realty LP Hotel 25,968, International Paper Company Industrial 23,272, William D. Massa Food Processing 22,785, Rexford Title Shopping Center 20,393, Fox Creek 100 LLC Apartments 19,223, Mariner Village Group Ltd. Apartments 19,192, Santa Lucia Townhomes LP Apartments 18,946, Total $754,821, % (1) local secured assessed valuation: $6,258,023,973. Source: California Municipal Statistics, Inc. District Debt Prior to delivery of the Bonds, the District s general obligation indebtedness as of January 1, 2018, was $23,350,000. Other than the Refunded Bonds, the District issued its $3,435,000 General Obligation Bonds, 2008 Election, Series B (Taxable), which are currently outstanding in the aggregate principle amount of $3,325,000 (the 2008B Bonds ). The District also has obligations related to certain certificates of participation (the COPs ), described in APPENDIX A and APPENDIX C hereto. The COPs are not payable from ad valorem taxes nor secured on a parity with the Bonds. The following table is a statement of the District s direct and estimated overlapping bonded debt as of January 1, The debt report is included for general information purposes only. The District has not reviewed the debt report for completeness or accuracy and makes no representation in connection therewith. The Debt Report generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the District in whole or in part. Such long term obligations generally are not payable from revenues of the District (except as indicated) nor are they necessarily obligations secured by land within the District. In many cases long-term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency. 19

28 Column 1 in the table names each public agency which has outstanding debt as of the date of the report and whose territory overlaps the District in whole or in part. Column 2 shows 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 shown in the table) produces the amount shown in Column 3, which is the apportionment of each overlapping agency s outstanding debt to taxable property in the District. SALINAS CITY ELEMENTARY SCHOOL DISTRICT DIRECT AND OVERLAPPING BONDED INDEBTEDNESS Assessed Valuation:... $6,863,640,545 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt as of 1/1/18 Monterey County Water Resources Authority, Zone No. 2C % $ 6,733,594 Hartnell Joint Community College District ,491,884 Salinas Union High School District ,543,539 Salinas Union High School District School Facilities Improvement District ,110,044 Salinas City School District ,350,000 (1) TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $130,229,061 DIRECT AND OVERLAPPING GENERAL FUND DEBT: Monterey County General Fund Obligations % $18,076,698 Monterey County Office of Education Certificates of Participation ,538 Salinas City School District General Fund Obligations ,759,444 City of Salinas Certificates of Participation ,843,853 Monterey County Regional Fire Protection District Pension Obligation Bonds ,766 TOTAL GROSS DIRECT AND OVERLAPPING GENERAL FUND DEBT $64,942,299 Less: Monterey County supported obligations 4,350,440 TOTAL NET DIRECT AND OVERLAPPING GENERAL FUND DEBT $60,591,859 OVERLAPPING TAX INCREMENT DEBT (Successor Agency): $2,901,351 GROSS COMBINED TOTAL DEBT $198,072,711 (2) NET COMBINED TOTAL DEBT $193,722,271 (1) Excludes the Bonds and includes the Refunded Bonds. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations. Source: California Municipal Statistics, Inc. 20

29 Pledge of Tax Revenues Pursuant to the Resolutions, the District pledges all revenues from the property taxes collected from the levy by the County Board of Supervisors for the payment of the Bonds and amounts on deposit in the debt service fund of the District to the payment of the principal or redemption price of and interest on the Bonds. This pledge is valid and binding from the date of adoption of the Resolutions for the benefit of the owners of the Bonds and successors thereto. The Resolutions provide that the property taxes and amounts held in the debt service fund of the District are immediately subject to this pledge, and the pledge constitutes a lien and security interest which immediately attaches to the property taxes and amounts held in the debt service fund of the District to secure the payment of the Bonds and is 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. Bonds for purpose of this pledge means all bonds of the District heretofore or hereafter issued pursuant to voter approved measures of the District, including any refunding bonds thereof, as all such Bonds are required by State law to be paid from the respective debt service fund of the District. Each Resolution provides that the pledge is an agreement between the District and the bondholders to provide security for the Bonds in addition to any statutory lien that may exist, and the Bonds and each of the other bonds secured by the pledge are or were issued to finance one or more of the projects specified in the applicable voter-approved measure or to refinance outstanding general obligation bonds. Statutory Lien for General Obligation Bonds Senate Bill 222 (2015) ( SB 222 ), codified at State Government Code Section 53515, provides that all general obligation bonds issued by local agencies on or after January 1, 2016, including the Bonds, will be secured by a statutory lien on all revenues received pursuant to the levy and collection of the ad valorem taxes. SB 222 provides that the lien will automatically arise, without the need for any action or authorization by the District or its governing board, and will be valid and binding from the time the bonds are executed and delivered. See also LEGAL MATTERS Possible Limitations on Remedies; Bankruptcy Statutory Lien herein. Dedicated Unlimited Ad Valorem Property Tax Collection Factors Affecting Assessed Valuation. The annual tax rate will be based on the assessed value of taxable property in the District. Changes in the annual debt service on the District s outstanding general obligation bonds and the assessed value of taxable property in the District may cause the annual tax rate to fluctuate. Economic and other factors beyond the District s control, such as economic recession, deflation of land values, relocation of businesses out of the District or financial difficulty or bankruptcy by one or more major property taxpayers, or the complete or partial destruction of taxable property caused by, among other eventualities, earthquake, flood, drought, fire or other natural disaster, could cause a reduction in the assessed value of taxable property in the District and, all other factors being equal, necessitate a corresponding increase in the annual tax rate. Conversely, factors such as increased assessed value of taxable property and/or an increase in the numbers of property taxpayers within the District could, all other factors being equal, cause a corresponding decrease in the annual tax rate. 21

30 BOND INSURANCE Bond Insurance Policy Concurrently with the issuance of the Bonds, BAM will issue the Policy. The Policy guarantees the scheduled payment of principal of (or, in the case of Capital Appreciation Bonds, the accreted value) and interest on the Bonds when due as set forth in the form of the Policy included as set forth in APPENDIX E SPECIMEN MUNICIPAL BOND INSURANCE POLICY. The Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law. Build America Mutual Assurance Company BAM is a New York domiciled mutual insurance corporation and is licensed to conduct financial guaranty insurance business in all fifty states of the United States and the District of Columbia. BAM provides credit enhancement products solely to issuers in the U.S. public finance markets. BAM will only insure obligations of states, political subdivisions, integral parts of states or political subdivisions or entities otherwise eligible for the exclusion of income under section 115 of the U.S. Internal Revenue Code of 1986, as amended. No member of BAM is liable for the obligations of BAM. The address of the principal executive offices of BAM is: 200 Liberty Street, 27 th Floor, New York, New York 10281, its telephone number is: , and its website is located at: BAM is licensed and subject to regulation as a financial guaranty insurance corporation under the laws of the State of New York and in particular Articles 41 and 69 of the New York Insurance Law. BAM s financial strength is rated AA/Stable by S&P Global Ratings, a business unit of Standard & Poor's Financial Services LLC ( S&P ). An explanation of the significance of the rating and current reports may be obtained from S&P at The rating of BAM should be evaluated independently. The rating reflects the S&P s current assessment of the creditworthiness of BAM and its ability to pay claims on its policies of insurance. The above rating is not a recommendation to buy, sell or hold the Bonds, and such rating is subject to revision or withdrawal at any time by S&P, including withdrawal initiated at the request of BAM in its sole discretion. Any downward revision or withdrawal of the above rating may have an adverse effect on the market price of the Bonds. BAM only guarantees scheduled principal and scheduled interest payments payable by the issuer of the Bonds on the date(s) when such amounts were initially scheduled to become due and payable (subject to and in accordance with the terms of the Policy), and BAM does not guarantee the market price or liquidity of the Bonds, nor does it guarantee that the rating on the Bonds will not be revised or withdrawn. Capitalization of BAM BAM s total admitted assets, total liabilities, and total capital and surplus, as of December 31, 2017 and as prepared in accordance with statutory accounting practices prescribed or permitted by the New York State Department of Financial Services were $515 million, $87.7 million and $427.3 million, respectively. BAM is party to a first loss reinsurance treaty that provides first loss protection up to a maximum of 15% of the par amount outstanding for each policy issued by BAM, subject to certain limitations and restrictions. BAM s most recent Statutory Annual Statement, which has been filed with the New York State Insurance Department and posted on BAM s website at is incorporated herein by reference and may be obtained, without charge, upon request to BAM at its address provided above 22

31 (Attention: Finance Department). Future financial statements will similarly be made available when published. BAM makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, BAM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding BAM, supplied by BAM and presented under the heading BOND INSURANCE. Additional Information Available from BAM Credit Insights Videos. For certain BAM-insured issues, BAM produces and posts a brief Credit Insights video that provides a discussion of the obligor and some of the key factors BAM s analysts and credit committee considered when approving the credit for insurance. The Credit Insights videos are easily accessible on BAM's website at buildamerica.com/creditinsights/. (The preceding website address is provided for convenience of reference only. Information available at such address is not incorporated herein by reference.) Credit Profiles. Prior to the pricing of bonds that BAM has been selected to insure, BAM may prepare a pre-sale Credit Profile for those bonds. These pre-sale Credit Profiles provide information about the sector designation (e.g. general obligation, sales tax); a preliminary summary of financial information and key ratios; and demographic and economic data relevant to the obligor, if available. Subsequent to closing, for any offering that includes bonds insured by BAM, any pre-sale Credit Profile will be updated and superseded by a final Credit Profile to include information about the gross par insured by CUSIP, maturity and coupon. BAM pre-sale and final Credit Profiles are easily accessible on BAM's website at buildamerica.com/obligor/. BAM will produce a Credit Profile for all bonds insured by BAM, whether or not a pre-sale Credit Profile has been prepared for such bonds. (The preceding website address is provided for convenience of reference only. Information available at such address is not incorporated herein by reference.) Disclaimers. The Credit Profiles and the Credit Insights videos and the information contained therein are not recommendations to purchase, hold or sell securities or to make any investment decisions. Credit-related and other analyses and statements in the Credit Profiles and the Credit Insights videos are statements of opinion as of the date expressed, and BAM assumes no responsibility to update the content of such material. The Credit Profiles and Credit Insight videos are prepared by BAM; they have not been reviewed or approved by the issuer of or the underwriter for the Bonds, and the issuer and underwriter assume no responsibility for their content. BAM receives compensation (an insurance premium) for the insurance that it is providing with respect to the Bonds. Neither BAM nor any affiliate of BAM has purchased, or committed to purchase, any of the Bonds, whether at the initial offering or otherwise. 23

32 Possible Limitations on Remedies; Bankruptcy LEGAL MATTERS General. Following is a discussion of certain considerations in the event that the District should become a debtor in a bankruptcy proceeding. It is not an exhaustive discussion of the potential application of bankruptcy law to the District. State law contains a number of safeguards to protect the financial solvency of school districts. See APPENDIX A FINANCIAL AND DEMOGRAPHIC INFORMATION RELATING TO THE DISTRICT. If the safeguards are not successful in preventing a school district from becoming insolvent, the State Superintendent of Public Instruction (the State Superintendent ), operating through an administrator appointed by the State Superintendent, may be authorized under State law to file a petition under Chapter 9 of the United States Bankruptcy Code (the Bankruptcy Code ) on behalf of the District for the adjustment of its debts, assuming that the District meets certain other requirements contained in the Bankruptcy Code necessary for filing such a petition. Under current State law, the District is not itself authorized to file a bankruptcy proceeding, and it is not subject to an involuntary bankruptcy proceeding. Bankruptcy courts are courts of equity and as such have broad discretionary powers. If the District were to become the debtor in a proceeding under Chapter 9 of the Bankruptcy Code, the parties to the proceedings may be prohibited from taking any action to collect any amount from the District (including ad valorem tax revenues) or to enforce any obligation of the District, without the bankruptcy court s permission, except as described below in the case of special revenues. In such a proceeding, as part of its plan of adjustment in bankruptcy, the District may be able to alter the priority, interest rate, principal amount, payment terms, collateral, maturity dates, payment sources, covenants (including tax-related covenants), and other terms or provisions of the Bonds and other transaction documents related to the Bonds, including the obligation of the County and the District to raise taxes if necessary to pay the Bonds, if the bankruptcy court determines that the plan is fair, equitable, not unfairly discriminatory and is in the best interests of creditors and otherwise complies with the Bankruptcy Code. There also may be other possible effects of a bankruptcy of the District that could result in delays or reductions in payments on the Bonds. Regardless of any specific adverse determinations in any District bankruptcy proceeding, the fact of a District bankruptcy proceeding could have an adverse effect on the liquidity and market price of the Bonds. Limitations on Plans of Adjustments. Chapter 9 of the Bankruptcy Code provides that it does not limit or impair the power of a state to control, by legislation or otherwise, a political subdivision of the state in the exercise of its political or governmental powers, including expenditures for the exercise. In addition, Chapter 9 provides that a bankruptcy court may not interfere with the political or governmental powers of a political subdivision debtor, unless the political subdivision approves a plan of adjustment to that effect or consents to that action. State law provides that ad valorem taxes may be levied to pay the principal of and interest on the Bonds and other voted general obligation bonds of the District in an unlimited amount, and that proceeds of such a levy must be used for the payment of principal of and interest on the District s general obligation bonds, including the Bonds, and for no other purpose. Under State law, the District s share of the 1% limited tax imposed by the County is the only ad valorem tax revenue that may be raised and expended to pay liabilities and expenses of the District other than its voter-approved debt, such as its general obligation bonds. If the District should become a debtor in a Chapter 9 proceeding, then it must propose a plan of adjustment of its debts. The plan may not become effective until confirmed by the bankruptcy court. The court may not approve a plan unless it finds, among other conditions, that the District is not prohibited by law from taking any action necessary to carry out the plan and that the plan is in the best interests of creditors and is feasible. If the State law restriction on the levy and expenditure of ad valorem taxes is respected in a bankruptcy case, then ad valorem tax revenue in excess of the District s share of the 1% limited County tax could not be used by the District for any purpose under its plan other than to make payments on the Bonds and its other voted general obligation bonds. It is possible, however, that a bankruptcy court could conclude that the restriction should not be respected. 24

33 Statutory Lien. Pursuant to Senate Bill 222 (2015) that became effective on January 1, 2016, all general obligation bonds issued by local agencies, including the Bonds, will be secured by a statutory lien on all revenues received pursuant to the levy and collection of the ad valorem taxes. SB 222 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. As a result, the lien on debt service taxes will continue to be valid with respect to post-petition receipts of debt service taxes, should the District become the subject of bankruptcy proceedings. However, the automatic stay provisions of the Bankruptcy Code would apply, preventing bondholders from enforcing their rights to payment from such taxes, so payments that become due and owing on the Bonds during the pendency of the Chapter 9 proceeding could be delayed, unless such taxes are special revenues within the meaning of the Bankruptcy Code and the pledged ad valorem taxes are applied to pay the Bonds in a manner consistent with the Bankruptcy Code. It is also possible that the bankruptcy court could approve an alternate use of such taxes, if the bondholders are afforded adequate protection. Special Revenues. If the ad valorem tax revenues that are pledged to the payment of the Bonds are determined to be special revenues within the meaning of the Bankruptcy Code, then the application in a manner consistent with the Bankruptcy Code of the pledged ad valorem tax revenues that are collected after the date of the bankruptcy filing should not be subject to the automatic stay. Special revenues are defined to include, among others, taxes specifically levied to finance one or more projects or systems of the debtor, but excluding receipts from general property, sales, or income taxes levied to finance the general purposes of the debtor. The District has specifically pledged the ad valorem taxes for payment of the Bonds. The Bonds and the District s other general obligation bonds were approved at an election held on a proposition that described the projects for which such bonds may be issued. As noted above, State law prohibits the use of the proceeds of the District s debt service tax for any purpose other than payment of its general obligation bonds, and the bond proceeds may only be used to fund the acquisition or improvement of real property and other capital expenditures included in the proposition, so such tax revenues appear to fit the definition of special revenues. However, there is no binding judicial precedent dealing with the treatment in bankruptcy proceedings of ad valorem tax revenues collected for the payments of general obligation bonds in California, so no assurance can be given that a bankruptcy court would not hold otherwise. In addition, even if the ad valorem tax revenues are determined to be special revenues, the Bankruptcy Code provides that any consensual lien on special revenues derived from a project or system is subject to necessary operating expenses of the project or system. This rule applies regardless of the provisions of transaction documents. If a bankruptcy court were to conclude that the District s tax collections are derived from a District project or system, then the court could determine that bondholders may not compel use of debt service ad valorem tax revenues to pay debt service to the extent the revenues are needed to pay necessary operating expenses of the District and its schools. Possession of Tax Revenues; Remedies. If the County or the District goes into bankruptcy and has possession of tax revenues (whether collected before or after commencement of the bankruptcy), and if the County or the District, as applicable, does not voluntarily pay such tax revenues to the owners of the Bonds, it is not clear what procedures the owners of the Bonds would have to follow to attempt to obtain possession of such tax revenues, how much time it would take for such procedures to be completed, or whether such procedures would ultimately be successful. Amounts Held in County Treasury Pool. The County on behalf of the District is expected to be in possession of the annual ad valorem property taxes and certain funds to repay the Bonds and may invest these funds in the County s Treasury Pool, as described in SECURITY AND SOURCES OF PAYMENT FOR THE BONDS and APPENDIX G COUNTY OF MONTEREY POOLED SURPLUS INVESTMENTS. Should those investments suffer losses, there may be delays or reductions in payments on the Bonds. 25

34 Opinion of Bond Counsel Qualified. The proposed forms of opinion of Bond Counsel, attached hereto as APPENDIX B, is qualified by reference to bankruptcy, insolvency and other laws relating to or affecting creditor s rights. General TAX MATTERS The delivery of the Bonds is subject to delivery of the opinions of Bond Counsel, to the effect that interest on the Bonds for federal income tax purposes under existing statutes, regulations, published rulings, and court decisions (1) will be excludable from the gross income, as defined in section 61 of the Internal Revenue Code of 1986, as amended to the date of initial delivery of the Bonds (the Code ), of the owners thereof pursuant to section 103 of the Code, and (2) will not be included in computing the alternative minimum taxable income of the owners thereof who are individuals or, except as hereinafter described, corporations. The delivery of the Bonds is also subject to the delivery of the opinions of Bond Counsel, based upon existing provisions of the laws of the State of California that interest on the Bonds is exempt from personal income taxes of the State of California. Forms of Bond Counsel s anticipated opinions are included as APPENDIX B. The statutes, regulations, rulings, and court decisions on which such opinions will be based are subject to change. For taxable years that began before January 1, 2018, interest on the Bonds owned by a corporation will be included in such corporation s adjusted current earnings for purposes of computing the federal alternative minimum tax on such corporation, other than an S corporation, a qualified mutual fund, a real estate investment trust, a real estate mortgage investment conduit, or a financial asset securitization investment trust ( FASIT ). The federal alternative minimum tax on corporations has been repealed for taxable years beginning on or after January 1, In rendering the foregoing opinions, Bond Counsel will rely upon the representations and certifications of the District made in a certificate of even date with the initial delivery of the Bonds pertaining to the use, expenditure, and investment of the proceeds of the Bonds and will assume continuing compliance with the provisions of the Resolutions by the District subsequent to the issuance of the Bonds. The Resolutions and the Tax Certificate with respect to the Bonds contain covenants by the District with respect to, among other matters, the use of the proceeds of the Bonds and the facilities and equipment financed or refinanced therewith by persons other than state or local governmental units, the manner in which the proceeds of the Bonds are to be invested, the calculation and payment to the United States Treasury of any arbitrage profits and the reporting of certain information to the United States Treasury. Failure to comply with any of these covenants may cause interest on the Bonds to be includable in the gross income of the owners thereof from the date of the issuance of the Bonds. Except as described above, Bond Counsel will express no other opinion with respect to any other federal, State or local tax consequences under present law, or proposed legislation, resulting from the receipt or accrual of interest on, or the acquisition or disposition of, the Bonds. Prospective purchasers of the Bonds should be aware that the ownership of tax exempt obligations such as the Bonds may result in collateral federal tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, S corporations with subchapter C earnings and profits, certain foreign corporations doing business in the United States, individual recipients of Social Security or Railroad Retirement benefits, individuals otherwise qualifying for the earned income tax credit, owners of an interest in a FASIT, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations. Prospective purchasers should consult their own tax advisors as to the applicability of these consequences to their particular circumstances. Bond Counsel s opinions are not guarantees of a result, but represent its legal judgment based upon its review of existing statutes, regulations, published rulings and court decisions and the representations 26

35 and covenants of the District described above. No ruling has been sought from the Internal Revenue Service (the IRS ) or the State of California with respect to the matters addressed in the opinions of Bond Counsel, and Bond Counsel s opinions are not binding on the IRS or the State of California. The IRS has an ongoing program of auditing the tax-exempt status of the interest on municipal obligations. If an audit of the Bonds is commenced, under current procedures, the IRS is likely to treat the District as the taxpayer, and the Owners of the Bonds would have no right to participate in the audit process. In responding to or defending an audit of the tax-exempt status of the interest on the Bonds, the District may have different or conflicting interests from the Owners of the Bonds. Public awareness of any future audit of the Bonds could adversely affect the value and liquidity of the Bonds during the pendency of the audit, regardless of its ultimate outcome. Existing law may change to reduce or eliminate the benefit to bondholders of the exclusion of interest on the Bonds from gross income for federal income tax purposes. Any proposed legislation or administrative action, whether or not taken, could also affect the value and marketability of the Bonds. Prospective purchasers of the Bonds should consult with their own tax advisors with respect to any proposed or future changes in tax law. Tax Accounting Treatment of Discount and Premium on Certain Bonds The initial public offering price of certain Bonds (the Discount Bonds ) may be less than the amount payable on such Bonds at maturity. An amount equal to the difference between the initial public offering price of a Discount Bond (assuming that a substantial amount of the Discount Bonds of that maturity are sold to the public at such price) and the amount payable at maturity constitutes original issue discount to the initial purchaser of such Discount Bond. A portion of such original issue discount allocable to the holding period of such Discount Bond by the initial purchaser will, upon the disposition of such Discount Bond (including by reason of its payment at maturity), be treated as interest excludable from gross income, rather than as taxable gain, for federal income tax purposes, on the same terms and conditions as those for other interest on the Bonds described above. Such interest is considered to be accrued actuarially in accordance with the constant interest method over the life of a Discount Bond, taking into account the semiannual compounding of accrued interest, at the yield to maturity on such Discount Bond and generally will be allocated to an initial purchaser in a different amount from the amount of the payment denominated as interest actually received by the initial purchaser during the tax year. However, such interest may be required to be taken into account in determining the alternative minimum tax on corporations for taxable years that began before January 1, 2018, and the amount of the branch profits tax applicable to certain foreign corporations doing business in the United States, even though there will not be a corresponding cash payment. In addition, the accrual of such interest may result in certain other collateral federal income tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, S corporations with subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, individuals otherwise qualifying for the earned income tax credit, owners of an interest in a FASIT, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations. Moreover, in the event of the redemption, sale or other taxable disposition of a Discount Bond by the initial owner prior to maturity, the amount realized by such owner in excess of the basis of such Discount Bond in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Discount Bond was held) is includable in gross income. Owners of Discount Bonds should consult with their own tax advisors with respect to the determination of accrued original issue discount on Discount Bonds for federal income tax purposes and with respect to the state and local tax consequences of owning and disposing of Discount Bonds. It is possible that, under applicable provisions governing determination of state and local income taxes, accrued interest on Discount Bonds may be deemed to be received in the year of accrual even though there will not be a corresponding cash payment. 27

36 The initial offering price of certain Bonds (the Premium Bonds ) may be greater than the amount payable on such Bonds at maturity. An amount equal to the difference between the initial public offering price of a Premium Bond (assuming that a substantial amount of the Premium Bonds of that maturity are sold to the public at such price) and the amount payable at maturity constitutes premium to the initial purchaser of such Premium Bonds. The basis for federal income tax purposes of a Premium Bond in the hands of such initial purchaser must be reduced each year by the amortizable bond premium, although no federal income tax deduction is allowed as a result of such reduction in basis for amortizable bond premium. Such reduction in basis will increase the amount of any gain (or decrease the amount of any loss) to be recognized for federal income tax purposes upon a sale or other taxable disposition of a Premium Bond. The amount of premium which is amortizable each year by an initial purchaser is determined by using such purchaser s yield to maturity. Purchasers of the Premium Bonds should consult with their own tax advisors with respect to the determination of amortizable bond premium with respect to the Premium Bonds for federal income purposes and with respect to the state and local tax consequences of owning and disposing of Premium Bonds. LEGAL OPINION The validity of the Bonds and certain other legal matters are subject to the approving opinions of Norton Rose Fulbright US LLP, Bond Counsel to the District. A complete copy of the proposed forms of Bond Counsel opinions are contained in APPENDIX B herein. Bond Counsel undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement. Compensation to be paid to Bond Counsel and Disclosure Counsel is contingent upon the issuance of the Bonds. CONTINUING DISCLOSURE In accordance with the requirements of Rule 15c2-12 (the Rule ) promulgated by the Securities and Exchange Commission, the District will enter into a Continuing Disclosure Agreement (the Continuing Disclosure Agreement ) in the form of APPENDIX D hereto, on or prior to the sale of the Bonds in which the District will undertake, for the benefit of the Beneficial Owners of the Bonds, to provide certain information as set forth therein. The covenants contained in the Continuing Disclosure Agreement have been made to assist the Underwriters in complying with the Rule. See APPENDIX D Form of Continuing Disclosure Agreement hereto. LEGALITY FOR INVESTMENT Under provisions of the California Financial Code, the Bonds are legal investments for commercial banks in California to the extent that the Bonds, in the informed opinion of the investing bank, are prudent for the investment of funds of depositors. Under provisions of the California Government Code, the Bonds are eligible to secure deposits of public moneys in California. 28

37 RATINGS S&P Global Ratings, a business unit of Standard & Poor's Financial Services LLC ( S&P ) is expected to assign their municipal bond ratings of AA, to the Bonds based upon the issuance of the Policy. S&P has also assigned its underlying municipal bond rating of A+ to the Bonds. Such ratings reflect only the view of S&P. Any explanation of the significance of the ratings may be obtained by contacting: Standard & Poor s, 55 Water Street, New York, NY 10041, telephone: (212) There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by S&P if, in the judgment of S&P, circumstances so warrant. Any such downward revision or withdrawal of S&P may have an adverse effect on the market price of the Bonds. See BOND INSURANCE- Recent Developments herein. UNDERWRITING The Series A Bonds are being purchased by Piper Jaffray & Co. and Newcomb Williams Financial Group, Securities offered through Stinson Securities, LLC. (collectively, the Underwriters ). The Underwriters have agreed, subject to certain conditions, to purchase the Series A Bonds at a purchase price of $[ ] (reflecting an aggregate principal or issue amount of $[ ].00, plus net original issue premium of $[ ], and less an Underwriters discount of $[ ]). The Series C Bonds are being purchased by the Underwriters. The Underwriters have agreed, subject to certain conditions, to purchase the Series C Bonds at a purchase price of $[ ] (reflecting an aggregate principal or issue amount of $[ ].00, plus net original issue premium of $[ ], and less an Underwriters discount of $[ ]). The purchase contracts provide that the Underwriters will purchase all of the Bonds if any are purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in the purchase agreement, the approval of certain legal matters by counsel and certain other conditions. The Underwriters may offer and sell the Bonds to certain dealers and others at prices or yields lower than the offering prices or yields stated on the inside cover page. The offering prices may be changed from time to time by the Underwriters. Underwriter Disclosures Piper Jaffray & Co., one of the Underwriters of the Bonds, has provided the following for inclusion in this Official Statement. The District does not guarantee the accuracy or completeness of the following information, and the inclusion thereof should be construed as a representation of the District. Piper Jaffray & Co. 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 Bonds from Piper Jaffray & Co. at the original issue price less a negotiated portion of the selling concession applicable to any Bonds that CS&Co. sells. 29

38 NO LITIGATION No litigation is pending concerning the validity of the Bonds, and the District s certificate to that effect will be furnished to purchasers at the time of the original delivery of the Bonds. No litigation is pending and the District is not aware of any litigation pending or threatened questioning the political existence of the District or contesting the District s ability to receive ad valorem taxes or to collect other revenues or contesting the District s ability to issue the Bonds or to pay the principal and interest thereon. VERIFICATION REPORT The arithmetical accuracy of certain computations included in the schedules provided by the Underwriters relating to the computation of the projected payments of principal and interest to retire the Refunded Bonds will be verified the Verification Agent. Such computations will be based solely on assumptions and information supplied by the District and the Underwriter. The Verification Agent will restrict its procedures to verifying the arithmetical accuracy of certain computations and will not make any study to evaluate the assumptions and information on which the computations are based, and will express no opinion on the data used, the reasonableness of the assumptions or the achievability of the projected outcome. See PLAN OF REFUNDING herein. OTHER INFORMATION References are made herein to certain documents and reports which are brief summaries thereof which do not purport to be complete or definitive and reference is made to such documents and reports for full and complete statements of the contents thereof. Copies of the Resolution are available upon request from the Superintendent, Salinas City Elementary School District, 840 South Main Street, Salinas, CA The District may impose a fee for copying, mailing and handling. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the District and the purchasers or owners of any of the Bonds. The execution and delivery of this Official Statement has been duly authorized by the District. SALINAS CITY ELEMENTARY SCHOOL DISTRICT By:. Superintendent 30

39 APPENDIX A FINANCIAL AND DEMOGRAPHIC INFORMATION RELATING TO THE DISTRICT The following information, concerning the operations and finances of the District is not intended to and does not suggest that the Bonds are secured by the general revenues or General Fund of the District, nor is the County obligated in any way with respect to the Bonds. The Bonds are general obligation bonds of the District, secured and payable solely from ad valorem property taxes collected against taxable properties within the boundaries of the District. Prospective purchasers of the Bonds should be aware that the following discussion of the District s financial condition, its fund balances, budgets and other obligations, is intended as general information only, and no implication is made the payment of principal of or interest on the Bonds is dependent in any way upon the District s financial condition. The District neither receives nor accounts for ad valorem property taxes collected by the County to pay debt service on the Bonds. Pursuant to Section of the Education Code, all tax revenues collected for payment of debt service on general obligation bonds, including the Bonds, must be deposited into the interest and sinking fund of the District maintained within the County Treasury Pool. See the body of this Official Statement under the caption SECURITY AND SOURCES OF PAYMENT FOR THE BONDS. General DISTRICT INFORMATION The District, a political subdivision of the State of California, provides public education to an estimated enrollment of approximately 8,800 students residing in the western region of the County. The District is located east of the City of Monterey. The District serves grades K-6 and currently operates thirteen elementary schools. The District s average daily attendance ( ADA ) for all District programs for Fiscal Years ended June 30, 2016 and June 20, 2017 was 8,685 and 8,587, respectively. The District currently projects that the ADA for Fiscal Year ended June 30, 2018 will be 8,582. Assessed valuation of real property and improvements (full cash value) in the District increased from approximately $6,556,505,413 in to $6,863,640,545 in District Organization The District is governed by a Board of Education (the Board ). The Board consists of five members who are elected at-large to overlapping four-year terms at elections held in staggered years. If a vacancy arises during any term, the vacancy is filled by either an appointment by the majority vote of the remaining Board Members or by a special election. Each December, the Board elects a President, Vice President and Clerk to serve one-year terms. The years in which the current terms for each member of the Board expire are set forth below: District Board of Education Name Position Term Ending Stephen Kim President 2018 Robert Foster Hoffman Vice President 2018 Francisco Estrada Clerk 2020 Roberto Garcia Member 2018 Amy Ish Member 2020 A-1

40 Key Personnel The following is a listing of the key personnel of the District: Name Martha Martinez Gerald Stratton Office Superintendent Assistant Superintendent, Business Services District Employees As of June 30, 2017 the District employed approximately 511 full-time and part-time certificated professionals as well as 481 full-time and part-time classified employees. The pupil-teacher ratio within the District ranges from 23 to 1 to 27 to 1. The certificated employees of the District have selected the California Teachers Association with Salinas City Elementary Teachers Association as their exclusive bargaining agent. The District s contract with certificated employees expired on June 30, The classified employees have appointed California School Employees Association as their exclusive bargaining agent. The District s contract with classified employees expired on June 30, The parties are currently operating under the expired contracts as they negotiate new agreements. There is no history of labor problems at the District and no problems are reasonably expected. The total accumulated employee compensated absences as of June 30, 2017, amounted to $202,507, which is recorded as General Long-Term Debt. Population and Student Enrollment The total population of the City is currently estimated to be approximately 162,470. The table below sets forth the population of the City, the County, and the State for the last five years. ESTIMATED POPULATION OF CITY, COUNTY AND STATE Calendar Year City of Salinas Monterey County State of California , ,087 38,238, , ,298 38,572, , ,664 38,915, , ,171 39,189, , ,365 39,523,613 Source: California State Department of Finance. A-2

41 The enrollment of the District is currently estimated to be approximately 9,000. The table below sets forth the enrollment, in October of each year, for the District for the fiscal years through and the projected enrollment for the fiscal year SALINAS CITY ELEMENTARY SCHOOL DISTRICT Enrollment through Fiscal Year Enrollment (October of each Year) Increase (Decrease) from Prior Year , , , ,105 (20) ,005 (100) (1) 8,840 (165) Source: The District. (1) Projected. The table below sets forth the average daily attendance and revenue limit for the fiscal years through and the projected average daily attendance and revenue limit for fiscal year SALINAS CITY ELEMENTARY SCHOOL DISTRICT Average Daily Attendance and Revenue Limit Fiscal Years through Fiscal Year Revenue Limit per ADA ADA $6, $ 8, , , , , , , , , (1) 9, ,393 Source: The District. (1) Projected Significant Accounting Policies and Audited Financial Statements The California State Department of Education imposes by law uniform financial reporting and budgeting requirements for K-12 school districts. Financial transactions are accounted for in accordance with the California School Accounting Manual. Selected information from the District s Audited Financial Statements for Fiscal Year ended June 30, 2017 is attached hereto as APPENDIX C. California Assembly Bill 1200 ( A.B ), effective January 1, 1992, tightened the budget development process and interim financial reporting for school districts, enhancing the authority of the county schools superintendents offices and establishing guidelines for emergency State aid apportionments. Many provisions affect District operations directly, while others create a foundation from which outside authorities (primarily state and county school officials) may impose actions on the District. Under the provisions of A.B. 1200, each school district is required to file interim certifications with the county office of education as to its ability to meet its financial obligations for the remainder of the then A-3

42 current fiscal year and, based on current forecasts, for the subsequent fiscal year. The county office of education 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 will be unable to meet its financial obligations for the remainder of the fiscal year or subsequent fiscal year. A qualified certification is assigned to any school district that may not meet its financial obligations for the current fiscal year or two subsequent fiscal years. Each certification is based on then current projections. The District currently holds a positive certification from the Monterey County Office of Education for its budget submissions. 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. For the District s most recent available audited financial statements, see APPENDIX C. The District s General Fund finances the legally authorized activities of the District for which restricted funds are not provided. General Fund revenues are derived from such sources as State fund apportionments, taxes, use of money and property, and aid from other governmental agencies. The District has not requested its auditor to provide any review or update of such financial statements in connection with their inclusion in this Official Statement. The District s audited financial statements, budgets, and certifications for prior and subsequent fiscal years can be obtained by contacting the District at 840 South Main Street, Salinas, CA A fee may be imposed for copies and postage. General Fund The following tables describes the District s audited financial results for the fiscal years through , abstracted from financial statements prepared by the District s independent auditors, Vavrinek, Trine, Day & Co., LLP. [Remainder of page intentionally left blank.] A-4

43 Salinas City Elementary School District Historical Statement of Revenues, Expenditures and Changes in General Fund Balances Fiscal Years Ending June 30, 2013 through June 30, 2017 Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year REVENUES Revenue Limit/LCFF Sources $41,683,318 $56,919,714 $66,404,732 $77,679,820 $83,438,823 Federal revenues 5,145,265 4,980,197 6,136,492 6,343,860 6,197,047 Other State revenues 14,962,323 8,610,448 8,221,883 13,918,086 9,558,816 Other local revenues 4,456,331 4,438,525 5,020,121 4,886,505 5,867,392 TOTAL REVENUES 66,247,237 74,948,884 85,783, ,828, ,062,078 EXPENDITURES Instruction 42,359,772 46,072,003 51,518,862 57,322,062 60,599,797 Instruction-Related Activities: Supervision of instruction 3,043,670 2,699,235 3,490,304 5,618,551 6,092,228 Instructional library, media and technology 242, , , , ,332 School site administration 4,666,136 4,979,988 6,221,411 7,724,960 8,557,484 Pupil Services Home-to-school transportation 1,713,498 1,771,607 2,153,991 1,901,089 2,038,570 Food services , All other pupil services 1,757,942 1,851,673 1,678,428 3,036,810 3,285,722 General Administration Data processing 210, , , , ,778 All other administration 2,850,875 2,816,696 3,161,462 3,319,671 3,576,836 Plant Services 5,862,393 6,502,941 7,630,480 11,307,170 8,009,266 Facility Acquisition and Construction 41, , , ,573 2,063,402 Ancillary Services 1, ,355,737 Community Services Other Outgo 5,652,421 5,058,578 8,073, ,080 6,758,409 Enterprise Services 125, , , , ,530 TOTAL EXPENDITURES 68,527,591 73,549,862 85,708, ,211, ,769,243 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (2,280,354) 1,399,022 74,806 2,617,153 3,292,835 NET FINANCING SOURCES (USES) 257, (1,050,000) 233,776 NET CHANGE IN FUND BALANCE ($2,022,379) $1,399,022 $ 74,806 $1,567,153 3,526,611 BEGINNING FUND BALANCE 8,366,650 6,344,270 7,743,293 7,818,099 9,385,253 ENDING FUND BALANCE $6,344,271 $7,743,292 $7,818,099 $9,385,252 $12,911,864 Source: The District. A-5

44 General Fund and (Budgeted). The following table shows a summary of the General Fund for Fiscal Year and (Budgeted). Salinas City Elementary School District Statement of Revenues, Expenditures and Changes in General Fund Balances Fiscal Year Ending June 30, 2017 Fiscal Year Ending June 30, 2018 (1) Audited Fiscal Year Adopted Budget Fiscal Year REVENUES Revenue Limit/LCFF Sources $83,438,823 $84,996,485 Federal revenues 6,197,047 6,232,458 Other state revenues 9,558,816 8,966,353 Other local revenues 5,867,392 4,527,598 TOTAL REVENUES 105,062, ,722,894 EXPENDITURES Current Certificated salaries 38,554,947 39,484,905 Classified salaries 12,042,091 12,645,693 Employee benefits 26,778,536 28,376,606 Books and Supplies 5,622,598 5,610,452 Services and operating expenditures 10,275,764 12,148,935 Capital outlay 2,007, ,564 Other outgo 6,488,303 7,492,873 Transfers of Indirect Costs - (265,269) TOTAL EXPENDITURES 101,769, ,444,759 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 3,292,835 (1,721,865) NET FINANCING SOURCES (USES) 233,776 NET CHANGE IN FUND BALANCE 3,526,611 (1,721,865) BEGINNING FUND BALANCE 9,385,253 7,532,905 ENDING FUND BALANCE $12,911,864 $5,811,040 (1) Budgeted. Source: The District. District Budget 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 file with the county superintendent of schools a tentative budget by July 1 in each fiscal year and an adopted budget by September 8 of each fiscal year. After approval of the adopted budget, the school district s administration may submit budget revisions for governing board approval. A-6

45 School districts in California must also conduct a review of their budgets according to certain standards and criteria established by the State Department of Education. A written explanation must be provided for any element in the budget that does not meet the established standards and criteria. The district superintendent or designee must certify that such a review has been conducted and the certification, together with the budget review checklist and a written narrative, must accompany the budget when it is submitted to the governing board for approval. The balanced budget requirement makes appropriations reductions necessary to offset any revenue shortfalls. Furthermore, county superintendent of schools offices are required to review district budgets, complete the budget review checklist and conduct an analysis of any budget item that does not meet the established standards. A copy of the completed checklist, together with any comments or recommendations, must be provided to the district and its governing board by November 1. By November 30, every district must have an adopted and approved budget, or the county superintendent of schools will impose one. The following table describes the District s General Fund Adopted Budgets for the fiscal years through Salinas City Elementary School District General Fund Budget Fiscal Year through Fiscal Year REVENUES Revenue Limit Sources State Apportionment $26,821,563 $45,076,078 $53,592,445 $56,136,395 Local Sources 17,881,517 21,219,971 25,169,466 26,970,440 Total Revenue Limit Sources $44,703,080 $66,296,049 $78,761,911 $83,106,835 Federal Revenue $5,497,102 $5,858,655 $7,025,041 $7,264,419 Other State Revenue 13,816,134 4,508,840 8,889,749 9,114,518 Other Local Revenue 4,901,605 4,712,803 4,423,605 4,447,699 Total Revenue $68,917,921 $81,376,347 $99,100,306 $103,933,471 EXPENDITURES Certificated Salaries $29,008,534 $32,417,742 $35,630,607 $37,962,372 Classified Salaries 7,668,544 8,656,326 10,316,817 11,758,713 Employee Benefits 17,130,191 20,161,239 22,064,008 27,302,310 Books and Supplies 4,481,826 4,761,971 7,613,433 6,353,108 Services and Operating Expenditures 6,069,440 7,234,762 11,141,231 12,376,236 Other outgo 5,590,950 7,033,364 7,488,115 7,561,671 Transfers of Indirect Cost (244,357) (95,035) (264,005) (270,570) Capital Outlay 586, ,811 1,009,348 1,147,826 Total Expenditures $70,291,127 $80,742,180 $94,999,554 $104,191,666 EXCESS OF REVENUES OVER/(UNDER) EXPENDITURES ($1,373,206) $634,166 $4,100,752 ($258,195) Source: The District. A-7

46 Retirement Systems STRS. The District participates in the State of California Teachers Retirement System ( STRS ) which provides retirement benefits to certificated personnel. The plan provides retirement and disability benefits, annual cost-of-living adjustments, and survivor benefits to beneficiaries. Benefit provisions are established by State statutes, as legislatively amended, within the State Teachers Retirement Law. Prior to fiscal year , unlike typical defined benefit programs, neither the employee, employer or State contribution rate to the STRS Defined Benefit Program varied annually to make up funding shortfalls or assess credits for actuarial surpluses. In recent years, the combined employer, employee and State contributions to the STRS Defined Benefit Program have not been sufficient to pay actuarially required amounts. As a result, and due to significant investment losses, the unfunded actuarial liability of the STRS Defined Benefit Program has increased significantly. In September 2013, STRS projected that the STRS Defined Benefit Program would be depleted in 31 years assuming existing contribution rates continued, and other significant actuarial assumptions were realized. In an effort to reduce the unfunded actuarial liability of the STRS Defined Benefit Program, the State recently passed legislation to increase contribution rates. Prior to July 1, 2014, K-14 school districts were required by statute to contribute 8.25% of eligible salary expenditures, while participants contributed 8% of their respective salaries. On June 24, 2014, the Governor signed Assembly Bill 1469 ( A.B ) into law as a part of the State Budget. A.B seeks to fully fund the unfunded actuarial obligation with respect to service credited to members of the STRS Defined Benefit Program before July 1, 2014 (the 2014 Liability ), within 32 years, by increasing member, K-14 school district and State contributions to STRS. Beginning July 1, 2014, the employee contribution rates increased over a three-year period in accordance with the following schedule: MEMBER CONTRIBUTION RATES STRS (Defined Benefit Program) Effective Date STRS Members Hired Prior to January 1, 2013 STRS Members Hired After January 1, 2013 July 1, % 8.15% July 1, July 1, Source: STRS and California Assembly Bill 1469 A-8

47 Pursuant to A.B. 1469, K-14 school district contribution rates will increase over a seven-year phasein period in accordance with the following schedule: K-14 SCHOOL DISTRICT CONTRIBUTION RATES STRS (Defined Benefit Program) K-14 School District Effective Date Employer Contributions July 1, % July 1, July 1, July 1, July 1, July 1, July 1, Source: STRS and California Assembly Bill 1469 Based upon the recommendation from its actuary, for fiscal year and each fiscal year thereafter the STRS Teachers Retirement Board (the STRS Board ), is required to increase or decrease the K-14 school districts contribution rate to reflect the contribution required to eliminate the remaining 2014 Liability by June 30, 2046; provided that the rate cannot change in any fiscal year by more than 1% of creditable compensation upon which members contributions to the STRS Defined Benefit Program are based; and provided further that such contribution rate cannot exceed a maximum of 20.25%. In addition to the increased contribution rates discussed above, A.B also requires the STRS Board to report to the State legislature every five years (commencing with a report due on or before July 1, 2019) on the fiscal health of the STRS Defined Benefit Program and the unfunded actuarial obligation with respect to service credited to members of that program before July 1, The reports are also required to identify adjustments required in contribution rates for K-14 school districts and the State in order to eliminate the 2014 Liability. The District s contributions to STRS for the fiscal years ending June 30, 2016 and 2017 were $3,849,349 and $4,642,146, respectively, and equaled 100 percent of the required contributions for each year. The District has budgeted a contribution of $4,469,350 to STRS for fiscal year See APPENDIX C AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2017 for addition information. PERS. The District also participates in the State Public Employees Retirement System ( PERS ). The District s employer contribution to PERS for fiscal years ended June 30, 2016 and 2017 were $1,399,239 and $1,851,761, respectively and equal 100 percent of the required contributions for each year. The District has budgeted a contribution of $1,434,988 to PERS for fiscal year See APPENDIX C AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2017 for addition information. Both PERS and STRS are operated on a Statewide basis and, based on available information, both PERS and STRS have unfunded actuarial accrued liabilities. (Additional funding of STRS by the State and the inclusion of adjustments to such State contributions based on consumer price changes were provided for in 1979 Statutes, Chapter 282.) The amounts of the pension/award benefit obligation (PERS) or actuarially accrued liability (STRS) will vary from time to time depending upon actuarial assumptions, rates of return on investments, salary scales, and levels of contribution. See State Pension Trusts below. The District is unable to predict what the amount of liabilities will be in the future, or the amount of the contributions which the District may be required to make. A-9

48 California Public Employees Pension Reform Act of The Governor signed the California Public Employee s Pension Reform Act of 2013 (the Reform Act ) into law on September 12, The Reform Act affects both STRS and PERS, most substantially as they relate to new employees hired after January 1, 2013 (the Implementation Date ). As it pertains to STRS participants hired after the Implementation Date, the Reform Act changes the normal retirement age, increasing the eligibility for the 2% age factor (the percent of final compensation to which an employee is entitled to for each year of service) from age 60 to 62 and increasing the eligibility of the maximum age factor of 2.4% from age 63 to 65. For non-safety PERS participants hired after the Implementation Date, the Reform Act changes the normal retirement age by increasing the eligibility for the 2% age factor from age 55 to 62 and also increases the eligibility requirement for the maximum age factor of 2.5% to age 67. The Reform Act also implements certain other changes to PERS and STRS including the following: (a) all new participants enrolled in PERS and STRS after the Implementation Date are required to contribute at least 50% of the total annual normal cost of their pension benefit each year as determined by an actuary, (b) STRS and PERS are both required to determine the final compensation amount for employees based upon the highest annual compensation earnable averaged over a consecutive 36-month period as the basis for calculating retirement benefits for new participants enrolled after the Implementation Date (currently 12 months for STRS members who retire with 25 years of service), and (c) pensionable compensation is capped for new participants enrolled after the Implementation Date at 100% of the federal Social Security contribution and benefit base for members participating in Social Security or 120% for STRS and PERS members not participating in social security. On April 17, 2013 the PERS Board of Administration (the PERS Board ) approved new actuarial policies aimed to fully fund the pension system s obligations within 30 years. The new policies include a rate-smoothing method with a 30-year fixed amortization period for gains and losses. PERS announced that, based on investment return simulations performed for the next 30 years, increasing contributions more rapidly in the short term is expected to result in almost a 25 percent improvement in funded status over a 30-year-period. The new amortization schedule will be used to set contribution rates for public agency employers in the State beginning in the fiscal year. This delay is intended to allow the impact of the changes to be built into the projection of employer contribution rates and afford employers with additional time to adjust to the changes. In 2014, PERS completed a 2-year asset liability management study incorporating actuarial assumptions and strategic asset allocation. On February 19, 2014, the PERS Board adopted relatively modest changes to the current asset allocation that will reduce the expected volatility of returns. The adopted asset allocation is expected to have a long-term blended return that continues to support a discount rate assumption of 7.5 percent. The PERS Board also approved several changes to the demographic assumptions that more closely align with actual experience. The most significant of these changes is the inclusion of mortality improvement to acknowledge the greater life expectancies among PERS membership and expected continued improvements. Pursuant to the PERS Board s decision in February 2014, the new actuarial assumptions will be incorporated in the June 30, 2015 valuation for the schools portion of the PERS pool (the School s Pool ). The increase in liability due to the new actuarial assumptions will be amortized over 20 years and phased in over 5 years in accordance with PERS Board policy, beginning with the contribution requirement for fiscal year The projected impact of the assumption change on the Schools Pool rate is estimated to be an increase of 1.6 percent of payroll in with approximate annual increases of 0.8 percent of payroll in each of the next 4 years with an estimated total increase of 4.8 percent of payroll by In February 2017, the STRS Board voted to adopt revised actuarial assumptions to reflect the increasing life expectancies of its members and the then-current economic trends. The revisions to the actuarial assumptions included changes to the generational mortality methodology that reflect prior A-10

49 improvements in life expectancies and more dynamic assessments of future life spans. In addition, the STRS Board determined to decrease the investment return assumption over a two-year period as follows: (i) a decrease from 7.50% to 7.25% for the June 30, 2016 actuarial valuation that was presented to the STRS Board on April 6, 2017 and (ii) a decrease from 7.25% to 7.00% for the June 30, 2017 actuarial valuation to be presented to the STRS Board at the April/May 2018 meeting. The changes reflect the less than 50% probability that the then-current return assumptions would be met over the long term. The STRS Board also decreased some of the economic-related assumptions to reflect continued trends. As a result, the wagegrowth assumption was reduced to 3.50% from 3.75% while the price inflation factor was also reduced to 2.75% from 3.00%. State Pension Trusts The following information on the State Pension Trusts has been obtained from publicly available sources and has not been independently verified by the District, is not guaranteed as to the accuracy or completeness of the information and is not to be construed as a representation by the District or the Underwriter. Furthermore, the summary data below should not be read as current or definitive, as recent losses on investments made by the retirement systems generally may have increased the unfunded actuarial accrued liabilities stated below. The assets and liabilities of the funds administered by CalPERS and CalSTRS, as well as certain other retirement funds administered by the State, are included in the financial statements of the State for the year ended June 30, 2016, as fiduciary funds. Both CalPERS and CalSTRS have unfunded actuarial accrued liabilities in the tens of billions of dollars. The amount of unfunded actuarially accrued liability will vary from time to time depending upon actuarial assumptions, rates of return on investments, salary scales, and levels of contribution. CalSTRS and CalPERS each issue separate comprehensive annual financial reports that include financial statements and required supplementary information. Copies of the CalSTRS annual financial report may be obtained from CalSTRS, P.O. Box 15275, Sacramento, California and copies of the CalPERS annual financial report and actuarial valuations may be obtained from the CalPERS Financial Services Division, P.O. Box , Sacramento, California The information presented in these reports is not incorporated by reference in this Official Statement. Unlike typical defined benefit programs, however, neither the CalSTRS employer nor the State contribution rate varies annually to make up funding shortfalls or assess credits for actuarial surpluses. However, in recent years, the combined employer, employee and State contributions to CalSTRS have not been sufficient to pay actuarially required amounts. As a result, and due to significant investments losses, the unfunded actuarial liability of CalSTRS has increased significantly and is expected to continue to increase in the absence of legislation changing required employer or employee contributions. The District is unable to predict what the CalSTRS program liabilities will be in the future, or whether the Legislature may elect to require the District to make larger contributions in the future. A-11

50 STATE OF CALIFORNIA FUNDING STATUS OF STATE RETIREMENT SYSTEMS Name of Plan Unfunded Liability Public Employees Retirement Fund (CalPERS) $21.7 billion (1) State Teachers Retirement Fund Defined Benefit Program (STRS) (2) $96.7 billion (2) (1) The schools portion of CalPERS is 71.9% funded as of June 30, (2) As of June 30, 2016, the CalSTRS Defined Benefit Program had approximately 626,259 active and inactive program members and 288,195 benefit recipients. Source: CalPERS information based on the April 18, 2017 agenda for the CalPERS Finance and Administration Committee; CalSTRS Defined Benefit Program Actuarial Valuation. GASB Statement Nos. 67 and 68 On June 25, 2012, the Governmental Accounting Standards Board ( GASB ) approved two new standards ( Statements ) with respect to pension accounting and financial reporting standards for state and local governments and pension plans. The new Statements, No. 67 and No. 68, replace GASB Statement No. 27 and most of Statements No. 25 and No. 50. The changes impact the accounting treatment of pension plans in which state and local governments participate. Major changes include: (1) the inclusion of unfunded pension liabilities on the government s balance sheet (currently, such unfunded liabilities are typically included as notes to the government s financial statements); (2) more components of full pension costs being shown as expenses regardless of actual contribution levels; (3) lower actuarial discount rates being required to be used for underfunded plans in certain cases for purposes of the financial statements; (4) closed amortization periods for unfunded liabilities being required to be used for certain purposes of the financial statements; and (5) the difference between expected and actual investment returns being recognized over a closed five-year smoothing period. In addition, according to GASB, Statement No. 68 means that, for pensions within the scope of the Statement, a cost-sharing employer that does not have a special funding situation is required to recognize a net pension liability, deferred outflows of resources, deferred inflows of resources related to pensions and pension expense based on its proportionate share of the net pension liability for benefits provided through the pension plan. Because the accounting standards do not require changes in funding policies, the full extent of the effect of the new standards on the District is not known at this time. The reporting requirements for pension plans took effect for the fiscal year beginning July 1, 2013 and the reporting requirements for government employers, including the District, took effect for the fiscal year beginning July 1, For more information, See the fiscal year audited financial statements of the District included in APPENDIX C hereto. Post-Employment Benefits The Governmental Accounting Standards Board ( GASB ), under its Statement No. 45, Accounting and Financial Reporting by Employers for Post-Employment Benefits Other Than Pensions, requires public agency employers providing healthcare benefits to retirees to recognize and account for the costs for providing these benefits on an accrual basis and provide footnote disclosure on the progress toward funding the benefits. The Postemployment Benefit Plan (the Plan ) is a single-employer defined benefit healthcare plan administered by the District. The Plan provides healthcare benefits to eligible retirees and their dependents. Membership of the Plan consists of 71 retirees and beneficiaries currently receiving benefits and over 630 active plan members. The contribution requirements of plan members and the District are established and may be amended by the District and the Salinas Elementary Teachers Council ( SETC ), the local California School Employee Association ( CSEA ), and unrepresented groups. The required contribution A-12

51 is based on projected pay-as-you-go financing requirements. For fiscal years and , the District contributed $801,681 and $809,298, respectively, to the plan excluding the implicit rate subsidy factor, all of which was used for current premiums. The District completed an actuarial valuation on its health and welfare benefits dated June 1, Based on that study, the District s annual required contribution ( ARC ) is $2,675,811. As of June 1, 2015, the unfunded actuarial accrued liability ( UAAL ) was $20,495,608. The net postemployment benefits obligation at the end of Fiscal Year was $7,243,681. Annual OPEB Cost and Net OPEB Obligation The District s annual OPEB cost (expense) is calculated based on the annual required contribution ( ARC ) of the employer, 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 UAAL (or funding excess) over a period not to exceed 30 years. The following table shows the components of the District s annual OPEB cost for the Fiscal Year , the amount actually contributed to the Plan, and changes in the District s net OPEB obligation to the Plan: Annual required contribution $ 2,675,811 Interest on net OPEB obligation 273,743 Adjustment to annual required contribution (517,949) Annual OPEB cost (expense) 2,431,605 Contributions made (950,925) Increase in net OPEB obligation 1,480,680 Net OPEB obligation, beginning of year 5,763,001 Net OPEB obligation, end of year $7,243,681 Certain Existing Obligations below: A schedule of the District s changes in long-term debt for the year ended June 30, 2017 is shown Balance June 30, 2016 Additions Deductions Balance June 30, 2017 Due Within One Year General Obligation Bonds $23,775,000 $ - $425,000 $23,350,000 $280,000 Certificates of Participation 17,157, ,288 16,897, ,575 Compensated absences 251,644-49, ,507 - State preschool loan 63,000-10,500 52,500 10,500 Capital Leases - 233, ,776 51,204 Other Postemployment Benefits 5,763,001 2,949,554 1,468,874 7,243,681 - Total $47,010,357 $3,183,330 $2,213,799 $47,979,888 $629,229 See APPENDIX C herein for more detailed information regarding the District s existing obligations. A-13

52 Insurance The District is a member of the Monterey Educational Risk Management Authority (MERMA), the Monterey County Schools Insurance Group (MCSIG), and the Monterey and San Benito Counties Liability/Property Joint Powers Authority (MSBCLP) joint powers authorities (JPAs). The District pays an annual premium to the applicable entity for its workers compensation, health and welfare, and property liability coverage. The relationships between the District and the JPAs are such that they are not component units of the District for financial reporting purposes. The District has budgeting and financial reporting requirements independent of member units and their financial statements are not presented in the District s audited financial statements. Fund transactions between the District and the entities are included in the District financial statements. Audited financial statements are available from the respective entities. See APPENDIX C AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR FISCAL YEAR ENDED JUNE 30, Major Employers The County is host to a diverse mix of major employers representing industries ranging from manufacturing to hospitals as well as casinos, schools and government offices. The following table lists the major employers within the County. COUNTY OF MONTEREY MAJOR EMPLOYERS 2017 Employer* Location Type of Business 1. Al Pak Labor Soledad Labor Contractors 2. Azcona Harvesting Greenfield Harvesting-Contract 3. Breast Care Center Monterey Clinics 4. Bud of California Soledad Fruits & Vegetables-Growers & Shippers 5. Cardiology Clinic Salinas Nurses-Practitioners 6. Casa Palmero Pebble Beach Hotels & Motels 7. Community Hospital-Monterey Monterey Hospitals 8. County-Monterey Behavioral King City Health Services 9. Dole Fresh Vegetables Co Soledad Fruits & Vegetables-Growers & Shippers 10. Hilltown Packing Co Salinas Harvesting-Contract 11. Misionero Vegetables Gonzales Fruits & Vegetables-Growers & Shippers 12. Monterey County Social Svc Cmmtt. Salinas Government Offices-County 13. Monterey County Social Svc Dept. Salinas Government Offices-County 14. Monterey County Office Edu Salinas School Districts 15. Natividad Medical Center Salinas Hospitals 16. Naval Postgraduate School Monterey Schools-Universities & Colleges Academic 17. Pebble Beach Co Pebble Beach Resorts 18. Pebble Beach Resorts Pebble Beach Resorts 19. Premier Raspberries Llc Royal Oaks Grocers-Wholesale 20. R C Packing Gonzales Packing & Crating Service 21. Salinas Valley Memorial Hlthcr Salinas Hospitals 22. Salinas Valley Memorial Salinas Hospitals 23. Taylor Farms Salinas Fruits & Vegetables-Growers & Shippers 24. US Defense Department Seaside Government Offices 25. US Defense Manpower Data Center Seaside Government Offices Source: California Employment Development Department: Labor Market Information, Major Employers in Other Counties. *Employers listed alphabetically, not by rank. A-14

53 State Emergency Loan Program The California Education Code provides that a school district which determines during a fiscal year that its revenues are less than the amount necessary to meet its current year expenditure obligations may request an emergency apportionment from the State through the State Superintendent of Public Instruction (the State Superintendent ) subject to certain conditions. The District is not currently participating in the emergency loan program. State Funding of Education FUNDING OF SCHOOL DISTRICTS IN CALIFORNIA The State Constitution requires that from all State revenues there will first be set apart the moneys to be applied by the State for support of the public school system and public institutions of higher education. As discussed below, school districts in the State receive a significant portion of their funding from State appropriations. The operating income of school districts in California is comprised of two components: a State portion funded from the State s general fund and a local portion derived from the District s share of the 1% local ad valorem tax authorized by the State Constitution. School districts may also be eligible for special categorical funding from State and federal government programs. As part of the State Budget (defined herein), State Assembly Bill 97 (Stats. 2013, Chapter 47) ( AB 97 ) was enacted to establish a new system for funding school districts, charter schools and county offices of education by the implementation of the Local Control Funding Formula or LCFF, to replace the revenue limit funding system for determining State apportionments and the majority of categorical program funding. Subsequently, AB 97 was amended and clarified by Senate Bill 91 (Stats. 2013, Chapter 49). The LCFF consists primarily of base, supplemental and concentration funding that focuses resources based on a school district s student demographics. Each school district and charter school will receive a per pupil base grant used to support the basic costs of instruction and operations. The implementation of the LCFF is to occur over a period of several years (and by 2021 or earlier), beginning in Fiscal Year when an annual transition adjustment was calculated for each school district, equal to such district s proportionate share of appropriations included in the State Budget to close the gap between the prior-year funding level and the target allocation following full implementation of the LCFF. The Governor s Department of Finance estimates the LCFF funding targets could be achieved in eight years, with LCFF being fully implemented by School districts will have the same proportion of their respective funding gaps closed in each year, with funding amounts that vary in accordance with the size of each district s funding gap. The LCFF includes the following components: An average base grant for each local education agency equivalent to $7,643 per unit of average daily attendance ( ADA ) (by the end of the implementation period). 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 high schools. It should be noted that the authorizing LCFF statute, AB 97, provides for a differentiated base grant amount according to four different grade spans: K- 3, 4-6, 7-8, and Unless otherwise collectively bargained for, following full implementation of the LCFF, school districts must maintain an average class enrollment of 24 or fewer students in grades K-3 at each school site so as to continue receiving its adjustment to the K-3 base grant. Such K-3 school districts must also make progress A-15

54 towards this class size reduction goal in proportion to the growth in their funding over the implementation period. Additional add-ons are also provided to school districts that received categorical block grant funding pursuant to the Targeted Instructional Improvement Block Grant and the Home-to-School Transportation programs during Fiscal Year A 20% supplemental grant for students classified as English learners ( EL ), those eligible to receive a free or reduced price meal ( FRPM ) and foster youth, to reflect increased costs associated with educating those students. These supplemental grants are only attributed to each eligible student once, and the total student population eligible for the additional funding is known as an unduplicated count. An additional concentration grant equal to 50% of a local education agency s base grant, based on the number of unduplicated EL, FRPM and foster youth served by the local agency that comprise more than 55% of the school district s or charter school s total enrollment. Because the District s unduplicated count is above the 55% threshold, at an estimated 63.40% based on the current response rate to alternate eligibility forms, the District will be eligible for the concentration grant for eligible students above 55%. An Economic Recovery Target to ensure that almost every local education agency receives at least their pre recession funding level, adjusted for inflation, at full implementation of the LCFF. Of the more than $25 billion in funding to be invested through the LCFF through Fiscal Year , the vast majority of new funding will be provided for base grants. Specifically, of every dollar invested through the LCFF, 84 cents will go to base grants, 10 cents will go to supplemental grants, and 6 cents will go to concentration grants. Under the Budget, the average base grant is $7,643, which is an increase of $2,375 from the then current average revenue limit. Base grants are to be adjusted for cost-of-living increases by applying the implicit price deflator for government goods and services. Following full implementation of the LCFF, the provision of COLAs will be subject to appropriation for such adjustment in the annual State budget. The differences among base grants are linked to differentials in Statewide average revenue limit rates by district type, and are intended to recognize the generally higher costs of education at higher grade levels. For certain school districts that would have received greater funding levels under the prior revenue limit system, the LCFF provides for a permanent economic recovery target ( ERT ) add-on, equal to the difference between the revenue limit allocations such districts would have received under the prior system in Fiscal Year , and the target LCFF allocations owed to such districts in the same year. To derive the projected funding levels, the LCFF assumes the discontinuance of deficit revenue limit funding, implementation of a 1.94% COLA in Fiscal Years through , and restoration of categorical funding to pre-recession levels. The ERT add-on will be paid incrementally over the eightyear implementing period of the LCFF. The District does not qualify for the ERT add-on. The sum of a school district s adjusted base, supplemental and concentration grants will be multiplied by such district s Second Principal Apportionment (P-2) ADA for the current or prior year, whichever is greater (with certain adjustments applicable to small school districts). This funding amount, together with any applicable ERT or categorical block grant add-ons, will yield a district s total LCFF allocation. Generally, the amount of annual State apportionments received by a school district will amount to the difference between such total LCFF allocation and such district s share of applicable local property taxes. Most school districts receive a significant portion of their funding from such State apportionments. As a result, decreases in State revenues may significantly affect appropriations made by the State Legislature to school districts. A-16

55 The LCFF legislation includes a hold harmless provision which provides that a school district or charter school will maintain total revenue limit and categorical funding at its Fiscal Year level, unadjusted for changes in ADA, or cost of living adjustments. The following table shows a breakdown of the District s ADA by grade span, total enrollment, and the percentage of English Learner/Low Income(defined as a student receiving a free or reduced-price meal) ( EL/LI ) student enrollment, for fiscal years through and a projected amount for fiscal year SALINAS CITY ELEMENTARY SCHOOL DISTRICT ADA, ENROLLMENT AND EL/LI ENROLLMENT PERCENTAGE Fiscal Years through Average Daily Attendance (1) % of EL/LI Enrollment Fiscal Total District Total District Year K ADA Enrollment (2) ,135 3,397 8,533 8, % ,059 3,626 8,686 9, ,968 3,704 8,674 9, (3) 4,827 3,759 8,587 9, (1) Reflects P-2 ADA, which ends on or before the last attendance month prior to April 15 of each school year. An attendance month is equal to each four-week period of instruction beginning with the first day of school for a particular school district. Includes the ADA of an independent charter school located within the boundaries of the District. (2) Reflects certified enrollment as of the fall census day (the first Wednesday in October), which is reported to the California Longitudinal Pupil Achievement Data System ( CALPADS ) in each school year and is used to calculate each school district s unduplicated EL/LI student enrollment. Adjustments may be made to the certified EL/LI counts by the State Department of Education. For purposes of calculating Supplemental and Concentration Grants, a school district s fiscal year percentage of unduplicated EL/LI students is expressed solely as a percentage of its total fiscal year enrollment. For fiscal year , the percentage of unduplicated EL/LI enrollment is based on the two-year average of EL/LI enrollment in fiscal years and Beginning in fiscal year , a school district s percentage of unduplicated EL/LI students will be based on a rolling average of such district s EL/LI enrollment for the current fiscal year and the two immediately preceding fiscal years. Includes the enrollment of the independent charter school located within the boundaries of the District. (3) Projected. Source: The District; Education Data Partnership Higher LCFF gap funding percentages could result in the LCFF targets being reached at a more rapid pace. Each Fiscal Year thereafter, the District s funding amount will be based on recalculation of its LCFF target and its funding floor including any prior year transition funding converted to a per-ada value and then adjusted for current year ADA. As LCFF continues to be implemented, the District s base, supplemental and concentration grant funding will increase in an effort to bring the District s total funding to its overall LCFF target. This increased funding will provide additional resources for the District to invest in academic, programmatic and operational purposes, while providing a more positive fiscal outlook. Local Control and Accountability Plan ( LCAP ). As part of the LCFF, school districts, county offices of education, and charter schools are required to develop, adopt and annually update a three-year Local Control and Accountability Plan or LCAP, beginning on July 1, 2014, using a template adopted by the California State Board of Education ( SBE ). The SBE is required to adopt evaluation rubrics to assist school districts and oversight entities in evaluating strengths, weaknesses, areas that require improvement, technical assistance needs, and where interventions are warranted on or before October 1, Subsequent revisions to the template or evaluation rubrics are required to be approved by the SBE by January 31 before A-17

56 the Fiscal Year when the template or rubric would be used. The LCAP is required to identify goals and measure progress for student subgroups across multiple performance indicators. Education Funding Prior to Fiscal Year Historically, annual State apportionments of basic and equalization aid to school districts for general purposes were computed up to a revenue limit per unit of ADA. Such apportionments generally amounted to the difference between the District s revenue limit and the District s local property tax allocation. Revenue limit calculations were adjusted annually in accordance with a number of factors designed primarily to provide cost of living increases and to equalize revenues among all of the same type of California school districts. As described above, with the implementation of the LCFF, commencing in Fiscal Year , school districts will receive base funding based on ADA, and may also be entitled to supplemental funding, concentration grants and funding based on an economic recovery target. State Budget Process General. State funding is guaranteed to a minimum level for school districts, community college districts, and other State agencies that provide direct elementary and secondary instructional programs under Proposition 98, a constitutional and statutory initiative 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). See Proposition 98 herein. 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 at the heart of annual budget negotiations and adjustments. Adoption of Annual State Budget. According to the State Constitution, the Governor of the State (the Governor ) must propose a budget to the State Legislature no later than January 10 of each year. Under an initiative constitutional amendment approved by the State s voters on November 2, 2010 as Proposition 25, a final budget must be adopted by a simple majority vote (rather than a two-third majority, as was the case prior to the passage of Proposition 25) of each house of the Legislature no later than June 15, although this deadline has been routinely breached in the past. (Tax increases continue to require a twothirds majority vote.) The budget becomes law upon the signature of the Governor, who may veto specific items of expenditure. 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 Budget on October 8, 2010, the latest budget in the State s history. However, since the passage of Proposition 25, the Governor has signed the State Budget by late June. The events leading to the inability of the State Legislature to pass a budget in a timely fashion are not unique, and the District cannot predict what circumstances may cause a similar failure in future years. In each year where the State budget lags adoption of the District s budget, it will be necessary for the District s staff to review the consequences of the changes, if any, at the State level from the proposals in the Governor s May Revision for that year, and determine whether the District s budget will have to be revised. The District cannot predict the final outcome of State budget negotiations, the impact future State Budgets will have on District finances and operations or what actions the State Legislature and the Governor may take to respond to changing State revenues and expenditures. Current and future State Budgets will be affected by national and State economic conditions and other factors which the District cannot control. A-18

57 The District s principal funding formulas and revenue sources are derived from the budget of the State of California. The following information concerning the State of California s budgets has been obtained from publicly available information which the District believes to be reliable; however, the State has not entered into any contractual commitment with the District, the County, the Underwriters, Bond Counsel and Disclosure Counsel nor the Owners of the Bonds to provide State budget information to the District or the owners of the Bonds. Additional information regarding State budgets is available at various State-maintained websites including which website is not incorporated herein by reference. Proposed State Budget. On January 10, 2018, Governor Brown released his proposed State budget for Fiscal Year (the Proposed Budget ) which proposes $78.3 billion with respect to the Proposition 98 minimum funding guarantee for Fiscal Year When combined with more than $100 million in settle-up payments for prior years, the Proposed Budget includes an increased investment of $4.6 billion in K-14 education which builds upon significant funding increases provided over the past five years. The Proposed Budget also proposes to fund the LCFF, pay down debts owed to schools, and support local educational agencies in an effort to improve outcomes for lowachieving students. The Proposed Budget proposes a roughly $3 billion investment to fully implement the LCFF two years earlier than originally projected. It also proposes almost $1.8 billion in discretionary onetime Proposition 98 funding for school districts, charter schools, and county offices of education, along with more than $70 million in ongoing Proposition 98 funding to expand the state system of technical support for local educational agencies. Reflecting the changes to Proposition 98 funding noted above, total per-pupil expenditures from all sources are projected to be $115,654 in and $16,085 in Fiscal Year , including funds provided for prior year settle-up obligations. Ongoing K-12 Proposition 98 perpupil expenditures in the Proposed Budget are $11,614 in Fiscal Year , an increase of $465 per-pupil over the level provided in , and up 66% from the $7,008 per pupil provided in The Proposed Budget proposes an additional $3.5 billion deposit to fund the Rainy Day Fund to a total of $13.5 billion, which is 100% of the constitutional target. Personal income taxes are estimated to contribute approximately $ billion of a total of $ billion (approximately 69% of estimated Fiscal Year State general fund revenues. Significant features of the Proposed Budget affecting K-12 school districts include: School District Local Control Funding Formula An increase of $3 billion in Proposition 98 State general fund for full implementation of the LCFF. One-Time Discretionary Funding An increase of $1.8 billion in one-time Proposition 98 State general fund for school districts, charter schools and county offices of education to use at local discretion. This allocation builds on the more than $5.7 billion in combined one-time funding provided since Fiscal Year , to support critical investments such as academic content standards implementation, technology, professional development, induction programs for beginning teachers, that request funding through the School Facilities Program. Bond Authorization -- Approximately $640 million in bond authority is proposed for Fiscal Year to fund new construction, modernization, career technical education, and charter facility projects based upon the Office of Public School Construction's processing of project applications and the State Allocation Board s approval of these projects. Investment in Special Education Teachers -- In response to a shortage in special education teaching staff and due to two-thirds of school districts having been identified as having poor special A-19

58 education performance, the Proposed Budget proposes an additional $100 million investment to increase and retain special education teachers: Teacher Residency Grant Program $50 million one-time Proposition 98 General Fund to support locally sponsored, one-year intensive, mentored, clinical teacher preparation programs aimed at preparing and retaining special education teachers. Local Solutions Grant Program $50 million one-time Proposition 98 General Fund to provide one-time competitive grants to local educational agencies to develop and implement new, or expand existing, locally identified solutions that address a local need for special education teachers. The Proposed Budget includes several new items regarding workforce reforms in K-12 and higher education commenced in recent years including (i) $20.5 million for a cost-of-living adjustment for the Adult Education Block Grant program and (ii) $17.8 million ongoing for increased reimbursements to K-12 and CCC-sponsored apprenticeship programs for instructional hours provided in fiscal year , with an additional one-time increase of $30.6 million to backfill shortfalls in reimbursements provided from fiscal years to For additional information regarding the Proposed Budget, see the State Department of Finance website at However, the information presented on such website is not incorporated herein by reference. The District cannot predict how State income or State education funding will vary over the term of the Series A Notes, and the District takes no responsibility for informing owners of the Series A Notes 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 or An impartial analysis of the budget is posted by the Office of the Legislative Analyst at 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. Sanctuary Jurisdictions and Federal Funding. On January 25, 2017, President Trump issued an Executive Order (the Executive Order ) aimed at enhancing public safety in the interior of the United States. The Executive Order includes a provision directing the Attorney General and the Secretary of Homeland Security, in their discretion, to ensure that state and local jurisdictions that willfully refuse to comply with 8 U.S.C (a federal law concerning the provision of information on individuals immigration status), will not be eligible to receive federal grants except as deemed necessary for law enforcement purposes. Although the District has neither adopted, nor plans to adopt, a resolution declaring itself a sanctuary jurisdiction, it could, nevertheless, be deemed to be a sanctuary jurisdiction if an agent of the federal government determines that the District willfully refuses to comply with any provision of 8 U.S.C. 1373, for example, if the District or an official of the District were to restrict the sending to or receipt from the United States Citizenship and Immigration Services ( USCIS ) of any information regarding the citizenship or immigration status of a student or employee. The Executive Order states that it is the policy of the executive branch to ensure that jurisdictions that fail to comply with applicable federal law do not receive federal funds, except as mandated by law. The County of Santa Clara and the City and County of San Francisco, California (the Counties ) challenged the Executive Order arguing that the defunding provisions included in the Executive Order violated the Fifth Amendment s due-process protections and the Tenth Amendment s ban on federal usurpation of state powers. On April 25, 2017, a United States District Judge issued a nationwide preliminary injunction against the Executive Order. On November 20, 2017, the United States District Court granted a motion for summary judgment and permanently enjoined Section 9(a) of the Executive Order. The District is unable to predict the extent to which this threat will be A-20

59 enforced by the federal government, the extent of the impact that enforcement of the Executive Order would have on the District s financial condition, or what other actions, if any, the District might take in response to the Executive Order or any action under it. Federal funding comprises a portion of the District s general fund revenue. Although the general fund is not a pledged source of repayment for general obligation bonds, including the Bonds, a loss of all federal revenues may have a material effect on the overall fiscal health of the District and on the District s ability to meet its financial obligations in each budget year. Proposition 30. The passage of the Governor s November Tax Initiative ( Proposition 30 ) on November 6, 2012 ballot resulted in an increase in the State sales tax by a quarter-cent for four years and, for seven years, raising taxes on individuals after their first $250,000 in income and on couples after their first $500,000 in earnings. These increased tax rates affect approximately 1 percent of California personal income tax filers and went into effect starting in the 2012 tax year, ending at the conclusion of the 2018 tax year. The LAO estimates that, as a result of Proposition 30, additional state tax revenues of about $6 billion annually from Fiscal Years through will be received by the State with lesser amounts of additional revenue available in Fiscal Years , , and These additional monies were available to fund programs in the State Budget and prevented certain trigger cuts included in the State Budget. Proposition 30 also placed into the State Constitution certain requirements related to the transfer of certain State program responsibilities to local governments, mostly counties, including incarcerating certain adult offenders, supervising parolees, and providing substance abuse treatment services. Revenues generated by Proposition 30 accounted for an increase of approximately 14 percent over Fiscal Year in funding for schools and community colleges as set forth in the State Budget. Almost all of this increase were used to pay K 14 expenses from the previous year and reduced delays in certain State K 14 payments. Proposition 30 also provides for additional tax revenues aimed at balancing the State s budget through Fiscal Year , providing several billion dollars annually through Fiscal Year available for purposes including funding existing State programs, ending K 14 education payment delays, and paying other State debts. Future actions of the State Legislature and the Governor will determine the use of these funds. According to the LAO, revenues raised by Proposition 30 could be subject to multibillion-dollar swings, above or below the revenues projections, due to the majority of the additional revenue coming from the personal income tax rate increases on upper-income taxpayers. These fluctuations in incomes of upper-income taxpayers could impact potential State revenue and complicate State budgeting in future years. After the proposed tax increases expire, the loss of the associated tax revenues could also create additional budget pressure in subsequent years. New revenues generated from Proposition 30 are deposited into a newly created State account called the Education Protection Account ( EPA ). School districts, county offices of education, and charter schools ( LEAs ) will receive funds from the EPA based on their proportionate share of the Statewide revenue limit amount. A corresponding reduction is made to an LEA s revenue limit equal to the amount of their EPA entitlement. LEAs receive EPA payments quarterly, which began with the Fiscal Year. LEAs received their Fiscal Year EPA entitlement in one lump sum payment at the end of June Beginning Fiscal Year , the California Department of Education will allocate EPA revenues on a quarterly basis through the Fiscal Year. Payments will equal 25 percent of the annual EPA entitlement and future payments may be adjusted for ADA changes and previous over and under payments of EPA funds. The California Children s Education and Health Care Protection Act of 2016, also known as Proposition 55, is a constitutional amendment approved by the voters of the State on November 8, Proposition 55 extends the increases to personal income tax rates for high-income taxpayers that were approved as part of Proposition 30 through Tax revenue received under Proposition 55 is allocated A-21

60 89% to K-12 schools and 11% to community colleges. Proposition 55 did not extend the sales tax rate increase enacted under Proposition 30. Proposition 2. Proposition 2, also known as The Rainy Day Budget Stabilization Fund Act ( Proposition 2 ) was approved by California voters on November 4, Proposition 2 provides for changes to State budgeting practices, including revisions to certain conditions under which transfers are made into and from the State s Budget Stabilization Account (the Stabilization Account ) established by the California Balanced Budget Act of 2004 (also known as Proposition 58). Commencing in Fiscal Year and for each Fiscal Year thereafter, the State is required to make an annual transfer to the Stabilization Account in an amount equal to 1.5% of estimated State general fund revenues (the Annual Stabilization Account Transfer ). For a Fiscal Year in which the estimated State general fund revenues allocable to capital gains taxes exceed 8% of the total estimated general fund tax revenues, supplemental transfers to the Stabilization Account (a Supplemental Stabilization Account Transfer ) are also required. Such excess capital gains taxes, which are net of any portion thereof owed to K-14 school districts pursuant to Proposition 98, are required to be transferred to the Stabilization Account. In addition, for each Fiscal Year, Proposition 2 increases the maximum size of the Stabilization Account to 10% of estimated State general fund revenues. Such excess amounts are to be expended on State infrastructure, including deferred maintenance, in any Fiscal Year in which a required transfer to the Stabilization Account would result in an amount in excess of the 10% threshold. For the period from Fiscal Year through Fiscal Year , Proposition 2 requires that half of any such transfer to the Stabilization Account (annual or supplemental), shall be appropriated to reduce certain State liabilities, including repaying State interfund borrowing, reimbursing local governments for State mandated services, making certain payments owed to K-14 school districts, and reducing or prefunding accrued liabilities associated with State-level pension and retirement benefits. After Fiscal Year , the Governor and the Legislature are given discretion to apply up to half of any required transfer to the Stabilization Account to the reduction of such State liabilities and any amount not so applied shall be transferred to the Stabilization Account or applied to infrastructure, as set forth above. Accordingly, the conditions under which the Governor and the Legislature may draw upon or reduce transfers to the Stabilization Account are impacted by Proposition 2. Unilateral discretion to suspend transfers to the Stabilization Account are not retained by the Governor. Neither does the Legislature retain discretion to transfer funds from the Stabilization Account for any reason, as was previously provided by law. Instead, the Governor must declare a budget emergency (defined as an emergency within the meaning of Article XIIIB of the Constitution) or a determination that estimated resources are inadequate to fund State general fund expenditure, for the current or ensuing Fiscal Year, at a level equal to the highest level of State spending within the three immediately preceding Fiscal Years, and any such declaration must be followed by a legislative bill providing for a reduction or transfer. Draws on the Stabilization Account are limited to the amount necessary to address the budget emergency, and no draw in any Fiscal Year may exceed 50% of the funds on deposit in the Stabilization Account, unless a budget emergency was declared in the preceding Fiscal Year. Proposition 2 also provides for the creation of a Public School System Stabilization Account (the Public School System Stabilization Account ) into which transfers will be made in any Fiscal Year in which a Supplemental Stabilization Account Transfer is required, requiring that such transfer will be equal to the portion of capital gains taxes above the 8% threshold that would otherwise be paid to K-14 school districts as part of the minimum funding guarantee. Transfers to the Public School System Stabilization Account are only to be made if certain additional conditions are met, including that: (i) the minimum funding guarantee was not suspended in the immediately preceding Fiscal Year, (ii) the operative Proposition 98 formula for the Fiscal Year in which a Public School System Stabilization Account transfer might be made is Test 1, (iii) no maintenance factor obligation is being created in the budgetary legislation for the Fiscal Year in which a Public School System Stabilization Account transfer might be made, (iv) all A-22

61 prior maintenance factor obligations have been fully repaid, and (v) the minimum funding guarantee for the Fiscal Year in which a Public School System Stabilization Account transfer might be made is higher than the immediately preceding Fiscal Year, as adjusted for ADA growth and cost of living. Under Proposition 2, the size of the Public School System Stabilization Account is capped at 10% of the estimated minimum guarantee in any Fiscal Year, and any excess funds must be paid to K-14 school districts. Any reductions to a required transfer to, or draws upon, the Public School System Stabilization Account, are subject to the budget emergency requirements as described above. However, in any Fiscal Year in which the estimated minimum funding guarantee is less than the prior year s funding level, as adjusted for ADA growth and cost of living, Proposition 2 also mandates draws on the Public School System Stabilization Account. Prohibitions on Diverting Local Revenues for State Purposes; Proposition 1A and Proposition 22. Beginning in Fiscal Year , 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 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 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 a new 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 will be 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. Redevelopment agencies, through the California Redevelopment Association ( CRA ) engaged in litigation to block the transfer of payments and recoup certain payments already made under certain legislation passed in July 2009 that is beyond the reach of Proposition 22, known as ABX4 26. Because Proposition 22 reduces the State s authority to use or reallocate certain revenue sources, fees and taxes for State general fund purposes, the State will have to take other actions to balance its budget, such as reducing State spending or increasing State taxes, and school and college districts that receive Proposition 98 or other funding from the State will be more directly dependent upon the State s general fund. Redevelopment Agency Dissolution. On December 30, 2011, the California Supreme Court issued its decision in the case of California Redevelopment Association v. Matosantos, finding ABx1 26, a trailer bill to the State budget, to be constitutional. As a result, all redevelopment agencies in California were dissolved as of February 1, 2012, and all net tax increment revenues, after payment of redevelopment bonds debt service and administrative costs, will be distributed to cities, counties, special districts and K- 14 school districts. The Court also found that ABx1 27, a companion bill to ABx1 26, violated the California Constitution, as amended by Proposition 22. ABx1 27 would have permitted redevelopment agencies to continue operations provided their establishing cities or counties agreed to make specified A-23

62 payments to K-14 school districts and county offices of education, totaling $1.7 billion statewide. The District is unable to predict what affect the implementation of ABx1 26 will have on the District s future receipt of tax increment revenues. As a result of the dissolution of California redevelopment agencies and ABx1 26, the tax increment previously paid to redevelopment agencies shall first be used to pay pass-through payments to other taxing entities and second to pay the redevelopment agencies enforceable obligations; with the remaining revenue (if any) paid to the taxing entities by the County Auditor-Controller in the same proportion as other tax revenue. The Bonds, however, are not payable from such revenue. The Bonds will be payable solely from the proceeds of an ad valorem property tax which is required to be levied by the County in an amount sufficient for the payment thereof. See SECURITY AND SOURCES OF PAYMENT FOR THE BONDS. CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS Article XIIIA of the California Constitution. On June 6, 1978, California voters approved Proposition 13, which added Article XIIIA to the California Constitution ( Article XIIIA ). See SECURITY AND SOURCES OF PAYMENT FOR THE BONDS Assessed Valuation Constitutional and Statutory Initiatives in the forepart of this Official Statement for additional information regarding Article XIIIA. Proposition 26. On November 2, 2010, California voters approved Proposition 26 as an amendment to Section 3 of Article XIIIA (and Section 1 of Article XIIIC) of the State Constitution that requires a two-thirds vote in the Legislature to pass certain State fees, levies, charges and tax revenue allocations that under the State s previous rules could be enacted by a simple majority vote. Certain local fees must also be approved by two-thirds of voters. Proposition 26 expanded the scope and definition of a State or local tax to include many payments previously considered to be fees or charges, so that more proposals would require approval by two-thirds of the State Legislature or by local voters. Article XIIIB of the California Constitution. An initiative to amend the California Constitution entitled Limitation of Government Appropriations was approved on September 6, 1979 thereby adding Article XIIIB to the California 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 appropriations 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. The District s appropriations limit is $54,547,430 and the appropriations limit for is estimated to be $56,792,655 (as of August 2017). Any proceeds of taxes received by the District in excess of the allowable limit are absorbed into the State s allowable limit. Articles XIIIC and XIIID of the California Constitution (Proposition 218). On November 5, 1996, the voters of the State approved Proposition 218, the so-called Right to Vote on Taxes Act. Proposition 218 added Articles XIIIC and XIIID to the State Constitution, which contain a number of provisions affecting the ability of local agencies, including school districts, to levy and collect both existing A-24

63 and future taxes, assessments, fees and charges. Among other things, 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. Article XIIIC also 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 XIIIC also provides that the initiative power shall not be limited in matters of reducing or repealing local taxes, assessments, fees and charges. Legislation adopted in 1997 provides that Article XIIIC shall not be construed to mean that any owner or beneficial owner of a municipal security assumes the risk of or consents to any initiative measure that would constitute an impairment of contractual rights under the contracts clause of the U.S. Constitution. Article XIIID deals with assessments and property-related fees and charges. Article XIIID explicitly provides that nothing in Article XIIIC or XIIID shall be construed to affect existing laws relating to the imposition of fees or charges as a condition of property development; however it is not clear whether the initiative power is therefore unavailable to repeal or reduce developer and mitigation fees imposed by the District. Proposition 98. 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 or Proposition 98 ). Certain provisions of the Accountability Act have, however, been modified by Proposition 111, discussed below, the provisions of which became effective on July 1, The Accountability Act changes State funding of public education below the university level and the operation of the State s Appropriations Limit. The Accountability Act guarantees State funding for K-12 school districts and community college districts (hereinafter referred to as 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 increases in enrollment and changes in the cost of living. The 40.9% guarantee has been adjusted to 35% to account for a subsequent redirection of local property taxes whereby a greater proportion of education funding now comes from local property taxes. Since the Accountability Act is unclear in some details, there can be no assurances 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 35% percentage, or to apply the relevant percentage to the State s budgets in a different way than is provided for in the current budget. In any event, the Accountability Act potentially may place increasing pressure on the State s budget in 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. The maximum amount of excess tax revenues which could be transferred to K-14 districts is four percent of the minimum State spending for education mandated by the Accountability Act, as described above. A-25

64 On March 18, 2003, State Senate Bill X1 18 ( SBX1 18 ) was signed into law. SBX1 18 reduced certain Proposition 98 appropriations for the Fiscal Year by shifting apportionments historically made by the State to schools in June to July, so that the June apportionment did not count toward the Fiscal Year Proposition 98 allocations. Unitary and certain other state-assessed property is allocated to the counties by the SBE, taxed at special county-wide rates, and the tax revenues are distributed to taxing jurisdictions (including the District) according to statutory formulae generally based on the distribution of taxes in the prior year. Because the District is not a basic aid district, any taxes lost due to a reduction in, or transfer to another jurisdiction of, utility property assessed valuation will be compensated by the State as equalization aid under the State s school financing formula. Proposition 111 Revisions to Proposition 98 and Article XIIIB. On June 5, 1990, the voters approved the Traffic Congestion Relief and Spending Limitation Act of 1990, hereafter Proposition 111, which modified the Constitution to alter the spending limit and the education funding provisions of Proposition 98. Proposition 111 took effect on July 1, The most significant provisions of Proposition 111 are summarized below: Annual Adjustments. The annual adjustments to the spending limit will be liberalized to be more closely linked to the rate of economic growth. Instead of being tied to the Consumer Price Index, the change in the cost of living is measured by the change in California per capita personal income. The definition of change in population will specify that a portion of the State s spending limit is adjusted to reflect changes in school attendance. Treatment of Excess Tax Revenues. Excess tax revenues will be determined based on a twoyear cycle, so that the State can avoid having to return to taxpayers excess tax revenues in one year if its appropriations in the next Fiscal Year were under its limit. In addition, the Proposition 98 provision regarding excess tax revenues is modified. After any two-year period, if there are excess State tax revenues, 50% of the excess will be transferred to K-14 districts with the balance returned to taxpayers; under prior law, 100% of excess State tax revenues went to K-14 districts, but only up to a cap of four percent of the K-14 districts minimum funding level. Also, reversing prior law, any excess State tax revenues transferred to K-14 districts is not built into the school districts base expenditures for calculating their entitlement for State aid in the next year, and the State s appropriations limit will not be increased by this amount. Exclusions from Spending Limit. Two new exceptions were added to the calculation of appropriations that are subject to the limit. First, there are excluded all appropriations for qualified capital outlay projects as defined by the Legislature. Second, there are excluded any increases in gasoline taxes above their current nine cents per gallon level, sales and use taxes on such increment in gasoline taxes, and increases in receipts from vehicle weight fees above the levels in effect in January 1, These latter provisions were needed to make effective the transportation funding package approved by the Legislature and the Governor, previously. Recalculation of Appropriations Limit. The Appropriations Limit for each unit of government, including the State, was recalculated beginning in the Fiscal Year. It is based on the actual limit for the Fiscal Year, adjusted forward to as if Proposition 111 had been in effect. School Funding Guarantee. There is a complex adjustment in the formula enacted in Proposition 98 that guarantees K-14 districts a certain amount of State General Fund revenues. Under prior law, K-14 districts were guaranteed the greater of (a) 35% of State 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 A-26

65 XIIIB by reference to per capita personal income) and enrollment (the second test ). Under Proposition 111, schools will 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 State General Fund revenues from the prior year was less than the annual growth in California per capita personal income. Under the third test, schools will receive the amount appropriated in the prior year adjusted for change in enrollment and per capita State general fund revenues, plus an additional small adjustment factor (the third test ). If the third test is used in any year, the difference between the third test and the second test becomes a credit to schools that will be paid in future years when State General Fund revenue growth exceeds personal income growth. Application of Proposition 98. The application of Proposition 98 and other statutory regulations has become increasingly difficult to predict accurately in recent years. One major reason is that Proposition 98 minimum funding levels under the first test and the second test described herein are dependent on State General Fund revenues. In past Fiscal Years, the State made actual allocations to K-14 districts based on an assumption of State General Fund revenues at a level above that which was ultimately realized. In such years, the State has considered the amounts appropriated above the minimum as a loan to K-14 districts, and has deducted the value of these loans from future years estimated Proposition 98 minimum funding levels. The State determined that there were loans to K-14 districts of $1.3 billion during Fiscal Year , $1.1 billion during Fiscal Year , $1.3 billion during Fiscal Year and $787 million during Fiscal Year These loans have been combined with the K loans into one loan totaling $1.76 billion. The State proposed that repayment of this loan would be from future years Proposition 98 entitlements, and would be conditioned on maintaining current funding levels per pupil for K-12 schools. In 1992, a lawsuit, California Teachers Association et al. v. Gould, was filed, which challenged the validity of the off-budget loans. As part of the negotiations leading to the Budget Act, an agreement was reached to settle this case. The agreement provides that both the State and K-14 schools share in the repayment of prior years emergency loans to schools. Of the total $1.76 billion in loans, the State repaid $935 million, while schools repaid $825 million. Repayments were spread over the eight-year period of through to mitigate any adverse fiscal impact. Because of the complexities of Proposition 98, the ambiguities and possible inconsistencies in its terms, the applicability of its exceptions and exemptions and the impossibility of predicting future appropriations, the District cannot predict the impact of this or related legislation on the District s Revenues. Other Constitutional amendments affecting State and local taxes and appropriations have been proposed from time to time. If any such initiatives are adopted, the State could be pressured to provide additional financial assistance to local governments or appropriate revenues as mandated by such initiatives. Propositions such as Proposition 98 and others that maybe adopted in the future, may 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 XIII B spending limit would restrain the State s ability to fund such other programs by raising taxes. Proposition 39. On November 7, 2000, voters approved Proposition 39 called the Smaller Classes, Safer Schools and Financial Accountability Act (the Smaller Classes Act ). The Smaller Classes Act amends Section 1 of Article XIIIA, Section 18 of Article XVI of the California Constitution and Section of the California Education Code. As respects school districts, community colleges and county offices of education and effective upon its passage, the newly added Section 18(b) of Article XVI allows an alternative means of seeking voter approval for bonded indebtedness by 55 percent of the vote, rather than the two-thirds majority required under Section 18 of Article XVI of the Constitution. The reduced 55 percent voter requirement applies only if the bond measure submitted to the voters includes, among other items: 1) a restriction that the proceeds of the bonds may be used for the construction, reconstruction, rehabilitation, or replacement of school facilities, including the furnishing and equipping of school facilities, or the acquisition or lease of real property for school facilities, 2) a list of projects to be funded A-27

66 and a certification that the school district board has evaluated safety, class size reduction, and information technology needs in developing that list ; and 3) that annual, independent performance and financial audits will be conducted regarding the expenditure and use of the bond proceeds. Section 1(b)(3) of Article XIIIA has been added to except from the one percent ad valorem tax limitation under Section 1(a) of Article XIIIA of the Constitution levies to pay bonds approved by the 55 percent of the voters, subject to the restrictions explained above. The Legislature enacted AB 1908 (Statutes 2000 Chapter 44), which became effective upon passage of Proposition 39. AB 1908 amends various sections of the Education Code. Under amendments to Sections and of the Education Code, the following limits on projected ad valorem tax rates needed to pay debt service on bonds authorized apply in any single Proposition 39 election: 1) for a school district, the tax rate shall not exceed $30 per $100,000 of taxable property; 2) for a unified school district, the tax rate shall not exceed $60 per $100,000 of taxable property; and, 3) for a community college district, the tax rate shall not exceed $25 per $100,000 of taxable property. Finally, AB 1908 requires that a citizens oversight committee must be appointed who will review the use of the bond funds and inform the public about their proper usage. Proposition 51 The Kindergarten Through Community College Public Education Facilities Bond Act of 2016 (also known as Proposition 51) is a voter initiative that was approved by voters on November 8, Proposition 51 authorizes the sale and issuance of $9 billion in general obligation bonds for the new construction and modernization of K-14 facilities. K-12 School Facilities. Proposition 51 includes $3 billion for the new construction of K-12 facilities and an additional $3 billion for the modernization of existing K-12 facilities. K-12 school districts will be required to pay for 50% of the new construction costs and 40% of the modernization costs with local revenues. If a school district lacks sufficient local funding, it may apply for additional State grant funding, up to 100% of the project costs. In addition, a total of $1 billion will be available for the modernization and new construction of charter school ($500 million) and technical education ($500 million) facilities. Generally, 50% of modernization and new construction project costs for charter school and technical education facilities must come from local revenues. However, schools that cannot cover their local share for these two types of projects may apply for State loans. State loans must be repaid over a maximum of 30 years for charter school facilities and 15 years for career technical education facilities. For career technical education facilities, State grants are capped at $3 million for a new facility and $1.5 for a modernized facility. Charter schools must be deemed financially sound before project approval. Community College Facilities. Proposition 51 includes $2 billion for community college district facility projects, including buying land, constructing new buildings, modernizing existing buildings, and purchasing equipment. In order to receive funding, community college districts must submit project proposals to the Chancellor of the community college system, who then decides which projects to submit to the State legislature and Governor based on a scoring system that factors in the amount of local funds contributed to the project. The Governor and State legislature will select among eligible projects as part of the annual State budget process. The District makes no guarantees that it will either pursue or qualify for Proposition 51 State facilities funding. A-28

67 Future Initiatives Article XIIIA, Article XIIIB, Article XIIIC and Article XIIID of the California Constitution and Propositions 22, 26, 30, 39, 98 and 51 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. The nature and impact of these measures cannot be anticipated by the District. A-29

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69 APPENDIX B FORMS OF BOND COUNSEL OPINIONS Upon issuance and delivery of the Series C Bonds, Norton Rose Fulbright US LLP, Bond Counsel, proposes to deliver its final approving opinion substantially in the following form: [Closing Date] Board of Education Salinas City Elementary School District 840 South Main Street, Salinas, California Re: $[ ] Salinas City Elementary School District (County of Monterey, California) General Obligation Bonds 2008 Election, Series C Ladies and Gentlemen: We have acted as Bond Counsel to the Salinas City Elementary School District (the District ), in connection with the issuance by the District of $[ ] aggregate principal amount of its General Obligation Bonds, 2008 Election, Series C (the Series C Bonds ). The Series C Bonds are issued pursuant to Article 4.5 of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California, as amended, and the resolution adopted by the Board of Education of the District on January 8, 2018 (the Resolution ). All terms used herein and not otherwise defined shall have the meanings given to them in the Resolution. As bond counsel, we have examined copies certified to us as being true and complete copies of the proceedings of the District for the authorization and issuance of the Series C Bonds, including the Resolution and the Tax Exemption Certificate of the District dated the date hereof (the Tax Certificate ). Our services as such bond counsel were limited to an examination of such proceedings and to the rendering of the opinions set forth below. In this connection we have also examined such certificates of public officials and officers of the District as we have considered necessary for the purposes of this opinion. Certain agreements, requirements and procedures contained or referred to in the Resolution, the Tax Certificate and other relevant documents may be changed and certain actions (including, without limitation, the defeasance of the Series C Bonds) may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents. No opinion is expressed herein as to any Series C Bond or the interest thereon if any such change occurs or action is taken or omitted upon the advice or approval of counsel other than ourselves. 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 or events are taken or do occur. Our engagement with respect to the Series C 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 any parties other than the District. We have not undertaken to verify independently, and have assumed, 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 B-1

70 in the Resolution and the Tax Certificate, including (without limitation) covenants and agreements compliance with which is necessary to assure that future actions, omissions or events will not cause interest on the Series C 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 C Bonds, the Resolution and the Tax Certificate may be subject to bankruptcy, insolvency, 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 public entities in the State of California. We express no opinion with respect to any indemnification, contribution, choice of law, choice of forum or waiver provisions contained in the foregoing documents. We express no opinion and make no comment with respect to the sufficiency of the security or the marketability of the Series C Bonds. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement or other offering material relating to the Series C 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 C Bonds constitute valid and binding obligations of the District, payable as to principal and interest from the proceeds of a levy of ad valorem taxes on all property subject to such taxes in the District, which taxes are unlimited as to rate or amount. 2. The Resolution has been duly adopted and constitutes a valid and binding obligation of the District. 3. It is further our opinion, based upon the foregoing, that pursuant to section 103 of the Internal Revenue Code of 1986, as amended and in effect on the date hereof (the Code ), and existing regulations, published rulings, and court decisions thereunder, and assuming continuing compliance with the provisions of the Resolution and the Tax Certificate and in reliance upon the representations and certifications of the District made in the Tax Certificate of even date herewith pertaining to the use, expenditure, and investment of the proceeds of the Series C Bonds, when the Series C Bonds are delivered to and paid for by the initial purchasers thereof, interest on the Series C Bonds for federal income tax purposes (1) will be excludable from the gross income, as defined in section 61 of the Code, of the owners thereof, and (2) will not be included in computing the alternative minimum taxable income of the owners thereof who are individuals or, except as hereinafter described, corporations. For taxable years that began before January 1, 2018, interest on the Series C Bonds owned by a corporation will be included in such corporation s adjusted current earnings for purposes of computing the alternative minimum tax on such corporation, other than an S corporation, a qualified mutual fund, a real estate investment trust, a real estate mortgage investment conduit, or a financial asset securitization investment trust. The alternative minimum tax on corporations has been repealed for taxable years beginning on or after January 1, In our opinion, under existing law, interest on the Series C Bonds is exempt from personal income taxes of the State of California. We express no other opinion with respect to any other federal, state, or local tax consequences under present law or any proposed legislation resulting from the receipt or accrual of interest on, or the acquisition or disposition of, the Series C Bonds. Ownership of tax-exempt obligations such as the Series C Bonds may result in collateral federal tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, certain S corporations with subchapter C earnings and profits, certain foreign corporations doing business in the United States, owners of an interest in a FASIT, individuals otherwise qualifying for the earned income tax credit, individual recipients of Social Security or Railroad Retirement benefits, and taxpayers who may be deemed to have incurred or B-2

71 continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations. Our opinions are based on existing law, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may thereafter come to our attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service or the State of California; rather, such opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above. Respectfully submitted, B-3

72 Upon issuance and delivery of the Series A Bonds, Norton Rose Fulbright US LLP, Bond Counsel, proposes to deliver its final approving opinion substantially in the following form: Board of Education Salinas City Elementary School District 840 South Main Street, Salinas, California [Closing Date] Re: $[ ] Salinas City Elementary School District (County of Monterey, California) 2018 General Obligation Refunding Bonds, Series A Ladies and Gentlemen: We have acted as Bond Counsel to the Salinas City Elementary School District(the District ), in connection with the issuance by the District of $[ ] aggregate principal amount of 2018 General Obligation Refunding Bonds, Series A (the Series A Bonds ). The Series A Bonds are issued pursuant to Articles 9 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code (commencing with Section and 53580, respectively), and the resolution adopted by the Board of Education of the District on December 11, 2017 (the Resolution ). All terms used herein and not otherwise defined shall have the meanings given to them in the Resolution. As bond counsel, we have examined copies certified to us as being true and complete copies of the proceedings of the District for the authorization and issuance of the Series A Bonds, including the Resolution, the Tax Exemption Certificate of the District dated the date hereof (the Tax Certificate ), and a special report of Causey Demgen & Moore (the Report ). Our services as such bond counsel were limited to an examination of such proceedings and to the rendering of the opinions set forth below. In this connection we have also examined such certificates of public officials and officers of the District as we have considered necessary for the purposes of this opinion. Certain agreements, requirements and procedures contained or referred to in the Resolution, the Tax Certificate and other relevant documents may be changed and certain actions (including, without limitation, the defeasance of the Series A Bonds) may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents. No opinion is expressed herein as to any Series A Bond or the interest thereon if any such change occurs or action is taken or omitted upon the advice or approval of counsel other than ourselves. 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 or events are taken or do occur. Our engagement with respect to the Series A 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 any parties other than the District. We have not undertaken to verify independently, and have assumed, 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 assure that future actions, omissions or events will not cause interest B-4

73 on the Series A 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 A Bonds, the Resolution and the Tax Certificate may be subject to bankruptcy, insolvency, 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 public entities in the State of California. We express no opinion with respect to any indemnification, contribution, choice of law, choice of forum or waiver provisions contained in the foregoing documents. We express no opinion and make no comment with respect to the sufficiency of the security or the marketability of the Series A Bonds. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement or other offering material relating to the Series A 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 A Bonds constitute valid and binding obligations of the District, payable as to principal and interest from the proceeds of a levy of ad valorem taxes on all property subject to such taxes in the District, which taxes are unlimited as to rate or amount. 2. The Resolution has been duly adopted and constitutes a valid and binding obligation of the District. 3. It is further our opinion, based upon the foregoing, that pursuant to section 103 of the Internal Revenue Code of 1986, as amended and in effect on the date hereof (the Code ), and existing regulations, published rulings, and court decisions thereunder, and assuming continuing compliance with the provisions of the Resolution and the Tax Certificate and in reliance upon representations and certifications of the District made in the Tax Certificate of even date herewith pertaining to the use, expenditure, and investment of the proceeds of the Series A Bonds, when the Series A Bonds are delivered to and paid for by the initial purchasers thereof, interest on the Series A Bonds for federal income tax purposes (1) will be excludable from the gross income, as defined in section 61 of the Code, of the owners thereof, and (2) will not be included in computing the alternative minimum taxable income of the owners thereof who are individuals or, except as hereinafter described, corporations. For taxable years that began before January 1, 2018, interest on the Series A Bonds owned by a corporation will be included in such corporation s adjusted current earnings for purposes of computing the alternative minimum tax on such corporation, other than an S corporation, a qualified mutual fund, a real estate investment trust, a real estate mortgage investment conduit, or a financial asset securitization investment trust. The alternative minimum tax on corporations has been repealed for taxable years beginning on or after January 1, In our opinion, under existing law, interest on the Series A Bonds is exempt from personal income taxes of the State of California. We express no other opinion with respect to any other federal, state, or local tax consequences under present law or any proposed legislation resulting from the receipt or accrual of interest on, or the acquisition or disposition of, the Series A Bonds. Ownership of tax-exempt obligations such as the Series A Bonds may result in collateral federal tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, certain S corporations with subchapter C earnings and profits, certain foreign corporations doing business in the United States, owners of an interest in a FASIT, individuals otherwise qualifying for the earned income tax credit, individual recipients of Social Security or Railroad Retirement benefits, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations. B-5

74 Our opinions are based on existing law, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may thereafter come to our attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service or the State of California; rather, such opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above. Respectfully submitted, B-6

75 APPENDIX C AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2017 C-1

76 SALINAS CITY ELEMENTARY SCHOOL DISTRICT ANNUAL FINANCIAL REPORT JUNE 30, 2017

77 SALINAS CITY ELEMENTARY 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 14 Statement of Activities 15 Fund Financial Statements Governmental Funds - Balance Sheet 16 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position 17 Governmental Funds - Statement of Revenues, Expenditures, and Changes in Fund Balances 19 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities 20 Proprietary Funds - Statement of Net Position 22 Proprietary Funds - Statement of Revenues, Expenses, and Changes in Fund Net Position 23 Proprietary Funds - Statement of Cash Flows 24 Fiduciary Funds - Statement of Net Position 25 Notes to Financial Statements 26 REQUIRED SUPPLEMENTARY INFORMATION General Fund - Budgetary Comparison Schedule 65 Schedule of Other Postemployment Benefits (OPEB) Funding Progress 66 Schedule of the District's Proportionate Share of the Net Pension Liability 67 Schedule of District Contributions 68 Notes to Required Supplementary Information 69 SUPPLEMENTARY INFORMATION Schedule of Expenditures of Federal A wards Local Education Agency Organization Structure Schedule of Average Daily Attendance Schedule of Instructional Time Reconciliation of Annual Financial and Budget Report With Audited Financial Statements Schedule of Financial Trends and Analysis Combining Statements - Non-Major Governmental Funds Combining Balance Sheet Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Note to Supplementary Information 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 Report on Compliance for Each Major Program and Report on Internal Control Over Compliance Required by the Uniform Guidance Report on State Compliance

78 SALINAS CITY ELEMENTARY SCHOOL DISTRICT TABLE OF CONTENTS JUNE 30, 2017 SCHEDULE OF FINDINGS AND QUESTIONED COSTS Summary of Auditor's Results Financial Statement Findings Federal Awards Findings and Questioned Costs State Awards Findings and Questioned Costs Summary Schedule of Prior Audit Findings Management Letter

79 FINANCIAL SECTION

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81 VAVRINEK, TRINE, DAYS,, CO., LLP Certified Public Accountants VALUE THE~ INDEPENDENT AUDITOR'S REPORT Governing Board Salinas City Elementary School District Salinas, 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 Salinas City Elementary 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 N. Fresno St.. Suite l 01. Fresno, CA 9371 O P F W vtdcpa.com

82 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 Salinas City Elementary School District, as of June 30, 2017, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 5 through 13, budgetary comparison schedule on page 65, schedule of other postemployment benefits funding progress on page 66, schedule of the district's proportionate share of net pension liability on page 67, and the schedule of district contributions on page 68, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is requi,red 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!reformation Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Salinas City Elementary 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

83 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 Salinas City Elementary School District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is 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 Salinas City Elementary 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 Salinas City Elementary School District's internal control over financial reporting and compliance. Fresno, California November 22,

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85 SALINAS CITY ELEMENTARY SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS ADMINISTRA TJON MARTHA L. MARTINEZ Superintendent GERALD STRATTON Assistant Superintendent Business Services LORI SANDERS Assistant Superintendent Educational Services BEATRIZ CHAIDEZ Assistant Superintendent Human Resources MARY PRITCHARD Director, Bilingual-Migrant-Early Childhood Education Services TERRY RYAN Director, Maintenance, Operations, Transportation & Food Services JAN HAMILTON Director, Special Education The mission of Salinas City Elementary School District is to provide qualified educators and a collaborative environment where students receive a high quality education using 21st Century teaching techniques and resources, and are challenged and encouraged to excel. The District is located in the community of Salinas in Monterey County. This community of 160,000 population, located 110 miles south of San Francisco and 16 miles east of Monterey, is predominantly an agricultural community that includes a large migrant population. The District served just over 9,000 students in The District operated 14 elementary schools in and serves under a locally elected five member Board of Education. 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. BOARD OF EDUCATION ROBERTO GARCIA Trustee Area 1 FRANOSCO ESTRADA Trustee Area Z ROBERT FOSTER HOFFMAN Trustee Area 3 AMYISH Trustee Area 4 STEPHEN KIM Trustee Area 5 The Government-Wide Financial Statements present the financial picture of the District from the economic resources measurement focus using the accrual basis of accounting. 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 two categories of activities: governmental and fiduciary. The Governmental Activities are prepared using the current financial resources measurement focus and modified accrual basis of accounting. The Fiduciary Activities are prepared using the economic resources measurement focus and the accrual basis of accounting. 840 South Main Street Salinas CA Phone {831) Fax(831) 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 Salinas City Elementary School District. 5

86 SALINAS CITY ELEMENTARY 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 liabilities, 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 present the District activities as follows: Governmental Activities - All of the District's services are reported in this category. This includes the education of kindergarten through grade twelve students, adult education 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

87 SALINAS CITY ELEMENTARY SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2017 Governmental Funds - Most of the District's basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the District's general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance the District's programs. The differences of results in the governmental fund financial statements to those in the government-wide financial statements are explained in a reconciliation following each governmental fund financial statement. Proprietary Funds - When the District charges users for the services it provides, whether to outside customers or to other departments within the District, these services are generally reported in proprietary funds. Proprietary funds are reported in the same way that all activities are reported in the Statement of Net Position and the Statement of Revenues, Expenses, and Changes in Fund Net Position. We use internal service funds to report activities that provide supplies and services for the District's other programs and activities, such as the District's Self-Insurance Fund. The internal service funds are reported with governmental activities in the government-wide financial statements. THE DISTRICT AS A TRUSTEE Reporting the District's Fiduciary Responsibilities The District is the trustee, or fiduciary, for funds held on behalf of others, like our funds for associated student body activities. The District's fiduciary activities are reported in the Statements of Fiduciary Net Position. We exclude these activities from the District's other financial statements because the District cannot use these assets to finance its operations. The District is responsible for ensuring that the assets reported in these funds are used for their intended purposes. THE DISTRICT AS A WHOLE Net Position The District's net position was $(14.6) million for the fiscal year ended June 30, Of this amount, $4.8 million was restricted. Restricted net position is reported separately to show legal constraints from debt covenants and enabling legislation that limit the governing board's ability to use 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. 7

88 SALINAS CITY ELEMENTARY SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2017 Table 1 (Amounts in millions) Governmental Activities Difference Assets Current and other assets $ 34.6 $ 29.7 $ 4.9 Capital assets (2.5) Total Assets Def erred Outflows of Resources 20.l Liabilities Current liabilities Long-term obligations Net pension liability 77.l Total Liabilities Deferred Inflows of Resources (10.3) Net Position Net investment in capital assets (2.1) Restricted (0.4) Unrestricted (44.2) (45.9) 1.7 Total Net Position $ {14.6} $ {13.8} $ (0.8} The $( 14.6) million in net position of governmental activities represents the accumulated results of all past years' operations. Unrestricted net position - the part of net position that can be used to finance day-to-day operations without constraints established by debt covenants, enabling legislation, or other legal requirements - increased by 3. 7 percent($( 45.9) million compared to $( 44.2) million). 8

89 SALINAS CITY ELEMENTARY 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) Revenues Program revenues: Charges for services Operating grants and contributions General revenues: Federal and State aid not restricted Property taxes Other general revenues Total Revenues Expenses Instruction related Student support services Administration Plant services Other Total Expenses Change in Net Position Governmental Activities Difference $ $ (0.8) $ 0.4 $ $ (0.5) $ 0.1 (2.9) (0.1) (3.3) (I.6) 3.2 (0.3) Governmental Activities As reported in the Statement of Activities, the cost of all of our governmental activities this year was $ million. However, the amount that our taxpayers ultimately financed for these activities through local taxes was only $21 million because the cost was paid by those who benefited from the programs ($0.5 million) or by other governments and organizations who subsidized certain programs with grants and contributions ($21.6 million). We paid for the remaining "public benefit" portion of our governmental activities with, $72.8 million in Federal and State funds and other revenues, like interest and general entitlements. In Table 3, we have presented the cost and net cost of each of the District's largest functions: instruction-related, student support services, administration and plant services. 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

90 SALINAS CITY ELEMENTARY SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2017 Table 3 (Dollar amounts in millions) Instruction related Student support services Administration Plant services Other Total $ $ Net Cost of Services $ 62. l $ 88.6 THE DISTRICT'S FUNDS As the District completed this year, our governmental funds reported a combined fund balance of $15.7 million, which is an increase of $3.5 million from last year (Table 4). Table 4 (Amounts in millions) Balances and Activity Difference General $ 12.9 $ 9.4 $ 3.5 Non-Major Funds Total $ 15.7 $ 12.2 $ 3.5 The General Fund increased by $3.5 million due primarily to increases in State funding. There was only a minimal change in the total Non-Major Governmental Funds during the year. General Fund Budgetary Highlights Over the course of the year, the District revises its budget as it deals with regular budget execution and unexpected changes in revenues and expenditures. The final amendment to the budget was adopted on September 11, 2017 ( Unaudited Actuals). A schedule showing the General Fund original and final budget amounts compared with amounts actually paid and received is provided in the basic financial statements. The District originally projected an increase in the General Fund of approximately $0. I million. Revenues were $3.0 million more than originally projected and expenditures and transfers out were $0.5 thousand more than originally projected, resulting in an increase to the General Fund of $3.5 million. 10

91 SALINAS CITY ELEMENTARY SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2017 CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets AtJune 30, 2017, the District had $65.3 million in a broad range of capital assets (net of depreciation), including land, buildings, furniture, and equipment. This amount represents a net decrease (including additions, deductions, and depreciation) of $2.5 million, or 3.5 percent, from last year (Table 5). Table 5 (Amounts in millions) Land Construction in progress Buildings and improvements Equipment Total $ $ Governmental Activities 2016 Difference $ 7.5 $ 2.0 (0.5) 57.8 (2.0) 0.5 $ 67.8 $ (2.5) The District began Prop 39 project work with replacement of aging, 1923-era windows at our two oldest schools, Roosevelt and Lincoln, for $591,000. Roosevelt also benefitted from a significant $147,000 lighting retrofit. At Natividad school the District completed a comprehensive kitchen remodel to come into full compliance with health department regulations for $189,000. The District also continued work to complete comprehensive security upgrades across the District with the construction of a secure, modern reception area with electronically controlled and monitored access for $98,000 at the District office. Deferred maintenance projects with replacement of flooring and interior/exterior painting continued as would be expected. 11

92 SALINAS CITY ELEMENTARY SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2017 Long-Term Obligations At the end of this year, the District had $48 million in long-term obligations outstanding versus $47.4 million last year, an increase of $0.6 million. Those long-term obligations consisted of: Table 6 (Amounts in millions) Governmental Activities Difference General obligation bonds $ 23.3 $ 23.8 $ (0.5) Certificates of participation (excludes premium) (0.3) Compensated absences (0.1) State preschool loan I Other postemployment benefits Premium on issuance (0.1) Capital leases Total $ 48.0 $ 47.4 $ Amounts less than $50,000. The District's S&P general obligation bond rating continues to be "AAA/A-." The State limits the amount of general obligation debt that districts can issue to five percent of the assessed value of all taxable property within the District's boundaries. The District's outstanding general obligation debt of $23.3 million is below the statutorily-imposed limit. 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 ofgasb 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 $20.1 million, Deferred Inflows from pension activities of $2.4 million, and a Net Pension Liability of $77.1 million. We present more detailed information regarding our net pension liability in the Notes to Financial Statements. 12

93 SALINAS CITY ELEMENTARY SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2017 FINANCIAL STATUS OF DISTRICT AND NEXT YEAR'S BUDGET Salinas City Elementary School District continues to recover from the extended period of reduced funding from the deficit factor and deferred State payments as we have implemented the Local Control Funding Formula (LCFF). This has allowed the District to hire additional teachers to reduce class sizes consistent with Grade Span Adjustment (GSA) requirements as amended in our side letter with our bargaining unit. It is notable that the recent years of growth of our student population flattened in and is projected flat in the budget year and out years. We closed with Reserve levels above the mandated State minimum and project carrying these forward through the current year as we budget to account for the loss of QEIA funds. The Board approved our multi-year budget on June 26, 201 7, where we certified Positive for the current budget year and the two subsequent years' projections. The LCFF has been used to build our budget and out year projections as required by COE. The preponderance of new funds continues to flow from Supplemental and Concentration dollars and is closely controlled by the Local Control and Accountability Plan (LCAP). For the District has budgeted excess reserve funds that will cover required funding in the two subsequent years. We have budgeted conservatively for those two years based on very modest economic improvements expected and the US and world economic indicators. We have continued to stabilize benefits contributions with bargaining units, albeit with the highest compensated benefits packages of any non-basic aid district in our county. This will be of even increased importance in the out years as we fund the growth in our teacher population to support GSA class size reductions. Additionally, we still retain an unfunded liability in Fund 67 amid the expectation that COE will continue to place the weight of "saving" CalSTRS and CalPERS disproportionately on the District's back. THE DISTRICT'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, students, investors and creditors with a general overview of the District's finances, and to demonstrate the District's fiscal accountability for the money it receives. Should you have questions about this report or need additional financial information, please contact the Assistant Superintendent of Business Services at

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95 SALINAS CITY ELEMENTARY SCHOOL DISTRICT STATEMENT OF NET POSITION JUNE 30, 2017 ASSETS Deposits and investments Receivables Discounts on debt issuances Stores inventories Nondepreciable capital assets Capital assets being depreciated Accumulated depreciation Total Assets DEFERRED OUTFLOWS OF RESOURCES Deferred outflows of resources related to pensions LIABILITIES Overdrafts Accounts payable Unearned revenue Long-term obligations: Premium on debt issuances Current portion of long-term obligations other than pensions Noncurrent portion of long-term obligations other than pensions Total Long-Term Obligations Aggregate net pension liability Total Liabilities DEFERRED INFLOWS OF RESOURCES Deferred inflows of resources related to pensions NET POSITION Net investment in capital assets Restricted for: Debt service Capital projects Educational programs Other activities Unrestricted Total Net Position Governmental Activities $ 27,567,788 5,301,712 1,668,765 44,666 9,005, ,318,810 (70,019,142) 99,887,667 20, 141, ,920 6,333, , , ,229 47,350,659 48,313,079 77,102, , 160,982 2,419,084 24,845,898 1,918, ,492 2,221, ,117 ( 44, 184,459) $ (14,550,857) The accompanying notes are an integral part of these financial statements. 14

96 SALINAS CITY ELEMENTARY SCHOOL DISTRICT STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2017 Functions/Programs Governmental Activities: Instruction Instruction-related activities: Supervision of instruction Instructional library, media, and technology School site administration Pupil services: Home-to-school transportation Food services All other pupil services Administration: Data processing All other administration Plant services Enterprise services Interest on long-term obligations Other outgo Total Governmental Activities Expenses $ 65,724,430 $ 6,373, ,036 9,261,857 2,490,901 6,020,928 3,556, ,150 4,123,322 8,876, ,774 2,238,888 6,758,409 $ 116,652,683 $ Program Revenues Charges for Operating Services and Grants and Sales Contributions 435,375 17, ,396 $ $ 10,997,527 1,634,481 52, ,143 4,772, , , , ,751 1,494,942 21,644,461 General revenues and subventions: Property taxes, levied for general purposes Property taxes, levied for debt service Taxes levied for other specific purposes Federal and State aid not restricted to specific purposes Interest and investment earnings Miscellaneous Subtotal, General Revenues Change in Net Position Net Position - Beginning Net Position - Ending The accompanying notes are an integral part of these financial statements. 15

97 Net (Expenses) Revenues and Changes in Net Position Governmental Activities $ (54,726,903) (4,739,050) (468,527) (8,698,714) (2,490,90 I) (813,479) (2,646,366) (165,150) (3,489,454) (8,683,904) (131,023) (2,238,888) (5,263,467) (94,555,826) 18,715,217 2,114, ,020 68,279, ,508 4,337,414 93,831,298 (724,528) (13,826,329) $ (14,550,857) 15

98 SALINAS CITY ELEMENTARY SCHOOL DISTRICT GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2017 Non-Major Total General Governmental Governmental Fund Funds Funds ASSETS Deposits and investments $ 15,174,784 $ 2,137,184 $ 17,311,968 Receivables 3,877,018 1,243,631 5, 120,649 Due from other funds 200, ,859 Stores inventories 44,666 44,666 Total Assets $ 19,252,661 $ 3,425,481 $ 22,678,142 LIABILITIES AND FUND BALANCES Liabilities: Overdrafts $ $ 287,920 $ 287,920 Accounts payable 6,216, ,065 6,333,213 Due to other funds 200, ,859 Unearned revenue 124, ,649 Total Liabilities 6,340, ,844 6,946,641 Fund Balances: N onspendab le 5,000 44,666 49,666 Restricted 2,043,092 2,774,808 4,817,900 Committed Assigned 7,617, ,617,807 Unassigned 3,245,970 3,245,970 Total Fund Balances 12,911,864 2,819,637 15,731,501 Total Liabilities and Fund Balances $ 19,252,661 $ 3,425,481 $ 22,678,142 The accompanying notes are an integral part of these financial statements. 16

99 SALINAS CITY ELEMENTARY SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION JUNE 30, 2017 Total Fund Balance - Governmental Funds Amounts Reported for Governmental Activities in the Statement of Net Position are Different Because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported as assets in governmental funds. The cost of capital assets is Accumulated depreciation is Net Capital Assets Expenditures relating to issuance of debt were recognized on the modified accrual basis, but are amortized over the life of the debt on the accrual basis. The balance to amortize is reported on the Statement of Net Position as premiums and discounts on debt issuance. Expenditures relating to contributions made to pension plans were recognized on the modified accrual basis, but are not recognized on the accrual basis. An internal service fund is used by the District's management to charge the costs of the workers' compensation insurance program to the individual funds. The assets and liabilities of the internal service fund are included with governmental activities. Internal service fund net assets excluding the balance of the other postemployment benefits obligation are: The net effect in proportionate share of the 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 remaining service life of members receiving pension benefits. The difference between projected and actual earnings on pension plan investments are not recognized on the modified accrual basis, but are recognized on the accrual basis as an adjustment to pension expense. 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. 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. Net pension liability is not due and payable in the current period, and is not reported as a liability in the funds. $ 135,323,878 (70,019,142) $ 15,731,501 65,304,736 1,335,574 6,493,907 10,436,883 4,788,966 7,596,264 (574,334) (582,345) (77' 102, 121) The accompanying notes are an integral part of these financial statements. 17

100 SALINAS CITY ELEMENTARY SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION, Continued JUNE 30, 2017 ~~~~~~~~~ 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 Certificates of participation Compensated absences State preschool loan Capital leases Other postemployment benefits (OPEB) Total Long-Term Obligations Total Net Position - Governmental Activities $ 23,350,000 16,897, ,507 52, ,776 7,243,681 $ (47,979,888) $ (14,550,857) The accompanying notes are an integral part of these financial statements. 18

101 SALINAS CITY ELEMENTARY SCHOOL DISTRICT GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2017 Non-Major Total General Governmental Governmental Fund Funds Funds REVENUES Local Control Funding Formula $ 83,438,823 $ $ 83,438,823 Federal sources 6,197,047 5,206,327 11,403,374 Other State sources 9,558,816 1,712,643 11,271,459 Other local sources 5,867,392 3,471,765 9,339,157 Total Revenues 105,062,078 10,390, ,452,813 EXPENDITURES Current Instruction 60,599,797 1, 162,806 61,762,603 Instruction-related activities: Supervision of instruction 6,092, ,092,398 Instructional library, media and technology 487, ,332 School site administration 8,557,484 24,172 8,581,656 Pupil services: Home-to-school transportation 2,038,570 2,038,570 Food services 889 5,484,865 5,485,754 All other pupil services 3,285, ,245 3,433,967 Administration: Data processing 163, ,778 All other administration 3,576, ,104 3,848,940 Plant services 8,009,266 33, 180 8,042,446 Facility acquisition and construction 2,063,402 2,063,402 Other outgo 6,758,409 6,758,409 Enterprise services 135, , ,326 Debt service Principal 695, ,788 Interest and other 2,185,120 2,185,120 Total Expenditures 101,769,243 10,388, ,157,489 Excess (Deficiency) of Revenues Over Expenditures 3,292,835 2,489 3,295,324 Other Financing Sources (Uses) Other sources 233, ,776 NET CHANGE IN FUND BALANCES 3,526,611 2,489 3,529,100 Fund Balance - Beginning 9,385,253 2,817, ,202,401 Fund Balance - Ending $ 12,911,864 $ 2,819,637 $ 15,731,501 The accompanying notes are an integral part of these financial statements. 19

102 SALINAS CITY ELEMENTARY SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2017 Total Net Change in Fund Balances - Governmental Funds 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 depreciation exceeds capital outlays in the period. Depreciation expense Capital outlays Net Expense Adjustment Some of the capital assets acquired this year were financed with capital leases. The amount financed by the leases is reported in the governmental funds as a source of financing. On the other hand, the capital leases are not revenues in the Statement of Activities, but rather constitute long-term obligations in the Statement of Net Position. In the Statement of Activities compensated absences (vacations) are measured by the amounts earned during the year. In the governmental funds, however, expenditures for these items are measured by the amount of financial resources used (essentially, the amounts actually paid). Vacation paid was more than the amounts earned by $49,137. In the governmental funds, pension costs are based on employer contributions made to pension plans during the year. However, in the Statement of Activities, pension expense is the net effect of all changes in the deferred outflows, deferred inflows and net pension liability during the year net of the State's contribution on behalf of the District into CalSTRS. 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: 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 Certificates of participation State preschool loan $ ( 4,604, 752) 2,069,902 $ 3,529,100 (2,534,850) (233,776) 49,137 (2,525,421) ( 1,480,680) 425, ,288 I 0,500 The accompanying notes are an integral part of these financial statements. 20

103 SALINAS CITY ELEMENTARY SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES, Continued FOR THE YEAR ENDED JUNE 30, 2017 In the government-wide financial statements, discounts and premiums on the issuance of debt are deferred and amortized on an annual basis over the life of the debt using the straight line method. Amortization of debt premuim Amortization of debt discount Net Expense Adjustment An internal service fund is used by the District's management to charge program costs to the individual funds. The net revenue of the Internal Service Fund is reported with governmental activities. Change in Net Position of Governmental Activities $ 20,824 (74,592) $ (53,768) 1,829,942 $ (724,528) The accompanying notes are an integral part of these financial statements. 21

104 SALINAS CITY ELEMENTARY SCHOOL DISTRICT PROPRIETARY FUNDS STATEMENT OF NET POSITION JUNE 30, 2017 ASSETS Current Assets Deposits and investments Receivables Total Current Assets LIABILITIES Current Liabilities Accounts payable NET POSITION Restricted Governmental Activities - Internal Service Fund $ 10,255, ,063 $ 10,436,883 $ $ 10,436,883 The accompanying notes are an integral part of these financial statements. 22

105 SALINAS CITY ELEMENTARY SCHOOL DISTRICT PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION FOR THE YEAR ENDED JUNE 30, 2017 OPERATING REVENUES Charges to other funds and miscellaneous revenues OPERATING EXPENSES Retiree premium payments Operating Gain $ Governmental Activities - Internal Service Fund 1,706,477 1,706,477 NONOPERATING REVENUES Interest income Change in Net Position Total Net Position - Beginning Total Net Position - Ending $ 123,465 1,829,942 8,606,941 10,436,883 The accompanying notes are an integral part of these financial statements. 23

106 SALINAS CITY ELEMENTARY SCHOOL DISTRICT PROPRIETARY FUNDS STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2017 CASH FLOWS FROM OPERA TING ACTIVITIES Cash receipts from user charges CASH FLOWS FROM INVESTING ACTIVITIES Interest on investments Net Increase in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning Cash and Cash Equivalents - Ending Governmental Activities - Internal Service Fund $ 1,668,902 $ 123,465 1,792,367 8,463,453 10,255,820 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income Changes in assets and liabilities: Receivables NET CASH PROVIDED BY OPERA TING ACTIVITIES $ $ 1,706,477 (37,575) 1,668,902 The accompanying notes are an integral part of these financial statements. 24

107 SALINAS CITY ELEMENTARY SCHOOL DISTRICT FIDUCIARY FUNDS STATEMENT OF NET POSITION JUNE 30, 2017 ASSETS Deposits and investments $ Agency Funds 293,957 LIABILITIES Due to student groups $ 293,957 The accompanying notes are an integral part of these financial statements. 25

108 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Financial Reporting Entity The Salinas City Elementary School District (the District) was established in 1957 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 - 6 as mandated by the State and/or Federal agencies. The District operates fourteen Transitional Kindergarten through Sixth grade elementary schools. 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 Salinas City Elementary School District, this includes general operations, food service, and student related activities of the District. Component Units Component units are legally separate organizations for which the District is financially accountable. Component units may also include organizations that are fiscally dependent on the District, in that the District approves their budget, the issuance of their debt or the levying of their taxes. In addition, component units are other legally separate organizations for which the District is not financially accountable but the nature and significance of the organization's relationship with the District is such that exclusion would cause the District's financial statements to be misleading or incomplete. For financial reporting purposes, the component unit has a financial and operational relationship which meets the reporting entity definition criteria of the Governmental Accounting Standards Board (GASB) Statement No. 14, The Financial Reporting Entity, and thus are included in the financial statements of the District. The component unit, although a legally separate entity, is reported in the financial statements using the blended presentation method as if it were part of the District's operations because the governing board of the component unit is essentially the same as the governing board of the District and because its purpose is to finance the construction of facilities to be used for the direct benefit of the District. The Salinas City Elementary School District Finance Corporation's financial activity is presented in the financial statements using the blended method as the Debt Service Fund. Certificates of participation issued by the Corporation are included as long-term liabilities in the government-wide financial statements. Basis of Presentation - Fund Accounting The accounting system is organized and operated on a fund basis. A fund is defined as a fiscal and accounting entity with a self-balancing set of accounts, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. The District's funds are grouped into three broad fund categories: governmental, proprietary, and fiduciary. 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: 26

109 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 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. 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. 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. 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). Deferred Maintenance Fund The Deferred Maintenance Fund is used to account separately for revenues that are restricted or committed for deferred maintenance purposes (Education Code Section 17582). 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). 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. 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 IA), the 2002 State School Facilities Fund (Proposition 47), the 2004 State School Facilities Fund (Proposition 55), or the 2006 State Schools Facilities Fund (Proposition 10) 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.). 27

110 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 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). 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 ). Debt Service Fund The Debt Service Fund is used to account for the accumulation of resources for the payment of principal and interest on certificates of participation. Proprietary Funds Proprietary fund reporting focuses on the determination of operating income, changes in net position, financial position, and cash flows. The District applies all GASB pronouncements, as well as the Financial Accounting Standards Board pronouncements issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements. The District has the following proprietary funds: Internal Service Fund Internal Service funds may be used to account for any activity for which services are provided to other funds of the District on a cost-reimbursement basis. The District operates a self insurance that is accounted for in an internal service fund which accumulates future retiree benefit contributions. 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 District's fiduciary fund category is agency funds. Agency funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. Such funds have no equity accounts since all assets are due to individuals or entities at some future time. The District's agency fund accounts for student body activities (ASB). Basis of Accounting- Measurement Focus Government-Wide Financial Statements The government-wide financial statements are prepared using the economic resources measurement focus and the accrual basis of accounting. This is the same approach used in the preparation of the proprietary fund financial statements, but differs from the manner in which governmental fund financial statements are prepared. The government-wide statement of activities presents a comparison between expenses, both direct and indirect, and program revenues for each governmental function, and excludes fiduciary activity. Direct expenses are those that are specifically associated with a service, program, or department and are therefore, clearly identifiable to a particular function. The District does not allocate indirect expenses to functions in the Statement of Activities, 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 or business segment is self-financing or draws from the general revenues of the District. Eliminations have been made to minimize the double counting of internal activities. 28

111 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Net position should be reported as restricted when constraints placed on net position are either externally imposed by creditors (such as through debt covenants), granters, 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 and proprietary 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. The internal service fund is presented in a single column on the face of the proprietary fund statements. 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. Proprietary Funds Proprietary funds are accounted for using the flow of economic resources measurement focus and the accrual basis of accounting. All assets and all liabilities associated with the operation of this fund are included in the statement of net position. The statement of changes in fund net position presents increases (revenues) and decreases (expenses) in net total assets. The statement of cash flows provides information about how the District finances and meets the cash flow needs of its proprietary fund. 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 ofreporting 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. 29

112 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 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. 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. Cash and Cash Equivalents The District's cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. Cash equivalents also include cash with county treasury balances for purposes of the statement of cash flows. 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 the county pool are determined by the program sponsor. 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 and expenses in the proprietary funds when used. 30

113 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 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 the donor's 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. lnterfund Balances On fund financial statements, receivables and payables resulting from short-term interfund loans are classified as "interfund receivables/payables". These amounts are eliminated in the governmental 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. For governmental funds, the current portion of unpaid compensated absences is recognized upon the occurrence of relevant events such as employee resignations and retirements that occur prior to year-end that have not yet been paid with expendable available financial resources. These amounts are reported in the fund from which the employees who have accumulated leave are paid. Sick leave is accumulated without limit for each employee at the rate of one day for each month worked. Leave with pay is provided when employees are absent for health reasons; however, the employees do not gain a vested right to accumulated sick leave. Employees are never paid for any sick leave balance at termination of employment. 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 I, 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. 31

114 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Accounts Payable and Long-Term Obligations Accounts payable and long-term obligations are reported in the government-wide financial statements. In general, governmental fund accounts payable that are paid in a timely manner and in full from current financial resources are reported as obligations of the funds. Debt Issuance Costs, Premiums and Discounts In the government-wide financial statements, long-term obligations are reported as liabilities in the applicable governmental activities statement of net position. Debt premiums and discounts are amortized over the life of the debt using the straight-line method. In governmental fund financial statements, debt premiums and discounts, as well as debt issuance costs 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. Issuance costs, whether or not withheld from the actual debt proceeds, are reported as debt service expenditures. 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. 32

115 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 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. 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 may assign amounts for specific purposes. Unassigned - all other spendable amounts. 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. 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 $4,787,704 of restricted net position. 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. 33

116 SALINAS CITY ELEMENTARY 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 l 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. Property Tax Secured property taxes attach as an enforceable lien on property as of January 1. Taxes are payable in two installments on November l and February I 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 Monterey 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/or 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/or 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 De.fined 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. 34

117 SALINAS CITY ELEMENTARY 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 (I) 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 ofgasb 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/or Pension Plans, No. 68, Accounting and Financial Reporting/or Pensions, and No. 73, Accounting and Financial Reporting/or Pensions and Related Assets That Are Not within the Scope ofgasb Statement No. 68, and Amendments to Certain Provisions ofgasb 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. 35

118 SALINAS CITY ELEMENTARY 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 (I) 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 ofreporting 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; 36

119 SALINAS CITY ELEMENTARY 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 ofresources 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. 37

120 SALINAS CITY ELEMENTARY 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 Less overdrafts Net government activities Fiduciary funds Total Deposits and Investments $ 27,567, ,920 27,279, ,957 $ 27,573,825 Deposits and investments as of June 30, 2017, consist of the following: Cash on hand and in banks Cash in revolving Investments Total Deposits and Investments $ 778,986 5,000 26,789,839 $ 27,573,825 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 ). 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. 38

121 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 General Authorizations Limitations as they relate to interest rate risk are indicated in the schedules below: Maximum Maximum Authorized Remaining Percentage Investment Type Maturity of Portfolio Local Agency Bonds, Notes, Warrants 5 years None Registered State Bonds, Notes, Warrants 5 years None U.S. Treasury Obligations 5 years None U.S. Agency Securities 5 years None Banker's Acceptance 180 days 40% Commercial Paper 270 days 25% Negotiable Certificates of Deposit 5 years 30% Repurchase Agreements 1 year None Reverse Repurchase Agreements 92 days 20% of base Medium-Term Corporate Notes 5 years 30% Mutual Funds NIA 20% Money Market Mutual Funds NIA 20% Mortgage Pass-Through Securities 5 years 20% County Pooled Investment Funds NIA None Local Agency Investment Fund (LAIF) NIA None Joint Powers Authority Pools NIA None Maximum Investment in One Issuer None None None None 30% 10% None None None None 10% 10% None None 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 which purchases a combination of shorter term and longer term investments and which also times 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 iquidity 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: Investment Type County Pool Fair Value $ 27,046, Months or Less $ Months Months $ 27,046,650 $ More Than 60 Months $ 39

122 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Custodial Credit Risk - Deposits This is the risk that in the event of a bank failure, the District's deposits may not be returned to it. The District does not have a policy for custodial credit risk for deposits. However, the California Government Code requires that a financial institution secure deposits made by State or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law. The market value of the pledged securities in the collateral pool must equal at least 110 percent of the total amount deposited by the public agency. California law also allows financial institutions to secure public deposits by pledging first trust deed mortgage notes having a value of 150 percent of the secured public deposits and letters of credit issued by the Federal Home Loan Bank of San Francisco having a value of 105 percent of the secured deposits. As of June 30, 2017, $637, 126 of the District's bank balance was exposed to custodial credit risk because it was uninsured and collateralized with securities held by the pledging financial institution's trust department or agent, but not in the name of the District. 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 I 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 ifreasonably 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 Monterey 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. 40

123 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 NOTE 4 - RECEIVABLES Receivables at June 3 0, 2017, consist of intergovernmental grants, entitlements, and local sources. All receivables are considered collectible in full. General Fund Federal Government Categorical aid $ 972,651 State Government State grants and entitlements 2,693,113 Local Sources 211,254 Total $ 3,877,018 Non-Major Governmental Funds $ 659, ,882 56,743 $ 1,243,631 $ Internal Service Fund 181,063 $ 181,063 Total Governmental Activities $ 1,631,657 3,220, ,060 $ 5,301,712 NOTE 5 - CAPITAL ASSETS Capital asset activity for the fiscal year ended June 30, 2017, are as follows: Balance July 1, 2016 Additions Deductions Governmental Activities Capital Assets not being depreciated Land $ 7,480,895 $ $ Construction in progress 2,017,123 83, ,924 Total Capital Assets Not Being Depreciated 9,498,018 83, ,924 Capital Assets being depreciated Land improvements 11,029,041 67,366 Buildings and improvements 109, 103,642 2,488,986 Furniture and equipment 3,623,275 6,500 Total Capital Assets Being Depreciated 123,755,958 2,562,852 Less Accumulated Depreciation Land improvements 4,833, ,392 Buildings and improvements 57,541,495 3,988,745 Furniture and equipment 3,039, ,615 Total Accumulated Depreciation 65,414,390 4,604,752 Governmental Activities Capital Assets, Net $ 67,839,586 $ (1,957,926) $ 576,924 Balance June 30, 2017 $ 7,480,895 1,524, 173 9,005,068 11,096, ,592,628 3,629, ,318,810 5,384,115 61,530,240 3,104,787 70,019,142 $ 65,304,736 41

124 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 ~~--~~~------~~~~~ ~----~ ~~ Depreciation expense was charged as a direct expense to governmental functions as follows: Governmental Activities Instruction School site administration Home-to-school transportation Food services All other general administration Plant services Total Depreciation Expenses, Governmental Activities $ 2,808, , , , , ,618 $ 4,604,752 NOTE 6 - INTERFUND TRANSACTIONS Interfund Receivables/Payables (Due Toillue 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: Major Governmental Fund General Non-Major Governmental Funds Child Development Cafeteria Total Non-Major Governmental Funds Total Governmental Activities Interfund Receivables $ 200,859 $ 200,859 $ Interfund Payables 24, , ,859 $ 200,859 The Cafeteria Non-Major Governmental Fund owes the General Fund for NSLP indirect costs. The Cafeteria Non-Major Governmental Fund owes the General Fund for CACFP indirect costs. The Child Development Non-Major Governmental Fund owes the General Fund for indirect costs. Total $ 148,294 28,170 24,395 $ 200,859 ' 42

125 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 NOTE7-ACCOUNTSPAYABLE Accounts payable at June 30, 2017, consist of the following: Vendors payable State principal apportionment Accrued payroll Deferred payroll Total General Fund $ 2,814, , , 174 2,156,770 $ 6,216,148 Non-Major Governmental Funds $ 69,924 47,141 $ 117,065 Total Governmental Activities $ 2,884, , ,315 2,156,770 $ 6,333,213 NOTES-UNEARNED REVENUE Unearned revenue at June 30, 2017, consists of the following: Federal financial assistance State categorical aid Total General Fund $ 123,459 1,190 $ 124,649 NOTE 9 - LONG-TERM OBLIGATIONS Summary The changes in the District's long-term obligations during the year consisted of the following: Balance Balance July 1, 2016 Additions Deductions June 30, 2017 General obligation bonds $ 23,775,000 $ $ 425,000 $ 23,350,000 Certificates of participation 17,157, ,288 16,897,424 Compensated absences 251,644 49, ,507 State preschool loan 63,000 10,500 52,500 Capital leases 233, ,776 Other postemployment benefits 5,763,001 2,949,554 1,468,874 7,243,681 Total $ 47,010,357 $ 3,183,330 $ 2,213,799 $ 47,979,888 Due in One Year $ 280, ,525 10,500 51,204 $ 629,229 43

126 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Payments on the general obligation bonds are made by the Bond Interest and Redemption Fund with local tax revenues. The Debt Service Fund makes payments for the certificates of participation. The Child Development Fund makes payments on the State Preschool loan. The General Fund makes payments on the capital leases. The compensated absences and other postemployment benefits will be paid by the fund for which the employee worked. Bonded Debt General Obligation Bonds 2008 Election, Series A and Series B On September 24, 2008, the District issued $25,000,000 in General Obligation Bonds 2008 Election, Series A and Series B, to finance the acquisition, construction and improvement of certain public facilities of the District, prepay certain outstanding certificates of participation of the District, and pay certain cost of issuance of the bonds. The bonds bear interest at rates ranging from 2.2 percent to percent. The outstanding general obligation bonded debt is as follows: Issue Date 9/24/2008 Maturity Date 6/30/33 Interest Rate% Original Issue $ 25,000,000 Bonds Outstanding July 1, 2016 $23,775,000 Redeemed $ 425,000 Bonds Outstanding June 30, 2017 $ 23,350,000 Debt Service Requirements to Maturity The bonds mature through 2033 as follows: Fiscal Year Total Principal $ 280, , , , ,000 6,280,000 11,220,000 3,025,000 $ 23,350,000 Interest $ 1,331,676 1,316,501 1,290,985 1,259,537 1,221,738 5,259,039 2,956, ,255 $ 14,811,589 Total $ 1,611,676 1,786,501 1,865,985 1,949,537 2,031,738 11,539,039 14,176,858 3,200,255 $ 38,161,589 44

127 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Certificates of Participation 2010 Issuance In July 2010, the District issued $11,000,000 of certificates of participation, with interest of 5.44 percent for the acquisition, modernization improvement and construction of District facilities. The certificates of participation have semi-annual interest payments, with principal payments commencing in October 2023 through July The certificates qualified as school construction bonds whereby the federal government will subsidize the interest obligation. Scheduled payments for the COPs are as follows: Fiscal Year PrinciEal Interest Total 2018 $ $ 598,400 $ 598, , , , , , , , , ,800,000 2,034,560 10,834, ,200,000 29,920 2,229,920 Total $ 11,000,000 $ 5,056,480 $ 16,056, Issuances In May 2013, the District issued $6, 723,066 of certificates of participation, with interest of 3.5 percent in two private placements for the installation of the district-wide solar project. The certificates of participation have quarterly principal and interest payment requirements. The principal payments commence February 1, 2014, while the interest payments commenced on June 1, The obligation will be paid in full by November 1, Scheduled payments for the COPs are as follows: Fiscal Year PrinciEal Interest Total 2018 $ 287,525 $ 202,743 $ 490, , , , , , , , , , , , , ,207, ,500 2,821, ,262, ,323 2,418,029 Total $ 5,897,424 $ 1,686,461 $ 7,583,885 45

128 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Compensated Absences The long-term portion of compensated absences for the District at June 30, 2017, amounted to $202,507. Preschool Revolving Facilities Loan The District has entered into an agreement to fund facilities acquisitions with an interest free loan with the California Department of Education. The District's liability on this agreement is summarized below: Balance, July 1, 2016 Payments Balance, June 30, 2017 Amount $ 63,000 10,500 $ 52,500 The loan has minimum payments as follows: Year Ending June 30, Total Less: Amount Representing Interest Present Value of Minimum Lease Payments Annaul Payment $ 10,500 10,500 10,500 10,500 10,500 52,500 $ 52,500 Capital Leases The District has entered into an agreement for various copy machines. The District's liability on this agreement is summarized below: Balance, July 1, 2016 Additions Balance, June 30, 2017 Amount $ 233,776 $ 233,776 46

129 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Year Ending June 30, Total Less: Amount Representing Interest Present Value of Minimum Lease Payments Annaul Payment $ 51,204 51,204 51,204 51,204 51, ,020 22,244 $ 233,776 Other Postemployment Benefits (OPEB) Obligation The District's annual required contribution for the year ended June 30, 2017, was $2,675,811, and contributions made by the District during the year were $950,925 (including an implicit rate subsidy factor of 17.5 percent). Interest on the net OPEB obligation and adjustments to the annual required contribution were $273,743 and $(517,949), respectively, which resulted in an increase to the net OPEB obligation of$1,480,680. As of June 30, 2017, the net OPEB obligation was $7,243,681. See Note 12 for additional information regarding the OPEB obligation and the postemployment benefits plan. 47

130 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~- NOTE 10 - FUND BALANCES Fund balances are composed of the following elements: Non-Major General Governmental Fund Funds Total Nonspendable Revolving cash $ 5,000 $ $ 5,000 Stores inventories 44,666 44,666 Total Nonspendable 5,000 44,666 49,666 Restricted Legally restricted programs 2,043, ,369 2,678,461 Capital projects 221, ,354 Debt service 1,918,085 1,918,085 Total Restricted 2,043,092 2,774,808 4,817,900 Committed Deferred maintenance program Assigned CalSTRS and CalPERS rate increases 7,617,802 7,617,802 Capital projects 5 5 Total Assigned 7,617, ,617,807 Unassigned Reserve for economic uncertainties 3,245,970 3,245,970 Total $ 12,911,864 $ 2,819,637 $ 15,731,501 NOTE 11 - EXPENDITURES (BUDGET VERSUS ACTUAL) At June 3 0, 2017, the following District major fund exceeded the budgeted amount as follows: Fund General Capital outlay Expenditures and Other Uses Budget Actual Excess $ 1,156,052 $ 2,007,004 $ 850,952 48

131 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 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 Salinas City Elementary School District. The Plan provides healthcare benefits to eligible retirees and their dependents. Membership of the Plan consists of 71 retirees and beneficiaries currently receiving benefits and over 630 active plan members. Contribution Information The contribution requirements of plan members and the District are established and may be amended by the District and the Salinas Elementary Teachers' Council (SETC), the local California School Employee Association (CSEA), and unrepresented groups. The required contribution is based on projected pay-as-you-go financing requirements. For fiscal year , the District contributed $809,298 to the plan excluding the implicit rate subsidy factor, all of which was used for current premiums. Annual OPEB Cost and Net OPEB Obligation The District's annual OPEB cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial accrued liabilities (UAAL) (or funding excess) over a period not to exceed 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 Interest on net OPEB obligation Adjustment to annual required contribution Annual OPEB cost (expense) Contributions made Increase in net OPEB obligation Net OPEB obligation, beginning of year Net OPEB obligation, end of year $ 2,675, ,743 (517,949) 2,431,605 (950,925) 1,480,680 5,763,001 $ 7,243,681 49

132 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 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 June 30, Annual OPEB Cost $ 2,431,605 2,497,520 2,558,302 Actual Contribution $ 950, ,975 1,123,926 Percentage Contributed 39% 38% 44% NetOPEB Obligation $ 7,243,681 5,763,001 4,207,456 Funded Status and Funding Progress A schedule of funding progress as of the most recent actuarial valuation is as follows: Actuarial Accrued Liability (AAL)- Unfunded Actuarial Actuarial Entry Age AAL Funded Valuation Value of Actuarial (UAAL) Ratio Covered Date Assets (a) Cost (b) (b - a) (a I b) Payroll (c) June 1, 2015 $ $ 20,495,608 $ 20,495,608 0% $ 47,685,555 UAALasa Percentage of Covered Payroll ([b-a]/c) 43% 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. 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 desigm:d 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. 50

133 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 In the June 1, 2015, actuarial valuation, the entry age actuarial cost method was used. The actuarial assumptions included a 4.75 percent investment rate ofretum (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 UAAL is being amortized at a level percentage of projected payroll on an open basis. The remaining amortization period at July 1, 2016, was 23 years. 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. The District is a member of the Monterey and San Benito Counties Liability/Property Joint Powers Authority (MS BC LP), a joint powers authority, 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 Monterey Educational Risk Management Authority (MERMA), an insurance purchasing pool. The intent of MERMA is to achieve the benefit of a reduced premium for the District by virtue of its grouping and representation with other participants in MERMA. The workers' compensation experience of the participating districts is calculated as one experience and a common premium rate is applied to all districts in MERMA. 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 ofmerma. Participation in MERMA is limited to districts that can meet MERMA selection criteria. Employee Medical Benefits The District has contracted with the Monterey County Schools Insurance Group (MCSIG) to provide employee health benefits. MCSIG is a shared risk pool comprised of member districts in Monterey County. 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. 51

134 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 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). For the fiscal year ended June 30, 2017, the District reported net pension liabilities, deferred outflows of resources, deferred inflows ofresources, 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 Exeense CalSTRS $ 57,719,072 $ 13,054,020 $ 1,407,991 $ 6,314,255 CalPERS 19,383,049 7,087,522 1,011,093 2,705,073 Total $ 77, 102, 121 $ 20,141,542 $ 2,419,084 $ 9,019,328 The details of each plan are as follows: California State Teachers' Retirement System (CaISTRS) 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 I, 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. 52

135 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 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. The STRP provisions and benefits in effect at June 30, 2017, are summarized as follows: Hire date Benefit formula Benefit vesting schedule Benefit payments Retirement age Monthly benefits as a precentage of eligible compensation Required employee contribution rate Required employer contribution rate Required state contribution rate STRP Defined Benefit Program On or before On or after December 31, 2012 January 1, % at 60 2% at 62 5 years of service 5 years of service Monthly for life Monthly for life %-2.4% 2.0%-2.4% 10.25% 9.205% 12.58% 12.58% 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 $4,642,

136 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 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 State's proportionate share of the net pension liability associated with the District Total $ 57,719,072 32,858,438 $ 90,577,510 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 increase in the proportionate share of percent. For the year ended June 30, 2017, the District recognized pension expense of $6,314,255. In addition, the District recognized pension expense and revenue of $3, 176, 114 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: Pension contributions subsequent to measurement date Net change in proportionate share of net pension liability Difference between projected and actual earnings on pension plan investments Differences between expected and actual experience in the measurement of the total pension liability Total Deferred Outflows of Resources $ 4,642,146 3,823,236 4,588,638 $ 13,054,020 Deferred Inflows of Resources $ 1,407,991 $ 12407,991 54

137 SALINAS CITY ELEMENTARY 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 $ 100, , ,667, ,721,030 Total $ 4,588,638 The deferred outtlows/(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 $ 433, , , , ,146 Thereafter 249,531 Total $ 2,415,245 55

138 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 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 Measurement date Experience study Actuarial cost method Discount rate Investment rate of return Consumer price inflation Wage growth June 30, 2015 June 30, 2016 July I, 2006 through June 30, 2010 Entry age normal 7.60% 7.60% 3.00% 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. The long-term expected rate ofreturn 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: Asset Class Global equity Fixed income Real estate Private equity Absolute Return/Risk Mitigating Strategies Inflation sensitive Cash/liquidity Assumed Asset Allocation 47% 12% 13% 13% 9% 4% 2% Long-Term Expected Real Rate of Return 6.30% 0.30% 5.20% 9.30% 2.90% 3.80% -l.00% 56

139 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 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 ofretum (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 ofretum 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: Discount Rate 1 % decrease ( 6.60%) Current discount rate (7.60%) 1% increase (8.60%) Net Pension Liability $ 83,070,762 $ 57,719,072 $ 36,663,432 California Public Employees Retirement System (CaIPERS) 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: 57

140 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 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 3 1, 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 ofliving adjustments for each plan are applied as specified by the Public Employees' Retirement Law. The CalPERS provisions and benefits in effect at June 3 0, 2017, are summarized as follows: Hire date Benefit formula Benefit vesting schedule Benefit payments Retirement age Monthly benefits as a precentage of eligible compensation Required employee contribution rate Required employer contribution rate School Employer Pool (CalPERS) On or before On or after December 31, 2012 January 1, % at 55 2% at 62 5 years of service 5 years of service Monthly for life Monthly for life %- 2.5% 1.0%- 2.5% 7.00% 6.00% % % 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 I 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 $1,851,

141 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 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 $19,383,049. 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 l 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 $2,705,073. At June 30, 2017, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Pension contributions subsequent to measurement date Net change in proportionate share of net pension liability Difference between projected and actual earnings on pension plan investments Differences between expected and actual experience in the measurement of the total pension liability Changes of assumptions Total Deferred Outflows of Resources $ 1,851,761 1,394,478 3,007, ,657 $ 7,087,522 Deferred Inflows of Resources $ 428, ,345 $ 1,011,093 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 $ 421, , ,378, ,964 Total $ 3,007,626 59

142 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SALINAS CITY ELEMENTARY 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, 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: Year Ended June 30, Total Deferred Outflows/(lnflows) of Resources $ 332, , ,925 $ 1,217,042 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 Measurement date Experience study Actuarial cost method Discount rate Investment rate of return Consumer price inflation Wage growth June 30, 2015 June 30, 2016 July 1, 1997 through June 30, 2011 Entry age normal 7.65% 7.65% 2.75% Varies by entry age and service 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. 60

143 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 In determining the long-term expected rate ofreturn, 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: Asset Class Global equity Global debt securities Inflation assets Private equity Real estate Infrastructure and Forestland Liquidity Discount Rate Assumed Asset Allocation 51% 20% 6% 10% 10% 2% 1% Long-Term Expected Real Rate of Return 5.71% 2.43% 3.36% 6.95% 5.13% 5.09% -1.05% 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: Discount rate 1 % decrease (6.65%) Current discount rate (7.65%) 1 % increase (8.65%) Net Pension Liability $ 28,919,618 $ 19,383,049 $ 11,441,980 61

144 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Social Security As established by Federal law, all public sector employees who are not members of their employer's existing retirement system (CalSTRS or CalPERS) must be covered by Social Security or an alternative plan. The District has elected to contribute to Social Security. Contributions made by the District and an employee vest immediately. The District contributes 6.2 percent of an employee's gross earnings. An employee is required to contribute 6.2 percent of his or her gross earnings to Social Security. 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 $2, 700, 772 (8.828 percent of annual payroll). Contributions are no longer appropriated in the annual Budget Act for the legislatively mandated benefits to CalPERS. Therefore, there is no on behalf contribution rate for CalPERS. Under accounting principles generally accepted in the United States of America, these amounts are to be reported as revenues and expenditures. Accordingly, these amounts have been recorded in these financial statements. NOTE 15 - COMMITMENTS AND CONTINGENCIES Grants The District received financial assistance from Federal and State agencies in the form of grants. The disbursement of funds received under these programs generally requires compliance with terms and conditions specified in the grant agreements and are subject to audit by the grantor agencies. Any disallowed claims resulting from such audits could become a liability of the General Fund or other applicable funds. However, in the opinion of management, any such disallowed claims will not have a material adverse effect on the overall financial position of the District at June 30, Litigation The District is involved in various litigation arising from the normal course of business. In the opinion of management and legal counsel, the disposition of all litigation pending is not expected to have a material adverse effect on the overall financial position of the District at June 30,

145 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 NOTE 16- PARTICIPATION IN JOINT POWERS AUTHORITIES The District is a member of the Monterey Educational Risk Management Authority (MERMA), the Monterey County Schools Insurance Group (MCSIG), and the Monterey and San Benito Counties Liability/Property Joint Powers Authority (MSBCLP)joint powers authorities (JPAs). The District pays an annual premium to the applicable entity for its workers' compensation, health and welfare, and property liability coverage. The relationships between the District and the JP As 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 appointed no board members to the governing board ofmerma. During the year ended June 30, 2017, the District made payments of$1,244,424 to MERMA for workers' compensation coverage. The District has appointed no board members to the governing board ofmcsig. During the year ended June 30, 2017, the District made payments of $19,332,503 to MCSIG for health and welfare coverage. The District has appointed no board members to the governing board ofmsbclp. During the year ended June 30, 2017, the District made payments of $508,987 to MSBCLP for property and liability coverage. 63

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149 SALINAS CITY ELEMENTARY 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 $ 77,582,452 $ 83,227,386 $ 83,438,823 $ 211,437 Federal sources 7,264,419 7,396,407 6, 197,047 (1, 199,360) Other State sources 13,003,123 8,753,057 9,558, ,759 Other local sources 4,483,012 4,525,760 5,867,392 1,341,632 Total Revenues 102,333, ,902, ,062,078 1,159,468 EXPENDITURES Current Certificated salaries 38,322, ,822,656 38,554, ,709 Classified salaries 10,711,169 12,248,748 12,042, ,657 Employee benefits 22,527,438 27,389,989 26,778, ,453 Books and supplies 5,643,155 7,060,969 5,622,598 1,438,371 Services and operating expenditures 15,677,970 12,392,618 10,275,764 2,116,854 Capital outlay 433,940 1,156,052 2,007,004 (850,952) Other outgo 7,080,900 6,640,242 6,488, ,939 Debt service - interest 800,760 43,683 43,683 Total Expenditures 101,197, , 754, ,769,243 3,985,714 Excess (Deficiency) of Revenues Over Expenditures 1,135,562 (1,852,347) 3,292,835 5,145,182 Other Financing Sources/(Uses) Other sources 233, ,776 Transfers out ( 1,050,000) Net Financing Sources/(Uses) (1,050,000) 233, ,776 NET CHANGE IN FUND BALANCES 85,562 (1,852,347) 3,526,611 5,378,958 Fund Balance - Beginning 9,385,253 9,385,253 9,385,253 Fund Balance - Ending $ 9,470,815 $ 7,532,906 $ 12,911,864 $ 5,378,958 See accompanying note to required supplementary information. 65

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151 SALINAS CITY ELEMENTARY SCHOOL DISTRICT SCHEDULE OF OTHER POSTEMPLOYMENT BENEFITS (OPEB) FUNDING PROGRESS FOR THE YEAR ENDED JUNE 30, 2017 Actuarial Accrued Liability Unfunded Actuarial Actuarial (AAL)- AAL Funded Valuation Value of Entry Age (UAAL) Ratio Covered Date Assets (a) Normal (b) (b - a) (a I b) Payroll (c) June 1, 2015 $ $ 20,495,608 $ 20,495,608 0% $ 47,685,555 June 1, 2013 $ $ 16,148,232 $ 16,148,232 0% $ 38,550,643 February 1, 2011 $ $ 11, 157,319 $11,157,319 0% $ 38,309,934 UAALasa Percentage of Covered Payroll ([b - a] I c) 43% 42% 29% See accompanying note to required supplementary information. 66

152 SALINAS CITY ELEMENTARY 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) State's proportionate share of the net pension liability (asset) associated with the District Total % $ 57,719,072 32,858,438 $ 90,577, % $ 45,668,903 24,153,815 $ 69,822,718 District's covered - employee payroll 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 $ 35,874, % 70% $ 31,705, % 74% CalPERS District's proportion of the net pension liability (asset) District's proportionate share of the net pension liability (asset) District's covered - employee payroll 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 % $ 19,383,049 $ 11,810, % 74% % $ 14,093,540 $ 10,580, % 79% Note : In the future, as data become available, ten years of information will be presented. See accompanying note to required supplementary information. 67

153 % $ 37,857,550 22,860,023 $ 60,717,573 $ 28,219, % 77% % $ 9,163,762 $ 8,194, % 83% 67

154 SALINAS CITY ELEMENTARY SCHOOL DISTRICT SCHEDULE OF DISTRICT CONTRIBUTIONS FOR THE YEAR ENDED JUNE 30, 2017 ~~~~~~ ~~~~~~~~~~~~~~~ CaISTRS Contractually required contribution Contributions in relation to the contractually required contribution Contribution deficiency (excess) $ 4,642,146 4,642,146 $ $ 3,849,349 3,849,349 $ District's covered - employee payroll $ 36,901,002 $ 35,874,641 Contributions as a percentage of covered - employee payroll 12.58% 10.73% CalPERS Contractually required contribution Contributions in relation to the contractually required contribution Contribution deficiency (excess) $ 1,851,761 1,851,761 $ $ 1,399,239 1,399,239 $ District's covered - employee payroll $ 13,333,533 $ 11,810,914 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. 68

155 2015 $ 2,815,454 2,815,454 $ $ 31,705, % $ 1,245,456 1,245,456 $ $ 10,580, % 68

156 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NOTE TO REQUIRED SUPPLEMENTARY INFORMATION JUNE 30, 2017 NOTE 1 - PURPOSE OF SCHEDULES Budgetary Comparison Schedule This schedule presents 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. 69

157 SUPPLEMENTARY INFORMATION 70

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159 SALINAS CITY ELEMENTARY SCHOOL DISTRICT SCHEDULE OF EXPENDITURES OF FEDERAL A WARDS FOR THE YEAR ENDED JUNE 30, 2017 Federal Grantor/Pass-Through Grantor/Program or Cluster Title U.S. DEPARTMENT OF EDUCATION Passed Through California Department of Education (COE): Title I, Part A - Basic Title I, Part C - Migrant Education, Regular Title I, Part C - Migrant Education, Summer Title I, Part C - Migrant Education, Even Start Title II, Part A - Supporting Effective Instruction Title II, Part B - Ca. Mathematics and Science Title III, English Language Acquisition - LEP Special Education, Basic Local Assistance Entitlement Total U.S. Department of Education U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES Passed Through California Department of Health Care Services: Medi-Cal Billing Option U.S. DEPARTMENT OF AGRICULTURE Passed Through California Department of Education: Child Nutrition Cluster National School Lunch Program Basic Breakfast Especially Needy Breakfast Summer Food Program Food Distribution - Commodities Subtotal - Child Nutrition Cluster Child and Adult Care Food Program Child Nutrition, Fresh Fruit and Vegetable Program Total U.S. Department of Agriculture Total Expenditures of Federal Awards Federal CFDA Number Pass-Through Entity Identifying Number Federal Expenditures $ 2,105, ,050, , , , , , ,270,569 6,053, , ,278, , , , ,361 4,049, , ,972 4,773,933 $ 10,970,980 See accompanying note to supplementary information. 71

160 SALINAS CITY ELEMENTARY SCHOOL DISTRICT LOCAL EDUCATION AGENCY ORGANIZATION STRUCTURE JUNE 30, 2017 ORGANIZATION ~~~~~~~--~~~~~~~~~~~~~~~~~~~~~~~- The Salinas City Elementary School District was established 1957 and consists of an area comprising approximately fourteen square miles located in Monterey County. The District operates fourteen Transitional Kindergarten through Sixth grade elementary schools. There were no boundary changes during the year. GOVERNING BOARD MEMBER Stephen Kim Roberto Garcia Robert Foster Hoffman Amy Ish Francisco Estrada OFFICE President Vice President Clerk Member Member TERM EXPIRES ADMINISTRATION Martha L. Martinez Gerald Stratton Lori Sanders Beatriz Chaidez Superintendent Assistant Superintendent, Business Services Assistant Superintendent, Educational Services Assistant Superintendent, Human Resources See accompanying note to supplementary infonnation. 72

161 SALINAS CITY ELEMENTARY SCHOOL DISTRICT SCHEDULE OF AVERAGE DAILY ATTENDANCE FOR THE YEAR ENDED JUNE 30, 2017 Regular ADA Transitional kindergarten through third Fourth through sixth Total Regular ADA Special Education, Nonpublic, Nonsectarian Schools Transitional kindergarten through third Fourth through sixth Total Special Education, Nonpublic, Nonsectarian Schools Extended Year Special Education, Nonpublic, Nonsectarian Schools Fourth through sixth Total ADA Second Period Report 4, , , , Annual Report 4, , , , See accompanying note to supplementary information. 73

162 SALINAS CITY ELEMENTARY SCHOOL DISTRICT SCHEDULE OF INSTRUCTIONAL TIME FOR THE YEAR ENDED JUNE 30, 2017 Grade Level Kindergarten Grades 1-3 Grade 1 Grade 2 Grade 3 Grades 4-6 Grade 4 Grade 5 Grade Minutes Requirement 36,000 50,400 54, Actual Minutes 36,000 50,805 50,805 51,060 54,660 54,660 54,660 Number of Days Traditional Multitrack Calendar Calendar 180 NIA 180 NIA 180 NIA 180 NIA 180 NIA 180 NIA 180 NIA Status Complied Complied Complied Complied Complied Complied Complied See accompanying note to supplementary information. 74

163 SALINAS CITY ELEMENTARY SCHOOL DISTRICT RECONCILIATION OF ANNUAL FINANCIAL AND BUDGET REPORT WITH AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2017 There were no adjustments to the Unaudited Actual Financial Report which required reconciliation to the audited financial statements at June 30, See accompanying note to supplementary information. 75

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165 ~~~~~~~~~~~~~~~~~~~~~~~ SALINAS CITY ELEMENTARY SCHOOL DISTRICT SCHEDULE OF FINANCIAL TRENDS AND ANALYSIS FOR THE YEAR ENDED JUNE 30, 2017 (Budget) GENERAL FUND Revenues and transfers in $ 104, 722,894 $ 105,295,854 $ 102,828,272 $ 83,982,669 Expenditures 106,444, , 769, ,211,118 83,907,863 Other uses and transfers out 1,050,000 Total Expenditures and Other Uses 106,444, ,769, ,261,118 83,907,863 INCREASE/(DECREASE) IN FUND BALANCE $ (1, 721,865) $ 3,526,611 $ 1,567,154 $ 74,806 ENDING FUND BALANCE $ 11,189,999 $ 12,911,864 $ 9,385,253 $ 7,818,099 AVAILABLE RESERVES 2 $ 3,193,343 $ 3,245,970 $ 3,343,559 $ 2,597,237 AVAILABLE RESERVES AS A PERCENTAGE OF TOTAL OUTGO 3.0% 3.2% 3.3% 3.1% LONG-TERM OBLIGATIONS Not Available $ 47,979,888 $ 47,010,357. $ 46,006,895 AVERAGE DAILY ATTENDANCE AT P-2 8,583 8,593 8,685 8,678 The General Fund balance has increased by $5,093,765 over the past two years. The fiscal year budget projects a decrease of $1, 721,865 (13.3 percent). For a district this size, the State recommends available reserves of at least 3.0 percent of total General Fund expenditures, transfers out, and other uses (total outgo). The District has incurred operating surpluses in each of the past three years but anticipates incurring an operating deficit during the fiscal year. Total long-term obligations have increased by $1,972,993 over the past two years. Average daily attendance has decreased by 85 over the past two years. Additional decline of ten 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 all unassigned fund balances including all amounts reserved for economic uncertainties contained with the General Fund. See accompanying note to supplementary information. 76

166 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NON-MAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, Child Development Fund ASSETS Deposits and investments $ Receivables 527,106 Stores inventories Total Assets $ 527,106 Cafeteria Fund Deferred Maintenance Fund $ 500 $ ,607 44,666 $ 758,773 $ 158 LIABILITIES AND FUND BALANCES Liabilities: Overdrafts $ 283,443 Accounts payable 41,350 Due to other funds 24,395 Total Liabilities 349,188 Fund Balances: Nonspendable Restricted 177,918 Committed Assigned Total Fund Balances 177,918 Total Liabilities and Fund Balances $ 527,106 $ 4,477 $ 75, , ,656 44, , , $ 758,773 $ 158 See accompanying note to supplementary information. 77

167 Bond Capital County School Special Reserve Interest and Building Facilities Facilities Capital Outlay Redemption Fund Fund Fund Fund Fund $ 74,639 $ 115,674 $ 30,376 $ 5 $ 1, 162, $ 74,862 $ 116,025 $ 30,467 $ 5 $ 1, 162,441 $ $ $ $ $ 74, ,025 30,467 1,162, , ,025 30, ,162,441 $ 74,862 $ 116,025 $ 30,467 $ 5 $ 1, 162,441 77

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169 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NON-MAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET, Continued JUNE 30, 2017 Total Non-Major Debt Service Governmental Fund Funds ASSETS Deposits and investments $ 753,391 $ 2, 137,184 Receivables 2,253 1,243,631 Stores inventories 44,666 Total Assets $ 755,644 $ 3,425,481 LIABILITIES AND FUND BALANCES Liabilities: Overdrafts $ $ 287,920 Accounts payable 117,065 Due to other funds 200,859 Total Liabilities 605,844 Fund Balances: Nonspendable 44,666 Restricted 755,644 2,774,808 Committed 158 Assigned 5 Total Fund Balances 755,644 2,819,637 Total Liabilities and Fund Balances $ 755,644 $ 3,425,481 See accompanying note to supplementary information. 78

170 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NON-MAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2017 Child Development Cafeteria Fund Fund REVENUES Federal sources $ $ 4,628,572 Other State sources 1,373, ,345 Other local sources 493, ,771 Total Revenues 1,866,950 5,413,688 EXPENDITURES Current Instruction 1,162,806 Instruction-related activities: Supervision of instruction 170 School site administration 24,172 Pupil services: Food services 5,484,865 All other pupil services 148,245 Administration: All other administration 53, ,352 Plant services Enterprise services 381,796 Debt service Principal 10,500 Interest and other Total Expenditures 1,781,443 5,701,217 NET CHANGE IN FUND BALANCES 85,507 (287,529) Fund Balance - Beginning 92, ,646 Fund Balance - Ending $ 177,918 $ 502,117 $ Deferred Maintenance Fund 158 $ 158 See accompanying note to supplementary information. 79

171 Building Fund Capital Facilities Fund County School Facilities Fund Special Reserve Capital Outlay Fund Bond Interest and Redemption Fund $ $ ,748 67,748 $ $ $ 14,857 2,113,029 2,127,886 1,998 33, ,864 $ 74,862 $ 35, ,570 83, , ,063 $ 30, ,000 1,354,235 1,779, , ,790 $ 5 $ 1, 162,441 79

172 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NON-MAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2017 Total Debt Non-Major Service Governmental Fund Funds REVENUES Federal sources $ 577,755 $ 5,206,327 Other State sources 1,712,643 Other local sources 335,306 3,471,765 Total Revenues 913,061 10,390,735 EXPENDITURES Current Instruction 1, 162,806 Instruction-related activities: Supervision of instruction 170 School site administration 24,172 Pupil services: Food services 5,484,865 All other pupil services 148,245 Administration: All other administration 272,104 Plant services 33, 180 Enterprise services 381,796 Debt service Principal 260, ,788 Interest and other 830,885 2,185,120 Total Expenditures 1,091,173 10,388,246 NET CHANGE IN FUND BALANCES (178, 112) 2,489 Fund Balance - Beginning 933,756 2,817,148 Fund Balance - Ending $ 755,644 $ 2,819,637 See accompanying note to supplementary information. 80

173 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NOTE TO SUPPLEMENT ARY 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. The following schedule provides reconciliation between revenues reported on the Statement of Revenues, Expenditures, and Changes in Fund Balances, and the related expenditures reported on the Schedule of Expenditures of Federal Awards. The reconciling amounts consist of federal commodities received by the District that are not included as revenues or expenditures on the District's financial statements and the federal interest subsidy received. Total Federal Revenues From the Statement of Revenues, Expenditures, and Changes in Fund Balances: Reconciling items: Food Distribution - Commodities Federal interest subsidy Total Schedule of Expenditures of Federal Awards CFDA Number Unknown Amount $ 11,403, ,361 (577,755) $ I 0,970,980 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

174 SALINAS CITY ELEMENTARY SCHOOL DISTRICT NOTE TO SUPPLEMENTARY INFORMATION JUNE 30, 2017 Districts must maintain their instructional minutes at the requirements as required by Education Code Section 4620 I. Reconciliation of Annual Financial and Budget Report With Audited Financial Statements This schedule provides the information necessary to reconcile the fund balance of all funds reported on the Unaudited Actual Financial Report to the audited financial statements. Schedule of Financial Trends and Analysis This schedule discloses the District's financial trends by displaying past years' data along with current year budget information. These financial trend disclosures are used to evaluate the District's ability to continue as a going concern for a reasonable period of time. Non-Major Governmental Funds - Balance Sheet and Statement of Revenues, Expenditures, and Changes in Fund Balances The Non-Major Governmental Funds Combining Balance Sheet and Combining Statement of Revenues, Expenditures, and Changes in Fund Balances is included to provide information regarding the individual funds that have been included in the Non-Major Governmental Funds column on the Governmental Funds Balance Sheet and Statement of Revenues, Expenditures, and Changes in Fund Balances. 82

175 INDEPENDENT AUDITOR'S.REPORTS 83

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177 VAVRINEK, TRINE, DAY~ CO., LLP Certified Public Accountants VALUE THE~ 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 Salinas City Elementary School District Salinas, 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 Salinas City Elementary School District as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise Salinas City Elementary 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 Salinas City Elementary School District's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Salinas City Elementary School District's internal control. Accordingly, we do not express an opinion on the effectiveness of Salinas City Elementary School District's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the District's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. 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 N. Fresno St., Suite l 01, Fresno, CA 9371 O P F W vtdcpa.com

178 Compliance and Other Matters As part of obtaining reasonable assurance about whether Salinas City Elementary School District's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. We noted certain matters that we reported to management of Salinas City Elementary 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,

179 VAVRINEK, TRINE, DAY~ CO., LLP Certified Public Accountants VALUE THE~ INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDAt~CE Governing Board Salinas City Elementary School District Salinas, California Report on Compliance for Each Major Federal Program We have audited Salinas City Elementary 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 Salinas City Elementary School District's major Federal programs for the year ended June 30, Salinas City Elementary School District's major Federal programs are identified in the summary of auditor's results section of the accompanying Schedule of Findings and Questioned Costs. Management's Responsibility Management is responsible for compliance with the 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 Salinas City Elementary School District's major Federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and 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 Salinas City Elementary School District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major Federal program. However, our audit does not provide a legal determination of Salinas City Elementary School District's compliance N. Fresno St., Suite 101, Fresno, CA P F W vtdcpa.com

180 Opinion on Each Major Federal Program In our opinion, Salinas City Elementary School District complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major Federal programs for the year ended June 30, Report on Internal Control Over Compliance Management of Salinas City Elementary School District is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered Salinas City Elementary School District's internal control over compliance with the types of requirements that could have a direct and material effect on each major Federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major Federal program and to test and report on internal control over compliance in accordance with 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 Salinas City Elementary School District's internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a Federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or 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,

181 VAVRINEK, TRINE, DAV lit CO., LLP Certified Public Accountants VALUE THE~ INDEPENDENT AUDITOR'S REPORT ON STATE COl\fl>LIANCE Governing Board Salinas City Elementary School District Salinas, California Report on State Compliance We have audited Salinas City Elementary 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 Salinas City Elementary School District's State government programs as noted below for the year ended June 30, Management's Responsibility Management is responsible for compliance with the requirements of 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 Salinas City Elementary School District's State programs based on our audit of the types of compliance requirements referred to above. We conducted our audit in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the 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 Salinas City Elementary School District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions. Our audit does not provide a legal determination of Salinas City Elementary School District's compliance with those requirements. Basis for Qualified Opinion on Classroom Teacher Salaries As described in the accompanying Schedule of Findings and Questioned Costs as item 20 I 7-00 I, Salinas City Elementary School District did not comply with requirements regarding Classroom Teacher Salaries. Compliance with such requirements is necessary, in our opinion, for Salinas City Elementary School District to comply with the requirements applicable to that program N. Fresno St. Suite 101, Fresno, CA 9371 O P F W vtdcpa.com

182 Qualified Opinion on Classroom Teacher Salaries In our opinion, except for the noncompliance described in the Basis for Qualified Opinion paragraph, Salinas City Elementary School District complied, in all material respects, with the types of compliance requirements referred to above for the year ended June 30, Unmodified Opinion on Each of the Other Programs In our opinion, Salinas City Elementary School District complied, in all material respects, with the compliance requirements referred to above that are applicable to the government programs noted below that were audited for the year ended June 30, 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 Salinas City Elementary School District's compliance with the State laws and regulations applicable to the following items: LOCAL EDUCATION AGENCIES OTHER THAN CHARTER SCHOOLS Attendance Teacher Certification and Misassignments Kindergarten Continuance Independent Study Continuation Education Instructional Time Instructional Materials Ratios of Administrative Employees to Teachers Classroom Teacher Salaries Early Retirement Incentive Gann Limit Calculation School Accountability Report Card Juvenile Court Schools Middle or Early College High Schools K-3 Grade Span Adjustment Transportation Maintenance of Effort Mental Health Expenditures 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 Procedures Performed Yes Yes Yes No (see below) No (see below) Yes Yes Yes Yes No (see below) Yes Yes No (see below) No (see below) Yes Yes Yes Yes Yes Yes Yes No (see below) Yes Yes Yes No (see below) No (see below) 89

183 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 Procedures Performed 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 because the independent study ADA was under the level that requires testing. We did not perform procedures for Continuation Education because the District does not have the program. The District did not have any employees retire under the Ca!STRS 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. 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. The District did not have any schools listed on the immunization assessment reports; therefore, we did not perform any related procedures. Additionally, the District does not operate any Charter Schools; therefore, we did not perform procedures for Charter School Programs. Fresno, California November 22,

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185 SCHEDULE OF FINDINGS AND QUESTIONED COSTS 91

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187 SALINAS CITY ELEMENTARY SCHOOL DISTRICT SUMMARY OF AUDITOR'S RESULTS FOR THE YEAR ENDED JUNE 30, 2017 FL"f ANCIAL 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 AW ARDS 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 Dollar threshold used to distinguish between Type A and Type B programs: Auditee qualified as low-risk auditee? STATE AWARDS Type of auditor's report issued on compliance for programs: Unmodified for all programs except for the following program which was qualified: $ 750,000 Yes Unmodified Name of Program Classroom Teachers Salaries 92

188 SALINAS CITY ELEMENTARY SCHOOL DISTRICT FEDERAL A WARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2017 None reported. 94

189 SALINAS CITY ELEMENTARY SCHOOL DISTRICT STATE AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2017 ~~--~~~~~~~~~~~~~~~~~~~ The following finding represents an instance of noncompliance and questioned costs relating to State program laws and regulations. The finding has been coded as follows: Five Digit Code AB 3627 Finding Type Classroom Teacher Salaries Classroom Teacher Salaries Criteria Education Code Section requires that the payment of classroom teacher salaries and benefits meet or exceed 60 percent (for elementary districts) of total expenditures of the District. Condition The District spent percent of their current expense of education ($49,228,411) on classroom teacher salaries and benefits which was below their 60 percent requirement. Questioned Costs The deficiency was calculated to be $2,328,857 (2.71 percent). Effect The deficiency amount was determined to be $2,328,857; therefore, the District is out of compliance with Education Code Section Cause Based on the adopted Local Control Accountability Plan, the District has spent more of it's funding on instructional materials, classified support staff and technology to enhance students learning and success. Recommendation We recommend the District continue to work on this requirement and monitor the status of the waiver request they submitted to the Monterey County Office of Education upon discovery of the noncompliance. Corrective Action Plan We will monitor the status of the waiver we submitted to the Monterey County Office of Education immediately after reviewing the Form CEA upon adoption of the year-end SACS reporting documents and noting the shortage of minimum classroom compensation. 95

190 SALINAS CITY ELEMENTARY 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 Classroom Teacher Salaries Criteria Education Code Section requires that the payment of classroom teacher salaries and benefits meet or exceed 60 percent (for elementary districts) of total expenditures of the District. Condition The District spent percent of their current expense of education ($4 7,034, 711) on classroom teacher salaries and benefits which was below their 60 percent requirement. Questioned Costs The deficiency was calculated to be $2,250,835 (2.74 percent). Effect The deficiency amount was determined to be $2,250,835; therefore, the District is out of compliance with Education Code Section Cause Based on the adopted Local Control Accountability Plan, the District has spent more of it's funding on instructional materials, classified support staff and technology to enhance students learning and success. Recommendation We recommend the District continue to work on this requirement and monitor the status of the waiver request they submitted to the Monterey County Office of Education upon discovery of the noncompliance. Current Status Implemented. The District obtained a waiver for the fiscal year. 96

191 Governing Board Salinas City Elementary School District Salinas, California In planning and performing our audit of the financial statements of Salinas City Elementary 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. CENTRALIZED ASSOCIATED STUDENT BODY (ASB) Cash Receipts Observation During the audit of the cash receipts system, we discovered teachers are not consistently using sub-receipt books or a class roster to document when money is being turned in, how much money, and by which students. Without this supporting documentation we cannot determine if deposits are intact or if the teachers are forwarding money to the ASB bookkeeper in a timely manner. Since there are no sub-receipts attached to the monies turned in, the bookkeeper cannot reconcile the money back to any documentation to determine the accuracy of the cash count sheet and the actual money turned in. Recommendation The site should maintain sub-receipt books in addition to the ASB's primary receipt book. These sub-receipt books would be given to teachers when they are conducting fundraising activities. A system should be established to track the receipts sequences of the sub-receipt books and to whom the books were given to. For certain events, as class roster may be sufficient in place of using a sub-receipt book. Prenumbered receipts should be issued, or a classroom roster should be completed, for all cash collections by teachers which should include a specific description of the source of the funds. A carbon of the receipts issued, or a copy of the completed roster by the teachers and advisors should be forwarded with the cash to the bookkeeper as documentation that all monies collected have been turned in. 97

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193 Governing Board Salinas City Elementary School District Ticket Sales Recap Form Observation A Ticket Sales Recap Form is not used at the events to reconcile the number of tickets issued to the total cash amount received. Recommendation A Ticket Sales Recap Form should be used in conjunction with the Master Ticket Log and should be used by the individuals issuing tickets and collecting funds at the events. The beginning and ending ticket numbers should be noted on the Ticket Recap Form after the event and reconciled to the funds received prior to making the deposit with the bookkeeper. When the Ticket Sales Recap Form is received by the bookkeeper, the ending ticket number should be recorded in the Master Ticket Log and the sales recap form should be verified against the deposit. We will review the status of the current year comments during our next audit engagement. Fresno, California November 22,

194 l School District VAVRINEK. TRINE, DAY & CO., LLP Parentf;/HJ1;.ed Public Accountants VALUE THE~ Observation We noted that there are Parent Club (PTO) activities being run through the Associated Student Body accounts which is prohibited since the organization is not made up of students as outlined in the California Education Code. Associated Student Bodies are an integral part of the District and exist under the federal tax identification number of the District, while booster or parents clubs do not. Per the Internal Revenue Code regulations, they are separate entities much like a business and must apply for their own non-profit status and obtain their own tax identification number. In addition, the non-profit status must be obtained before the group can accept tax deductible donations. Recommendation The activity of the Parent Club must not be commingled with the Associated Student Body accounts; they should open their own checking account. Donations from the PTO are allowed as long as no monies are ever paid from the Student Body to the PTO. The PTO must apply for its own tax identification number and non-profit status as required by the Internal Revenue Code. BORONDA MEADOWS ELEMENTARY SCHOOL -ASSOCIATED STUDENT BODY (ASB) Cash Receipts Observation During the audit of the cash receipts system, we discovered teachers are not consistently using sub-receipt books or a class roster to document when money is being turned in, how much money, and by which students. Without this supporting documentation we cannot determine if deposits are intact or if the teachers are forwarding money to the ASB bookkeeper in a timely manner. Since there are no sub-receipts attached to the monies turned in, the bookkeeper cannot reconcile the money back to any documentation to determine the accuracy of the cash count sheet and the actual money turned in. Recommendation The site should maintain subreceipt books in addition to the ASB's primary receipt book. These sub-receipt books would be given to individuals when they are conducting fundraising activities. A system should be established to track the receipts sequences of the sub-receipt books and to whom the books were given to. For certain events, a class roster or tally sheet may be sufficient in place of using a sub-receipt book. Pren umbered receipts should be issued, or a classroom roster should be completed, for all cash collections by teachers which should include a specific description of the source of the funds. A carbon of the receipts issued, or a copy of the completed roster by the teachers and advisors should be forwarded with the cash to the bookkeeper as documentation that all monies collected have been turned in N. Fresno St.. Suite l 01, Fresno, CA 9371 O P F W vtdcpa.com

195 APPENDIX D FORM OF CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement (this Disclosure Agreement ) is executed and delivered by the Salinas City Elementary School District (the District ) in connection with the execution and delivery of its 2018 General Obligation Refunding Bonds, Series A (the Series A Bonds ) and its General Obligation Bonds 2008 Election, Series C (the Series C Bonds and, together with the Series A, the Bonds ). Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the resolution adopted by the Board of Education of the District on December 11, 2017 (the Refunding Resolution ) or the resolution adopted by the Board of Education of the District on January 8, 2018 (the New Money Resolution, and together with the Refunding Resolution, the Resolutions ). In consideration of the execution and delivery of the Bonds by the District and the purchase of such Bonds by the Underwriters described below, the District hereby covenants and agrees as follows: SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the District for the benefit of the Bondholders and in order to assist Piper Jaffray & Co. and Newcomb Williams Financial Group, Securities offered through Stinson Securities, LLC. (collectively, the Underwriters ), in complying with Rule 15c2-12(b)(5) (the Rule ) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. SECTION 2. Additional Definitions. In addition to the above definitions and the definitions set forth in the Resolutions, 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 4 and 5 of this Disclosure Agreement. Bondholder or Holder means any holder of the Bonds or any beneficial owner of the Bonds so long as they are immobilized with DTC. Commission means the Securities and Exchange Commission. Designated Material Event means any of the events listed in Section 6(a) of this Disclosure Agreement. Dissemination Agent shall mean any Dissemination Agent, or any alternate or successor Dissemination Agent, designated in writing by the Superintendent (or otherwise by the District), which Agent has evidenced its acceptance in writing. Initially, and in the absence of the specific designation of a successor or alternate Dissemination Agent, the Dissemination Agent shall be Willdan Financial Services. Listed Event means any of the events listed in Section 6 of this Disclosure Agreement. Material Events Disclosure means dissemination of a notice of a Material Event as set forth in Section 6. MSRB shall mean the Municipal Securities Rulemaking Board, through its Electronic Municipal Market Access ( EMMA ) website located at or any other entity designated or authorized by the Commission. SECTION 3. CUSIP Numbers and Final Official Statement. The CUSIP Numbers for the Bonds have been assigned. The Final Official Statement relating to the Bonds is dated March, 2018 ( Final Official Statement ). D-1

196 SECTION 4. Provision of Annual Reports. (a) The District shall cause the Dissemination Agent, not later than 240 days after the end of the District s fiscal year (currently ending June 30), commencing with the report for the fiscal year ending June 30, 2018, to provide to the MSRB, in a format prescribed by the MSRB, an Annual Report that is consistent with the requirements of Section 5 of this Disclosure Agreement. As of the date of this Disclosure Agreement, the format prescribed by the MSRB is the Electronic Municipal Market Access system. Information regarding requirement for submissions to EMMA is available at The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 5 of this Disclosure Agreement; provided that the audited financial statements of the District may be submitted, when and if available, separately from the balance of the relevant Annual Report. If the District does not have audited financial statements available when it submits the relevant Annual Report, it shall submit unaudited financial statements, as described in Section 5(a) below. (b) Not later than 15 Business Days prior to the filing date required in paragraph (a) above for providing the Annual Report to the MSRB, 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 paragraph (a) above, the District shall send a notice in a timely manner to the MSRB in substantially the form attached as Exhibit A. (c) The Dissemination Agent (if other than the District) shall: (i) determine each year prior to the date for providing the Annual Report the format for filing with the MSRB; and (ii) file a report with the District certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided to the MSRB. SECTION 5. Content of Annual Report. The District s Annual Report shall contain or incorporate by reference the following: (a) Financial information including the general purpose financial statements of the District for the preceding Fiscal Year, prepared in conformity with generally accepted accounting principles as prescribed by the Governmental Accounting Standards Board and the American Institute of Certified Public Accountants. If audited financial information is not available by the time the Annual Report is required to be filed pursuant to Section 4(a) hereof, the financial information included in the Annual Report may be unaudited, and the District will provide audited financial information to the MSRB as soon as practical after it has been made available to the District. (b) Operating data, including the following information with respect to the District s preceding Fiscal Year (to the extent not included in the audited financial statements described in paragraph (a) above): (i) (ii) (iii) (iv) reasonably available; State funding received by the District for the last completed fiscal year; Outstanding indebtedness and lease obligations; the District s adopted budget for the current fiscal year; Enrollment and revenue limit information, or equivalent information, as may be D-2

197 fiscal year; (v) Total assessed valuation of taxable property within the District, for the current (vi) Current year secured ad valorem tax charges and delinquencies for levies within the District s boundaries or, if not available at the time of filing of the Annual Report, for the prior fiscal year; and. (vii) Top twenty largest local secured taxpayers. (c) Any or all of the items listed above may be incorporated by reference from other documents, including official statements of debt issues of the District or related public entities, which have been submitted to the MSRB or to the Commission. If the document incorporated by reference is a final official statement, it must be available from the MSRB. The District shall clearly identify each other document so incorporated by reference. SECTION 6. Reporting of Designated Material Events. (a) The District agrees to provide or cause to be provided to the MSRB notice of the occurrence of any of the following events with respect to the Bonds in a timely manner not in excess of ten (10) Business Days after the occurrence of the event: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) Principal and interest payment delinquencies; Unscheduled draws on any debt service reserves reflecting financial difficulties; Unscheduled draws on any credit enhancements reflecting financial difficulties; Substitution of credit or liquidity providers, or their failure to perform; Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability or of a Notice of Proposed Issue (IRS Form 5701 TEB); Tender offers; Defeasances; Rating changes; or Bankruptcy, insolvency, receivership or similar event of the District. For purposes of item (ix) above, the described event shall be deemed to occur when any of the following shall occur: the appointment of a receiver, fiscal agent or similar officer for the District in a proceeding under the United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the District, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or other governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority have supervision or jurisdiction over substantially all of the assets or business of the District. D-3

198 (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, in a timely manner not in excess of ten (10) business days after the occurrence of the event: (i) Unless described in paragraph 6(a)(v) hereof, other material notices or determinations with respect to the tax status of the Bonds or other material events affecting the tax status of the Bonds; applicable; (ii) (iii) (iv) (v) Modifications to rights of Owners; Bond calls; Release, substitution or sale of property securing repayment of the Bonds, if 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) a Paying Agent. Appointment of a successor or additional Paying Agent or the change of name of (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) If the District determines that the occurrence of a Listed Event described in Section 6(b) hereof is material under applicable federal security laws, the District shall in a timely manner not in excess of ten (10) 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. SECTION 7. Termination of Reporting; Obligation. The District s obligations under this Disclosure Agreement shall terminate when the District is no longer an obligated person with respect to the Bonds, as provided in the Rule, upon the defeasance, prior redemption or payment in full of all of the Bonds. SECTION 8. Dissemination Agent. The Superintendent or Assistant Superintendent of Business Services may, from time to time, appoint or engage an alternate or successor Dissemination Agent to assist in carrying out the District s obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. If at any time there is no other designated Dissemination Agent in place, the District shall act as the Dissemination Agent. The Dissemination Agent, if other than the District, shall be paid compensation for its services provided hereunder, and reimbursement for its costs and expenses. The Dissemination Agent shall not be responsible for the form or content of any document provided by the District hereunder. SECTION 9. Amendment. Notwithstanding any other provision of this Disclosure Agreement, the District may amend this Disclosure Agreement under the following conditions provided no amendment to this Agreement shall be made that affects the rights, duties or obligations of the Dissemination Agent without its written consent: D-4

199 (a) The amendment may be made only 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 the obligated person, or type of business conducted; (b) This Disclosure Agreement, as amended, would have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) The amendment does not materially impair the interests of Holders, as determined either by parties unaffiliated with the District or another obligated person (such as the Bond Counsel) or by the written approval of the Bondholders; provided, that the Annual Report containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. SECTION 10. Additional Information. If the District chooses to include any information from any document or notice of occurrence of a Material Event in addition to that which is specifically required by this Disclosure Agreement, the District shall have no obligation under this Disclosure Agreement to update such information or to include it in any future disclosure or notice of occurrence of a Designated Material Event. Nothing in this Disclosure Agreement shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Designated Material Event, in addition to that which is required by this Disclosure Agreement. SECTION 11. Default. The District shall give notice to the MSRB of any failure to provide the Annual Report when the same is due hereunder, which notice shall be given prior to July 1 of that year. In the event of a failure of the District to comply with any provision of this Disclosure Agreement, any Bondholder 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 Agreement. A default under this Disclosure Agreement shall not be deemed an event of default under the Resolution, and the sole remedy under this Disclosure Agreement in the event of any failure of the District to comply with this Disclosure Agreement shall be an action to compel performance. SECTION 12. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the District, the Dissemination Agent, the Underwriters and Holders from time to time of the Bonds, and shall create no rights in any other person or entity. SECTION 13. Record Keeping. The District shall maintain records of all Annual Reports and notices of material Listed Events including the content of such disclosure, the names of the entities with whom the such disclosure were filed and the date of filing such disclosure. D-5

200 SECTION 14. Governing Law. This Disclosure Agreement shall be governed by the laws of the State, applicable to contracts made and performed in such State. Dated:, 2018 SALINAS CITY ELEMENTARY SCHOOL DISTRICT By: Superintendent ACCEPTED: WILLDAN FINANCIAL SERVICES, as Dissemination Agent By: Authorized Officer D-6

201 EXHIBIT A NOTICE TO THE MSRB OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Name of Issue: Salinas City Elementary School District $[ ] 2018 General Obligation Refunding Bonds, Series A or $[ ] General Obligation Bonds, 2008 Election, Series C Date of Issuance:, 2018 NOTICE IS HEREBY GIVEN that the above-named Issuer has not provided an Annual Report with respect to the above-named Bonds as required by Section 4(a) of the Continuing Disclosure Agreement dated, The Issuer anticipates that the Annual Report will be filed by. Dated: [ISSUER/DISSEMINATION AGENT] By: D-A-1

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203 APPENDIX E SPECIMEN MUNICIPAL BOND INSURANCE POLICY E-1

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205 MUNICIPAL BOND INSURANCE POLICY ISSUER: [NAME OF ISSUER] Policy No: MEMBER: [NAME OF MEMBER] BONDS: $ in aggregate principal amount of [NAME OF TRANSACTION] [and maturing on] Effective Date: Risk Premium: $ Member Surplus Contribution: $ Total Insurance Payment: $ BUILD AMERICA MUTUAL ASSURANCE COMPANY ( BAM ), for consideration received, hereby UNCONDITIONALLY AND IRREVOCABLY agrees to pay to the trustee (the Trustee ) or paying agent (the Paying Agent ) for the Bonds named above (as set forth in the documentation providing for the issuance and securing of the Bonds), for the benefit of the Owners or, at the election of BAM, directly to each Owner, subject only to the terms of this Policy (which includes each endorsement hereto), that portion of the principal of and interest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer. On the later of the day on which such principal and interest becomes Due for Payment or the first Business Day following the Business Day on which BAM shall have received Notice of Nonpayment, BAM will disburse (but without duplication in the case of duplicate claims for the same Nonpayment) to or for the benefit of each Owner of the Bonds, the face amount of principal of and interest on the Bonds that is then Due for Payment but is then unpaid by reason of Nonpayment by the Issuer, but only upon receipt by BAM, in a form reasonably satisfactory to it, of (a) evidence of the Owner s right to receive payment of such principal or interest then Due for Payment and (b) evidence, including any appropriate instruments of assignment, that all of the Owner s rights with respect to payment of such principal or interest that is Due for Payment shall thereupon vest in BAM. A Notice of Nonpayment will be deemed received on a given Business Day if it is received prior to 1:00 p.m. (New York time) on such Business Day; otherwise, it will be deemed received on the next Business Day. If any Notice of Nonpayment received by BAM is incomplete, it shall be deemed not to have been received by BAM for purposes of the preceding sentence, and BAM shall promptly so advise the Trustee, Paying Agent or Owner, as appropriate, any of whom may submit an amended Notice of Nonpayment. Upon disbursement under this Policy in respect of a Bond and to the extent of such payment, BAM shall become the owner of such Bond, any appurtenant coupon to such Bond and right to receipt of payment of principal of or interest on such Bond and shall be fully subrogated to the rights of the Owner, including the Owner s right to receive payments under such Bond. Payment by BAM either to the Trustee or Paying Agent for the benefit of the Owners, or directly to the Owners, on account of any Nonpayment shall discharge the obligation of BAM under this Policy with respect to said Nonpayment. Except to the extent expressly modified by an endorsement hereto, the following terms shall have the meanings specified for all purposes of this Policy. Business Day means any day other than (a) a Saturday or Sunday or (b) a day on which banking institutions in the State of New York or the Insurer s Fiscal Agent (as defined herein) are authorized or required by law or executive order to remain closed. Due for Payment means (a) when referring to the principal of a Bond, payable on the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity (unless BAM shall elect, in its sole discretion, to pay such principal due upon such acceleration together with any accrued interest to the date of acceleration) and (b) when referring to interest on a Bond, payable on the stated date for payment of interest. Nonpayment means, in respect of a Bond, the failure of the Issuer to have provided sufficient funds to the Trustee or, if there is no Trustee, to the Paying Agent for payment in full of all principal and interest that is Due for Payment on such Bond. Nonpayment shall also include, in respect of a Bond, any payment made to an Owner by or on behalf of the Issuer of principal or interest that is Due for Payment, which payment has been recovered from such Owner pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court having competent jurisdiction. Notice means delivery to BAM of a notice of claim and certificate, by certified mail, or telecopy as set forth on the attached Schedule or other acceptable electronic delivery, in a form satisfactory to BAM, from and signed by an Owner, the Trustee or the Paying Agent, which notice shall specify (a) the person or entity making the claim, (b) the Policy Number, (c) the claimed amount, (d) payment instructions and (e) the date such claimed amount becomes or became Due for Payment. Owner means, in respect of a Bond, the person or entity who, at the time of Nonpayment, is entitled under the terms of such Bond to payment thereof, except that Owner shall not include the Issuer, the Member or any other person or entity whose direct or indirect obligation constitutes the underlying security for the Bonds.

206 BAM may appoint a fiscal agent (the Insurer s Fiscal Agent ) for purposes of this Policy by giving written notice to the Trustee, the Paying Agent, the Member and the Issuer specifying the name and notice address of the Insurer s Fiscal Agent. From and after the date of receipt of such notice by the Trustee, the Paying Agent, the Member or the Issuer (a) copies of all notices required to be delivered to BAM pursuant to this Policy shall be simultaneously delivered to the Insurer s Fiscal Agent and to BAM and shall not be deemed received until received by both and (b) all payments required to be made by BAM under this Policy may be made directly by BAM or by the Insurer s Fiscal Agent on behalf of BAM. The Insurer s Fiscal Agent is the agent of BAM only, and the Insurer s Fiscal Agent shall in no event be liable to the Trustee, Paying Agent or any Owner for any act of the Insurer s Fiscal Agent or any failure of BAM to deposit or cause to be deposited sufficient funds to make payments due under this Policy. To the fullest extent permitted by applicable law, BAM agrees not to assert, and hereby waives, only for the benefit of each Owner, all rights (whether by counterclaim, setoff or otherwise) and defenses (including, without limitation, the defense of fraud), whether acquired by subrogation, assignment or otherwise, to the extent that such rights and defenses may be available to BAM to avoid payment of its obligations under this Policy in accordance with the express provisions of this Policy. This Policy may not be canceled or revoked. This Policy sets forth in full the undertaking of BAM and shall not be modified, altered or affected by any other agreement or instrument, including any modification or amendment thereto. Except to the extent expressly modified by an endorsement hereto, any premium paid in respect of this Policy is nonrefundable for any reason whatsoever, including payment, or provision being made for payment, of the Bonds prior to maturity. THIS POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW. THIS POLICY IS ISSUED WITHOUT CONTINGENT MUTUAL LIABILITY FOR ASSESSMENT. In witness whereof, BUILD AMERICA MUTUAL ASSURANCE COMPANY has caused this Policy to be executed on its behalf by its Authorized Officer. BUILD AMERICA MUTUAL ASSURANCE COMPANY By: Authorized Officer 2

207 Address: 1 World Financial Center, 27 th floor 200 Liberty Street New York, New York Telecopy: (attention: Claims) Notices (Unless Otherwise Specified by BAM) 3

208 CALIFORNIA ENDORSEMENT TO MUNICIPAL BOND INSURANCE POLICY NO. This Policy is not covered by the California Insurance Guaranty Association established pursuant to Article 15.2 of Chapter 1 of Part 2 of Division 1 of the California Law. Nothing herein shall be construed to waive, alter, reduce or amend coverage in any other section of the Policy. If found contrary to the Policy language, the terms of this Endorsement supersede the Policy language IN WITNESS WHEREOF, BUILDAMERICA MUTUAL ASSURANCE COMPANY has caused this policy to be executed on its behalf by its Authorized Officer. BUILD AMERICA MUTUAL ASSURANCE COMPANY By Authorized Officer

209 APPENDIX F BOOK-ENTRY ONLY SYSTEM The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that the District believes to be reliable, but the District takes no responsibility for the accuracy or completeness thereof. The District cannot and does not give any assurances that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Bonds, (b) Bonds representing ownership interest in or other confirmation or ownership interest in the Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Bonds, or that they will so do on a timely basis or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Official Statement. The current Rules applicable to DTC are on file with the Securities and Exchange Commission and the current Procedure of DTC to be followed in dealing with DTC Participants are on file with DTC. General The Depository Trust Company ( DTC ) will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fullyregistered Bond certificate will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.6 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation, and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ).DTC has a Standard & Poor s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at foregoing internet address is included for reference only, and the information on this internet site is not incorporated by reference herein. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC s records. The ownership interest of each actual purchaser of each Bond ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial F-1

210 Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the District (or the Paying Agent on behalf thereof) as soon as possible after the Record Date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the Record Date (identified in a listing attached to the Omnibus Proxy). Principal, premium, if any and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from the District or Paying Agent, on payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC, the Paying Agent, or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, premium, if any, and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the District or the Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the District or the Paying Agent. Under such circumstances, in the event that a successor depository is not obtained, certificates for the Bonds are required to be printed and delivered in F-2

211 such principal amount or amounts, in authorized denominations, and registered in whatever name or names DTC shall designate. The District may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository).discontinuance of use of the system of book-entry transfers through DTC may require the approval of DTC Participants under DTC s operational arrangements. In that event, printed certificates for the Bonds will be printed and delivered in such principal amount or amounts, in authorized denominations, and registered in whatever name or names DTC shall designate. The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that the District believes to be reliable, but the District takes no responsibility for the accuracy thereof. Discontinuation of Book-Entry Only System; Payment to Beneficial Owners In the event that the book-entry system described above is no longer used with respect to the Bonds, the following provisions will govern the payment, transfer and exchange of the Bonds. The principal or Maturity Value of the Bonds and any premium and interest upon the redemption thereof prior to maturity will be payable in lawful money of the United States of America upon presentation and surrender of the Bonds at the office of the Paying Agent, initially located in Los Angeles, California. Interest on the Bonds will be paid by the Paying Agent by check or draft mailed to the person whose name appears on the registration books of the Paying Agent as the registered owner, and to that person s address appearing on the registration books as of the close of business on the Record Date. At the written request of any registered owner of at least $1,000,000 in aggregate principal, payments shall be wired to a bank and account number on file with the Paying Agent as of the Record Date. Any Bond may be exchanged for a Bond of any authorized denomination of like tenor upon presentation and surrender at the office of the Paying Agent, initially located in Los Angeles, California, together with a request for exchange signed by the registered owner or by a person legally empowered to do so in a form satisfactory to the Paying Agent. A Bond may be transferred only on the Bond registration books upon presentation and surrender of the Bond at such office of the Paying Agent together with an assignment executed by the registered owner or by a person legally empowered to do so in a form satisfactory to the Paying Agent. Upon exchange or transfer, the Paying Agent shall complete, authenticate and deliver a new Bond or Bonds of any authorized denomination or denominations requested by the owner equal in the aggregate to the unmatured principal amount of the Bond surrendered and bearing interest at the same rate and maturing on the same date. Neither the District nor the Paying Agent will be required to exchange or transfer any Bond during the period from the Record Date through the next Interest Payment Date. F-3

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213 APPENDIX G THE COUNTY OF MONTEREY POOLED SURPLUS INVESTMENTS The following information concerning the County of Monterey Treasury Pool (the Treasury Pool ) has been provided by the Treasurer and has not been confirmed or verified by the District, the Municipal Advisor or the Underwriter. Neither the District, the Municipal Advisor nor the Underwriters have made an independent investigation of the investments in the Treasury Pool nor any assessment of the current County investment policy. The value of the various investments in the Treasury Pool 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 may change the investment policy at any time. Therefore, there can be no assurance that the values of the various investments in the Treasury Pool will not vary significantly from the values described herein. Finally, neither the District, the Municipal Advisor nor the Underwriters make any representation as to the accuracy or adequacy of such information or as to the absence of material adverse changes in such information subsequent to the date hereof, or that the information contained is correct as of any time subsequent to its date. Further information may be obtained from the Treasurer at the following website: However, the information presented on such website is not incorporated into this Official Statement by any reference. G-1

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215 MONTEREY COUNTY TREASURER S INVESTMENT POLICY FISCAL YEAR APPROVED BY THE BOARD OF SUPERVISORS JULY 25, 2017