OFFICIAL STATEMENT DATED MARCH 28, 2012

Transcription

1 OFFICIAL STATEMENT DATED MARCH 28, 2012 NEW ISSUE BOOK-ENTRY ONLY 2012A BONDS BANK QUALIFIED MOODY S RATINGS: Underlying: Aa3 Washington State School District Credit Enhancement Program: Aa1 See RATINGS herein and Appendix D attached hereto In the opinion of Koegen Edwards LLP, Bond Counsel to the District, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the 2012A Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended (the Code ). In the further opinion of Bond Counsel, interest on the 2012A Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, and Bond Counsel expresses no opinion on whether any portion of the interest on the 2012A Bonds is excluded from adjusted current earnings when calculating corporate alternative minimum taxable income. In the opinion of Bond Counsel, interest on the 2012B Bonds is not excluded from gross income for federal income tax purposes under Section 103 of the Code. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. See TAX MATTERS herein. CHENEY SCHOOL DISTRICT NO. 360 SPOKANE AND WHITMAN COUNTIES, WASHINGTON UNLIMITED TAX GENERAL OBLIGATION BONDS, SERIES 2012A PRINCIPAL AMOUNT OF $9,330,000 AND UNLIMITED TAX GENERAL OBLIGATION BONDS, SERIES 2012B (TAXABLE) PRINCIPAL AMOUNT OF $610,000 Dated: Date of Delivery Due: December 1, as shown on the inside cover The above-captioned Unlimited Tax General Obligation Bonds, Series 2012A, in the principal amount of $9,330,000 (the 2012A Bonds ) and Unlimited Tax General Obligation Bonds, Series 2012B (Taxable), in the principal amount of $610,000 (the 2012B Bonds and together with the 2012A Bonds, the Bonds ) will be issued by, Spokane and Whitman Counties, Washington (the District ), pursuant to Resolution No , adopted by the Board of Directors of the District (the Board ) on March 21, 2012 (the Resolution ). The proceeds of the Bonds will be used to: (1) finance the costs of the Acquisition, construction and installation of the final portion of: (a) a new middle school; (b) replacement of an existing middle school; (c) a new elementary school; and (d) other capital improvements to the educational facilities of the District; and (2) pay the costs of issuance of the Bonds. See APPLICATION OF THE BOND PROCEEDS herein. The Bonds will be issued as fully registered bonds under a book-entry system, initially registered to Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ), which will act as securities depository for the Bonds. Individual purchases of the Bonds will be made in the principal amount of $5,000 each, or integral multiples thereof within a single maturity, and will be in book-entry form only. Purchasers will not receive certificates representing their interest in the Bonds, except as described herein. The Washington State Fiscal Agent, currently The Bank of New York Mellon, New York, New York, will serve as registrar, paying agent and transfer agent (the Registrar ) for the Bonds. For so long as the Bonds are held by DTC in book-entry form, principal and interest payments will be made as described herein. The 2012A Bonds are subject to optional redemption, and the 2012B Bonds are not subject to optional redemption. See DESCRIPTION OF THE BONDS Redemption Provisions herein. Interest on the Bonds will be payable from their date of delivery commencing on December 1, 2012, and semiannually thereafter on each June 1 and December 1 to their date of maturity, or the date of prior redemption, whichever occurs first. For so long as the Bonds are held in book-entry form, the principal of and interest on the Bonds will be paid to DTC, which will in turn remit such principal and interest to its broker-dealer participants, which will in turn remit such principal and interest to the Beneficial Owners of the Bonds, as described in Appendix C hereto. The Bonds constitute valid and legally binding general obligations of the District. The District has irrevocably covenanted that, for as long as any of the Bonds are outstanding, the District will levy taxes annually without limitation as to rate or amount on all taxable property within the District in an amount sufficient, together with other money legally available and to be used therefor, to pay when due the principal of and interest on the Bonds. The full faith, credit and resources of the District are irrevocably pledged for the annual levy and collection of such taxes and for the prompt payment of such principal and interest. The Bonds do not constitute a debt or indebtedness of Spokane County, Whitman County, the state of Washington, or any political subdivision thereof other than the District. Payment of principal of and interest on the Bonds when due is guaranteed by the full faith, credit, and taxing power of the State of Washington under the provisions of the Washington State School District Credit Enhancement Program. See Appendix D attached hereto and titled Washington State School District Credit Enhancement Program. The District has designated the 2012A Bonds as qualified tax-exempt obligations for the purposes of Section 265(b) of the Code. The District has not designated the 2012B Bonds as qualified tax-exempt obligations for the purposes of Section 265(b) of the Code. This cover page contains certain information for quick reference only. It is not a summary of this issue. Investors must read this entire Official Statement to obtain information essential to the making of an informed investment decision. The Bonds are offered when, as and if issued, subject to the approval of legality by Koegen Edwards LLP, Spokane, Washington, Bond and Disclosure Counsel, and to certain other conditions. The fees of Bond and Disclosure Counsel are contingent upon the issuance of the Bonds. It is expected that delivery of the Bonds will occur on or about April 11, 2012, at the facilities of DTC in New York, New York or to the Registrar on behalf of DTC by Fast Automated Securities Transfer. D.A. DAVIDSON & CO.

2 CHENEY SCHOOL DISTRICT NO. 360 Spokane and Whitman Counties, Washington UNLIMITED TAX GENERAL OBLIGATION BONDS, SERIES 2012A PRINCIPAL AMOUNT OF $9,330,000 (to be delivered on or about April 11, 2012) Due December 1 Principal Amount Interest Rate Yield CUSIP No. (1) 2014 $ 120, % 0.720% HK , HA , HB ,145, HC ,455, HD , HE ,165, HF ,335, HG , * HH2 * Priced to June 1, 2022, call date. UNLIMITED TAX GENERAL OBLIGATION BONDS, SERIES 2012B (TAXABLE) PRINCIPAL AMOUNT OF $610,000 (to be delivered on or about April 11, 2012) Due December 1 Principal Amount Interest Rate Yield CUSIP No. (1) 2012 $200, % 0.493% HL3 *** *** *** *** *** , HJ8 (1) CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein are provided by Standard & Poor s CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. The CUSIP numbers listed above are being provided solely for the convenience of the bondholders, and neither the District nor the Underwriter make any representation with respect to such numbers or undertake any responsibility for their accuracy. The CUSIP numbers are subject to change after the issuance of the Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part of the Bonds.

3 THE INFORMATION SET FORTH HEREIN HAS BEEN FURNISHED BY THE DISTRICT AND CERTAIN OTHER SOURCES THAT THE DISTRICT BELIEVES TO BE RELIABLE BUT IS NOT GUARANTEED AS TO ACCURACY OR COMPLETENESS BY, AND IS NOT TO BE CONSTRUED AS A REPRESENTATION BY, THE UNDERWRITER. THE INFORMATION AND EXPRESSIONS OF OPINION CONTAINED HEREIN ARE SUBJECT TO CHANGE WITHOUT NOTICE. IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. NO DEALER, BROKER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED BY THE DISTRICT OR THE UNDERWRITER TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFERING OF THE BONDS OTHER THAN THOSE CONTAINED HEREIN; AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE DISTRICT OR THE UNDERWRITER. THIS OFFICIAL STATEMENT IS NOT TO BE CONSTRUED AS A CONTRACT WITH THE PURCHASERS OF THE BONDS. STATEMENTS IN THIS OFFICIAL STATEMENT THAT ARE NOT HISTORICAL INFORMATION ARE FORWARD- LOOKING STATEMENTS WITHIN THE MEANING OF THE FEDERAL SECURITIES LAWS. THESE FORWARD- LOOKING STATEMENTS INCLUDE THE DISCUSSIONS OF THE DISTRICT S EXPECTATIONS REGARDING THE OPERATIONS OF THE DISTRICT AND OTHER MATTERS. IN THIS RESPECT, THE WORDS ESTIMATE, PROJECT, ANTICIPATE, EXPECT, INTEND, BELIEVE, FORECAST AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. ALTHOUGH THE DISTRICT BELIEVES ITS EXPECTATIONS REGARDING FUTURE EVENTS ARE BASED ON REASONABLE ASSUMPTIONS WITHIN THE SCOPE OF ITS KNOWLEDGE, THE DISTRICT CAN GIVE NO ASSURANCE THAT ITS GOALS WILL BE ACHIEVED OR THAT ITS EXPECTATIONS REGARDING FUTURE DEVELOPMENTS WILL BE REALIZED. THE FORWARD-LOOKING STATEMENTS IN THIS OFFICIAL STATEMENT ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE THE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY THESE STATEMENTS. THE DISTRICT MAKES NO REPRESENTATION REGARDING THE ACCURACY OR COMPLETENESS OF THE INFORMATION PROVIDED IN APPENDIX C BOOK-ENTRY SYSTEM, WHICH HAS BEEN PROVIDED BY DTC, OR IN APPENDIX D WASHINGTON STATE SCHOOL DISTRICT CREDIT ENHANCEMENT PROGRAM, WHICH HAS BEEN PROVIDED BY THE STATE. SUMMARIES OF DOCUMENTS DO NOT PURPORT TO BE COMPLETE STATEMENTS OF THE PROVISIONS OF SUCH DOCUMENT. THE UNDERWRITER HAS PROVIDED THE FOLLOWING SENTENCE FOR INCLUSION IN THIS OFFICIAL STATEMENT. THE UNDERWRITER HAS REVIEWED THE INFORMATION IN THIS OFFICIAL STATEMENT IN ACCORDANCE WITH, AND AS PART OF, ITS RESPONSIBILITIES TO INVESTORS UNDER THE FEDERAL SECURITIES LAWS AS APPLIED TO THE FACTS AND CIRCUMSTANCES OF THIS TRANSACTION, BUT THE UNDERWRITER DOES NOT GUARANTEE THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION. THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON A SPECIFIC EXEMPTION CONTAINED IN SUCH ACT, NOR HAVE THEY BEEN REGISTERED UNDER THE SECURITIES LAWS OF ANY STATE. THE DISTRICT HAS UNDERTAKEN TO PROVIDE CONTINUING DISCLOSURE ON CERTAIN MATTERS, INCLUDING ANNUAL FINANCIAL INFORMATION AND SPECIFIC EVENTS, AS MORE FULLY DESCRIBED HEREIN. SEE CONTINUING DISCLOSURE UNDERTAKING. INFORMATION ON WEBSITE ADDRESSES SET FORTH IN THIS OFFICIAL STATEMENT IS NOT INCORPORATED INTO THIS OFFICIAL STATEMENT AND CANNOT BE RELIED UPON TO BE ACCURATE AS OF THE DATE OF THIS OFFICIAL STATEMENT, NOR CAN IT BE RELIED UPON IN MAKING INVESTMENT DECISIONS REGARDING THE BONDS. i

4 CHENEY SCHOOL DISTRICT NO. 360 Spokane and Whitman Counties, Washington th Street Cheney, Washington (1) DISTRICT OFFICIALS Board of Directors... Suzanne Dolle, President Larry Haskell, Vice President Marcie Estrellado, Director Richard L. Mount, Director James Whiteley, Director Superintendent... Lawrence R. Keller (2) Executive Director, Finance and Operations... Brian Aiken CERTAIN SPOKANE COUNTY OFFICIALS Assessor... Vicki Horton County Treasurer and ex officio Treasurer of the District... Rob Chase ADVISORS AND CONSULTANTS Bond and Disclosure Counsel... Koegen Edwards LLP Financial Advisor... Public Financial Management, Inc. Underwriter... D.A. Davidson & Co. (1) The District s website is not part of this Official Statement, and investors should not rely on information presented in the District s website in determining whether to purchase the Bonds. This inactive textual reference to the District s website is not a hyperlink and does not incorporate the District s website by reference. (2) Lawrence R. Keller, Superintendent of the District, is retiring effective June 30, The District has selected a successor Superintendent subject to a successful contract negotiation. ii

5 TABLE OF CONTENTS INTRODUCTION... 1 DESCRIPTION OF THE BONDS... 1 General... 1 Authorization for Issuance... 1 Redemption Provisions... 2 Book-Entry System... 2 Transfer and Exchange of Bonds... 2 Defeasance of the Bonds... 3 SECURITY AND SOURCES OF PAYMENT FOR THE BONDS... 3 Pledge of Full Faith and Credit... 3 Washington State School District Credit Enhancement Program... 3 APPLICATION OF THE BOND PROCEEDS... 3 BONDED INDEBTEDNESS... 4 General Obligation Debt Limitation... 4 General Obligation Debt Capacity... 4 Short-Term Borrowing... 5 Outstanding Long-Term Debt... 5 Net Direct and Overlapping Debt Summary... 6 Debt Payment Record... 6 Future Financings... 6 DISTRICT FUNDING SOURCES... 6 General... 6 State Funding... 7 Local Funding... 8 The District s Excess Property Tax Levies... 9 Assessed Value... 9 Tax Collection Procedure... 9 Overlapping Taxing Districts Major Taxpayers THE DISTRICT Description Facilities The Board of Directors Staff and Labor Relations Enrollment Trends FINANCIAL FACTORS Accounting Policies Financial Reporting Auditing Historical and Budgeted General Fund and Debt Service Fund Operating Results Budgetary Process Investment Policy Pension System Actuarial Valuation and Funding Other Post-Employment Benefits DEMOGRAPHIC INFORMATION Population Income Building Permits Taxable Retail Sales Major Employers INITIATIVES AND REFERENDA TAX MATTERS The 2012A Bonds The 2012B Bonds Circular APPROVAL OF LEGAL PROCEEDINGS CONTINUING DISCLOSURE UNDERTAKING LITIGATION RATINGS UNDERWRITING ADVISORS AND CONSULTANTS ADDITIONAL INFORMATION CERTIFICATE WITH RESPECT TO OFFICIAL STATEMENT MISCELLANEOUS APPENDIX A:... District Financial Statements APPENDIX B:... Forms of Opinions of Bond Counsel APPENDIX C:... Book-Entry System APPENDIX D:... Washington State School District Credit Enhancement Program iii

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7 OFFICIAL STATEMENT CHENEY SCHOOL DISTRICT NO. 360 SPOKANE AND WHITMAN COUNTIES, WASHINGTON UNLIMITED TAX GENERAL OBLIGATION BONDS, SERIES 2012A PRINCIPAL AMOUNT OF $9,330,000 AND UNLIMITED TAX GENERAL OBLIGATION BONDS, SERIES 2012B (TAXABLE) PRINCIPAL AMOUNT OF $610,000 INTRODUCTION This Official Statement, which includes the cover page, the appendices hereto, and the documents incorporated herein by reference, is being provided by, Spokane and Whitman Counties, Washington (the District ), a municipal corporation duly organized and existing under and by virtue of the laws of the state of Washington (the State ) to furnish information in connection with the issuance by the District of its Unlimited Tax General Obligation Bonds, Series 2012A, in the principal amount of $9,330,000 (the 2012A Bonds ) and its Unlimited Tax General Obligation Bonds, Series 2012B (Taxable), in the principal amount of $610,000 (the 2012B Bonds and together with the 2012A Bonds, the Bonds ). The Bonds will be issued pursuant to Resolution No of the Board of Directors of the District (the Board ), adopted on March 21, 2012 (the Resolution ), and in accordance with the provisions of chapters 28A.530, and of the Revised Code of Washington, as amended ( RCW ), and also pursuant to an election held within the District on February 9, Unless otherwise defined in this Official Statement, capitalized terms used herein have the meanings given them in the Resolution. General DESCRIPTION OF THE BONDS The Bonds will be dated their date of delivery. The Bonds will mature on December 1 in the years and in the amounts set forth on the inside cover of this Official Statement. The Bonds are subject to prior redemption as described below under the heading Redemption Provisions. The Bonds shall bear interest from their date at the respective rates set forth on the inside cover of this Official Statement. Interest will be calculated on the basis of a 360-day year consisting of twelve 30-day months and will be payable commencing December 1, 2012, and semiannually thereafter on each June 1 and December 1, to the respective dates of maturity or prior redemption of the Bonds, whichever occurs first. The Bonds will be issued as fully registered bonds under a book-entry system initially registered to Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ), which will act as securities depository for the Bonds. Individual purchases of Bonds will be made in the principal amount of $5,000 each, or integral multiples thereof within a single maturity, and will be in book-entry form only. Purchasers will not receive certificates representing their interest in the Bonds, except as described herein. See Book-Entry System herein. The District and the Washington State Fiscal Agent, currently The Bank of New York Mellon in New York, New York, or its successor in functions, as now or hereafter designated (the Registrar ) may deem and treat the Registered Owner of each Bond as the absolute owner of such Bond for the purpose of receiving payments of principal and interest due on such Bond and for all other purposes, and neither the District nor the Registrar shall be affected by any notice to the contrary. Authorization for Issuance A ballot measure was approved by a favorable vote at an election held in the District on February 9, 2010, which authorized the District to issue $79,000,000 of unlimited tax general obligation bonds (the Bond Authorization ). The District issued $51,000,000 of the Bond Authorization in May of 2010 and $17,500,000 of the Bond Authorization in November of The Bonds represent the final two series of bonds to be issued under the Bond Authorization. See BONDED INDEBTEDNESS Future Financings herein. The results of the District s Bond Authorization election have been certified by the Spokane County Auditor s Office and are as follows: 1

8 Number of Votes 2 Percentage Yes 4, % No 2, Total 6,645 10% Authorization of any general obligation bond issue requires that 40 percent of the number of those voting in the last general election must cast a ballot, and 60 percent of those voting must approve the issue. The ballot measure for the Bond Authorization states that such authorized bonds will mature over a period not to exceed 20 years. Redemption Provisions Optional Redemption of the 2012A Bonds. The 2012A Bonds maturing before December 1, 2022, are not subject to optional redemption prior to their stated dates of maturity. The 2012A Bonds maturing on December 1, 2022, are subject to optional redemption prior to their stated dates of maturity, in whole or in part (maturities to be selected by the District and randomly within a maturity in such manner as the Registrar shall determine) at any time, on and after June 1, 2022, at the price of par plus accrued interest, if any, to the date of redemption. Partial Redemption of the 2012A Bonds. Portions of the principal amount of any 2012A Bond, in installments of $5,000 each or any integral multiple of $5,000, may also be redeemed. If less than all of the principal amount of any 2012A Bond is redeemed, upon surrender of such 2012A Bond at the designated corporate trust office of the Registrar there shall be issued to the Registered Owner, without charge therefor, for the then unredeemed balance of the principal amount thereof, a new 2012A Bond or 2012A Bonds, at the option of the Registered Owner, with like maturity and interest rate, in any of the denominations authorized by the Resolution. Effect of Redemption. When so called for redemption, the 2012A Bonds shall cease to accrue interest on the specified redemption date, provided funds for redemption are on deposit at the place of payment at that time, and shall not be deemed to be Outstanding as of such redemption date. Notice of Redemption. For so long as DTC is the securities depository for the 2012A Bonds, the Registrar shall send redemption notice to DTC and not to the Beneficial Owners of the 2012A Bonds. The District makes no representation that any Beneficial Owner will receive such notices from DTC. Except while the 2012A Bonds are held in DTC s book-entry system or unless waived by the Registered Owner of any 2012A Bond to be redeemed, notice of any such redemption shall be sent by the Registrar by first-class mail, postage prepaid, not less than 20 or more than 60 days prior to the date fixed for redemption to the Registered Owner of each 2012A Bond to be redeemed at the address shown on the Bond Register, or at such other address as may be furnished in writing by such Registered Owner to the Registrar. Such requirement shall be deemed to be complied with when notice is mailed as herein provided, regardless of whether it is actually received by the Registered Owner of any 2012A Bond. The District has retained the right to rescind any redemption notice and the related redemption of the 2012A Bonds by giving a written notice of rescission to the Registrar no later than one business day prior to the date specified for redemption. The Registrar shall give notice of such rescission as soon thereafter as practicable, and to the same Registered Owners, as notice of such redemption was given. Optional Redemption of the 2012B Bonds. The 2012B Bonds are not subject to optional redemption prior to their stated dates of maturity. Open Market Purchase. The District has reserved the right to purchase the Bonds on the open market at any time and at any price. Any Bonds so purchased or redeemed shall be canceled. Book-Entry System The information set forth in Appendix C has been provided by DTC. Beneficial Owners should confirm the information contained in Appendix C with DTC or the Participants. Transfer and Exchange of Bonds Any Bond shall be transferable by the Registered Owner thereof in person, or by its attorney duly authorized in writing, upon surrender of such Bond at the designated corporate trust office of the Registrar for cancellation and issuance of a

9 new Bond registered in the name of the transferee, in exchange therefor. Any Bond shall be exchangeable for Bonds of the same series of any authorized denomination or denominations, upon surrender and cancellation of such Bond at the designated corporate trust office of the Registrar. The Registrar is not required to transfer or exchange any Bond during the 15 days preceding any principal or interest payment date. Whenever any Bond is surrendered for transfer or exchange, the Registrar shall authenticate and deliver to the transferee or exchangee, in exchange therefor, a new fully registered Bond of the same series of any authorized denomination or denominations, of the same maturity and interest rate, and for the aggregate principal amount of such Bond being surrendered. The Registrar shall require the payment by the Registered Owner requesting such transfer or exchange of any tax, fee or governmental charge required to be paid with respect to such transfer or exchange. Defeasance of the Bonds If the principal or redemption price of any Bond becoming due, either at maturity or by call for redemption, together with all interest accruing thereon to the due date, has been paid or provision therefor made in accordance with the Resolution, all interest on such Bond shall cease to accrue on the due date and all liability of the District with respect to such Bond shall cease as of the date such principal and interest is so provided for. Thereafter the Registered Owners of such Bond shall be restricted exclusively to the money so deposited for any claim of whatsoever nature with respect to such Bond, and the Registrar shall hold such money in trust for such Registered Owners, uninvested and without interest. Pledge of Full Faith and Credit SECURITY AND SOURCES OF PAYMENT FOR THE BONDS The Bonds are unlimited tax general obligations of the District. The full faith, credit and resources of the District are pledged for the punctual and full payment of the principal of and interest on the Bonds. The District has covenanted that, for as long as any of the Bonds are Outstanding, it will make annual levies of ad valorem taxes without limitation as to rate or amount upon all the property within the District subject to taxation which, together with other money legally available therefor, will be sufficient in amount to pay the principal of and interest on the Bonds as the same shall become due. The Bonds are not obligations of the State, Spokane County (the County ), Whitman County or any other municipal corporation other than the District. Washington State School District Credit Enhancement Program The payment of principal and interest on the Bonds when due is guaranteed by the full faith, credit and taxing power of the State under the provisions of the Washington State School District Credit Enhancement Program. See Appendix D Washington State School District Credit Enhancement Program hereto for more information. APPLICATION OF THE BOND PROCEEDS The proceeds of the Bonds will be used to: (1) finance the costs of the Acquisition, construction and installation of the final portion of: (a) a new middle school; (b) replacement of an existing middle school; (c) a new elementary school; and (d) other capital improvements to the educational facilities of the District; and (2) pay the costs of issuance of the Bonds; all as more particularly described in the Resolution. The following table depicts the sources and uses of the Bond proceeds: Sources of Funds: 2012A Bonds 2012B Bonds Total Principal of the Bonds: $9,330,000 $610,000 $ 9,940,000 Plus Original Issue Premium: 666,393 2, ,743 Total: $9,996,393 $612,350 $10,608,743 Uses of Funds: Deposit to the Debt Service Fund: - $ 4,660 $ 4,660 Deposit to the Capital Projects Fund: $9,897, ,124 10,500,000 Issuance Costs (1) : 98,517 5, ,083 Total: $9,996,393 $612,350 $10,608,743 (1) Includes Underwriter s discount, rating agency fees, financial advisor and legal fees and other costs connected with the issuance of the Bonds. 3

10 BONDED INDEBTEDNESS General Obligation Debt Limitation The power of the District to contract debt of any kind is controlled and limited by State law. All debt must be set forth in accordance with detailed budget procedures and paid for out of identifiable receipts and revenues. The budget must be balanced for each fiscal year. It is unlawful for an officer or employee of the District to incur liabilities in excess of budgetary appropriations. Authorization of Total Debt. A school district may incur a total indebtedness, including voter-approved debt, not to exceed five percent of the assessed value of taxable property (the Bond Assessed Value ) within the school district. Following issuance of the Bonds, the District will have $80,870,000 of voter-approved debt which represents 3.08 percent of the District s Bond Assessed Value for tax collection year 2012 of $2,629,884,815. Authorization of Voted Debt. Any election to authorize such debt must have a voter turnout of at least 40 percent of those who voted in the last State general election and, of those voting, 60 percent must vote in the affirmative (see Authorization for Issuance herein). The Bonds and all of the District s outstanding unlimited tax general obligation bonds have met all voter approval criteria. Authorization of Non-Voted Debt. RCW 28A authorizes school districts, including the District, to incur long-term indebtedness without a vote of the people through the issuance of bonds, payable out of the District s ordinary revenues. Such bonds may be issued to acquire real or personal property or make structural changes and additions to school facilities, including energy conservation improvements. Washington municipal corporations, including the District, are authorized under State law to borrow money and issue short-term obligations, the proceeds of which may be used for any lawful purpose. Short-term obligations may be issued in anticipation of the receipt of revenues, taxes, or grants or the sale of bonds. These short-term obligations will be repaid out of money derived from the source or sources in anticipation of which they were issued or from any money legally available for this purpose. School districts also are authorized to incur debt by purchasing real or personal property pursuant to conditional sales (installment purchase) contracts and financing leases. In an emergency, school districts may authorize indebtedness outside the current budget. All expenditures for emergency purposes will be paid by warrants from any available money in the fund properly chargeable with such expenditures. If there is insufficient money on hand in the fund, the warrants become registered interest-bearing warrants. In adopting the budget for any fiscal year, the school district s board of directors will appropriate funds to retire any outstanding registered warrants issued since the adoption of the last preceding budget. The amount of all non-voted debt (including short-term obligations, conditional sales contracts, warrants and bonds) may not exceed 3/8 of 1 percent of the Bond Assessed Value in the District. General Obligation Debt Capacity 2012 Collection Year Bond Assessed Value $2,629,884,815 Total Debt: General Obligation Debt Capacity (5% of Assessed Valuation) $ 131,494,241 Less: Outstanding Voter Approved Debt (includes the Bonds) (1) (80,870,000) Less: Outstanding Non-Voter Approved Debt (7,669) Cash and Investments in Debt Service Fund (2) 517,653 Remaining Debt Capacity $ 51,134,225 Non-Voter Approved Debt: Debt Capacity (3/8 of 1% of Assessed Valuation) $ 9,862,068 Less: Outstanding Non-Voter Approved Debt (7,669) Remaining Debt Capacity $ 9,854,399 (1) Includes all outstanding unlimited tax general obligation bonds. (2) Debt Service Fund balance is as of January 31,

11 Short-Term Borrowing The District does not currently have any outstanding short-term borrowing commitments. Outstanding Long-Term Debt Voted General Obligation Bonds Date of Issue Date of Maturity Amount Issued Amount Outstanding (1) 2009 UTGO Refunding Bonds 03/12/ /01/2014 $ 8,075,000 $ 5,700, UTGO Bonds 05/18/ /01/ ,000,000 47,730, UTGO Bonds (QSCB) 11/01/ /01/ ,500,000 17,500, A UTGO Bonds 04/11/ /01/2022 9,330,000 9,330, B UTGO Bonds 04/11/ /01/ , ,000 Total Voted Debt: $86,515,000 $80,870,000 Non-Voted General Obligation Debt H&H Leasing (2) 09/01/ /01/2012 $ 48,894 $ 7,669 Total Non-Voted Debt: 48,894 7,669 Total Outstanding Long-Term Debt: $86,563,894 $80,877,669 (1) Borrowings do not include short-term internal fund borrowings. Amount outstanding reflects principal payments made through January 31, (2) The District has three outstanding leases with H&H Leasing for equipment. The information in this table represents the collective amounts originally due and amounts currently outstanding under such leases. Source: The District. Projected Unlimited Tax General Obligation Debt Service Requirements Calendar Outstanding Debt 2012A Bonds 2012B Bonds Total Debt Year Principal Interest (1) Principal Interest Principal Interest Service 2012 $ 2,210,000 $ 2,390,938 - $172,149 $200,000 $ 3,897 $4,976, ,325,000 2,324, ,450-4,100 4,923, ,090,000 2,231,638 $ 120, , ,000 4,100 5,125, ,405,000 2,145, , , ,072, ,720,000 2,071, , , ,278, ,095,000 1,992,113 1,145, , ,487, ,115,000 1,916,938 1,455, , ,707, ,060,000 1,838, , , ,935, ,120,000 1,720,500 2,165, , ,171, ,370,000 1,614,500 2,335, , ,420, ,365,000 1,496, ,000 31, ,677, ,810,000 1,364, ,174, ,245,000 1,218, ,463, ,705,000 1,057, ,762, ,190, , ,069, ,710, , ,394, ,395, , ,864,750 Total $70,930,000 $27,417,416 $9,330,000 $2,207,099 $610,000 $12,097 $110,506,611 (1) Reflects net interest after the application of the federal credit payments received by the District s relating to its Unlimited Tax General Obligation Bonds, 2010 (Taxable Qualified School Construction Bonds Direct Payment to Issuer). NOTE: Numbers may not add due to rounding. 5

12 Net Direct and Overlapping Debt Summary Overlapping taxing districts are those local governments whose boundaries overlap all or a portion of the District s boundaries. See Overlapping Taxing Districts herein. Overlapping Debt Calculation (As of December 31, 2011) 2012 Assessed Value Percent Overlapping Outstanding General Obligation Debt Estimated Overlapping Debt City of Airway Heights $ 343,760, % $ 615,000 $ 606,698 Fire District No ,030, ,020,000 1,951,222 Spokane County 37,451,702, ,632,309 12,664,078 City of Spokane 14,906,141, ,830,000 2,157,394 Port of Whitman County 2,880,273, ,120,000 1,344 Whitman County 2,880,273, , TOTALS: $367,886,283 $17,381,515 Source: Spokane and Whitman County Assessors and Treasurers Offices and individual taxing districts. The following summarizes information regarding the District s direct debt (including the Bonds) and the estimated portion of the debt of overlapping taxing districts allocated to the District s residents. Bond Assessed Value (2012 Collection Year) $2,629,884,815 Estimated 2012 Population 32,139 Debt Information Direct Debt (including the Bonds) (1) $ 80,877,669 Less: Cash and Investments in Debt Service Fund (as of January 31, 2012) (517,653) Net Direct Debt $ 80,360,016 Estimated Net Overlapping Debt (as detailed above) 17,381,515 Total Net Direct and Overlapping Debt $ 97,741,531 Bonded Debt Ratios Net Direct Debt to Bond Assessed Value 3.06% Net Direct and Net Overlapping Debt to Bond Assessed Value 3.72% Per Capita Bond Assessed Value $ 81,828 Per Capita Net Direct Debt $ 2,500 Per Capita Total Net Direct and Net Overlapping Debt $ 3,041 (1) See Outstanding Long-Term Debt herein. Debt Payment Record The District has promptly met principal and interest payments on outstanding bonds and other indebtedness when due. Additionally, no refunding bonds have been issued for the purpose of preventing an impending default. Future Financings The District does not anticipate issuing any additional unlimited tax general obligation bonds in the next two years. General DISTRICT FUNDING SOURCES Public school districts in the State receive revenue from three primary sources: State funding, tax receipts and federal grants. Of these sources, State funding represents 68.7 percent of the District s total operating revenues, tax receipts 6

13 represent 23.6 percent and federal grants represent 7.7 percent as reported in the District s General Fund Budget. State Funding General. The Washington Basic Education Act of 1977 provides for the full funding of basic education, or the regular program, and of vocational education, according to statutory formulas, and for operational costs for transportation, the purchase of transportation equipment, and programs for the handicapped by the State. Legislation passed in 1979 recognized the State s responsibility to fund bilingual and remediation programs. The Washington State Legislature (the Legislature ), at its discretion, may provide funds for other special programs, including, but not limited to, vocational-technical institutes, gifted education and others. State funding is based primarily on average fulltime equivalent student enrollment. At each regular session in an odd-numbered year, the Legislature is required to appropriate money to the Office of the Superintendent of Public Instruction ( OSPI ): (1) from the State General Fund for the current use of the common schools during the ensuing biennium, and (2) from the Student Achievement Fund and the Education Construction Fund for the support of the Student Achievement Act during the ensuing biennium. Basic Education Allocation. The basic education allocation distribution formula is reviewed biennially by OSPI and the governor of the State (the Governor ). Pursuant to RCW 28A , the Governor shall, and OSPI may, recommend to the Legislature a formula based on a ratio of students to staff. Once the Legislature adopts a formula it is used for the distribution of a basic education allocation for each annual average full-time equivalent student enrolled in a common school. In the event the Legislature rejects the distribution formula recommended by the Governor, without adopting a new distribution formula, the distribution formula for the previous school year will remain in effect. In the event of an unforeseen emergency, in the nature of either an unavoidable cost to a school district or unexpected variation in anticipated revenues to a school district, OSPI is authorized, for not to exceed two years, to make such an adjustment in the allocation of funds. The primary objective of the Basic Education Allocation formula is to equalize educational opportunities among the State s public school districts. In addition to the Basic Education Allocation, eligible school districts receive local assistance funds from the State under the Local Effort Assistance Program ( LEA ). The LEA was originally implemented in 1989 and seeks to equalize the tax burden by providing matching State funds to school districts with low property values and high levy rates. Eligible school districts are those school districts with an assessed value (for excess levy purposes) per pupil lower than the State average. For calendar year 2012, the District is eligible for approximately $999,781 in LEA funds. Beginning in 2001, portions of the state property tax and state lottery revenues were dedicated to the Student Achievement Fund, per Initiative 728 ( I-728 ). I-728 directed that, beginning in 2004, school districts receive Student Achievement Fund allocations in the amount of $450 per full-time equivalent (FTE) student, with the amount to increase by designated amounts in succeeding years. The 2003 Legislature revised the per-pupil payments to a lower amount, to increase in subsequent years. In payments were again reduced from planned per-pupil allocations of $ and $ in school years and , respectively, to $ and $ The I-728 payments were eliminated for the school year and have also been eliminated in the biennium State Operating Budget. Passed by voters in November 2000, Initiative 732 ( I-732 ) required the State to provide annual cost-of-living increases for Washington s public school employees. In 2003 and again in , the Legislature suspended the inflation increases in I-732. McCleary et al. v. State Ruling. In 2007, a coalition of parents, students, school districts, teachers unions and other nonprofit organizations, filed a lawsuit alleging that the State s approach to funding the local school districts does not satisfy the State s obligation under Article IX of the Washington State Constitution, which provides that it is the paramount duty of the State to make ample provision for education. On February 24, 2010, a King County Superior Court judge entered its Final Judgment in McCleary et al. v. State (Cause No SEA), ruling that the State is currently failing to fulfill this constitutional duty and ordered the Legislature to address the issue. The State appealed such decision to the Washington State Supreme Court. On January 5, 2012, the Washington State Supreme Court filed its decision, affirming the King County Superior Court judge s decision that the State is failing to fulfill its constitutional duty. The Supreme Court determined that school funding reform enacted by the Legislature in 2009, if fully funded, would meet the State s constitutional duty to amply provide for education. Currently, the school funding 7

14 reform is required to be fully funded by The Supreme Court has retained jurisdiction to ensure progress in the State s plan to fully implement the school funding reform by The District cannot predict what the Legislature may do in response to this case, or what effect (if any) subsequent Legislative actions may have on the District s finances. The State s largest General Fund expenditures are for education, social and health services and corrections. Approximately 43.1 percent of the State s General Fund budget for biennium is for supporting public schools. The State s General Fund has experienced revenue shortfalls. Recent State budgets, including the budget adopted by the Legislature on May 24, 2011, for the biennium, and additional budget cuts enacted during a Special Session in the fall of 2011, have reduced funding for public schools. Continuing projected reductions in State revenue are expected to result in further reduced State funding for public schools. Local Funding Pursuant to RCW and Article VII, Section 2 of the State Constitution and upon voter approval, school districts in the State are authorized to levy excess property taxes for various purposes including maintenance and operation ( Maintenance and Operation Levies ), capital projects ( Capital Projects Levies ), the repayment of bonds issued to finance the construction, modernization and remodeling of school district facilities ( Bond Levies ) and for transportation vehicle purposes ( Transportation Vehicle Levies ). Historically, each of these excess property tax levies were required to be approved by 60 percent of those voting and the number of yes votes must equal or exceed 40 percent of those voting in the last general election. Beginning in 2008, the voter approval requirement for Maintenance and Operation, Capital Projects and Transportation Vehicle Levies became a simple majority. For Bond Levies, the voter approval requirement did not change. Bond Levies are dedicated exclusively to the repayment of the bonds for which the taxes were approved and those tax proceeds cannot be diverted to other purposes. Therefore, a change in Maintenance and Operation, Capital Projects and Transportation Vehicle Levies will not affect the District s levy of excess property taxes for the repayment of the Bonds. Maintenance and Operation Levy. The State Constitution allows school districts to submit Maintenance and Operation Levies for up to four years. In 1977 when the State assumed additional responsibility for funding schools, the Legislature limited school district Maintenance and Operation Levy authority by passing the levy lid law. This law establishes the maximum amount of a school district s Maintenance and Operation Levy for a calendar year. In 1979 the levy lid law took effect, limiting excess General Fund revenue to 10 percent of the school district s basic education allocation for the school year. The law allowed school districts that historically relied on Maintenance and Operation Levies to be grandfathered in and exceed the 10 percent limit. In 1987 the levy lid limit was increased to 20 percent. In 1994, the levy base increased to 24 percent. The Legislature provides funding for additional staffing in K-4 classrooms beyond basic education. All school districts receive this enhanced allocation, except in the biennium. The Legislature, in 2010, approved Laws of 2010, Chapter 237 ( Supplemental Levy Act ), enhancing the levy authority of school districts. For levy collections through calendar year 2017, a school district s levy base will include the amounts the school districts would have received from State funding for I-728 and I-732. School districts are allowed to include in their levy bases any cuts to the K-4 class-size funding. The Supplemental Levy Act also removed the requirement that OSPI must offset the amount added to a school district s levy base. The Supplemental Levy Act increased the levy lid 4 percent, including school districts which were grandfathered above 24 percent. For non-grandfathered school districts, a school district s maximum levy percentage increases from 24 percent to 28 percent in 2011 through 2017 and returns to 24 percent in The District has a levy lid limit of 28 percent. The LEA percentage increases to 14 percent for calendar years 2011 through 2017 and returns to 12 percent in calendar year The Supplemental Levy Act also authorized school districts to submit additional levies to provide for subsequently-enacted increases affecting the school districts levy base or maximum levy percentages to voters during the term of the levy collection period. RCW outlines the process for deriving a school district s levy limit. In February of 2012, the qualified electors of the District approved a three-year Maintenance and Operation Levy in the amount of $8,500,000 for collection in 2013, $8,800,000 for collection in 2014, and $9,100,000 for collection in

15 By law, taxes levied to pay principal of and interest on unlimited tax general obligation bonds, such as the Bonds, are not available for any other use. Thus, any possible decline in the District s Maintenance and Operation Levy would not impair the security of the Bonds. Capital Projects Levies and Transportation Vehicle Levies. Capital Projects Levies (maximum term of six years) and Transportation Vehicle Levies (maximum term of two years) may also be authorized by a school district s voters (RCW ). These types of levies also require a simple majority vote of approval by the school district s voters. The levy lid limit described previously does not apply to Capital Projects Levies or Transportation Vehicle Levies. No Capital Projects Levies or Transportation Levies are authorized for the District at this time. The District s Excess Property Tax Levies The following table shows the District s excess property tax levy rates and dollar amounts levied since Collection Year Ad Valorem Tax Levies Levy Rate (Dollars per $1,000 of Assessed Value) Maintenance Transportation and Operation Bond Capital Projects Vehicle Total 2012 $2.94 $ $ $ $ Collection Year Levy Amounts Maintenance and Operation Bond Capital Projects Transportation Vehicle Total 2012 $7,716,189 $5,092, $12,809, ,389,514 5,441, ,831, ,501,110 2,196,957 $3,595, ,293, ,975,820 2,196,204 3,593, ,765, ,386,748 2,146, $1,103,260 8,636,038 Source: County Assessor s and Treasurer s Offices. Assessed Value The County Assessor, or equivalent thereof (the Assessor ), determines the value of all real property (including all land, buildings, structures and improvements to land) and personal property (including machinery and equipment, fixtures, furniture and other items that are movable in nature) throughout the County that is subject to ad valorem taxation, except certain utility properties which are valued by the State Department of Revenue. The Assessor is an elected official whose duties and methods of determining value are prescribed and controlled by statute and by detailed regulations promulgated by the State Department of Revenue. For tax purposes, the assessed value of property is 100 percent of its market value. Three methods may be used to determine real property value: market data, replacement cost and income generating capacity. In the County, all property is subject to an annual property valuation and an on-site revaluation every six years. The property is listed by the Assessor on a roll at its current assessed value and the roll is filed in the Assessor s office. The Assessor s determinations are subject to revisions by the County Board of Equalization and, for certain property, subject to further revisions by the State Board of Tax Appeals. Tax Collection Procedure Property taxes are levied in specific amounts and the rate for all taxes levied for all taxing districts in the County is determined, calculated and fixed by the Assessor based upon the assessed value of the property within the various taxing districts. The Assessor extends the taxes to be levied within each taxing district on a tax roll which contains the 9

16 total amount of taxes to be so levied and collected. The tax roll is delivered to the Treasurer by January 15, who creates a tax account for each taxpayer and is responsible for the collection of taxes due to each account. All such taxes are due and payable on April 30 of each year, but if the amount due from a taxpayer exceeds $5, one-half may be paid then and the balance no later than October 31, of each year. Delinquent taxes are subject to interest at the rate of 12 percent per year computed on a monthly basis from the date of delinquency until paid. In addition, a penalty of three percent will be assessed on June 1st of the year in which the tax was due and eight percent on December 1st of the year due. All collections of interest on delinquent taxes will be credited to the County s current expense fund. The method of giving notice of payment of taxes due, the accounting for the money collected, the division of the taxes among the various taxing districts, notices of delinquency and collection procedures are covered by detailed statutes. The lien on property taxes is prior to all other liens or encumbrances of any kind on real or personal property subject to taxation. By law the Treasurer may not commence foreclosure of a tax lien on real property until three years have passed since the first delinquency. The State s courts have not decided whether the Homestead Law (chapter 6.13 RCW) may give the occupying homeowner a right to retain the first $125,000 of proceeds of the forced sale of the family residence or other homestead property for delinquent general property taxes. (See Algona v. Sharp, 30 Wn. App. 837, 638 P.2d 627 (1982), holding the homestead right superior to local improvement district assessments). The United States Bankruptcy Court for the Western District of Washington has held that the Homestead Exemption applies to the lien for property taxes, while the State Attorney General has taken the position that it does not. Collection Year Bond Assessed Value (1) Tax Collection Record Ad Valorem Tax Levy Year of Levy Tax Collection As of 012/31/2011 (2) (2) 2012 $2,269,884,815 $12,809, ,532,293,839 12,831, % 96.1% ,517,959,108 12,293, ,368,047,094 11,765, ,219,259,947 8,636, (1) Bond Assessed Value is based upon the aggregate assessed value, and is adjusted to exclude exempt senior citizens and to include Timber Assessed Value, which is $240,327 for collection year Bond Assessed Value includes assessed value for Whitman County. (2) In process of collection. Source: County Treasurer s Office. Overlapping Taxing Districts The overlapping taxing districts within the District have the statutory power to levy regular property taxes at the following rates subject to the limitations provided by chapter RCW and levy excess voter approved property taxes. Representative 2012 levy rates for levy code 1881 of the County, located entirely within the District, as well as the statutory levy authority of each type of potential overlapping district are listed below. Levy code 1881 does not include all of the property within the District; as a result, additional taxing districts, not listed below, levy taxes within the District. [Remainder of this page intentionally left blank] 10

17 Taxing Entity Representative Levy Rates Per $1,000 of Assessed Value Statutory Levy Authority Per $1,000 of Assessed Value State of Washington School Levy $ $ (1) Spokane County (2) Spokane County Conservation Futures Spokane County Library District Spokane County Road District Levy Fire District No The District (3) Total 2012 rate for County levy code 1881: $ (1) RCW (1). The levy by the State shall not exceed $3.60 per $1,000 assessed value adjusted to the State equalized value in accordance with the indicated ratio fixed by the State Department of Revenue to be used exclusively for the support of the common schools. (2) Pursuant to RCW (1), a county may increase its levy from $1.80 per $1,000 to a rate not to exceed $2.475 per $1,000 for general county purposes if: (a) the total levies for both the county and any road district within the county do not exceed $4.05 per $1,000; and (b) no other taxing district has its levy reduced as a result of the increased county levy. (3) School districts are not authorized to impose regular property levies. See Local Funding herein for a description of the levy authority of school districts. Source: County Assessor s Office. Major Taxpayers The following table lists the ten largest taxpayers within the District on the basis of their 2011 assessed valuation. Taxpayer Business 2011 Assessed Valuation Percent of Total 2011 District Assessed Valuation BF Goodrich Corporation Tire Manufacturer $ 37,499, % Triumph Composite Systems Aerospace 31,299, Granite Investments LLC Property Development 31,040, Southwest Airlines Co. Airline 21,775, Jensen Byrd Co. Distribution Services 21,334, Eagle Point Apartments LLC Property Development 21,250, Cheney-CHR Campus Crest LLC Property Development 19,750, Wal-Mart Stores Inc. Retail 18,455, Horizon Air Industries Inc. Airline 18,428, Avista Corporation Public Power 18,145, Totals: $238,981, % Source: County Treasurer s Office. THE DISTRICT Washington school districts are municipal corporations empowered to provide elementary and secondary educational services. Their operations are supported primarily by State funds, excess property taxes (the most significant local revenue source) and federal grants. School districts are governed by a board of directors elected by the voters of the school district. The chief administrative officer is a superintendent chosen by the board of directors. Description The District is located in eastern Washington, in Spokane and Whitman Counties. The District encompasses the City of Cheney ( Cheney ), the City of Airway Heights and small portion of the City of Spokane ( Spokane ). Over 99.8 percent of the District lies within the County based upon the District s 2012 assessed valuation, with the remainder located in Whitman County. Cheney is located approximately 17 miles southwest of Spokane, the County seat, and 6 miles south of Interstate 90. The District encompasses approximately 370 square miles and an estimated 32,139 11

18 residents. The District provided instruction to an estimated 4,039 students in grades kindergarten through twelve in school year Facilities The District currently operates four elementary schools (Bets, Salnave, Sunset and Windsor), Cheney Middle School, two high schools (Cheney and Three Springs) and the Home Works alternative learning facility. The Board of Directors The policies of the District are established by the Board. The District s current Board members are listed below. Staff and Labor Relations Member Position Term Expires Suzanne Dolle President December 2013 Larry Haskell Vice President December 2015 Marcie Estrellado Member December 2013 Richard L. Mount Member December 2015 James Whiteley Member December 2015 The District employs 522 people, which includes 282 certificated and 240 classified staff members. The majority of employees who are eligible under State law to be represented by a labor organization are employed under provisions of negotiated contracts with the formally recognized collective bargaining units. Expiration dates of negotiated agreements with the unions and the respective employees they represent are as follows: Bargaining Unit Number of Employees Covered Years Covered Under Contract Enrollment Trends Cheney Education Association /14 Public School Employees /14 Administrators Group /14 Non-Represented Group 11 n/a Total: 522 The District provides education for students in preschool and grades kindergarten through twelve. The enrollment figures in the following table are based on historical and projected average annual headcount enrollment for the District. Headcount Enrollment Historical Projected 2011/12 4, /13 4, /11 3, /14 4, /10 3, /15 4, /09 3, /16 4, /08 3, /17 4,593 Source: The District. Accounting Policies FINANCIAL FACTORS The District s accounting policies conform to the Accounting Manual for Public Schools in the State of Washington, (issued jointly by the State Auditor and the Superintendent of Public Instruction, by the authority of RCW , RCW 28A , RCW 28A (1) and RCW 28A ) which allows for an Other Comprehensive Basis Of 12

19 Accounting ( OCBOA ) that differs from Generally Accepted Accounting Principles ( GAAP ). Financial statements for school districts in the State fall into one of three categories: (1) GAAP school districts that issue GAAP financial statements; (2) OCBOA school districts that issue GAAP financial statements except that the General Fixed Asset Group, district-wide financial statements and the original budget are not reported; debt is reported in the notes to the financial statements; and management s discussion and analysis are not required; and (3) school districts with less than 1,000 Full-Time Equivalent students for the preceding fiscal year may issue cash basis financial statements. The District prepares its financial reports utilizing OCBOA. Fund Accounting. The accounts of the District are organized on the basis of funds and account groups, each of which is a separate accounting entity. The operations of each fund are accounted for with a separate set of selfbalancing accounts that comprise its assets, liabilities, fund equity, revenues and expenditures or expenses, as appropriate. The various funds are grouped into governmental funds as follows: General Fund. This fund is used to account for all expendable financial resources, except those required to be accounted for in another fund. Debt Service Fund. This fund is used to account for revenue sources that are legally restricted for the payment of general long-term debt principal, interest and related expenditures. Capital Projects Fund. This fund is used to account for resources set aside for the acquisition and construction of major capital facilities. This fund is generally financed from the proceeds from the sale of voted and/or non-voted bonds, state matching revenues, lease or sale of surplus real property, interest earnings, and special levies. In all instances where money is raised by voter-approved bond issues, the proposition must include a description of the projects for which the money is being raised. Transportation Vehicle Fund. transportation vehicle expenses. This fund is used to account for expenditures related to student Special Revenue Funds. These funds account for the proceeds of specific revenue sources that are legally restricted for specific purposes. The Associated Student Body Program Fund (ASB Fund) is the only fund of this type. This fund is accounted for as a special revenue fund since the financial resources legally belong to the District. Financial Reporting The financial statement of the District is prepared in accordance with OCBOA (see Accounting Policies above). In addition to presenting the financial position, results of operations, and changes in financial position of the District s funds, the financial statement reconciles differences in reporting activities between the budgetary basis, as presented in the annual approved budget, and the basis according to OCBOA as is used in the preparation of the financial report. The Government Accounting Standards Board ( GASB ) has issued a new standard concerning Accounting and Financial Reporting by Employers for Post Employment Benefits Other than Pensions ( GASB 45 ). In addition to pensions, many state and local governmental employers provide other post employment benefits ( OPEB ) as a part of total compensation to attract and retain the services of qualified employees. OPEB includes post employment healthcare, as well as other forms of post employment benefits when provided separately from a pension plan. The new standard provides for the measurement, recognition and display of OPEB expenses/expenditures, related liabilities (assets), note disclosures, and if applicable, required supplementary information in the financial reports. The District does not provide any current or retired employees OPEB that are required to be disclosed under GASB 45. The District prepares its financial reports utilizing OCBOA and therefore does not anticipate it will incorporate the reporting standards into its basis of accounting. Auditing The State Auditor is required to examine the financial affairs of school districts. School districts are audited annually, biennially or triennially depending on their size and whether or not they receive certain federal funding. Additionally, annual audits may be conducted at the request of a school district or the State. The District is audited annually. The examination must include, among other things, the financial conditions and resources of the school district, compliance with the State constitution and laws, and the methods and accuracy of the accounts and reports of the school district. Reports of the auditor s examinations are required to be filed in the office of the State Auditor and in the auditing 13

20 department of the school district. The unaudited financial statements of the District for the year ended August 31, 2011, and the audited financial statements of the District for the year ended August 31, 2010, are incorporated by reference herein and are attached as Appendix A hereto. Historical and Budgeted General Fund and Debt Service Fund Operating Results The following financial information was extracted from the District s annual audited financial statements for the fiscal years ending August 31, 2007 through 2010, unaudited financial statements for the fiscal year ending August 31, 2011, and the 2012 Budget. Additional information which may interpret, clarify or modify the data presented below may be contained in the complete financial audits, including the accompanying footnotes, which may be obtained by contacting the District. See Appendix A District Financial Statements. Statement of Revenues, Expenditures and Changes in General Fund Balance (Fiscal Years Ended August 31) 2010/ / / / /10 Unaudited 2011/12 Budget Revenues Local Funds $ 6,107,754 $ 6,275,131 $ 6,940,803 $ 7,315,674 $ 7,939,211 $ 8,556,321 State Funds 22,555,257 24,852,306 25,705,592 25,473,157 25,094,173 25,950,454 Federal Funds 2,514,306 2,605,057 2,698,413 3,040,177 2,865,497 3,416,727 Federal Stimulus 0 0 1,677,104 1,872,693 1,366,093 0 Other 20,608 23,999 42,970 48,726 57, ,498 Total Revenues $31,197,925 $33,756,493 $37,064,882 $37,750,427 $37,322,494 $38,785,000 Expenditures Regular Instruction $16,383,088 $17,714,342 $18,250,201 $19,153,501 $20,480,427 $22,565,998 Federal Stimulus 0 0 1,677,104 1,664,852 1,353,751 0 Special Education Instruction 3,304,537 4,098,179 4,668,163 4,734,160 5,187,925 5,329,592 Vocational Instruction 749, , , , , ,146 Compensatory Instruction 2,918,042 3,257,838 3,065,188 1,918,198 1,722,081 1,813,558 Other Instructional Programs 304, , , , , ,207 Community Services 0 9,469 17,633 20,618 26,441 25,000 Support Services 6,956,404 7,455,348 8,182,623 7,926,716 7,373,872 8,526,500 Capital Outlay 79,042 63, , , , ,000 Total Expenditures $30,694,596 $33,628,964 $37,221,702 $37,043,962 $37,721,976 $39,720,001 Revenues over (under) Expenditures $ 503,329 $ 127,529 $ (156,820) $ 706,465 $ (399,482) $ (935,001) Net Other Sources (Uses) , ,364 82,585 0 Beginning Fund Balance 1,240,147 1,743,476 1,871,005 2,083,522 2,962,351 2,525,000 Ending Fund Balance $ 1,743,476 $ 1,871,005 $ 2,083,522 $ 2,962,351 $ 2,645,454 $ 1,589,999 Balance Sheet Information (1) Reserved $ 198,589 $ 134,001 $ 118,331 $ 46,972 $ 0 (2) Restricted/Nonspendable ,904 (2) Commitment to Minimum (2) Fund Balance ,960,000 Unreserved, Designated , , ,389 (2) Unres., Undesig., Unassigned 1,544,887 1,737,004 1,884,721 1,940, ,161 (2) Total Ending Fund Balance $ 1,743,476 $ 1,871,005 $ 2,083,522 $ 2,962,351 $ 2,645,454 $ 1,589,999 (1) Beginning in budget year , the State modified General Fund balance categories: Reserved became Nonspendable or Restricted, and Unreserved became Committed, Assigned or Unassigned. Within Committed funds, a figure for Committed to Minimum Fund Balance Policy is included. The District has a formal minimum General Fund balance policy of 5% of budgeted expenditures. (2) Balance sheet information for the budget year 2011/12 is not currently available. Source: The District. 14

21 Statement of Revenues, Expenditures and Changes in Debt Service Fund Balance (Fiscal Years Ended August 31) 2010/ / / / /10 Unaudited 2011/12 Budget Revenues Local Funds $2,209,352 $2,196,605 $2,194,409 $2,217,087 $4,002,535 $5,093,934 Other 8,302 7,481 5,513 4, , ,066 Total Revenues $2,217,654 $2,204,086 $2,199,922 $2,221,495 $4,482,584 $5,911,000 Expenditures Principal 1,380,000 $1,480,000 $1,585,000 $1,895,000 $1,955,000 $5,365,000 Interest and Other 788, , , ,728 3,165,282 3,540,000 Total Expenditures $2,168,871 $2,208,887 $2,156,562 $2,321,728 $5,120,282 $8,905,000 Revenues over (under) Expenditures $ 48,783 $ (4,801) $ 43,360 $ (100,233) $ (637,698) $(2,994,000) Net Other Sources (Uses) ,772 3,644, Beginning Fund Balance 1,771,722 1,820,505 1,815,704 1,924,836 5,469,161 4,900,000 Ending Fund Balance $1,820,505 $1,815,704 $1,924,836 $5,469,161 $4,831,463 $1,906,000 Source: The District. Budgetary Process General Budgetary Policies. Chapter 28A.505 RCW and Chapter Washington Administrative Code mandate school district budget policies and procedures. The budget is adopted by the board after a public hearing. An appropriation is a prerequisite to expenditure. Appropriations lapse at the end of the fiscal period. Budgetary Basis of Accounting. For budget and accounting purposes, revenues and expenditures are accounted for on the modified accrual basis as prescribed by law for all governmental funds. Fund balance is budgeted as available resources and, pursuant to law, the budgeted ending fund balance cannot be negative. Encumbrances. Encumbrance accounting is employed in governmental funds. Purchase orders, contracts and other commitments for the expenditure of money are recorded in order to reserve a portion of the applicable appropriation. Encumbrances are closed at the end of the fiscal year and reopened the following year. Investment Policy The County Treasurer (the Treasurer ) is the ex-officio treasurer for the District. In this capacity, the Treasurer receives deposits and makes investments on the District s behalf. The District invests its funds with the Treasurer. At the request of one or more local governments that invest their money with a county, a county treasurer may pool those moneys for the purposes of investment (RCW ). The County currently has such an investment pool, a summary of which follows: Authorization. The investment policy of the Treasurer is approved by the County Finance Committee (the SCFC ). The SCFC reviews the policy annually and approves suggested changes. The SCFC provides oversight as to adherence to the policy by the Treasurer. The Treasurer is authorized by RCW to determine the investable balances in each fund of the County and its junior taxing districts and is authorized to invest such money. Upon the request of one or several units of local government that invest their money with the County under the provisions of RCW , the Treasurer may combine those units money for the purposes of investment. Whether investing individually by fund or by pooling, the Treasurer invests in accordance with this policy and applicable laws. Excess daily cash balances are determined by the Treasurer s Cash Management Team. The Cash Management Team is responsible for the overnight investment of excess cash in the State Treasurer s Local Government Investment Pool (the LGIP ). The use of other overnight instruments requires approval of the Treasurer or Finance Deputy and must fit within the constraints and guidelines of the investment policy. 15

22 Authorized Investments. The Treasurer may invest in several types of securities, including: 1. U.S. Treasury Bills; 2. U.S. Treasury Notes, Bonds, or Certificates of Indebtedness; 3. U.S. Government Agency Securities; 4. U.S. Government-Sponsored Corporations; 5. Certain certificates of Deposit of Financial Institutions (either banks or thrifts);. 6. Certain savings or time accounts in banks, trust companies, savings and loan associations, and mutual savings banks; 7. Certain bankers acceptances; 8. Repurchase Agreements providing the underlying securities are acceptable U.S. Government Securities, U.S. Government Agency Securities, or U.S. Government Sponsored Corporations, as previously authorized, and subject to several conditions; 9. Bonds of the State and any local government in the State, which bonds have at the time of investment one of the three highest credit ratings of a nationally recognized rating agency; 10. General obligation bonds of a state other than the State and general obligation bonds of a local government of a state other than the State, which bonds have at the time of investment one of the three highest credit ratings of a nationally recognized rating agency; 11. Certain registered warrants and notes for the County and those districts in the County for which the Treasurer is the ex-official Treasurer; and 12. Washington State LGIP. The following securities are authorized for funds subject to the arbitrage provisions of Section 148 of the Internal Revenue Code of 1986, as amended (the Code ). 1. Shares of mutual funds with portfolios consisting only of United States government bonds or United States government guaranteed bonds issued by federal agencies with average maturities less than four years. 2. Shares of money market funds with portfolios consisting of only bonds of states and local governments or other issuers authorized by law for investment by local governments, which bonds have at the time of investment one of the two highest credit ratings of a nationally recognized rating agency. 3. Shares of money market funds with portfolios consisting of securities otherwise authorized by law for investment by local governments. Diversification. It is the policy of the Treasurer to diversify its investment portfolio within the constraints of the law. Assets held in the common cash fund and other investment funds are diversified to eliminate the risk of loss resulting from over-concentration of assets in a specific maturity, a specific issuer or a specific class of securities. Diversification strategies are determined and revised periodically by the SCFC. Portfolio maturities are staggered to avoid undue concentration of assets in a specific maturity sector. Maturities are selected for stability of income and reasonable liquidity in view of cash flow projections. At least 10 percent of the portfolio is invested in overnight instruments or in marketable securities which can be sold to raise cash in one day s notice. No more than 25 percent of the total portfolio may be invested with any one U.S. Government Operated Agency or Government Sponsored Corporation issuer. In no case may the Treasurer invest in any one bank or trust company an amount in excess of one-half of the net worth of that financial institution as determined by the Public Deposit Protection Commission. Actual maximums may be set below this level at the discretion of the Treasurer. The total dollar amount of Certificates of Deposit and Bankers Acceptances in any one bank s name will not exceed 15 percent of the Treasurer s portfolio unless a certain bank s long term rating is AA- or better (S&P) or Aa3 or better (Moody s). If a bank has this rating, investments up to 20 percent of the portfolio in one bank is allowed. Maturity. Investments are placed to meet the cash requirements of each fund or the pooled portfolio for which they are invested. The time to maturity of securities purchased does not exceed five years at the time of purchase, except when compatible with a specific fund s investment needs or portfolio needs, and then only with the 16

23 approval of the SCFC. Investment of bond reserve funds which exceed five years are an exception and do not require approval of the SCFC. In order to maintain liquidity, the average time to maturity of investments must be less than two years, excluding underlying collateral of a repurchase agreement, debt service or special purpose investments which may have a long maturity due to unique circumstances. The Treasurer adjusts average maturity to market conditions, as needed. By fund investments with a maturity more than five years away may not be sold at a loss, unless that loss is provided for in the entities budget or such a sale is approved by the entity and the SCFC. For a full description of the County Investment Pool and its investment structure visit the County s website at Pension System Pensions for District employees are provided through the State Department of Retirement Systems (the DRS ). Substantially all District full-time and qualifying part-time employees participate in one of the following three contributory, multi-employer, cost-sharing statewide retirement systems that include: (1) the State Teachers Retirement System ( TRS ) for certificated employees; (2) the Public Employees Retirement System ( PERS ) for noncertificated employees; and (3) the School Employees Retirement System ( SERS ) for classified employees (as described by the DRS website, TRS includes three plans (Plans 1, 2 and 3); PERS includes three plans (Plans 1, 2 and 3); and SERS includes two plans (Plans 2 and 3). Participants who joined the retirement system by September 30, 1977, are eligible to be either TRS or PERS Plan 1 members. Those who joined thereafter are enrolled in TRS Plans 2 or 3, PERS Plans 2 or 3 or SERS Plans 2 or 3. Employees who do not specify a plan choice will transfer automatically to Plan 3. Retirement benefits are financed from both employee and employer contributions and from investment earnings. Retirement benefits under all Plans 1 and 2 are vested after completion of five years of eligible service. Plan 3 members are vested after ten years of eligible service or after five years of eligible service if one service credit year is earned after the age of 44. All Plans 1 and 2 are defined benefit plans. Each of the PERS Plan 3, the SERS Plan 3 and the TRS Plan 3 consist of two separate elements: a defined benefit and a defined contribution portion. Eligible participants enrolled in TRS or SERS Plan 2 may elect to transfer to the respective Plan 3, during the specified transfer window period that occurs in January of each year. Once employees transfer to Plan 3, they may not return to Plan 2 membership. Each biennium the Legislature establishes all Plan 1 employer contribution rates and all Plan 2 employer and employee contribution rates. Employee contribution rates for Plan 1 have been established by statute at 6 percent. The employer and employee contribution rates for Plan 2, and the employer contribution rates for the defined benefit portion of Plan 3, are developed by the Office of the State Actuary ( OSA ) and established by the Pension Funding council to fully fund those portions. The employee contribution rates to the defined contribution portion are set by statute and currently range from 4.09 percent to 15 percent. Each biennium, the Legislature may authorize, through budget appropriation, contributions to the defined contribution portion of all Plan 3 members accounts. Methods used to establish employer and employee contribution rates are defined in chapter RCW. The methods used to determine the contribution requirements are established under chapters 41.40, and RCW for PERS, SERS and TRS, respectively. All employers are required to contribute at the level established by the Legislature. Currently, employer contribution rates are 7.25 percent for PERS Plans 1 and 2, 8.04 percent for TRS Plans 1 and 2 and 7.59 percent for SERS. The State is responsible for funding basic education; based upon that funding, school districts make payments directly to the pension funds incurred for their employees. Legislation directs that employer contributions will provide for current pension liabilities and for the amortization of each system s unfunded liability by June 30, Actuarial Valuation and Funding Actuarial Reporting. OSA is required, pursuant to chapter RCW, to provide an actuarial valuation of PERS, TRS and SERS plans every two years. In practice, valuations are provided annually but only valuations for oddnumbered years are used to determine contribution rates adopted by the Pension Fund Council ( PFC ) in even number years. The demographic assumptions were last updated in the 2007 Actuarial Valuation Report based upon the Experience Study Report. The next review of the demographic assumptions is expected to be completed in The results shown in the table, Funded Status on an Actuarial Basis on the following page reflect the following assumptions which went into effect in 2009: 1. Rate of investment return: 8.0 percent per annum; 2. General salary increases: 4.0 percent per annum; and 17

24 3. Rate of Consumer Price Index increase: 3.5 percent (where applicable). The State Actuary has recommended that the PFC adopt new long-term economic assumptions of inflations: 1. Rate of investment return: 3.0 percent per annum; 2. General salary increases: 7.5 percent per annum; and 3. Rate of Consumer Price Index increase: 3.75 percent (where applicable). Valuation Method. The OSA uses two funded status measures. The first funded status measure compares the Actuarial Value of Assets ( AVA ) to the Projected Unit Credit ( PUC ) liabilities. The PUC cost method projects future benefits using salary growth and other assumptions and applies the service that has been earned as of the valuation date to determine accrued liabilities. The asset valuation method smoothes the inherent volatility in the Market Value of Assets ( MVA ) by deferring a portion of the annual investment gains or losses over a period of up to eight years. This method is consistent with governmental accounting standards. This smoothing method, which the State has followed in all actuarial valuations since July 1, 2003, helps to limit fluctuations in contribution rates and funded status that would otherwise arise from short-term changes in MVA. The OSA also uses a second measure, comparing the MVA to the PUC liabilities calculated using a short-term interest rate assumption. This measure is used for the closed plans, PERS 1 and TRS 1. Additional information on this measure is provided in the 2010 Actuarial Valuation Report. Funded Status. The following table displays the funded status on an actuarial value basis for the PERS, TRS and SERS plans discussed above. The 2010 actuarial valuation, released in October 2011, showed that the funded status of all of the state-administered plans combined is 102 percent. Two funds PERS 1 and TRS 1 are underfunded with an unfunded actuarial accrued liability of $4.7 billion as of June 30, Assets from one plan may not be used to fund benefits for another plan. However, all employers in PERS, SERS and Public Safety Employees Retirement System ( PSERS ) are required to make contributions at a rate (percentage of payroll) adopted by the PFC every two years for the sole purpose of amortizing the PERS 1 Unfunded Actuarial Accrued Liability ( UAAL ) within a rolling ten-year period. In addition, all employers in TRS are required to make contributions at a rate (percentage of payroll) determined by OSA every two years for the sole purpose of amortizing the TRS 1 UAAL within a rolling ten-year period. For this purpose, the Legislature has established certain maximum contribution rates that began in 2009 and will continue until 2015 and certain minimum contribution rates that are to become effective in 2015 and remain in effect until the actuarial value of assets in PERS 1 and TRS 1 equals 100 percent of the actuarial accrued liability of PERS 1 and TRS 1, respectively. Upon completion of each biennial actuarial valuation, the OSA is to recommend to the PFC any adjustments in the minimum contribution rates that may be needed as a result of material changes in benefits or actuarial assumptions, methods or experience. Any changes adopted by the PFC are subject to revision by the Legislature. In 2011, the Legislature ended the future automatic annual increase, which is a fixed dollar amount multiplied by the members total years of service, for most retirees in PERS Plan 1 and TRS Plan 1, which is forecast to reduce the unfunded liabilities in such plans. Litigation challenging this legislation has been filed. [Remainder of this page intentionally left blank] 18

25 Funded Status on an Actuarial Value Basis (1) PERS TRS SERS Plan 1 Plan 2/3 Plan 1 Plan 2/3 Plan 2/3 PUC Liability (2) $12,531 $17,272 $9,231 $5,708 $2,368 Valuation Assets (2) 9,293 19,474 7,791 6,593 2,664 Unfunded Liability (2) $ 3,238 $(2,202) $1,439 $ (886) $ (296) Funded Ratio 2000 (3) 98% 190% 100% 196% 170% 2001 (3) (3) (3) (3) (3) (4)(5) (1) Liabilities have been valued using the Projected Unit Credit ( PUC ) cost method at an interest rate of eight percent while assets have been valued using the actuarial value of assets. (2) Dollars in millions. Based on actuarial valuation as of June 30, (3) Actuarial assumptions changed. (4) Includes results of legislation that eliminated the annual adjustment increase for retirees in PERS 1 and TRS 1. (5) 2010 funded ratio for PERS 1 and TRS 1 would drop to 63 percent for PERS 1 and 70 percent for TRS 1 if both gainsharing and the annual adjustment were reinstated. Source: Office of the State Actuary. Other Post-Employment Benefits PEBB Overview. The Public Employee Benefits Board ( PEBB ), created within the State Health Care Authority ( HCA ), administers medical, dental and life insurance plans for State public employees and retirees. Employers who participate in the PEBB plan include the State, K-12 school districts, numerous political subdivisions of the State and tribal governments. The relationship between the PEBB OPEB plan and its member employers and their employees and retirees is not formalized in a contract or plan document; rather, the benefits are provided in accordance with a substantive plan in which the plan terms are provided to the employers and plan members. Membership in PEBB Plan (As of June 30, 2011) Active Employees Retirees (1) Total State 108,251 28, ,636 K-12 and ESDs (2) 2,009 27,159 29,168 Political Subdivisions 11,753 1,188 12,941 Total 122,013 56, ,745 (1) Retirees include retired employees, surviving spouses, and terminated members entitled to a benefit. (2) In Fiscal Year 2011, there were 99,896 full-time equivalent active employees in the 246 K-12 schools and ESDs that elected to limit participation in PEBB only to their retirees. Source: Washington State Comprehensive Annual Financial Report ( CAFR ) for Fiscal Year Ended June 30,

26 OPEB refers to post employment benefits provided to employees other than pension benefits. These benefits include but are not limited to healthcare coverage, life insurance and long-term care. GASB has issued guidance for the recognition of OPEB liabilities and expenditures. The District s financial statements do not report a liability for OPEB (GASB Statement 45). Other departures from GAAP that are material in nature are indicated throughout the notes of the District s financial statements. See Financial Reporting herein. PEBB Membership. Retirees access to PEBB depends on the retirement eligibility of their respective retirement system. PEBB members are covered in the PERS, TRS and SERS retirement systems. Funding of PEBB Plan. In the State, retiree benefits and contributions by the State and local governments for their respective employees are set each biennium as part of the budget process. These benefits are funded on a pay-asyou-go basis. Population DEMOGRAPHIC INFORMATION The District is located nearly entirely within the County, with a small percentage located within Whitman County. Historical population of the State, the County and incorporated communities within the District are shown in the following table: Year Spokane County City of Cheney Historical Population City of Spokane City of Airway Heights State of Washington ,650 10, ,100 6,220 6,767, ,300 10, ,900 5,600 6,733, ,000 10, ,500 5,515 6,668, ,000 10, ,400 5,240 6,587, ,200 10, ,900 5,030 6,488,000 Income Source: Washington State Office of Financial Management. Historic personal, median and per capita income levels for the County and the State are shown below: Total Personal Income (in thousands) Spokane County Median Income Per Capita Income Total Personal Income (in thousands) State of Washington Median Income Per Capita Income Year 2011 (1) $46,846 (3) (1) (1) (3) $55,500 (1) 2010 (1) 46,320 (2) (1) $287,111,284 54,888 (2) $42, $16,215,776 46,983 $34, ,665,083 55,458 41, ,094,042 48,876 34, ,379,487 57,858 44, ,329,615 47,848 33, ,624,864 56,141 42,192 (1) Not currently available. (2) Preliminary estimate. (3) Projection. Sources: U.S. Department of Commerce, Bureau of Economic Analysis and State Office of Financial Management. 20

27 Building Permits The following table lists the valuation of building permits in the County in thousands of dollars: New Single-Family Homes $135,098 $ 88,763 $ 65,642 $ 83,321 $ 70,186 Other New Construction 80,539 93,743 49,270 62, ,156 Total New Construction: $215,637 $182,506 $114,912 $145,378 $212,342 Miscellaneous, (1) Plumbing and Mechanical 37,606 49,584 63,813 41,399 33,498 Total Permit Values: $253,243 $232,090 $178,725 $186,777 $245,840 (1) Miscellaneous includes demolition, swimming pools, manufactured homes, tank/piping and relocation permits. Source: County Building and Planning Department. Taxable Retail Sales The following table indicates Cheney, the City of Airway Heights and the County s historical taxable retail sales: Year City of Cheney City of Airway Heights Spokane County 2011 (1) $ 62,660,518 $42,582,586 $3,214,994, ,593,616 88,237,842 6,755,693, ,903,559 88,113,757 6,692,277, ,701,986 84,520,698 6,534,155, ,364,776 95,207,652 6,813,968,233 (1) Through second quarter Source: State Department of Revenue. Major Employers The following table indicates employment data for major employers in the County. Employer No. of Employees 92 nd Air Refueling Wing, Fairchild Air Force Base 5,794 Spokane Public Schools 3,191 Providence Sacred Heart Medical Center & Children s Hospital 3,138 City of Spokane 2,008 Spokane County 1,929 Deaconess Hospital 1,418 URM Stores Inc. 1,347 Wal-Mart Stores 1,332 Central Valley School District 1,248 Community Colleges of Spokane 1,193 Source: Journal of Business 2012 Book of Lists. 21

28 Spokane County Employment Data by Industry NAICS (1) Industry Civilian Labor Force 225, , , , ,500 Total Employment 214, , , , ,700 Total Unemployment 11,200 10,920 13,300 22,070 22,810 Unemployment Rate 5.0% 4.7% 5.6% 9.2% 9.6% Total Nonfarm (2) 212, , , , ,100 Total Private 178, , , , ,200 Goods Producing 31,900 33,100 32,100 27,000 24,400 Natural Resources and Construction 13,400 14,200 13,900 11,700 9,900 Manufacturing 18,500 18,900 18,200 15,300 14,500 Service Providing 180, , , , ,700 Trade, Transportation and Utilities 43,100 44,100 44,000 41,300 40,400 Wholesale Trade 10,600 10,800 10,800 9,800 9,400 Retail Trade 26,200 26,800 26,600 25,300 24,900 Food and Beverage Stores 4,400 4,300 4,300 4,500 4,400 General Merchandise Stores 5,300 5,400 5,900 5,900 5,600 Transportation, Warehousing and Utilities 6,300 6,600 6,600 6,200 6,000 Information 3,200 3,200 3,100 2,800 2,800 Financial Activities 13,300 13,300 12,800 12,300 12,000 Finance and Insurance 10,200 10,100 9,700 9,300 9,200 Professional and Business Services 23,200 23,000 22,600 21,200 20,800 Management of Companies and Enterprises 34,500 36,600 38,800 40,300 40,100 Education and Health Services 29,500 31,300 33,400 34,700 34,400 Health and Social Assistance 11,600 12,100 12,700 13,400 13,700 Ambulatory Health Care Services 7,500 7,900 8,400 8,600 8,400 Hospitals 20,000 20,800 20,700 19,400 18,600 Leisure and Hospitality 14,600 15,200 15,100 14,300 13,800 Food Services and Drinking Places 9,100 9,200 9,300 9,200 9,100 Other Services 34,400 34,500 35,600 35,900 35,900 Government 4,600 4,600 4,700 4,800 4,700 Federal Government 10,700 10,800 11,200 11,000 11,000 Total State Government 5,600 5,600 5,700 5,700 5,800 State Government Educational Services 19,100 19,100 19,800 20,100 20,300 Total Local Government 11,100 10,800 11,100 11,200 11,200 (1) North American Industry Classification System. (2) Excludes proprietors, self-employed, members of the armed services, workers in private households, and agriculture. Includes all full- and part-time wage and salary workers receiving pay during the pay period including the 12 th of the month. Source: Washington State Employment Security Department, Labor Market & Economic Analysis Branch. INITIATIVES AND REFERENDA General. Under the State constitution, the voters of the State have the ability to initiate legislation and to modify existing statutes through the powers of initiative and referendum. Initiatives and referenda are submitted to the voters upon receipt of a petition signed by at least eight percent (initiatives) and four percent (referenda) of the number of voters registered and voting for the office of Governor at the preceding regular gubernatorial election. Any law approved through the power of initiative by a majority of the voters may not be amended or repealed by the Legislature within a period of two years following enactment, except by a vote of two-thirds of all the members elected to each house of the Legislature, but thereafter is subject to amendment or repeal by the Legislature in the same manner as other laws. Future Initiatives. Initiative petitions affecting tax collections and levy rates (not including the taxes pledged to the repayment of the Bonds) and other matters may be filed in the future. The District cannot predict whether any such initiatives will qualify to be submitted to the voters or, if submitted, will be approved. Likewise, the District cannot predict what actions the Legislature might take, if any, regarding future initiatives approved by voters. 22

29 TAX MATTERS Koegen Edwards LLP, Spokane, Washington, Bond Counsel to the District ( Bond Counsel ) expects to deliver opinions for the 2012A Bonds and the 2012B Bonds at the time of issuance of the Bonds substantially in the form set forth in Appendix B hereto. The 2012A Bonds In the opinion of Bond Counsel, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the 2012A Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Code. Bond Counsel is of the further opinion that interest on the 2012A Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, and Bond Counsel expresses no opinion on whether any portion of the interest on the 2012A Bonds is excluded from adjusted current earnings when calculating corporate alternative minimum taxable income. Bonds purchased, whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (or, in some cases, at their earlier call date) ( Premium Bonds ) will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of bonds, like the 2012A Bonds that are Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax-exempt interest received, and a Beneficial Owner s basis in a 2012A Bond that is a Premium Bond, will be reduced by the amount of amortizable bond premium properly allocable to such Beneficial Owner. Beneficial Owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances. The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the 2012A Bonds. The District has made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the 2012A Bonds will not be included in federal gross income. Inaccuracy of these representations or failure to comply with these covenants may result in interest on the 2012A Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the 2012A Bonds. The opinion of Bond Counsel assumes the accuracy of these representations and compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken), or events occurring (or not occurring), or any other matters coming to Bond Counsel s attention after the date of issuance of the 2012A Bonds may adversely affect the value of, or the tax status of interest on, the 2012A Bonds. The District has designated the 2012A Bonds as qualified tax-exempt obligations pursuant to and as defined in Section 265(b) of the Code. The District has covenanted that it shall not designate more than $10,000,000 of taxexempt obligations during the calendar year Although Bond Counsel is of the opinion that interest on the 2012A Bonds is excluded from gross income for federal income tax purposes, the ownership or disposition of, or the accrual or receipt of interest on, the 2012A Bonds may otherwise affect a Beneficial Owner s federal, state or local tax liability. The nature and extent of these other tax consequences depends upon the particular tax status of the Beneficial Owner or the Beneficial Owner s other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences. Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the 2012A Bonds to be subject, directly or indirectly, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent Beneficial Owners from realizing the full current benefit of the tax status of such interest. As one example, on September 12, 2011, the Obama Administration announced a legislative proposal entitled the American Jobs Act of For tax years beginning on or after January 1, 2013, the American Jobs Act of 2011 generally would limit the exclusion from gross income of interest on obligations like the 2012A Bonds to some extent for taxpayers who are individuals and whose income is subject to higher marginal income tax rates. Other proposals have been made that could significantly reduce the benefit of, or otherwise affect, the exclusion from gross income of interest on obligations like the 2012A Bonds. The introduction or enactment of any such legislative proposals, clarification of the Code or court decisions may also affect, perhaps significantly, the market price for, or marketability of, the 2012A Bonds. Prospective purchasers of the 2012A Bonds should consult their own 23

30 tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation, and regarding the impact of future legislation, regulations or litigation, as to which Bond Counsel expresses no opinion. The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel s judgment as to the proper treatment of the 2012A Bonds for federal income tax purposes. It is not binding on the Internal Revenue Service ( IRS ) or the courts. Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the District, or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. The District has covenanted, however, to comply with the requirements of the Code. Bond Counsel s engagement with respect to the 2012A Bonds ends with the issuance of the 2012A Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the District or the Beneficial Owners regarding the taxexempt status of the 2012A Bonds in the event of an audit examination by the IRS. Under current procedures, parties other than the District and its appointed counsel, including the Beneficial Owners, would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax-exempt bonds is difficult, obtaining an independent review of IRS positions with which the District legitimately disagrees, may not be practicable. Any action of the IRS, including but not limited to selection of the 2012A Bonds for audit, or the course or result of such audit, or an audit of bonds presenting similar tax issues may affect the market price for, or the marketability of, the 2012A Bonds, and may cause the District or the Beneficial Owners to incur significant expense. The 2012B Bonds Interest on the 2012B Bonds is not excluded from gross income for federal income tax purposes. Prospective investors that are not individuals or regular C corporations who are U.S. persons purchasing the 2012B Bonds for investment should consult their own tax advisors as to any tax consequences to them from the purchase, ownership and disposition of the 2012B Bonds. Circular 230. Under 31 C.F.R. part 10, the regulations governing practice before the IRS (Circular 230), the District and its tax advisors are (or may be) required to inform prospective investors that: (1) this advice is written to support the promotion or marketing of the 2012B Bonds; (2) this advice is not intended or written by Bond Counsel to be used, and may not be used, by any person or entity for the purpose of avoiding any penalties that may be imposed on any person or entity under the Code; and (3) prospective purchasers of the 2012B Bonds should seek advice based on their particular circumstances from an independent tax advisor. APPROVAL OF LEGAL PROCEEDINGS Legal matters incident to the authorization, issuance and sale of Bonds by the District are subject to the approving legal opinions of Bond Counsel. Certain legal matters will be passed upon for the District by Koegen Edwards LLP, Spokane, Washington, as Disclosure Counsel. The fees of Bond Counsel are payable solely from the proceeds of the Bonds; hence, such fees are necessarily contingent upon the issuance of the Bonds. Copies of the opinions of Bond Counsel in the forms set forth as Appendix B hereto will be delivered upon the issuance of the Bonds. CONTINUING DISCLOSURE UNDERTAKING In accordance with Section (b)(5) of Securities and Exchange Commission (the SEC ) Rule 15c2-12 under the Securities and Exchange Act of 1934, as the same may be amended from time to time ( Rule 15c2-12 ), the District has agreed to provide the information and notices described by 17 CFR c2-12(b)(5) with respect solely to the Bonds (the Undertaking ). Notwithstanding any other provision of the Resolution to the contrary, neither the registered owner or holder of Bonds of any series other than the Bonds, nor any trustee acting on their behalf, shall be entitled to any right or to exercise any remedy provided to the Holders under the Undertaking based upon the District s failure to observe, or refusal to comply with, the covenants contained in the Undertaking. Definitions for Purposes of the Undertaking. Solely for the purposes of the Undertaking, the following terms shall have the following meanings unless the context otherwise requires: Annual Financial Information shall mean an annual update of: (1) annual financial statements prepared (except as noted in the financial statements) in accordance with generally accepted accounting 24

31 principles applicable to governmental units, as such principles may be changed from time to time and as permitted by State law; which may not be audited, except that if and when audited financial statements are otherwise prepared and available to the District they will be provided; (2) a statement of authorized, issued and outstanding general obligation debt of the District; (3) the assessed value of the property within the District subject to ad valorem taxation; and (4) ad valorem tax levy rates and amounts and percentage of taxes collected. Audited Financial Statements shall mean, with respect to the District, financial statements prepared and audited pursuant to the laws of the State (presently RCW through ), as such laws may be amended from time to time. EMMA shall mean the MSRB s Electronic Municipal Market Access system, which shall receive all required filings under Rule 15c2-12. Holder shall mean any Registered Owner of a Bond and any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares: (1) voting power which includes the power to vote, or to direct the voting of, a Bond; and/or (2) investment power which includes the power to dispose, or direct the disposition of, a Bond. thereto. MSRB shall mean the Municipal Securities Rulemaking Board or any successor in functions Obligated Person shall have the meaning specified in Rule 15c2-12. Official Statement shall mean the District s final official statement relating to the Bonds, together with any amendments thereto. Required Filings shall mean any filing made pursuant the Undertaking. Rule 15c2-12 shall mean Rule 15c2-12 of the SEC, as amended. thereto. SEC shall mean the Securities and Exchange Commission or any successor in functions Annual Financial Information. The District will provide to EMMA within nine months after the end of each fiscal year, commencing on or before May 31, 2013, Annual Financial Information for the District in an electronic format as prescribed by the MSRB, accompanied by identifying information as prescribed by the MSRB. Presently, the District s fiscal year commences on September 1. All or any portion of the Annual Financial Information may be incorporated in the Annual Financial Information by cross reference to any other documents which have been filed with: (1) EMMA; (2) the SEC; or (3) if the document is an official statement, with the MSRB. Annual Financial Information for any fiscal year containing any modified operating data or financial information for such fiscal year shall explain, in narrative form, the reasons for such modification and the effect of such modification on the Annual Financial Information being provided for such fiscal year. If a change in accounting principles is included in any such modification, the initial Annual Financial Information after such modification shall present a comparison between the financial statements or information prepared on the basis of the modified accounting principles and those prepared on the basis of the former accounting principles. The District will provide notice of the modification of operating data or financial information or change in accounting principles to EMMA. Audited Financial Statements. To the extent the District s Audited Financial Statements are not submitted as part of the Annual Financial Information pursuant to the Undertaking, the District will provide to EMMA the Audited Financial Statements of the District (commencing with the Audited Financial Statements for the fiscal year ending August 31, 2012), when and if such Audited Financial Statements are available. Although the District may submit a comprehensive annual financial report (a CAFR ) together with its Audited Financial Statements, there is no requirement to do so hereunder, and the dissemination of a CAFR in any year shall not be construed as a requirement to disseminate a CAFR in any subsequent year. 25

32 Event Notices. The District will provide to EMMA, within 10 business days of the occurrence, notice of any of the following events with respect to the Bonds: (1) principal and interest payment delinquencies; (2) unscheduled draws on debt service reserves reflecting financial difficulties; (3) unscheduled draws on credit enhancements reflecting financial difficulties; (4) substitution of credit or liquidity providers, or their failure to perform; (5) defeasances; (6) rating changes; (7) tender offers; (8) bankruptcy, insolvency, receivership or similar proceeding of an Obligated Person, if any; and (9) adverse tax opinions, the issuance by the Internal Revenue Services of a proposed or final determination of taxability, or Notices of Proposed Issue (IRS Form 5701-TEB). The District will provide to EMMA, within 10 days of the occurrence, notice of any of the following events with respect to the Bonds, if material: (1) non-payment related defaults; (2) modifications to rights of security holders; (3) bond calls (optional, contingent or unscheduled Bond calls other than scheduled sinking fund redemptions for which notice is given pursuant to Exchange Act Release ); (4) release, substitution, or sale of property securing repayment of the Bonds; (5) 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 action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; and (6) the appointment of a successor or additional trustee or the change of name of a trustee; or (7) other notices of determinations with respect to the tax status of the Bonds or other events affecting the tax status of the Bonds. Notice of Late Filing. The District will provide to EMMA in a timely manner, notice of a failure of the District to provide the required Annual Financial Information on or before the date set forth herein. Term of the Undertaking. The term of the Undertaking shall commence on the date of closing and initial delivery of the Bonds to the Registered Owners, and shall terminate when the Bonds shall have been paid in full or defeased in accordance with the Resolution. The District shall provide notice of such defeasance to EMMA; provided, such notice shall not be a condition to such defeasance. Amendments. Notwithstanding any provision of the Resolution to the contrary, the District may amend the Undertaking in conformity with Rule 15c2-12, as interpreted from time to time by the courts, the SEC, or the SEC staff. Upon the adoption of any amendment to the Rule, the Undertaking shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations of the District and all Holders under the Undertaking shall thereafter be determined, exercised and enforced thereunder, subject in all respects to such modification and amendments, and all terms and conditions of any such amendment shall be deemed to be part of the terms and conditions of the Undertaking for any and all purposes. If the consent of Holders is necessary for such amendment, only the Holders of the Bonds shall be considered for purposes of determining whether such consent has been rendered. Additional Information. Nothing in the Undertaking shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in the Undertaking or any other means of communication, or including any other information in any Required Filing, in addition to that which is required by the Undertaking. If the District chooses to include any information in any Required Filing in addition to that which is specifically required by the Undertaking, the District shall have no obligation under the Undertaking to update such information or include it in any future Required Filing. Defaults of the Undertaking. If the District shall fail to comply with any provision of the Undertaking, then any Holder may enforce, for the equal benefit and protection of all Holders similarly situated, by mandamus or other suit or proceeding at law or in equity, such provision against the District and any of the officers, agents and employees of the District, and may compel the District or any such officers, agents or employees to perform and carry out their duties under the Undertaking; provided, that the sole and exclusive remedy for breach of the Undertaking shall be an action to compel specific performance of the obligations of the District hereunder and no person or entity shall be entitled to recover monetary damages hereunder under any circumstances. Rescission Rights. The District hereby reserves the right to rescind the Undertaking without the consent of the Holders in the event Rule 15c2-12 is repealed by the SEC or is ruled to be invalid by a federal court and the time to appeal from such decision has expired. In the event of a partial repeal or invalidation of Rule 15c2-12, the District hereby reserves the right to rescind those provisions of the Undertaking that were required by those parts of Rule 15c2-12 that are so repealed or invalidated. 26

33 EMMA. Any filing under the Undertaking may be made solely by transmitting such filing to EMMA as provided at Prior Compliance. The District discovered that it had not provided certain operating information along with its 2009 audited financial statements, which were submitted through EMMA on May 20, 2010, as required by its previous continuing disclosure undertakings. Upon learning of the oversight, the District promptly submitted the missing information along with an event notice through EMMA on September 17, Such additional operating information was also presented in the District s official statement for its Unlimited Tax General Obligation Bonds, 2010, dated April 28, The District is currently in compliance with the requirements of all prior undertakings under the Rule. LITIGATION There is no action, suit or proceeding known to be pending or threatened, restraining or enjoining the issuance, sale, execution, or delivery of the Bonds or in any way contesting or affecting the validity of the Bonds or any proceedings of the District taken with respect to the issuance or sale thereof. RATINGS As noted on the cover page of this Official Statement, Moody s Investors Service ( Moody s ) has assigned its creditenhanced rating of Aa1 to the Bonds based upon the District s participation in the Washington State School District Credit Enhancement Program (see Appendix D attached hereto). Further, Moody s has also assigned an underlying rating of Aa3 to the Bonds. No application was made to any other rating agency for the purpose of obtaining an additional rating on the Bonds. Each rating reflects only the view of the applicable rating organization and an interpretation of such rating may be obtained only from the rating agency furnishing the same, at the following address: Moody s Investors Service, 7 World Trade Center at 250 Greenwich Street, New York, New York Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. 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 the rating agencies, if, in the judgment of such agencies, circumstances so warrant. Any such revision or withdrawal of either such rating may have an adverse effect on the market price of the Bonds. UNDERWRITING The 2012A Bonds. The Underwriter has agreed, subject to certain conditions, to purchase the 2012A Bonds at a price of $9,966,668.78, which reflects the principal amount of the 2012A Bonds, plus an original issue premium of $666,393.05, less an Underwriter s discount of $29, The Underwriter may offer and sell the 2012A Bonds to certain dealers (including dealers depositing 2012A Bonds into investment trusts) and others at prices lower than the initial offering prices set forth on the cover page hereof, and such initial offering prices may be changed, from time to time, by the Underwriter. The 2012B Bonds. The Underwriter has agreed, subject to certain conditions, to purchase the 2012B Bonds at a price of $611,281.26, which reflects the principal amount of the 2012B Bonds, plus an original issue premium of $2,349.60, less an Underwriter s discount of $1, The Underwriter may offer and sell the 2012B Bonds to certain dealers (including dealers depositing 2012B Bonds into investment trusts) and others at prices lower than the initial offering prices set forth on the cover page hereof, and such initial offering prices may be changed, from time to time, by the Underwriter. ADVISORS AND CONSULTANTS Public Financial Management Inc., Seattle, Washington has been retained as financial advisor (the Financial Advisor ) to the District with respect to the issuance of the Bonds. The Financial Advisor has not audited, authenticated or otherwise verified the information set forth in this Official Statement or any other related information available to the District with respect to the accuracy and completeness of disclosure of such information, and no guaranty, warranty or other representation is made by the Financial Advisor respecting the accuracy and completeness of this Official Statement or any other matter related to this Official Statement. The fees of the Financial Advisor in relation to the issuance of the Bonds are contingent upon the issuance of the Bonds. The District is not aware of the existence of any other actual or potential conflict of interests, breach of duty or less than arm s-length transaction regarding the selection of the Underwriter of the Bonds and other participants in the offering of the Bonds. 27

34 ADDITIONAL INFORMATION The descriptions herein and in the Appendices hereto of the Resolution and other documents are brief summaries of certain provisions thereof. Such summaries do not purport to be complete, and reference is made to such documents and contracts, copies of which are available, upon request from the District. CERTIFICATE WITH RESPECT TO OFFICIAL STATEMENT At the time of the original delivery of and payment for the Bonds, the District will deliver a certificate of its authorized representative addressed to the Purchaser to the effect that he has examined this Official Statement and the financial and other data concerning the District contained herein and that to the best of his knowledge and belief: (1) the Official Statement, both as of its date and as of the date of delivery of the Bonds, does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (2) between the date of the Official Statement and the date of delivery of the Bonds there has been no material adverse change in the affairs (financial or other), financial condition or results of operations of the District except as set forth in or contemplated by the Official Statement. MISCELLANEOUS All estimates included in this Official Statement, whether or not so stated, are not to be construed as representations that the same will be realized. Section headings, table headings and captions are included for convenience only and should not be construed as modifying the text of this Official Statement. All projections and other 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 Registered Owners of any of the Bonds. The execution and delivery of this Official Statement has been duly authorized by the District. Dated: March 28, CHENEY SCHOOL DISTRICT NO. 360 Spokane and Whitman Counties, Washington /s/ Lawrence R. Keller, Superintendent 28

35 APPENDIX A: DISTRICT FINANCIAL STATEMENTS Attached hereto are the District s Unaudited Financial Statements for the year ending August 31, 2011, and Audited Financial Statements for the year ending August 31, Electronic versions of the District s Financial Statements are available on the District s Website. [Remainder of this page intentionally left blank]

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37 REPORT F196 RUN: 1/17/ :28:02 AM F-196 Annual Financial Statements COUNTY: 32 Spokane Fiscal Year ANNUAL FINANCIAL STATEMENTS Certification Page Balance Sheet as of August 31, 2011-All Funds Statement of Revenues, Expenditures, and Changes in Fund Balance For the Year Ended August 31, 2011-All Funds Budgetary Comparison Schedules-All Funds Statement of Fiduciary Net Assets Statement of Changes in Fiduciary Net Assets Schedule of Long-Term Debt Report of Revenues and Other Financing Sources-All Funds Program/Activity/Object Report SUPPLEMENTAL REPORTS AND SCHEDULES Program Matrix Data Requirements for Supplemental Reports Data Requirements for End of Year Reporting to Apportionment and State Recovery Rate Data Requirements for Calculating Federal Indirect Cost Rate Including Fixed With Carry-Forward Distorting Items Data Requirements for Calculating Federal Indirect Cost Rate Including Fixed With Carry-Forward Indirect Expenditures Schedule for Determining School District Federal Restricted and Unrestricted Indirect Cost Rate Including Fixed With Carry-Forward Calculation Resource to Program Expenditure Report Preliminary Special Education Maintenance of Effort Preliminary Federal Cross-Cutting Maintenance of Effort Preliminary Vocational Education Maintenance of Effort Edit/Error Report A-1

38 REPORT F196 Balance Sheet RUN: 1/17/ :28:05 AM COUNTY: 32 Spokane Governmental Funds August 31, 2011 General Fund ASB Fund Debt Service Fund Capital Projects Fund Transportation Vehicle Fund Permanent Fund Total ASSETS: Cash and Cash Equivalents Minus Warrants Outstanding Taxes Receivable Due From Other Funds Due From Other Governmental Units Accounts Receivable Interfund Loans Receivable Accrued Interest Receivable Inventory Prepaid Items Investments Investments/Cash With Trustee Investments-Deferred Compensation Self-Insurance Security Deposit TOTAL ASSETS 3,130, ,109, ,545, , , , , ,340, , , , , ,831, ,542, ,374, ,752, ,119, , ,727, , , , ,380, ,245, ,184, , , , , ,105, LIABILITIES: Accounts Payable Contracts Payable Current Accrued Interest Payable Accrued Salaries Revenue Anticipation Notes Payable Payroll Deductions and Taxes Payable Due To Other Governmental Units Deferred Compensation Payable Estimated Employee Benefits Payable Due To Other Funds 105, , , , ,922, ,031, , , Page 1 of 2 REPORT F196 Balance Sheet RUN: 1/17/ :28:05 AM COUNTY: 32 Spokane Governmental Funds August 31, 2011 General Fund ASB Fund Debt Service Fund Capital Projects Fund Transportation Vehicle Fund Permanent Fund Total LIABILITIES: Interfund Loans Payable Deposits Matured Bonds Payable Matured Bond Interest Payable Arbitrage Rebate Payable Deferred Revenue TOTAL LIABILITIES 3,545, ,694, , ,542, ,542, , ,017, , , ,184, ,259, FUND BALANCE: Nonspendable Fund Balance Restricted Fund Balance Committed Fund Balance Assigned Fund Balance Unassigned Fund Balance TOTAL FUND BALANCE 14, , ,960,00 377, , ,645, , , ,831, ,831, ,482, , ,710, , , , ,499, ,960,00 6,094, , ,845, TOTAL LIABILITIES AND FUND BALANCE 6,340, , ,374, ,727, , ,105, Page 2 of 2 A-2

39 REPORT F196 RUN: 1/17/ :28:06 AM E.S.D. 101 Statement of Revenues, Expenditures, and Changes in Fund Balance COUNTY: 32 Spokane Governmental Funds For the Year Ended August 31, 2011 General Fund ASB Fund Debt Service Fund Capital Projects Fund Transportation Vehicle Fund Permanent Fund Total REVENUES: Local 7,939, , ,002, ,339, , ,686, State 25,094, , ,404, Federal 2,865, , , ,355, Federal Stimulus 1,366, ,366, Other 57, , TOTAL REVENUES 37,322, , ,482, ,339, , ,870, EXPENDITURES: CURRENT: Regular Instruction 20,480, ,480, Federal Stimulus 1,353, ,353, Special Education 5,187, ,187, Vocational Education 993, , Skills Center Compensatory Programs 1,722, ,722, Other Instructional Programs 402, , Community Services 26, , Support Services 7,373, ,373, Student Activities/Other 338, , CAPITAL OUTLAY: Sites 1,243, ,243, Building 23,161, ,161, Equipment 1,251, ,251, Energy Transportation Equipment 513, , Other 181, , DEBT SERVICE: Principal 1,955,00 1,955,00 Interest and Other Charges 3,165, , ,214, TOTAL EXPENDITURES 37,721, , ,120, ,705, , ,399, REVENUES OVER (UNDER) EXPENDITURES -399, , , ,365, , ,529, Page 1 of 2 REPORT F196 RUN: 1/17/ :28:06 AM E.S.D. 101 Statement of Revenues, Expenditures, and Changes in Fund Balance COUNTY: 32 Spokane Governmental Funds For the Year Ended August 31, 2011 General Fund ASB Fund Debt Service Fund Capital Projects Fund Transportation Vehicle Fund Permanent Fund Total OTHER FINANCING SOURCES (USES): Bond Sales & Refunding Bond Sales 17,408, ,408, Long-Term Financing Transfers In 82, , Transfers Out (GL 536) -82, , Other Financing Uses (GL 535) Other 2,34 2,34 TOTAL OTHER FINANCING SOURCES (USES) 82, ,325, ,34 17,410, EXCESS OF REVENUES/OTHER FINANCING SOURCES OVER (UNDER) EXPENDITURES AND OTHER FINANCING USES -316, , , ,040, , ,119, BEGINNING TOTAL FUND BALANCE Prior Year(s) Corrections or Restatements ENDING TOTAL FUND BALANCE 2,962, ,645, , , ,469, ,831, ,750, ,710, , , ,964, ,845, Page 2 of 2 A-3

40 REPORT F196 RUN: 1/17/ :28:08 AM E.S.D. 101 Budgetary Comparison Schedule COUNTY: 32 Spokane General Fund For The Year Ended August 31, 2011 REVENUES: Local State Federal Federal Stimulus Other TOTAL REVENUES EXPENDITURES CURRENT: Regular Instruction Federal Stimulus Special Education Vocational Education Skills Center Compensatory Programs Other Instructional Programs Community Services Support Services Student Activities/Other CAPITAL OUTLAY: Sites Building Equipment Energy Transportation Equipment Other FINAL BUDGET 7,873, ,267,22 3,466, , ,00 38,780,00 22,051, , ,791,15 992, ,934, , ,00 8,314, , ACTUAL 7,939, ,094, ,865, ,366, , ,322, ,480, ,353, ,187, , ,722, , , ,373, , Variance with Final Budget POSITIVE (NEGATIVE) 65, ,173, , , , ,457, ,571, , , , , , , , DEBT SERVICE: Principal Interest and Other Charges TOTAL EXPENDITURES 39,200,00 37,721, ,478, REVENUES OVER (UNDER) EXPENDITURES -420,00-399, , Page 1 of 2 REPORT F196 RUN: 1/17/ :28:08 AM E.S.D. 101 Budgetary Comparison Schedule COUNTY: 32 Spokane General Fund For The Year Ended August 31, 2011 OTHER FINANCING SOURCES (USES) Bond Sales and Refunding Bond Sales Long-Term Financing Transfers In Transfers Out (GL 536) Other Financing Uses (GL 535) Other TOTAL OTHER FINANCING SOURCES (USES) FINAL BUDGET 70,00 70,00 ACTUAL 82, , Variance with Final Budget POSITIVE (NEGATIVE) 12, , EXCESS OF REVENUES/OTHER FINANCING SOURCES OVER (UNDER) EXPENDITURES AND OTHER FINANCING USES -350,00-316, , BEGINNING TOTAL FUND BALANCE Prior Year(s) Corrections or Restatements ENDING TOTAL FUND BALANCE 2,500,00 2,150,00 2,962, ,645, , , Page 2 of 2 A-4

41 REPORT F196 RUN: 1/17/ :28:21 AM E.S.D. 101 Budgetary Comparison Schedule COUNTY: 32 Spokane Associated Student Body Fund For The Year Ended August 31, 2011 REVENUES: Local State Federal Federal Stimulus Other TOTAL REVENUES EXPENDITURES CURRENT: Regular Instruction Federal Stimulus Special Education Vocational Education Skills Center Compensatory Programs Other Instructional Programs Community Services Support Services Student Activities/Other CAPITAL OUTLAY: Sites Building Equipment Energy Transportation Equipment Other FINAL BUDGET 395,28 395,28 390,00 ACTUAL 388, , , Variance with Final Budget POSITIVE (NEGATIVE) -6, , , DEBT SERVICE: Principal Interest and Other Charges TOTAL EXPENDITURES 390,00 338, , REVENUES OVER (UNDER) EXPENDITURES 5,28 49, , Page 1 of 2 REPORT F196 RUN: 1/17/ :28:21 AM E.S.D. 101 Budgetary Comparison Schedule COUNTY: 32 Spokane Associated Student Body Fund For The Year Ended August 31, 2011 OTHER FINANCING SOURCES (USES) Bond Sales and Refunding Bond Sales Long-Term Financing Transfers In Transfers Out (GL 536) Other Financing Uses (GL 535) Other TOTAL OTHER FINANCING SOURCES (USES) FINAL BUDGET ACTUAL Variance with Final Budget POSITIVE (NEGATIVE) EXCESS OF REVENUES/OTHER FINANCING SOURCES OVER (UNDER) EXPENDITURES AND OTHER FINANCING USES 5,28 49, , BEGINNING TOTAL FUND BALANCE Prior Year(s) Corrections or Restatements ENDING TOTAL FUND BALANCE 205, , , , , , Page 2 of 2 A-5

42 REPORT F196 RUN: 1/17/ :28:23 AM E.S.D. 101 Budgetary Comparison Schedule COUNTY: 32 Spokane Debt Service Fund For The Year Ended August 31, 2011 REVENUES: Local State Federal Federal Stimulus Other TOTAL REVENUES EXPENDITURES CURRENT: Regular Instruction Federal Stimulus Special Education Vocational Education Skills Center Compensatory Programs Other Instructional Programs Community Services Support Services Student Activities/Other CAPITAL OUTLAY: Sites Building Equipment Energy Transportation Equipment Other FINAL BUDGET 4,111,21 476, ,587, ACTUAL 4,002, , ,482, Variance with Final Budget POSITIVE (NEGATIVE) -108, , , DEBT SERVICE: Principal Interest and Other Charges TOTAL EXPENDITURES 1,955,00 3,414, ,369, ,955,00 3,165, ,120, , , REVENUES OVER (UNDER) EXPENDITURES -781, , , Page 1 of 2 REPORT F196 RUN: 1/17/ :28:23 AM E.S.D. 101 Budgetary Comparison Schedule COUNTY: 32 Spokane Debt Service Fund For The Year Ended August 31, 2011 OTHER FINANCING SOURCES (USES) Bond Sales and Refunding Bond Sales Long-Term Financing Transfers In Transfers Out (GL 536) Other Financing Uses (GL 535) Other TOTAL OTHER FINANCING SOURCES (USES) FINAL BUDGET ACTUAL Variance with Final Budget POSITIVE (NEGATIVE) EXCESS OF REVENUES/OTHER FINANCING SOURCES OVER (UNDER) EXPENDITURES AND OTHER FINANCING USES -781, , , BEGINNING TOTAL FUND BALANCE Prior Year(s) Corrections or Restatements ENDING TOTAL FUND BALANCE 5,469, ,687, ,469, ,831, , Page 2 of 2 A-6

43 REPORT F196 RUN: 1/17/ :28:25 AM E.S.D. 101 Budgetary Comparison Schedule COUNTY: 32 Spokane Capital Projects Fund For The Year Ended August 31, 2011 REVENUES: Local State Federal Federal Stimulus Other TOTAL REVENUES EXPENDITURES CURRENT: Regular Instruction Federal Stimulus Special Education Vocational Education Skills Center Compensatory Programs Other Instructional Programs Community Services Support Services Student Activities/Other CAPITAL OUTLAY: Sites Building Equipment Energy Transportation Equipment Other FINAL BUDGET 2,245,00 200,00 2,445,00 2,300,00 58,188,00 937,00 ACTUAL 2,339, ,339, ,243, ,161, ,251, Variance with Final Budget POSITIVE (NEGATIVE) 94, ,00-105, ,056, ,026, , DEBT SERVICE: Principal Interest and Other Charges TOTAL EXPENDITURES 61,425,00 48, ,705, , ,719, REVENUES OVER (UNDER) EXPENDITURES -58,980,00-23,365, ,614, Page 1 of 2 REPORT F196 RUN: 1/17/ :28:25 AM E.S.D. 101 Budgetary Comparison Schedule COUNTY: 32 Spokane Capital Projects Fund For The Year Ended August 31, 2011 OTHER FINANCING SOURCES (USES) Bond Sales and Refunding Bond Sales Long-Term Financing Transfers In Transfers Out (GL 536) Other Financing Uses (GL 535) Other TOTAL OTHER FINANCING SOURCES (USES) FINAL BUDGET 28,050,00-70,00 27,980,00 ACTUAL 17,408, , ,325, Variance with Final Budget POSITIVE (NEGATIVE) -10,641, , ,654, EXCESS OF REVENUES/OTHER FINANCING SOURCES OVER (UNDER) EXPENDITURES AND OTHER FINANCING USES -31,000,00-6,040, ,959, BEGINNING TOTAL FUND BALANCE Prior Year(s) Corrections or Restatements ENDING TOTAL FUND BALANCE 51,000,00 20,000,00 50,750, ,710, , ,710, Page 2 of 2 A-7

44 REPORT F196 RUN: 1/17/ :28:27 AM E.S.D. 101 Budgetary Comparison Schedule COUNTY: 32 Spokane Transportation Vehicle Fund For The Year Ended August 31, 2011 REVENUES: Local State Federal Federal Stimulus Other TOTAL REVENUES EXPENDITURES CURRENT: Regular Instruction Federal Stimulus Special Education Vocational Education Skills Center Compensatory Programs Other Instructional Programs Community Services Support Services Student Activities/Other CAPITAL OUTLAY: Sites Building Equipment Energy Transportation Equipment Other FINAL BUDGET 8,00 292,00 300,00 600,00 ACTUAL 16, , , , , Variance with Final Budget POSITIVE (NEGATIVE) 8, , , , , DEBT SERVICE: Principal Interest and Other Charges TOTAL EXPENDITURES 600,00 513, , REVENUES OVER (UNDER) EXPENDITURES -300,00-176, , Page 1 of 2 REPORT F196 RUN: 1/17/ :28:27 AM E.S.D. 101 Budgetary Comparison Schedule COUNTY: 32 Spokane Transportation Vehicle Fund For The Year Ended August 31, 2011 OTHER FINANCING SOURCES (USES) Bond Sales and Refunding Bond Sales Long-Term Financing Transfers In Transfers Out (GL 536) Other Financing Uses (GL 535) Other TOTAL OTHER FINANCING SOURCES (USES) FINAL BUDGET ACTUAL 2,34 2,34 Variance with Final Budget POSITIVE (NEGATIVE) 2,34 2,34 EXCESS OF REVENUES/OTHER FINANCING SOURCES OVER (UNDER) EXPENDITURES AND OTHER FINANCING USES -300,00-173, , BEGINNING TOTAL FUND BALANCE Prior Year(s) Corrections or Restatements ENDING TOTAL FUND BALANCE 370,00 70,00 591, , , , Page 2 of 2 A-8

45 REPORT F196 COUNTY: 32 Spokane Statement Of Fiduciary Net Assets Fiduciary Funds August 31, 2011 RUN: 1/17/ :28:29 AM ASSETS: Imprest Cash Cash On Hand Cash On Deposit with Cty Treas Minus Warrants Outstanding Due From Other Funds Accounts Receivable Accrued Interest Receivable Investments Investments/Cash With Trustee Other Assets Capital Assets, Land Capital Assets, Buildings Capital Assets, Equipment Accum Depreciation, Buildings Accum Depreciation, Equipment TOTAL ASSETS LIABILITIES: Accounts Payable Due To Other Funds TOTAL LIABILITIES NET ASSETS: Net assets held in trust for: Restricted for Other Items Restricted for Self Insurance Restricted for Uninsured Risks Nonspendable -- Trust Principal Committed to Other Purposes Assigned to Fund Purposes Unassigned Fund Balance TOTAL NET ASSETS Private Purpose Trust 5, , , , , , Other Trust Page 1 of 1 REPORT F196 Statement of Changes in Fiduciary Net Assets RUN: 1/17/ :28:30 AM COUNTY: 32 Spokane Fiduciary Funds For the Year Ended August 31, 2011 ADDITIONS: Contributions: Private Donations Employer Members Other TOTAL CONTRIBUTIONS Investment Income: Net Appreciation (Depreciation) in Fair Value Interest and Dividends Less Investment Expenses Net Investment Income Other Additions: Rent or Lease Revenue Total Other Additions TOTAL ADDITIONS DEDUCTIONS: Benefits Refund of Contributions Administrative Expenses Scholarships Other TOTAL DEDUCTIONS Private Purpose Trust 3,97 3, , , , Other Trust Net Increase (Decrease) Net Assets--Beginning Prior Year(s) Corrections or Restatements NET ASSETS--ENDING 3, , , Page 1 of 1 A-9

46 REPORT F196 COUNTY: 32 Schedule of Long-Term Debt Spokane For the Year Ended August 31, 2011 RUN: 1/17/ :28:31 AM Description Beginning Outstanding Debt September 1, 2010 Amount Issued/Increased Amount Redeemed/Decreased Ending Outstanding Debt August 31, 2011 Total Voted Bonds Total Non-Voted Notes/Bonds Qualified Zone Academy Bonds (QZAB) Qualified School Construction Bonds(QSCB) 60,750,00 17,500,00 1,955,00 58,795,00 17,500,00 Other Long-Term Debt: Capital Leases Contracts Payable (GL 603) NonCancellable Operating Leases Claims & Judgments Compensated Absences Other Long-Term Debt 25, , , , , , Total Other Long-Term Debt 822, , , TOTAL LONG-TERM DEBT 61,572, ,500,00 2,065, ,007, Page 1 of 1 REPORT F196 Report of Revenues and Other Financing Sources RUN: 1/17/ :28:32 AM COUNTY: 32 Spokane For the Year Ended August 31, 2011 General Fund Debt Service Fund Capital Projects Fund Transportation Vehicle Fund LOCAL TAXES 1100 Local Property Tax 1300 Sale of Tax Title Property 1400 Local in Lieu of Taxes 1500 Timber Excise Tax 1600 County-Administered Forests 1900 Other Local Taxes 1000 Total Local Taxes 6,926, ,927, ,943, ,943, ,590, ,590, , , LOCAL SUPPORT NONTAX 2100 Tuition and Fees, Unassigned 2131 Secondary Vocational Education - Tuition 2145 Skills Center Tuitions and Fees 2171 Traffic Safety Education Fees 2173 Summer School Tuitions and Fees 2186 Community School Tuitions and Fees 2188 Day Care Tuitions and Fees 2200 Sales of Goods, Supplies and Services, Unassigned 2231 Secondary Voc. Ed., Sales of Goods, Supplies and Services 2245 Skills Center, Sales of Goods, Supplies and Services 2288 Day Care Sales of Goods, Supplies, and Services 2289 Other Community Services Sales of Goods, Supplies, and Services 2298 School Food Services--Sales of Goods, Supplies, and Services 2300 Investment Earnings 2400 Interfund Loan Interest Earnings 2500 Gifts and Donations 2600 Fines and Damages 2700 Rentals and Leases 2800 Insurance Recoveries 2900 Local Support Nontax, Unassigned 2910 E-rate 2000 Total Local Support Nontax 290, , , , , , , , , , ,011, , , , , , , , Page 1 of 7 A-10

47 REPORT F196 Report of Revenues and Other Financing Sources RUN: 1/17/ :28:32 AM COUNTY: 32 Spokane For the Year Ended August 31, 2011 General Fund Debt Service Fund Capital Projects Fund Transportation Vehicle Fund STATE, GENERAL PURPOSE 3100 Apportionment 3121 Special Education - General Apportionment 3300 Local Effort Assistance 3600 State Forests 3900 Other State General Purpose, Unassigned 3000 Total State, General Purpose 17,708, , ,314, ,844, STATE, SPECIAL PURPOSE 4100 Special Purpose, Unassigned 4121 Special Education 4126 State Institutions, Special Education 4130 State Funding Assistance Paid Direct to District 4134 Middle School Career and Technical Education 4155 Learning Assistance 4156 State Institutions, Centers and Homes, Delinquent 4158 Special and Pilot Programs 4159 Juveniles in Adult Jails 4163 Promoting Academic Success 4165 Transitional Bilingual 4166 Student Achievement 4174 Highly Capable 4175 Professional Development 4188 Day Care 4198 School Food Service 4199 Transportation - Operations 4230 State Funding Assistance Paid Direct to Contractor 4300 Other State Agencies, Unassigned 4321 Special Education - Other State Agencies 4326 State Institutions - Special Education - Other State Agencies 4330 State Funding Assistance Other 4356 State Institutions, Centers and Homes, Delinquent - Other State Agencies 4358 Special and Pilot Programs - Other State Agencies 2,769, , , , , , ,645, Page 2 of 7 REPORT F196 Report of Revenues and Other Financing Sources RUN: 1/17/ :28:32 AM COUNTY: 32 Spokane For the Year Ended August 31, 2011 General Fund Debt Service Fund Capital Projects Fund Transportation Vehicle Fund STATE, SPECIAL PURPOSE 4365 Transitional Bilingual - Other State Agencies 4388 Day Care - Other State Agencies 4398 School Food Service - Other State Agencies 4399 Transportation Operations - Other State Agencies 4499 Transportation Reimbursement - Depreciation 4000 Total State, Special Purpose 5,249, , , FEDERAL, GENERAL PURPOSE 5200 General Purpose Direct Federal Grants, Unassigned 5300 Impact Aid, Maintenance and Operation 5329 Impact Aid, Special Education Funding 5400 Federal in Lieu of Taxes 5500 Federal Forests 5600 Qualified Bond Interest Credit 5000 Total Federal, General Purpose 24, , , , , , , , FEDERAL, SPECIAL PURPOSE 6100 Special Purpose, OSPI, Unassigned 6111 Federal Stimulus-Title I 6112 Federal Stimulus-School Improvement 6113 Federal Stimulus-State Fiscal Stabilization Fund 6114 Federal Stimulus-IDEA 6118 Federal Stimulus-Competitive Grants 6119 Federal Stimulus-Other 6121 Special Education, Medicaid Reimbursement 6124 Special Education, Supplemental 6138 Secondary Vocational Education 6146 Skills Center 6151 ESEA Disadvantaged, Fed 6152 Other Title, ESEA Fed 6153 ESEA Migrant, Federal 6154 Reading First, Federal 6157 Institutions, Neglected and Delinquent 6161 Head Start 6162 Math and Science - Professional Development 5, , , , , , , , , Page 3 of 7 A-11

48 REPORT F196 Report of Revenues and Other Financing Sources RUN: 1/17/ :28:32 AM COUNTY: 32 Spokane For the Year Ended August 31, 2011 General Fund Debt Service Fund Capital Projects Fund Transportation Vehicle Fund FEDERAL, SPECIAL PURPOSE 6164 Limited English Proficiency 6167 Indian Education, JOM 6168 Indian Education, ED 6176 Targeted Assistance 6178 Youth Training Programs 6188 Day Care 6189 Other Community Services 6198 School Food Services 6199 Transportation - Operations 6200 Direct Special Purpose Grants 6211 Federal Stimulus-Title I 6212 Federal Stimulus-School Improvement 6213 Federal Stimulus-State Fiscal Stabilization Fund 6214 Federal Stimulus-IDEA 6218 Federal Stimulus-Competitive Grants 6219 Federal Stimulus-Other 6221 Special Education - Medicaid Reimbursement 6224 Special Education - Supplemental 6238 Secondary Vocational Education 6240 Impact Aid 6246 Skills Center 6251 ESEA Disadvantaged, Fed 6252 Other Title, ESEA Fed 6253 ESEA Migrant, Federal 6254 Reading First, Federal 6257 Institutions, Neglected and Delinquent 6261 Head Start 6262 Math and Science - Professional Development 6264 Limited English Proficiency 6267 Indian Education - JOM 6268 Indian Education - ED 6276 Targeted Assistance 6278 Youth Training, Direct Grants 13, , Page 4 of 7 REPORT F196 Report of Revenues and Other Financing Sources RUN: 1/17/ :28:32 AM COUNTY: 32 Spokane For the Year Ended August 31, 2011 General Fund Debt Service Fund Capital Projects Fund Transportation Vehicle Fund FEDERAL, SPECIAL PURPOSE 6288 Day Care 6289 Other Community Services 6298 School Food Services 6299 Transportation - Operations 6300 Federal Grants Through Other Agencies, Unassigned 6310 Medicaid Administrative Match 6311 Federal Stimulus-Title I 6312 Federal Stimulus-School Improvement 6313 Federal Stimulus-State Fiscal Stabilization Fund 6314 Federal Stimulus-IDEA 6318 Federal Stimulus-Competitive Grants 6319 Federal Stimulus-Other 6321 Special Education - Medicaid Reimbursement 6324 Special Education - Supplemental 6338 Secondary Vocational Education 6346 Skills Center 6351 ESEA Disadvantaged, Fed 6352 Other Title, ESEA Fed 6353 ESEA Migrant, Federal 6354 Reading First, Federal 6357 Institutions, Neglected and Delinquent 6361 Head Start 6362 Math and Science - Professional Development 6364 Limited English Proficiency 6367 Indian Education - JOM 6368 Indian Education - ED 6376 Targeted Assistance 6378 Youth Training 6388 Day Care 6389 Other Community Services 6398 School Food Services 6399 Transportation - Operations 6998 USDA Commodities 84, , , Page 5 of 7 A-12

49 REPORT F196 Report of Revenues and Other Financing Sources RUN: 1/17/ :28:32 AM COUNTY: 32 Spokane For the Year Ended August 31, 2011 General Fund Debt Service Fund Capital Projects Fund Transportation Vehicle Fund FEDERAL, SPECIAL PURPOSE 6000 Total Federal, Special Purpose 4,201, Page 6 of 7 REPORT F196 Report of Revenues and Other Financing Sources RUN: 1/17/ :28:32 AM COUNTY: 32 Spokane For the Year Ended August 31, 2011 General Fund Debt Service Fund Capital Projects Fund Transportation Vehicle Fund REVENUES FROM OTHER SCHOOL DISTRICTS 7100 Program Participation, Unassigned 7121 Special Education 7131 Vocational Education 7145 Skills Center 7163 Promoting Academic Success 7189 Other Community Services 7197 Support Services 7198 School Food Services 7199 Transportation 7301 Nonhigh Participation 7000 Total Revenues From Other School Districts 27, , , REVENUES FROM OTHER ENTITITES 8100 Governmental Entities 8188 Day Care 8189 Community Services 8198 School Food Services 8199 Transportation 8500 Nonfederal, ESD 8000 Total Revenues From Other Entities 10, , , OTHER FINANCING SOURCES 9100 Sale of Bonds 9200 Sale of Real Property 9300 Sale of Equipment 9400 Compensated Loss of Fixed Assets 9500 Long-Term Financing 9600 Sale of Refunding Bonds 9900 Transfers 9000 Total Other Financing Sources 82, , ,408, ,408, ,34 2,34 TOTAL REVENUES AND OTHER FINANCING SOURCES 37,405, ,482, ,747, , Page 7 of 7 A-13

50 REPORT F196 COUNTY: 32 Program/Activity/Object Report Spokane For the Year Ended August 31, 2011 RUN: 1/17/ :28:33 AM PROGRAM EXPENDITURE SUMMARY NO. PROGRAM TITLE AMOUNT 01 Basic Education 20,487, ALE Stim, Title I 180, Stim, Schl Imprv Federal Stimulus - SFSF 794, and Education Jobs 14 Stim, IDEA 363, Stim, Compt Grants Stim, Other 14, Sp Ed, Sup, St 4,484, Sp Ed, Sup, Fed 696, Sp Ed, Inst, St Sp Ed, Oth, Fed 7, Voc, Basic, St 1,014,00 34 MidSchCar/Tec Voc, Fed 28, Voc, Other Skil Cnt, Bas, St Skill Cntr, Fed ESEA Disadvanted, Fed 605, Other Title, ESEA, Fed 341, ESEA Migrant, Federal Read First, Fed LAP 552, St In, Ctr/Hm, D St In, N/D, Fed Sp/Plt Pgm, St 151, Inst. JAJ Head Start, Fed MS, Pro Dv, Fed PAS LEP, Fed 13, Tran Biling, St 60, Stu Achvmnt, St.00 ACTIVITY EXPENDITURE SUMMARY NO. ACTIVITY TITLE AMOUNT 11 Bd of Dir 82, Supt Off 282, Busns Off 466, HR 363, Pblc Rltn Supv Inst 784, Lrn Resrc 560, Princ Off 1,904, Guid/Coun 998, Pupil M/S 278, Health 1,766, Teaching 21,825, Extracur 935, Pmt to SD 383, Supervisn 73, Food 691, Operation 537, Transfers Supervisn 231, Operation 1,302, Maintnce 317, Insurance 51, Transfers -214, Supv Bldg 162, Grnd Mnt 346, Oper Bldg 1,057, Maintnce 674, Utilities 824, Bldg Secu Insurance 242, Info Sys 630, Printing 89, Warehouse 10, Mtr Pool 60, Page 1 of 2 OBJECT EXPENDITURE SUMMARY NO. OBJECT TITLE AMOUNT 0 Debit Transfer 220, Credit Transfer -220, Cert. Salaries 18,285, Class. Salaries 5,945, Employee Benefits 7,901, Supplies / Materials 2,340, Purchased Services 2,960, Travel 106, Capital Outlay 181, TOTAL ALL OBJECTS 37,721, REPORT F196 Program/Activity/Object Report RUN: 1/17/ :28:33 AM COUNTY: 32 Spokane For the Year Ended August 31, 2011 PROGRAM EXPENDITURE SUMMARY NO. PROGRAM TITLE AMOUNT 67 Ind Ed, Fd, JOM Ind Ed, Fd, ED Comp, Othr 5, Traffic Safety Summer School Highly Capable 112, Prof Dev, State 11, Target Asst, Fed Yth Trg Pm, Fed Inst Pgm, Othr 279, Public Radio/TV Comm Schools Day Care Othr Comm Srv 26, Distwide Suppt 4,499, Schl Food Serv 1,301, Pupil Transp 1,688, TOTAL ALL PROGRAMS 37,721, ACTIVITY EXPENDITURE SUMMARY NO. ACTIVITY TITLE AMOUNT 83 Interest Principal Debt Expn Publ Actv.00 TOTAL ALL ACTIVITIES 37,721, Page 2 of 2 A-14

51 REPORT F196 RUN: 1/17/ :28:34 AM F-196 Annual Financial Statements COUNTY: 32 Spokane Fiscal Year SUPPLEMENTAL REPORTS AND SCHEDULES Program Matrix Data Requirements for Supplemental Reports Data Requirements for End of Year Reporting to Apportionment and State Recovery Rate Data Requirements for Calculating Federal Indirect Cost Rate Including Fixed With Carry-Forward Distorting Items Data Requirements for Calculating Federal Indirect Cost Rate Including Fixed With Carry-Forward Indirect Expenditures Schedule for Determining School District Federal Restricted and Unrestricted Indirect Cost Rate Including Fixed With Carry-Forward Calculation Resource to Program Expenditure Report Preliminary Special Education Maintenance of Effort Preliminary Federal Cross-Cutting Maintenance of Effort Preliminary Vocational Education Maintenance of Effort Edit/Error Report REPORT F196 RUN: 1/17/ :28:35 AM PROGRAM 01 - Basic Education COUNTY: 32 Spokane For the Year Ended August 31, 2011 (0) (1) (2) (3) (4) (5) (7) (8) (9) Debit Credit Cert. Class. Employee Supplies / Purchased Capital Activity Total Transfer Transfer Salaries Salaries Benefits Materials Services Travel Outlay 21 Supv Inst 311, , , , , Lrn Resrc 560, , , , , , Princ Off 1,904, , ,139, , , , , , Guid/Coun 891, , , , , Pupil M/S 186, , , , Health 401, , , , , , , Teaching 14,916, , ,298, , ,268, , , , , Extracur 931, , , , , , , , Pmt to SD 383, , TOTAL 20,487, , ,183, ,204, ,343, , , , , Page 1 of 25 A-15

52 REPORT F196 RUN: 1/17/ :28:35 AM PROGRAM 11 - Federal Stimulus - Title I COUNTY: 32 Spokane For the Year Ended August 31, 2011 (0) (1) (2) (3) (4) (5) (7) (8) (9) Debit Credit Cert. Class. Employee Supplies / Purchased Capital Activity Total Transfer Transfer Salaries Salaries Benefits Materials Services Travel Outlay 27 Teaching 180, , , , TOTAL 180, , , , Page 2 of 25 REPORT F196 RUN: 1/17/ :28:35 AM PROGRAM 13 - Federal Stimulus - Fiscal Stabilization and Education Jobs (formerly SFSF) COUNTY: 32 Spokane For the Year Ended August 31, 2011 (0) (1) (2) (3) (4) (5) (7) (8) (9) Debit Credit Cert. Class. Employee Supplies / Purchased Capital Activity Total Transfer Transfer Salaries Salaries Benefits Materials Services Travel Outlay 62 Grnd Mnt 137, , , Oper Bldg 402, , , Maintnce 254, , , TOTAL 794, , , Page 3 of 25 A-16

53 REPORT F196 RUN: 1/17/ :28:35 AM PROGRAM 14 - Federal Stimulus - IDEA COUNTY: 32 Spokane For the Year Ended August 31, 2011 (0) (1) (2) (3) (4) (5) (7) (8) (9) Debit Credit Cert. Class. Employee Supplies / Purchased Capital Activity Total Transfer Transfer Salaries Salaries Benefits Materials Services Travel Outlay 26 Health 87, , , Teaching 275, , , , , TOTAL 363, , , , , Page 4 of 25 REPORT F196 RUN: 1/17/ :28:35 AM PROGRAM 18 - Federal Stimulus - Competitive Grants COUNTY: 32 Spokane For the Year Ended August 31, 2011 (0) (1) (2) (3) (4) (5) (7) (8) (9) Debit Credit Cert. Class. Employee Supplies / Purchased Capital Activity Total Transfer Transfer Salaries Salaries Benefits Materials Services Travel Outlay 27 Teaching TOTAL Page 5 of 25 A-17

54 REPORT F196 RUN: 1/17/ :28:35 AM PROGRAM 19 - Federal Stimulus - Other COUNTY: 32 Spokane For the Year Ended August 31, 2011 (0) (1) (2) (3) (4) (5) (7) (8) (9) Debit Credit Cert. Class. Employee Supplies / Purchased Capital Activity Total Transfer Transfer Salaries Salaries Benefits Materials Services Travel Outlay 27 Teaching 14, , ,05 19 TOTAL 14, , ,05 Page 6 of 25 REPORT F196 RUN: 1/17/ :28:35 AM PROGRAM 21 - Special Education, Supplemental, State COUNTY: 32 Spokane For the Year Ended August 31, 2011 (0) (1) (2) (3) (4) (5) (7) (8) (9) Debit Credit Cert. Class. Employee Supplies / Purchased Capital Activity Total Transfer Transfer Salaries Salaries Benefits Materials Services Travel Outlay 21 Supv Inst 268, , , , , , Pupil M/S 91, , , Health 1,274, , , , , , , Teaching 2,849, , ,260, , , , , , Extracur TOTAL 4,484, , ,282, , ,119, , , , Page 7 of 25 A-18

55 REPORT F196 RUN: 1/17/ :28:35 AM PROGRAM 24 - Special Education, Supplemental, Federal COUNTY: 32 Spokane For the Year Ended August 31, 2011 (0) (1) (2) (3) (4) (5) (7) (8) (9) Debit Credit Cert. Class. Employee Supplies / Purchased Capital Activity Total Transfer Transfer Salaries Salaries Benefits Materials Services Travel Outlay 26 Health Teaching 695, , ,67 195, , TOTAL 696, , ,67 195, , Page 8 of 25 REPORT F196 RUN: 1/17/ :28:35 AM PROGRAM 29 - Special Education, Other, Federal COUNTY: 32 Spokane For the Year Ended August 31, 2011 (0) (1) (2) (3) (4) (5) (7) (8) (9) Debit Credit Cert. Class. Employee Supplies / Purchased Capital Activity Total Transfer Transfer Salaries Salaries Benefits Materials Services Travel Outlay 26 Health 3, , Teaching 3, , TOTAL 7, , Page 9 of 25 A-19

56 REPORT F196 RUN: 1/17/ :28:35 AM PROGRAM 31 - Vocational, Basic, State COUNTY: 32 Spokane For the Year Ended August 31, 2011 (0) (1) (2) (3) (4) (5) (7) (8) (9) Debit Credit Cert. Class. Employee Supplies / Purchased Capital Activity Total Transfer Transfer Salaries Salaries Benefits Materials Services Travel Outlay 21 Supv Inst 15, , , , Guid/Coun 78, , , Teaching 917, , , , , , , , , Extracur 1, , TOTAL 1,014,00 3, , , , , , , , Page 10 of 25 REPORT F196 RUN: 1/17/ :28:35 AM PROGRAM 38 - Vocational, Federal COUNTY: 32 Spokane For the Year Ended August 31, 2011 (0) (1) (2) (3) (4) (5) (7) (8) (9) Debit Credit Cert. Class. Employee Supplies / Purchased Capital Activity Total Transfer Transfer Salaries Salaries Benefits Materials Services Travel Outlay 24 Guid/Coun 28, , , TOTAL 28, , , Page 11 of 25 A-20

57 REPORT F196 RUN: 1/17/ :28:35 AM PROGRAM 51 - Disadvantaged (formerly Remediation) ESEA Disadvantaged, Federal COUNTY: 32 Spokane For the Year Ended August 31, 2011 (0) (1) (2) (3) (4) (5) (7) (8) (9) Debit Credit Cert. Class. Employee Supplies / Purchased Capital Activity Total Transfer Transfer Salaries Salaries Benefits Materials Services Travel Outlay 21 Supv Inst 31, , , Teaching 574, , , , , , TOTAL 605, , , , , , Page 12 of 25 REPORT F196 RUN: 1/17/ :28:35 AM PROGRAM 52 - School Improvement, Federal Other Title Grants under ESEA, Federal COUNTY: 32 Spokane For the Year Ended August 31, 2011 (0) (1) (2) (3) (4) (5) (7) (8) (9) Debit Credit Cert. Class. Employee Supplies / Purchased Capital Activity Total Transfer Transfer Salaries Salaries Benefits Materials Services Travel Outlay 21 Supv Inst 6, , Teaching 335, , , , , , , , TOTAL 341, , , , , , , , Page 13 of 25 A-21

58 REPORT F196 RUN: 1/17/ :28:35 AM PROGRAM 55 - Learning Assistance Program (LAP), State COUNTY: 32 Spokane For the Year Ended August 31, 2011 (0) (1) (2) (3) (4) (5) (7) (8) (9) Debit Credit Cert. Class. Employee Supplies / Purchased Capital Activity Total Transfer Transfer Salaries Salaries Benefits Materials Services Travel Outlay 21 Supv Inst 149, , , , Teaching 403, , , , , , , TOTAL 552, , , , , , , Page 14 of 25 REPORT F196 RUN: 1/17/ :28:35 AM PROGRAM 58 - Special and Pilot Programs, State COUNTY: 32 Spokane For the Year Ended August 31, 2011 (0) (1) (2) (3) (4) (5) (7) (8) (9) Debit Credit Cert. Class. Employee Supplies / Purchased Capital Activity Total Transfer Transfer Salaries Salaries Benefits Materials Services Travel Outlay 21 Supv Inst Lrn Resrc Teaching 151, , , , TOTAL 151, , , , Page 15 of 25 A-22

59 REPORT F196 RUN: 1/17/ :28:35 AM PROGRAM 64 - Limited English Proficiency, Federal COUNTY: 32 Spokane For the Year Ended August 31, 2011 (0) (1) (2) (3) (4) (5) (7) (8) (9) Debit Credit Cert. Class. Employee Supplies / Purchased Capital Activity Total Transfer Transfer Salaries Salaries Benefits Materials Services Travel Outlay 27 Teaching 13, , , , TOTAL 13, , , , Page 16 of 25 REPORT F196 RUN: 1/17/ :28:35 AM PROGRAM 65 - Transitional Bilingual, State COUNTY: 32 Spokane For the Year Ended August 31, 2011 (0) (1) (2) (3) (4) (5) (7) (8) (9) Debit Credit Cert. Class. Employee Supplies / Purchased Capital Activity Total Transfer Transfer Salaries Salaries Benefits Materials Services Travel Outlay 27 Teaching 60, , , , TOTAL 60, , , , Page 17 of 25 A-23

60 REPORT F196 RUN: 1/17/ :28:35 AM PROGRAM 69 - Compensatory, Other COUNTY: 32 Spokane For the Year Ended August 31, 2011 (0) (1) (2) (3) (4) (5) (7) (8) (9) Debit Credit Cert. Class. Employee Supplies / Purchased Capital Activity Total Transfer Transfer Salaries Salaries Benefits Materials Services Travel Outlay 27 Teaching 5, , TOTAL 5, , Page 18 of 25 REPORT F196 RUN: 1/17/ :28:35 AM PROGRAM 74 - Highly Capable COUNTY: 32 Spokane For the Year Ended August 31, 2011 (0) (1) (2) (3) (4) (5) (7) (8) (9) Debit Credit Cert. Class. Employee Supplies / Purchased Capital Activity Total Transfer Transfer Salaries Salaries Benefits Materials Services Travel Outlay 27 Teaching 112, , , , , TOTAL 112, , , , , Page 19 of 25 A-24

61 REPORT F196 RUN: 1/17/ :28:35 AM PROGRAM 75 - Professional Development, State COUNTY: 32 Spokane For the Year Ended August 31, 2011 (0) (1) (2) (3) (4) (5) (7) (8) (9) Debit Credit Cert. Class. Employee Supplies / Purchased Capital Activity Total Transfer Transfer Salaries Salaries Benefits Materials Services Travel Outlay 27 Teaching 11, , ,73 75 TOTAL 11, , ,73 Page 20 of 25 REPORT F196 RUN: 1/17/ :28:35 AM PROGRAM 79 - Instructional Programs, Other COUNTY: 32 Spokane For the Year Ended August 31, 2011 (0) (1) (2) (3) (4) (5) (7) (8) (9) Debit Credit Cert. Class. Employee Supplies / Purchased Capital Activity Total Transfer Transfer Salaries Salaries Benefits Materials Services Travel Outlay 27 Teaching 279, , , , , TOTAL 279, , , , , Page 21 of 25 A-25

62 REPORT F196 RUN: 1/17/ :28:35 AM PROGRAM 89 - Other Community Services COUNTY: 32 Spokane For the Year Ended August 31, 2011 (0) (1) (2) (3) (4) (5) (7) (8) (9) Debit Credit Cert. Class. Employee Supplies / Purchased Capital Activity Total Transfer Transfer Salaries Salaries Benefits Materials Services Travel Outlay 27 Teaching 23, , Extracur 2, , TOTAL 26, , Page 22 of 25 REPORT F196 RUN: 1/17/ :28:35 AM PROGRAM 97 - Districtwide Support COUNTY: 32 Spokane For the Year Ended August 31, 2011 (0) (1) (2) (3) (4) (5) (7) (8) (9) Debit Credit Cert. Class. Employee Supplies / Purchased Capital Activity Total Transfer Transfer Salaries Salaries Benefits Materials Services Travel Outlay 11 Bd of Dir 82, , , Supt Off 282, , , , , , , , Busns Off 466, , , , , , , HR 363, , , , , , , Supv Bldg 162, , , , , Grnd Mnt 209, , , , , , Oper Bldg 655, , , , , Maintnce 420, , , , , Utilities 824, , Insurance 242, , Info Sys 630, , , , , Printing 89, , , , , Warehouse 10, , , Mtr Pool 60, , , , , , TOTAL 4,499, , , ,444, , , ,664, , , Page 23 of 25 A-26

63 REPORT F196 RUN: 1/17/ :28:35 AM PROGRAM 98 - School Food Services COUNTY: 32 Spokane For the Year Ended August 31, 2011 (0) (1) (2) (3) (4) (5) (7) (8) (9) Debit Credit Cert. Class. Employee Supplies / Purchased Capital Activity Total Transfer Transfer Salaries Salaries Benefits Materials Services Travel Outlay 41 Supervisn 73, ,31 15, , Food 691, , , Operation 537, , , , , , Transfers TOTAL 1,301, , , , , , , Page 24 of 25 REPORT F196 RUN: 1/17/ :28:35 AM PROGRAM 99 - Pupil Transportation COUNTY: 32 Spokane For the Year Ended August 31, 2011 (0) (1) (2) (3) (4) (5) (7) (8) (9) Debit Credit Cert. Class. Employee Supplies / Purchased Capital Activity Total Transfer Transfer Salaries Salaries Benefits Materials Services Travel Outlay 51 Supervisn 231, , , , , , Operation 1,302, , , , , Maintnce 317, , , , , Insurance 51, , Transfers -214, , TOTAL 1,688, , ,033, , , , , , Page 25 of 25 A-27

64 REPORT F196 Data Requirements for Supplemental Reports COUNTY: 32 Spokane For the Year Ended August 31, 2011 RUN: 1/17/ :28:36 AM Other Data Requirements and Certifications A. B. C. D. E. Enter the amount of E-Rate received by the school district either as the total discount or as a reimbursement amount which was coded in Revenue This amount may be a combination of both and should be displayed on the award by utility. Enter the number of learning improvement days provided by the school district to certificated instructional staff in the school year as defined by the WAC through 967. The districts's funding for learning improvement days for FY is zero. Enter the amount of revenue received this year of Growth Management Act impact fees imposed under the authority of RCW through Enter the amount of revenue received this year of State Environmental Policy Act mitigation fees imposed under the authority of RCW 43.21C.060. Under RCW 28A the district must certify "that it has spent the funds provided for cost-of-living increases on salaries and salary-related benefits." 78, Yes F. Enter the amount of Program 13 expenditures related to the Education Job Funds. 791, Page 1 of 1 REPORT F196 Data Requirements for End of Year Reporting to Apportionment and State Recovery Rate COUNTY: 32 Spokane For the Year Ended August 31, Fire District Payment RCW Total expenditures paid to fire protection districts for fire protection services. Eligible school districts received reimbursement in the July apportionment payment (Revenue Account 3100) for fire protection services purchased during the calendar year (see Report 1191, line C.7. for the amount of payment). Fire district reimbursement is provided solely for the purpose of paying for fire protection services. Therefore, any such reimbursement not used to pay for fire protection services must be recovered by OSPI. School districts that did not receive payment are not required to make an entry in this item number. 2. Teacher Assistance Program (total expenditures) All districts that received a teacher assistance program allocation in revenue account are required to report total expenditures for stipends, training, travel to training, substitute reimbursement for observation and benefits. These expenditures incurred during the period of July 1, 2010 through August 31, 2011 RUN: 1/17/ :28:37 AM Indirect Rate for State Revenue Recoveries (b/c) (SYSTEM CALCULATED) a) Total All Programs (SYSTEM CALCULATED) b) Total Program 97 Districtwide Support (SYSTEM CALCULATED) c) Total All Programs less Program 97 Districtwide Support (a-b) (SYSTEM CALCULATED) ,721, ,499, ,222, Page 1 of 1 A-28

65 REPORT F196 COUNTY: 32 Spokane DISTORTING ITEMS Data Requirements for Calculating Federal Indirect Cost Rate Including Fixed with Carry-Forward For the Year Ended August 31, 2011 RUN: 1/17/ :28:38 AM 1. Flow-through funds for program 01-89, 98, and Flow-through funds or contingencies or election expenses or alterations or renovations or fines and penalties charged in Activity 11, Board of Directors. 3. Flow-through funds or contingencies or election expenses or alterations or renovations or fines and penalties charged in Activity 12, Superintendents Office. 4. Flow-through funds or contingencies or election expenses or alterations or renovations or fines and penalties charged in Activity 13, Business Office. 5. Flow-through funds or contingencies or election expenses or alterations or renovations or fines and penalties charged in Activity 14, Human Resources. 6. Flow-through funds or contingencies or election expenses or alterations or renovations or fines and penalties charged in Program 97, Activity 25, Pupil Management & Safety. 7. Flow-through funds or contingencies or election expenses or alterations or renovations or fines and penalties charged in Program 97, Activity 61, Supervision. 8. Flow-through funds or contingencies or election expenses or alterations or renovations or fines and penalties charged in Program 97, Activity 62, Grounds Maintenance. 9. Flow-through funds or contingencies or election expenses or alterations or renovations or fines and penalties charged in Program 97, Activity 63, Operation of Buildings. 10. Flow-through funds or contingencies or election expenses or alterations or renovations or fines and penalties charged in Program 97, Activity 64, Maintenance. 32, Flow-through funds or contingencies or election expenses or alterations or renovations or fines and penalties charged in Program 97, Activity 65, Utilities. 12. Flow-through funds or contingencies or election expenses or alterations or renovations or fines and penalties charged in Program 97, Activity 67, Buildings and Property Security. 13. Flow-through funds or contingencies or election expenses or alterations or renovations or fines and penalties charged in Program 97, Activity 68, Insurance. Page 1 of 2 REPORT F196 COUNTY: 32 Spokane DISTORTING ITEMS Data Requirements for Calculating Federal Indirect Cost Rate Including Fixed with Carry-Forward For the Year Ended August 31, 2011 RUN: 1/17/ :28:38 AM 14. Flow-through funds or contingencies or election expenses or alterations or renovations or fines and penalties charged in Activity 72, Information Systems. 15. Flow-through funds or contingencies or election expenses or alterations or renovations or fines and penalties charged in Activity 73, Printing. 16. Flow-through funds or contingencies or election expenses or alterations or renovations or fines and penalties charged in Activity 74, Warehousing. 17. Flow-through funds or contingencies or election expenses or alterations or renovations or fines and penalties charged in Activity 75, Motor Pool. Page 2 of 2 A-29

66 REPORT F196 COUNTY: 32 Spokane Data Requirements for Calculating Federal Indirect Cost Rate Including Fixed with Carry-Forward For the Year Ended August 31, 2011 RUN: 1/17/ :28:39 AM INDIRECT EXPENDITURES 18. Audit costs recorded in Program 97, Activity 11, Board of Directors, and not directly charged to another program. 25, Legal costs, associated with interpretation of laws and regulations, recorded in Program 97, Activity 11, Board of Directors but not specifically associated with the Board of Directors. 20. Costs recorded in Program 97, Activity 12, for the Superintendent, Deputy Superintendent, or Assistant Superintendent, and their secretary whose responsibilities are allocable to indirect cost Activities 13, 14 and 72 thru 75. These positions are required to maintain supporting documentation if a portion of their responsibilities are allocable to these indirect cost activities. Include the salary and benefits, supplies, travel, printing, warehousing, motor pool, and information systems as related to the above mentioned staff if allocable to Activities 13, 14, and 72 thru 75. DO NOT INCLUDE CAPITAL OUTLAY (Object 9). 21. The cost of Public Relations activities recorded in Program 97, Activity 15, excluding capital outlay (Object 9), and not directly charged to another program for the following: Cost for liaison with the news media and government relations officers as a means of informing the general public on matters of public concern, such as notice of Federal awards, financial matters, etc. DO NOT INCLUDE COSTS DESIGNED SOLEY TO PROMOTE THE GOVERNMENTAL UNIT. *Expenditures in this Activity will not be included in the indirect pool if this manual input item is blank. 22. Termination Leave costs for federally supported staff which have been charged to a state or local program. Do not include Termination Leave costs for federally supported staff charged to Program 97, Activity 13 or 14, as they are already included in the indirect calculation. These costs should not be charged directly to the federal award, but may be considered an indirect expenditure. 23. Costs recorded in Program 97, Activity 72, for districtwide Information Systems Activities. Do not include expenditures for any student records, such as student records fees, software, or student records staff. DO NOT INCLUDE CAPITAL OUTLAY (Object 9). *Expenditures in this Activity will not be included in the indirect pool if this manual input item is blank. 157, General administration (organization-wide) expenditures charged in Program 97, Activity 25, Pupil Management & Safety, which is allocable to Activities 13 or 14, if a cost allocation plan supports the allocation. DO NOT INCLUDE CAPITAL OUTLAY (Object 9). 25. Space and occupancy costs for general administration (organization-wide) charged in Program 97, Activity 61, Supervision, which is allocable to Activities 13, 14, and Activity 12 if applicable, if a space plan supports the allocation. DO NOT INCLUDE CAPITAL OUTLAY (Object 9). 26. Space and occupancy costs for general administration (organization-wide) charged in Program 97, Activity 62, Grounds Maintenance, which is allocable to Activities 13, 14, and Activity 12 if applicable, if a space plan supports the allocation. DO NOT INCLUDE CAPITAL OUTLAY (Object 9). Page 1 of 2 REPORT F196 COUNTY: 32 Spokane Data Requirements for Calculating Federal Indirect Cost Rate Including Fixed with Carry-Forward For the Year Ended August 31, 2011 RUN: 1/17/ :28:39 AM INDIRECT EXPENDITURES 27. Space and occupancy costs for general administration (organization-wide) charged in Program 97, Activity 63, Operation of Buildings, which is allocable to Activities 13, 14, and Activity 12 if applicable, if a space plan supports the allocation. DO NOT INCLUDE CAPITAL OUTLAY (Object 9). 28. Space and occupancy costs for general administration (organization-wide) charged in Program 97, Activity 64, Maintenance, which is allocable to Activities 13, 14, and Activity 12 if applicable, if a space plan supports the allocation. DO NOT INCLUDE CAPITAL OUTLAY (Object 9). 29. Space and occupancy costs for general administration (organization-wide) charged in Program 97, Activity 65, Utilities, which is allocable to Activities 13, 14, and Activity 12 if applicable, if a space plan supports the allocation. DO NOT INCLUDE CAPITAL OUTLAY (Object 9). 30. Space and occupancy costs for general administration (organization-wide) charged in Program 97, Activity 67, Building and Property Security, which is allocable to Activities 13, 14, and Activity 12 if applicable, if a space plan supports the allocation. DO NOT INCLUDE CAPITAL OUTLAY (Object 9). 31. Space and occupancy costs for general administration (organization-wide) charged in Program 97, Activity 68, Insurance, which is allocable to Activities 13, 14, and Activity 12 if applicable, if a space plan supports the allocation. DO NOT INCLUDE CAPITAL OUTLAY (Object 9). Page 2 of 2 A-30

67 REPORT F196 RUN: 1/17/ :28:40 AM COUNTY: 32 Spokane Fiscal Year Schedule for Determining School District Federal Restricted Indirect Cost Rate Including Fixed With Carry-Forward Calculation for Fiscal Year EXCLUDED ---- TOTAL PROGRAM EXPENDITURE CAPITAL OUTLAY DEBT SERVICE DISTORTING ITEMS (ADDED TO BASE) UNALLOWABLE (POOL) INDIRECT EXPENDITURES (BASE) DIRECT EXPENDITURES PROGRAM AND ACTIVITY TITLES TOTAL PROGRAMS 01-89, 98, 99 PROGRAM 97 ACTIVITIES 11 Board of Directors 12 Superintendent's Office 13 Business Office 14 Human Resources 15 Public Relations 25 Pupil Management and Safety 61 Supervision 62 Grounds Maintenance 63 Operation of Buildings 64 Maintenance 65 Utilities 67 Building and Property Security 68 Insurance 72 Information Systems 73 Printing 74 Warehousing 75 Motor Pool 83 Interest 84 Principal 85 Debt-Related Expenditures 33,222, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,449, Total Program 97 4,499, , , ,215, ,152, Page 1 of 2 REPORT F196 RUN: 1/17/ :28:40 AM COUNTY: 32 Spokane Fiscal Year Schedule for Determining School District Federal Restricted Indirect Cost Rate Including Fixed With Carry-Forward Calculation for Fiscal Year EXCLUDED ---- TOTAL PROGRAM EXPENDITURE CAPITAL OUTLAY DEBT SERVICE DISTORTING ITEMS (ADDED TO BASE) UNALLOWABLE (POOL) INDIRECT EXPENDITURES (BASE) DIRECT EXPENDITURES Sub-Total All Programs 37,721, , , ,152, ,449, Unallowable Costs -3,215, ,215, TOTALS 37,721, , , ,152, ,664, *** FIXED WITH CARRY-FORWARD RESTRICTED INDIRECT RATE CALCULATION *** FY FY INDIRECT EXPENDITURES 1,132, FY DIRECT EXPENDITURES 34,994, FY OVER/UNDER RECOVERY (CALCULATED) -14, FY TOTAL POOL (LINE 1 + LINE 3) 1,118, CALCULATED FY RESTRICTED INDIRECT RATE TO BE USED IN FY FY FY INDIRECT EXPENDITURES FROM COLUMN 6 1,152, FY OVER/UNDER RECOVERY (LINE 3) -14, FY ADJUSTED IND POOL (LINE 6 + LINE 7) 1,138, FY DIRECT EXPENDITURES FROM COLUMN 7 35,664, FY RESTRICTED INDIRECT RATE (LINE 5) FY AMOUNT RECOVERED (LINE 9 * LINE 10) 1,141, FY OVER/UNDER RECOVER (LINE 8 - LINE 11) -3, FY TOTAL POOL (LINE 6 + LINE 12) 1,149, CALCULATED FY RESTRICTED INDIRECT RATE TO BE USED IN FY (LINE 13 / LINE 9) Page 2 of 2 A-31

68 REPORT F196 RUN: 1/17/ :28:42 AM COUNTY: 32 Spokane Fiscal Year Schedule for Determining School District Federal Unrestricted Indirect Cost Rate Including Fixed With Carry-Forward Calculation for FY EXCLUDED ---- TOTAL PROGRAM EXPENDITURE CAPITAL OUTLAY DEBT SERVICE DISTORTING ITEMS (ADDED TO BASE) UNALLOWABLE (POOL) INDIRECT EXPENDITURES (BASE) DIRECT EXPENDITURES PROGRAM AND ACTIVITY TITLES Total Programs 01-89, 98, 99 PROGRAM 97 ACTIVITIES 11 Board of Directors 12 Superintendents Office 13 Business Office 14 Human Resources 15 Public Relations 25 Pupil Management and Safety 61 Supervision 62 Grounds Maintenance 63 Operation of Buildings 64 Maintenance 65 Utilities 67 Building and Property Security 68 Insurance 72 Information Systems 73 Printing 74 Warehousing 75 Motor Pool 83 Interest 84 Principal 85 Debt-Related Expenditures 33,222, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,449, Total Program 97 4,499, , , , ,310, Page 1 of 2 REPORT F196 RUN: 1/17/ :28:42 AM COUNTY: 32 Spokane Fiscal Year Schedule for Determining School District Federal Unrestricted Indirect Cost Rate Including Fixed With Carry-Forward Calculation for FY EXCLUDED ---- TOTAL PROGRAM EXPENDITURE CAPITAL OUTLAY DEBT SERVICE DISTORTING ITEMS (ADDED TO BASE) UNALLOWABLE (POOL) INDIRECT EXPENDITURES (BASE) DIRECT EXPENDITURES Sub-Total All Programs 37,721, , , ,310, ,449, Unallowable Costs -56, , Totals 37,721, , , ,310, ,505, *** FIXED WITH CARRY-FORWARD UNRESTRICTED INDIRECT RATE CALCULATION *** FY FY INDIRECT EXPENDITURES 5,017, FY DIRECT EXPENDITURES 31,108, FY OVER (UNDER) RECOVERY -405, FY TOTAL POOL (LINE 1 + LINE 3) 4,612, CALCULATED FY UNRESTRICTED INDIRECT RATE TO BE USED IN FY FY FY INDIRECT EXPENDITURES FROM COLUMN 6 4,310, FY OVER (UNDER) RECOVERY (LINE 3) -405, FY ADJUSTED INDIRECT POOL (LINE 6 + LINE 7) 3,904, FY DIRECT EXPENDITURES FROM COLUMN 7 32,505, FY UNRESTRICTED INDIRECT RATE (LINE 5) FY AMOUNT RECOVERED (LINE 9 * LINE 10) 4,820, FY OVER (UNDER) RECOVER (LINE 8 - LINE 11) -915, FY TOTAL POOL (LINE 6 + LINE 12) 3,394, CALCULATED FY UNRESTRICTED INDIRECT RATE TO BE USED IN FY (LINE 13 / LINE 9) Page 2 of 2 A-32

69 REPORT F196 General Fund RUN: 1/17/ :28:43 AM COUNTY: 32 Spokane Resource to Program Expenditure Report For the Year Ended August 31, 2011 Program Expenditures State Resources Federal Resources Other Resources BASIC EDUCATION PROGRAMS 01 Basic Education 02 Alternative Learning Experience (ALE) 31 Vocational-Basic, State 45 Skills Center-Basic, State 97 Districtwide Support TOTAL BASIC EDUCATIONAL PROGRAMS 20,487, ,014,00 4,499, ,001, ,735, ,014,00 3,234, ,984, , , , ,608, ,233, ,841, OTHER INSTRUCTIONAL PROGRAMS 11 Federal Stimulus - Title I 12 Federal Stimulus - School Improvement 13 Federal Stimulus - State Fiscal Stabilization Fund 14 Federal Stimulus - IDEA 18 Federal Stimulus - Competitive Grants 19 Federal Stimulus - Other 21 Special Education-Supplemental, State 24 Special Education-Supplemental, Federal 26 Special Education-Institutions, State 29 Special Education-Other, Federal 34 Middle School Career and Technical Ed, State 38 Vocational, Federal 39 Vocational, Other Categorical 46 Skills Center, Federal 51 ESEA Disadvantaged, Federal 52 Other Title Grants Under ESEA, Federal 53 ESEA Migrant, Federal 54 Reading First, Federal 55 Learning Assistance, State 56 State Inst, Centers and Homes 57 State Inst, Neglected and Delinquent, Federal 58 Special and Pilot Programs, State 59 Institutions - Juveniles in Adult Jails 61 Head Start, Federal 62 Math & Science, Professional Dev., Federal 180, , , , ,484, , , , , , , , ,592, , , , , , , , , , , , , , , , Page 1 of 2 REPORT F196 General Fund RUN: 1/17/ :28:43 AM COUNTY: 32 Spokane Resource to Program Expenditure Report For the Year Ended August 31, 2011 OTHER INSTRUCTIONAL PROGRAMS 63 Promoting Academic Success 64 Limited English Proficiency, Federal 65 Transitional Bilingual, State 66 Student Achievment, State 67 Indian Education, Federal, JOM 68 Indian Education, Federal, ED 69 Compensatory, Other 71 Traffic Safety 73 Summer School 74 Highly Capable 75 Professional Development, State 76 Targeted Assistance, Federal 78 Youth Training Programs, Federal 79 Instructional Programs, Other TOTAL OTHER INSTRUCTIONAL PROGRAMS Program Expenditures 13, , , , , , ,704, State Resources 60, , , , , ,440, Federal Resources 13, ,106, Other Resources 76, , , ,158, OTHER PROGRAMS 81 Public Radio/Television 86 Community Schools 88 Day Care 89 Other Community Services 98 School Food Services 99 Pupil Transportation TOTAL OTHER PROGRAMS TOTALS 26, ,301, ,688, ,016, ,721, , ,645, ,669, ,094, , , ,231, , , , , ,396, Page 2 of 2 A-33

70 REPORT F196 Preliminary Special Education Maintenance of Effort COUNTY: 32 Spokane Fiscal Year RUN: 1/17/ :28:45 AM This Special Education MOE test is preliminary and does not incorporate any provisions for reducing local effort pursuant to IDEA regulations. Adjustments may be made to the data below through December following the fiscal year end. Therefore, this may change the results to the final test completed after the December adjustments. Preliminary FY to FY Aggregate Maintenance of Effort Test 1. Program 21 direct expenditures: Program 21 expenditures must include expenditure amounts related to Revenue Account 4121 and 3121 redirected through the apportionment process to another school district or ESD. 2. Minus Revenue 7121 Payments From Other Districts. 3. Minus Revenue 6321 Special Education-Medicaid Reimbursements. 4. Equals aggregate special education expenditures for resident special education students. 5. Preliminary Aggregate Maintenance of Effort Test (4B minus 4A). (A positive amount means the test was passed and a negative amount indicates non-compliance.) Preliminary FY to FY Per Pupil Maintenance of Effort Test 6. Resident special education students (updated by OSPI). 7. Expenditures per pupil (line 4/line 6). 8. Preliminary Per Pupil Maintenance of Effort Test (7B minus 7A). (A positive amount means the test was passed and a negative amount indicates non-compliance.) Preliminary Year-End Local Special Education Maintenance of Effort Test FY to FY Aggregate Maintenance of Effort Test 9. Resource to program expenditure report Other Resources for Program 21 for the current year is compared to Other Resources for Program 21 for the prior year. 10. Preliminary Local Aggregate Maintenance of Effort Test (9B minus 9A). (A positive amount means the test was passed and a negative amount indicates non-compliance.) 11. Expenditures per pupil (line 9/line 6). 12. Preliminary Local Per Pupil Maintenance of Effort Test (11B minus 11A). (A positive amount means the test was passed and a negative amount indicates non-compliance.) FY Actual (A) 3,994, , ,920, , , FY Actual (B) 4,484, , , ,394, , , , , , Notes: A. Actual revenue and expenditure data are obtained from F-196 data. B. Resident special education student data as shown on line 6 are obtained from 1220 Reports and include students in ages birth-2, 3-PreK, and K-21. C. Based on the information to date, the school district has passed the preliminary year-end Maintenance of Effort Test if *ONE* of the values on line 5, 8, 10, *OR* 12 is a zero or positive. If *ALL* values on lines 5, 8, 10 *AND* 12 are negative, the district is non-compliant for the preliminary year-end Maintenance of Effort Test. Page 1 of 1 REPORT F196 COUNTY: 32 Spokane Preliminary Federal Cross-Cutting Maintenance of Effort Fiscal Year RUN:1/17/ :28:48 AM This is the preliminary Federal Cross-Cutting Maintenance of Effort. Adjustments may be made to the data below through December following the fiscal year end. Therefore, this may change the results to the final test completed after the December adjustments. Data Items Used in the Federal Cross-Cutting Maintenance of Effort Test Description Total Expenditures Public Radio/Television Community Schools Day Care Other Community Services School Food Services Debt Service, Interest Debt Service, Principal Debt Service, Debt Related Expenditures Capital Outlay, All Object 9 Federal, General Purpose Revenue Federal, Special Purpose Revenue Food Service Deficit Food Services Revenue, Federal Food Services Revenue, Federal Food Services Revenue, Federal Food Services Revenue, USDA Commodities Capital Outlay, Stim, Title I Capital Outlay, Stim, Schl Imprv Capital Outlay, Stim, SFSF Capital Outlay, Stim, IDEA Capital Outlay, Stim, Compt Grants Capital Outlay, Stim, Other Capital Outlay, Sp Ed, Sup, Fed Capital Outlay, Sp Ed, Inst, St Capital Outlay, Sp Ed, Oth, Fed Capital Outlay, Voc, Fed Capital Outlay, Voc, Other Capital Outlay, Skill Cntr, Fed Capital Outlay, ESEA Disadvantaged- Federal Capital Outlay, Other Title Grants Under ESEA-Federal Capital Outlay, ESEA Migrant- Federal Capital Outlay, Read First, Fed Capital Outlay, St In, Ctr/Hm, D Capital Outlay, St In, N/D, Fed Capital Outlay, Head Start, Fed Capital Outlay, MS, Pro Dv, Fed Capital Outlay, LEP, Fed Capital Outlay, Ind Ed, Fd, JOM Capital Outlay, Ind Ed, Fd, ED Capital Outlay, Comp, Othr Capital Outlay, Target Asst, Fed Operation + (plus) - (minus) - (minus) - (minus) - (minus) - (minus) - (minus) - (minus) - (minus) - (minus) - (minus) - (minus) + (plus) + (plus) + (plus) + (plus) + (plus) + (plus) + (plus) + (plus) + (plus) + (plus) + (plus) + (plus) + (plus) + (plus) + (plus) + (plus) + (plus) + (plus) + (plus) + (plus) + (plus) + (plus) + (plus) + (plus) + (plus) + (plus) + (plus) + (plus) + (plus) + (plus) FY ,721, , ,301, , , ,201, , , FY ,043, , ,262, , , ,861, , , Note: Food Services Deficit Calculation Total Program 98 + Revenue 2298 (Local) - Revenue 4198 (State) - Revenue 4398 (State) - Revenue 6198 (Fed) - Revenue 6298 (Fed) - Revenue 6398 (Fed) - Revenue 6998 (Fed) - Revenue 7198 (Other) - Revenue 8198 (Other) - TOTAL FOOD SERVICES DEFICIT If Total Food Service Deficit is a positive amount, it is added to the total aggregate expenditures. If Total Food Service Deficit is a negative amount, zero dollars are displayed. FY FY ,301, ,262, , , , , , , , , , , Page 1 of 2 A-34

71 REPORT F196 COUNTY: 32 Spokane Description Capital Outlay, Yth Trg Pm, Fed Capital Outlay, Inst Pgm, Othr Capital Outlay, Public Radio/TV Capital Outlay, Comm Schools Capital Outlay, Day Care Capital Outlay, Othr Comm Srv Capital Outlay, Food Services Total Expenditures for Preliminary Maintenance of Effort Preliminary Federal Cross-Cutting Maintenance of Effort Fiscal Year Operation FY FY (plus) + (plus) + (plus) + (plus) + (plus) + (plus) + (plus) 10, , = (equals) 32,942, ,491, FY 10-11/FY The amount for the current fiscal year should be at least 90 percent of the previous year's amount RUN:1/17/ :28:48 AM Page 2 of 2 REPORT F-196 COUNTY: 32 Spokane Fiscal Year Preliminary Vocational Education Maintenance of Effort RUN: 1/17/ :28:50 AM This is the preliminary Vocational Education Maintenance of Effort. Adjustments may be made to the data below through December following the fiscal year end. Therefore, this may change the results to the final test completed after the December adjustments. Description Program 31, Vocational--Basic State Program 38, Vocational--Federal Program 39, Vocational--Other Categorical Program 45, Skills Center--State Program 46, Skills Center--Federal Secondary Vocational Education Revenue Skills Center Revenue Secondary Vocational Education Revenue Total Expenditures for Preliminary Maintenance of Effort Operation + (plus) + (plus) + (plus) + (plus) + (plus) - (minus) - (minus) - (minus) = equals FY / FY FY ,014,00 28, , ,013, FY , , , , This report is for information only and does not reflect on the financial condition of the district. Page 1 of 1 A-35

72 REPORT F196 RUN: 1/17/ :28:51 AM COUNTY: 32 Spokane Cheney School District No.360 Financial Edit Report Fiscal Year GENERAL FUND Type Number Message Amount 1 Amount 2 Info Your district has a negative GF expenditures in Program/Activity/Object Info If Program 97, Activity 74, Warehousing, Objects 2 through 7 is greater than zero, then G.L. 410, Inventory, should be greater than zero. Info On the Special Education Maintenance of Effort test, ONE of the values on line 5, 8, 10, OR 12 is zero or a positive number. Your district has passed the Preliminary Special Education MOE test. "Good job" Info Your district has passed the Preliminary Federal Cross-Cutting MOE. Current year aggregate expenditures are greater than the previous year aggregate expenditures. *Good job* Info On the Data Requirements for End-of-Year Reporting to Apportionment report, your district's Teacher Assistance Program (TAP) revenue is blank. Did your district receive TAP revenue? Info On the Data Requirements for Supplemental Reports the impact fees item is blank. Did your district receive impact fees revenue this year? Info On the Data Requirements for Supplemental Reports the mitigation fees item is blank. Did your district receive mitigation fees revenue this year? Info On the Schedule for Determining School District Federal Restricted Indirect Cost Rate, allowable expenditures in Program 97, Activity 15, Public Relations, are not entered. If no entry is made these expenditures will not be included in the Restricted Indirect Expenditure Pool. -1, , ASSOCIATED STUDENT BODY FUND Associated Student Body Fund: Cleared all edits Page 1 of 2 REPORT F196 RUN: 1/17/ :28:51 AM COUNTY: 32 Spokane Cheney School District No.360 Financial Edit Report Fiscal Year Continued DEBT SERVICE FUND Debt Service Fund: Cleared all edits CAPITAL PROJECTS FUND Capital Projects Fund: Cleared all edits TRANSPORTATION VEHICLE FUND Transportation Vehicle Fund: Cleared all edits PERMANENT FUND Permanent Fund: Cleared all edits PRIVATE PURPOSE TRUST/OTHER TRUST FUND Private Purpose Trust/Other Trust Fund: Cleared all edits Page 2 of 2 A-36

73 Washington State Auditor s Office Financial Statements and Federal Single Audit Report Washington State Auditor Brian Sonntag Spokane County Audit Period September 1, 2009 through August 31, 2010 Report No May 16, 2011 Board of Directors Cheney, Washington Report on Financial Statements and Federal Single Audit Please find attached our report on s financial statements and compliance with federal laws and regulations. We are issuing this report in order to provide information on the District s financial condition. A-37 Sincerely, BRIAN SONNTAG, CGFM STATE AUDITOR Issue Date May 16, 2011 Insurance Building, P.O. Box Olympia, Washington (360) TDD Relay (800) FAX (360)

74 Table of Contents Spokane County September 1, 2009 through August 31, 2010 Federal Summary Spokane County September 1, 2009 through August 31, 2010 Federal Summary... 1 Schedule of Prior Federal Audit Findings... 3 Independent Auditor s Report on Internal Control over Financial Reporting and on Compliance and Other Matters in Accordance with Government Auditing Standards... 4 Independent Auditor s Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A Independent Auditor s Report on Financial Statements... 8 Financial Section...10 The results of our audit of are summarized below in accordance with U.S. Office of Management and Budget Circular A-133. FINANCIAL STATEMENTS An unqualified opinion was issued on the financial statements. Internal Control Over Financial Reporting: Significant Deficiencies: We reported no deficiencies in the design or operation of internal control over financial reporting that we consider to be significant deficiencies. Material Weaknesses: We identified no deficiencies that we consider to be material weaknesses. A-38 We noted no instances of noncompliance that were material to the financial statements of the District. FEDERAL AWARDS Internal Control Over Major Programs: Significant Deficiencies: We reported no deficiencies in the design or operation of internal control over major federal programs that we consider to be significant deficiencies. Material Weaknesses: weaknesses. We identified no deficiencies that we consider to be material We issued an unqualified opinion on the District s compliance with requirements applicable to each of its major federal programs. We reported no findings that are required to be disclosed under section 510(a) of OMB Circular A-133. Washington State Auditor's Office 1

75 A-39 Identification of Major Programs: The following were major programs during the period under audit: CFDA No. Program Title School Breakfast Program Child Nutrition Cluster - National School Lunch Program National School Lunch Program Non Cash Assistance Food Commodities Title I Part A Special Education Cluster - Grants to States (IDEA, Part B) Special Education Cluster - Preschool Grants (IDEA Preschool)" ARRA - Title I Cluster, Part A (Recovery Act) ARRA - Special Education Cluster, IDEA Part B (Recovery Act) ARRA - Special Education Cluster, Preschool Grants (Recovery Act) ARRA - State Fiscal Stabilization Fund - Education State Grants (Recovery Act) The dollar threshold used to distinguish between Type A and Type B programs, as prescribed by OMB Circular A-133, was $300,000. The District qualified as a low-risk auditee under OMB Circular A-133. Schedule of Prior Federal Audit Findings Spokane County September 1, 2009 through August 31, 2010 This schedule presents the status of federal findings reported in prior audit periods. The status listed below is the representation of. The State Auditor s Office has reviewed the status as presented by the District. Audit Period: 9/1/2008 8/31/2009 Report Reference No: Federal Program Name and Granting Agency: Title I Part A Grants to Local Educational Agencies U.S Department of Education Finding Reference No: 1 CFDA Number(s): Pass-Through Agency Name: Washington Superintendent of Public Instruction Finding Caption: did not comply with cost principle requirements for its federal Title I program. Background: During fiscal year 2009, the District spent $843,825 in federal Title I funds, $768,448 of which was used to pay salaries and benefits. Of the 13 employees selected for testing, two employees lacked adequate time and effort support. These employees salaries and benefits were charged to the Title I program, but no Title I services were provided resulting in unallowable costs of $20,580. Status of Corrective Action: (check one) x Fully Corrected Partially Corrected No Corrective Action Taken Finding is considered no longer valid Corrective Action Taken: Tracking procedures were enhanced to provide real-time changes in the event of employee status changes during the school year. Form 553 was improved and internal controls were enhanced to require the change form be routed back to the originator, verifying the change throughout the accounting and Personnel system. Washington State Auditor's Office 2 Washington State Auditor's Office 3

76 Independent Auditor s Report on Internal Control over Financial Reporting and on Compliance and Other Matters in Accordance with Government Auditing Standards Board of Directors Cheney, Washington Spokane County September 1, 2009 through August 31, 2010 COMPLIANCE AND OTHER MATTERS As part of obtaining reasonable assurance about whether the District s financial statements are free of material misstatement, we performed tests of the District s 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. This report is intended for the information and use of management, the Board of Directors, federal awarding agencies and pass-through entities. However, this report is a matter of public record and its distribution is not limited. It also serves to disseminate information to the public as a reporting tool to help citizens assess government operations. A-40 We have audited the financial statements of, Spokane County, Washington, as of and for the year ended August 31, 2010, and have issued our report thereon dated April 20, We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to the financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. INTERNAL CONTROL OVER FINANCIAL REPORTING BRIAN SONNTAG, CGFM STATE AUDITOR April 20, 2011 In planning and performing our audit, we considered the District s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the District s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the District s internal control over financial reporting. 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. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. Washington State Auditor's Office 4 Washington State Auditor's Office 5

77 A-41 Independent Auditor s Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A-133 Board of Directors Cheney, Washington COMPLIANCE Spokane County September 1, 2009 through August 31, 2010 We have audited the compliance of, Spokane County, Washington, with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that could have a direct and material effect on each of its major federal programs for the year ended August 31, The District s major federal programs are identified in the Federal Summary. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major federal programs is the responsibility of the District s management. Our responsibility is to express an opinion on the District s compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to the financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the District s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the District s compliance with those requirements. INTERNAL CONTROL OVER COMPLIANCE The management of the District is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we considered the District s internal control over compliance with the requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the District's internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. This report is intended for the information of management, the Board of Directors, federal awarding agencies and pass-through entities. However, this report is a matter of public record and its distribution is not limited. It also serves to disseminate information to the public as a reporting tool to help citizens assess government operations. BRIAN SONNTAG, CGFM STATE AUDITOR April 20, 2011 In our opinion, the District complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended August 31, Washington State Auditor's Office 6 Washington State Auditor's Office 7

78 Independent Auditor s Report on Financial Statements Board of Directors Cheney, Washington Spokane County September 1, 2009 through August 31, 2010 Our audit was performed for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. The accompanying Schedule of Long-Term Debt is also presented for purposes of additional analysis as required by the prescribed accounting manual. These schedules are not a required part of the financial statements. Such information has been subjected to the auditing procedures applied in the audit of the financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the financial statements taken as a whole. This report is intended for the information and use of the governing body and management of the District. However, this report is a matter of public record and its distribution is not limited. It also serves to disseminate information to the public as a reporting tool to help citizens assess government operations. We have audited the accompanying financial statements of, Spokane County, Washington, as of and for the year ended August 31, 2010, as listed on page 10. These financial statements are the responsibility of the District s management. Our responsibility is to express an opinion on these financial statements based on our audit. A-42 We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. BRIAN SONNTAG, CGFM STATE AUDITOR April 20, 2011 As described in Note 1 to the financial statements, the District prepares its financial statements using accounting practices prescribed by Washington State statutes and the Accounting Manual for Public Schools in the State of Washington, which demonstrates compliance with the regulatory basis of accounting which differs from accounting principles generally accepted in the United States of America. The differences between the regulatory basis of accounting and the accounting principles generally accepted in the United States of America are also described in Note 1. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of, as of August 31, 2010, and the changes in financial position thereof for the year then ended on the basis of accounting described in Note 1. In accordance with Government Auditing Standards, we have also issued our report on our consideration of the District s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Washington State Auditor's Office 8 Washington State Auditor's Office 9

79 Financial Section Spokane County September 1, 2009 through August 31, 2010 FINANCIAL STATEMENTS Balance Sheet Governmental Funds 2010 Statement of Revenues, Expenditures and Changes in Fund Balance Governmental Funds 2010 Statement of Fiduciary Net Assets Fiduciary Funds 2010 Statement of Changes in Fiduciary Net Assets Fiduciary Funds 2010 Notes to Financial Statements 2010 A-43 SUPPLEMENTAL INFORMATION Schedule of Long-Term Debt 2010 Schedule of Expenditures of Federal Awards 2010 Notes to the Schedule of Expenditures of Federal Awards 2010 [This page intentionally left blank] Washington State Auditor's Office 10

80 Balance Sheet Governmental Funds Washington State Auditor's Office 11 August 31, 2010 Debt Capital Transportation General ASB Service Projects Vehicle Permanent Fund Fund Fund Fund Fund Fund Total ASSETS: Cash and Cash Equivalents 3,790, , ,469, ,441, , ,488, Minus Warrants Outstanding -1,037, , ,956, Taxes Receivable 3,110, ,056, ,696, , ,872, Due From Other Funds Due From Other Governmental 128, , Units Accounts Receivable 69, , Interfund Loans Receivable Accrued Interest Receivable Inventory 10, , Prepaid Items 403, , Investments Investments/Cash With Trustee Investments-Deferred Compensation Self-Insurance Security Deposit TOTAL ASSETS 6,475, , ,525, ,219, , ,017, LIABILITIES: Accounts Payable 346, , , ,123, Contracts Payable Current Accrued Interest Payable Accrued Salaries 32, , Revenue Anticipation Notes Payable Payroll Deductions and Taxes 23, , Payable Due To Other Governmental Units Deferred Compensation Payable Estimated Employee Benefits Payable Due To Other Funds The accompanying notes are an integral part of this financial statement. Balance Sheet Washington State Auditor's Office 12 Governmental Funds August 31, 2010 Debt Capital Transportation General ASB Service Projects Vehicle Permanent Fund Fund Fund Fund Fund Fund Total LIABILITIES: Interfund Loans Payable Deposits Matured Bonds Payable Matured Bond Interest Payable Arbitrage Rebate Payable Deferred Revenue 3,110, ,056, ,696, , ,872, TOTAL LIABILITIES 3,512, , ,056, ,469, , ,052, FUND BALANCE: Reservation Of Fund Balance 46, ,299, ,346, Unreserved, Designated Fund 974, , Balance Unreserved, Undesignated Fund 1,940, , ,469, , , ,643, Balance TOTAL FUND BALANCE 2,962, , ,469, ,750, , ,964, TOTAL LIABILITIES AND FUND 6,475, , ,525, ,219, , ,017, BALANCE The accompanying notes are an integral part of this financial statement. A-44

81 Statement of Revenues, Expenditures, and Changes in Fund Balance Governmental Funds Washington State Auditor's Office 13 REVENUES: For the Year Ended August 31, 2010 Debt Capital Transportation General ASB Service Projects Vehicle Permanent Fund Fund Fund Fund Fund Fund Total Local 7,315, , ,217, ,764, , ,700, State 25,473, , , ,936, Federal 3,040, , , ,056, Federal Stimulus 1,872, ,872, Other 48, , TOTAL REVENUES 37,750, , ,221, ,801, , ,614, EXPENDITURES: CURRENT: Regular Instruction 19,153, ,153, Federal Stimulus 1,664, ,664, Special Education 4,734, ,734, Vocational Education 982, , Skills Center Compensatory Programs 1,918, ,918, Other Instructional Programs 357, , Community Services 20, , Support Services 7,926, ,926, Student Activities/Other 355, , CAPITAL OUTLAY: Sites 551, , Building 2,974, ,974, Equipment 748, , Energy Transportation Equipment 266, , Other 286, , DEBT SERVICE: Principal 1,895,00 1,895,00 Interest and Other Charges 426, , , TOTAL EXPENDITURES 37,043, , ,321, ,580, , ,567, REVENUES OVER (UNDER) EXPENDITURES 706, , , , , , The accompanying notes are an integral part of this financial statement. Statement of Revenues, Expenditures, and Changes in Fund Balance Washington State Auditor's Office 14 OTHER FINANCING SOURCES (USES): Governmental Funds For the Year Ended August 31, 2010 Debt Capital Transportation General ASB Service Projects Vehicle Permanent Fund Fund Fund Fund Fund Fund Total Bond Sales & Refunding Bond Sales 3,644, ,293, ,938, Long-Term Financing Transfers In 146, , Transfers Out (GL 536) -146, , Other Financing Uses (GL 535) Other 111, ,15 114, TOTAL OTHER FINANCING SOURCES (USES) 146, ,644, ,258, ,15 55,053, EXCESS OF REVENUES/OTHER FINANCING SOURCES 853, , ,544, ,480, , ,099, OVER (UNDER) EXPENDITURES AND OTHER FINANCING USES BEGINNING TOTAL FUND BALANCE 2,083, , ,924, , , ,839, Prior Year(s) Corrections or 25, , Restatements ENDING TOTAL FUND BALANCE 2,962, , ,469, ,750, , ,964, The accompanying notes are an integral part of this financial statement. A-45

82 Washington State Auditor's Office 15 REPORT F196 COUNTY: 32 Spokane ASSETS: Imprest Cash Cash On Hand Cash On Deposit with Cty Treas Minus Warrants Outstanding Due From Other Funds Accounts Receivable Accrued Interest Receivable Investments Investments/Cash With Trustee Other Assets Capital Assets, Land Capital Assets, Buildings Capital Assets, Equipment Accum Depreciation, Buildings Accum Depreciation, Equipment TOTAL ASSETS LIABILITIES: Accounts Payable Due To Other Funds TOTAL LIABILITIES NET ASSETS: Net assets held in trust for: Reserved for Other Items Reserved for Self Insured Risk Reserved for Trust Principal Unreserved, Designated for Other Items Unreserved, Undesignated Fund Balance TOTAL NET ASSETS Statement Of Fiduciary Net Assets Fiduciary Funds August 31, 2010 The accompanying notes are an integral part of this financial statement. Private Purpose Trust 1, , , , RUN: 12/8/2010 8:16:36 AM Other Trust Statement of Changes in Fiduciary Net Assets Fiduciary Funds Washington State Auditor's Office 16 For the Year Ended August 31, 2010 ADDITIONS: Private Purpose Contributions: Trust Other Trust Private Donations Employer Members Other TOTAL CONTRIBUTIONS Investment Income: Net Appreciation (Depreciation) in Fair Value Interest and Dividends Less Investment Expenses Net Investment Income Other Additions: Rent or Lease Revenue Total Other Additions TOTAL ADDITIONS DEDUCTIONS: Benefits Refund of Contributions Administrative Expenses Scholarships Other TOTAL DEDUCTIONS Net Increase (Decrease) Net Assets--Beginning 1, Prior Year(s) Corrections or Restatements NET ASSETS--ENDING 1, The accompanying notes are an integral part of this financial statement. A-46

83 A-47 CHENEY SCHOOL DISTRICT Notes To Financial Statements September 1, 2009 through August 31, 2010 Note 1 - Summary of Significant Accounting Policies a. Reporting Entity The Cheney School District is a municipal corporation organized pursuant to Title 28A Revised Code of Washington (RCW) for the purpose of providing public school services to students in grades K-12. Oversight responsibility for the district's operations is vested with the independently elected board of directors. Management of the district is appointed by and is accountable to the board of directors. Fiscal responsibility, including budget authority and the power to set fees, levy property taxes, and issue debt consistent with provisions of state statutes, also rests with the board of directors. For financial reporting purposes, the Cheney School District includes all funds, account groups, and organizations that are controlled by or dependent on the district's board of directors. Control by or dependence on the district was determined on the basis of budget adoption, taxing authority, outstanding debt secured by the general credit of the district, obligation of the district to finance any deficits that may occur, or receipt of significant subsidies from the district. b. Basis of Presentation - Fund Accounting The Cheney School District presents governmental fund financial statements and related notes on the modified accrual basis of accounting as prescribed by generally accepted accounting principles (GAAP) and required by its regulatory agencies, the Office of the Superintendent of Public Instruction and the State Auditor s Office. However, the district elects to not present district wide financial statements, and the management s discussion and analysis, which are departures from GAAP. Long-term debt is reported on a required supplementary schedule. The accounts of the district are organized on the basis of funds, each of which is considered a separate accounting entity. The regulatory agencies require all funds be presented as major funds. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues, and expenditures as appropriate. The various funds in the report are grouped into governmental and fiduciary funds as follows: GOVERNMENTAL FUNDS General Fund This fund is used to account for all expendable financial resources, except those required to be accounted for in another fund. In keeping with the principle of as few funds as necessary, food services, maintenance, data processing, printing, and transportation activities are included in the General Fund. Capital Projects Funds These funds account for financial resources to be used for the construction or acquisition of major capital assets. The capital projects fund type consists of the Capital Projects Fund and the Transportation Vehicle Fund. Capital Projects Fund - This fund is used to account for resources set aside for the acquisition and construction of capital assets. Transportation Vehicle Fund - This fund is used to account for the purchase, major repair, rebuilding, and debt service expenditures related to pupil transportation equipment. Debt Service Fund This fund is used to account for the accumulation of resources for and the payment of matured general long-term debt principal, interest, and related expenditures. Special Revenue Funds These funds account for the proceeds of specific revenue sources that are legally restricted for specific purposes. The Associated Student Body Program Fund (ASB Fund) is the only fund of this type. This fund is accounted for as a special revenue fund since the financial resources legally belong to the district. Permanent Funds These funds are used to report resources legally restricted such that only earnings, and not principle, may be used to support the district s programs. FIDUCIARY FUNDS Fiduciary funds that include pension (and other employee benefit), private-purpose trust funds, and agency funds, are used to account for assets held by the district in a trustee and agency capacity. Private Purpose Trust Fund This fund is used to account for resources legally held in trust where principle and income benefit individuals, private organizations, or other governments. c. Basis of Accounting The district's accounting policies, as reflected in the accompanying financial statements, conform to the Accounting Manual for Public School Districts in the State of Washington, issued jointly by the State Auditor and the Superintendent of Public Instruction, by the authority of RCW , RCW 28A , RCW 28A (1), and RCW 28A This manual allows for a practice that differs from generally accepted accounting principles in the following manner: (1) District wide statements are not presented. (2) The financial statements do not report capital assets. (3) Debt is not reported on the face of the financial statements. It is reported in the notes to the financial statements and on the Schedules of Long-Term Debt. The Schedule of Long-Term Debt is required supplemental information. (4) The original budget is not presented. This information is available through the Office of the Superintendent of Public Instruction. (5) The Management Discussion and Analysis is not required. The modified accrual basis of accounting is used for all governmental and expendable trust funds. Revenues are recognized as soon as they are both measurable and available. "Measurable" Washington State Auditor's Office 17 Washington State Auditor's Office 18

84 A-48 means the amount of the transaction can be determined and the district considers all revenues available if they are collected within 60 days after year-end to pay liabilities of the current period. Property taxes receivable are measurable but not available and are, therefore, not accrued. However, categorical program claims and inter-district billings are measurable and available and are, therefore, accrued. Expenditures are recognized under the modified basis of accounting when the related fund liability is incurred, except for unmatured principle and interest on long-term debt which are recorded when due. The fund liability is incurred when the goods or services have been received. For federal grants, the recognition of expenditures is dependent on the obligation date (obligation means purchase order issued, contracts awarded, or goods and services received). All governmental funds reporting focus primarily on the sources, uses, and balances of current financial resources and often have a budgetary orientation. This means that only current assets and current liabilities are included on their balance sheets. d. Budgetary Data General Budgetary Policies Chapter 28A.505 RCW and Chapter Washington Administrative Code (WAC) mandate school district budget policies and procedures. The board adopts the budget after a public hearing. An appropriation is a prerequisite to expenditure. Appropriations lapse at the end of the fiscal period. Budgetary Basis of Accounting For budget and accounting purposes, revenues and expenditures are accounted for on the modified accrual basis as prescribed in law for all governmental funds. Fund balance is budgeted as available resources and, under statute, may not be negative, unless the district enters into binding conditions with state oversight pursuant to RCW 28A e. Assets, Liabilities, and Fund Equity All of 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. All of the district's investments during the year and at year-end were insured or registered and held by the district or its agent in the district's name. The district's investments as of August 31, 2010 are as follows: Local Government Fund Investment Pool Balance General Fund $ 2,713, Capital Projects Fund $51,411, Debt Service Fund $ 5,469, Associated Student Body Fund $ 159, Transportation Vehicle Fund $ 591, Trust and Agency Fund $ 1, Total LGIP Investments $60,346, Inventory Inventory is valued at cost using the first-in, first-out (FIFO) method. The consumption method of inventory is used, which charges inventory as expenditure when it is consumed. Management may reserve a portion of fund balance in any amount as a budgetary technique to insure the availability of resources at the appropriate time. USDA commodity inventory consists of food donated by the United States Department of Agriculture. It is valued at the prices paid by the USDA for the commodities. f. Revenue and Expenditure Recognition Debt Service Principal and interest on general long-term debt is recognized only when due. Property Taxes Property tax revenues are collected as the result of special levies passed by the voters in the district. Taxes are levied on January 1. The taxpayer has the option of paying all taxes on April 30 or one-half then and one-half on October 31. Typically, slightly more than half of the collections are made on the April 30 date. The October 31 collection is not available in time to cover liabilities for the fiscal period ended August 31. Therefore, the fall portion of property taxes is not accrued as revenue. Instead, the taxes due on October 31 are recorded as deferred revenue. Compensated Absences Employees earn sick leave at a rate of 12 days per year up to a maximum of one contract year. Under the provisions of Chapter 28A RCW, sick leave accumulated by district employees is reimbursed at death or retirement at the rate of one day for each four days of accrued leave, limited to 180 accrued days. This statute also provides for an annual buy out of an amount up to the maximum annual accumulation of 12 days. For buyout purposes employees may accumulate such leave to a maximum of 192 days, including the annual accumulation, as of December 31 of each year. These expenditures are recorded when paid, except termination sick leave that is accrued upon death, retirement, or upon termination provided the employee is at least 55 years of age and has and has sufficient years of service. Termination sick leave payable was computed using the vesting payment method. Vacation pay that is expected to be liquidated with expendable available financial resources is reported as expenditures and a fund liability of the government fund that will pay it. g. Fund Balance May contain designation or reserves Reservation is a legal restriction on spending of the fund balance of a district based upon statute, WAC or other legal requirements beyond the discretion of the board of directors of the district. Examples include anticipated carryover or recovery of revenues previously received and restricted as to usage. Unreserved, Designated is used to set aside financial resources for specific purposes. These accounts reflect tentative management plans for future financial resource use such as the replacement of equipment or the assignment of resources for contingencies. Washington State Auditor's Office 19 Washington State Auditor's Office 20

85 A-49 Note 2 - Capital Assets The district's capital assets are insured in the amount of $95,013,449 for fiscal In the opinion of the district's insurance consultant, this amount is sufficient to adequately fund replacement of the district's assets. Note 3 - Pensions A. General Information Substantially all Cheney School District full-time and qualifying part-time employees participate in one of the following three contributory, multi-employer, cost-sharing statewide retirement systems managed by the Washington State Department of Retirement Systems (DRS): Teachers Retirement System (TRS), Public Employees Retirement System (PERS) and School Employees Retirement System (SERS). Participation in the programs was as follows: Membership by retirement system program as of June 30, 2009: Program Active Members Inactive Vested Members Retired Members TRS 67,388 8,660 39,927 PERS 159,235 28,074 74,857 SERS 52,474 9,193 4,629 Certificated public employees are members of TRS. Non-certificated public employees are members of PERS (if Plan 1) or SERS. Plan 1 under the TRS and PERS programs are defined benefit pension plans whose members joined the system on or before September 30, Plan 1 members are eligible to retire with full benefits after five years of credited service and attainment of age 60, after 25 years of credited service and attainment of age 55, or after 30 years of credited service. Plan 2 under the TRS or SERS programs are defined benefit pension plans whose members joined on or after October 1, 1977, but before June 30, 1996 or August 31, 2000, for TRS or SERS programs, respectively. Members of TRS and SERS are eligible to retire with full benefits after five years of credited service and attainment of age 65 or after 20 years of credited service and attainment of age 55 with the benefit actuarially reduced from age 65. Plan 3 under the TRS and SERS programs are defined benefit, defined contribution pension plans whose members joined on or after July 1, 1996, or September 1, 2000, for TRS and SERS, respectively. Members are eligible to retire with full benefits after five years of credited service and attainment of age 60 or after ten years of credited service and attainment of age 55 with the benefit actuarially reduced from age 65. Average final compensation (AFC) of Plan 1 TRS and PERS members is the highest average salary during any two consecutive years. For Plan 2 and Plan 3 TRS and SERS members, it is the highest average salary during any five consecutive years. The retirement allowance of Plan 1 TRS and PERS members is the AFC multiplied by 2 percent per year of service capped at 60 percent with a cost-of-living adjustment. For Plan 2 TRS and SERS members, it is the AFC multiplied by 2 percent per year of service with provision for a cost-of-living adjustment. For the defined benefit portion of Plan 3 TRS and SERS it is the AFC multiplied by 1 percent per year of service with a cost-of-living adjustment. Washington State Auditor's Office 21 The employer contribution rates for PERS, TRS, and SERS (Plans 1, 2, and 3) and the TRS and SERS Plan 2 employee contribution rates are established by the Pension Funding Council based upon advice from the Office of the State Actuary. The employee contribution rate for Plan 1 in PERS and TRS is set by statute at 6 percent and does not vary from year to year. The employer rate is the same for all plans in a system. The methods used to determine the contribution requirements are established under chapters 41.40, 41.32, and RCW for PERS, TRS and SERS respectively. The district contribution represents its full liability under both systems, except that future rates may be adjusted to meet the system needs. B. Contributions Employee contribution rates as of July 1, 2010: Plan 1 TRS 6.00% Plan 1 PERS 6.00% Plan 2 TRS 3.36% Plan 2 SERS 3.15% Plan 3 TRS and SERS 5.00% (minimum), 15.00% (maximum) For Plan 3 TRS and SERS, rates adjusted based upon age may be chosen. The optional rates range begins at 5 percent and increase to a maximum of 15 percent. Employer contribution rates as of July 1, 2010: Plan 1 TRS 6.14% Plan 1 PERS 5.31% Plan 2 TRS 6.14% Plan 2 SERS 5.44% Plan 3 TRS 6.14% Plan 3 SERS 5.44% Under current law the employer must contribute 100 percent of the employer-required contribution. Employer required contributions in dollars (Participant information for all plans is as of August 31): Plan FY FY FY Plan 1 TRS $ 85, $ 134, $101, Plan 2 TRS $150, $ 217, $125, Plan 3 TRS $821, $1,082, $665, Plan 1 PERS $ 7, $ 12, $ 11, Plan 2 SERS $ 62, $ 78, $ 54, Plan 3 SERS $202, $ 271, $190, Historical trend information showing TRS, PERS and SERS progress in accumulating sufficient assets to pay benefits when due is presented in the state of Washington s June 30, 2010, comprehensive annual financial report. Refer to this report for detailed trend information. It is available from: State of Washington Office of Financial Management 300 Insurance Building PO BOX Olympia, WA Washington State Auditor's Office 22

86 A-50 Note 4 Construction and Other Significant Committments In February of 2009, a study and survey was completed which identified a total need for additional facilities of approximately $123,000,000. Phase 1 recommended additions included two new middle schools, a new elementary school, and an addition to the current high school. In February of 2010 voters approved a $79 million capital construction bond to replace the current middle school, build and equip a second middle school, build and equip a fifth elementary school, and perform other capital improvements as needed. Estimated construction costs totaled $94.2 million, less an estimated $18 million in state match funding. Construction in progress is composed of: Project Additional Additional Authorization Expended as of Local Funds State Funds Project Amount 8/31/2010 Committed Committed Cheney Middle School (Replace) $37,760,618 $1,908,532 $0 $0 Middle School on Abbott (New) $37,760,618 $ 546,258 $0 $0 Elementary School on Holly (New) $18,645,000 $ 554,203 $0 $0 TOTAL $94,166,236 $3,008,993 $0 $0 Note 5 - Deferred Compensation Plans 457 Plan Deferred Compensation Plan District employees have the option of participating in an IRC, Section 457, deferred compensation plan administered by the state deferred compensation plan. 403 (b) Plan Tax Sheltered Annuity (TSA) The district offers a tax deferred annuity plan for its employees. The plan permits participants to defer a portion of their salary until future years under elective referrals (employee contribution). The district complies with IRS regulations that require school districts to have a written plan to include participating investment companies, types of investments, loans, transfers, and various requirements. The plan is administered by Security Benefits Retirement Program and serviced by Employer Administrative Services, Inc. The plan assets are assets of the school district employees, not the school district, and therefore not reflected on these financial statements. Note 6 - Risk Management The Cheney School District is a member of the United Schools Insurance Program. Chapter RCW authorizes the governing body of any one or more governmental entities to form together into or join a pool or organization for the joint purchasing of insurance, and/or joint self-insuring, and/or joint hiring or contracting for risk management services to the same extent that they may individually purchase insurance, self-insure, or hire or contract for risk management services. An agreement to form a pooling arrangement was made pursuant to the provisions of Chapter RCW, the Inter-local Cooperation Act. The pool was formed on September 1, 1985 when 29 school districts in the State of Washington joined together by signing a Joint Purchasing Agreement to pool their self-insured losses and jointly purchase insurance and administrative services. Two hundred and thirty-three schools have joined the Pool. The pool allows members to jointly purchase insurance coverage and provide related services, such as administration, risk management, claims administration, etc. Coverage for Public Officials Liability is on a "claims made basis." All other coverages are on an "occurrence basis." The pool provides the following forms of group purchased insurance coverage for its members: property, liability, vehicle liability, other mobile equipment, boiler and machinery, bonds of various types, excess liability and public official liability. The pool acquires liability insurance from unrelated underwriters that are subject to a peroccurrence deductible of $100,000. Members are responsible for the first $1,000 of the deductible amount of each claim, while the pool is responsible for the remaining $99,000. Insurance carriers cover insured losses over $100,000 to the limits of each policy. Since the pool is a cooperative program, there is a joint liability among the participating members towards the sharing of the $99,000 portion of the deductible. The pool, however, purchases a Stop Loss Policy in the amount of $3,600,000 to eliminate any risk to members and, in addition, fully funds the stop loss through the budget and unreserved equity. Property insurance is subject to a per-occurrence deductible of $50,000. Members are responsible for the first $1,000 of the deductible amount of each claim, while the pool is responsible for the remaining $49,000. Boiler and machinery insurance is subject to a per-occurrence deductible of $2,500. Members are responsible for the deductible amount of each claim. Each new member now pays the pool an admittance fee. This amount covers the member's share of unrestricted reserves. Members contract to remain in the pool for a minimum of one year, and must give notice before August 31 before terminating participation the following September 1. The Joint Purchasing Agreement is renewed automatically each year. Even after termination, a member is still responsible for contributions to the pool for any unresolved, unreported, and in-process claims for the period they were a signatory to the Joint Purchasing Agreement. The pool is fully funded by its member participants. Claims are filed by members with Canfield & Associates, Inc., which has been contracted to perform pool administration, claims adjustment and administration and loss prevention for the pool. Fees paid to the third party administrator under this arrangement for the years ended August 31, 2009 and 2010 were $1,202,828 and 1,805,908, respectively. A Board of Directors of nine members is selected by the membership from six areas of the state on a staggered term basis and is responsible for conducting the business affairs of the pool. The Board of Directors has contracted with Canfield & Associates, Inc. to perform day-to-day administration of the pool. This pool has no employees. Washington State Auditor's Office 23 Washington State Auditor's Office 24

87 A-51 Note 7 - Lease Obligations and Conditional Sales Contract Obligations For the fiscal year ending August 31, 2010, the district had incurred long-term debt as follows: Lessor Amount Annual Installment Final Installment Date Average Interest Rate Balance Due Lease-Purchase Commitments H&H Leasing $ 4,800 $ 800 June $ 773 H&H Leasing $14,339 $1,912 April $ 1,861 H&H Leasing $15,061 $ 251 Sept $ 249 H&H Leasing $ 7,800 $1,040 April $ 1,012 H&H Leasing $ 4,900 $4,980 August $ 9,269 H&H Leasing $25,980 $5,196 August $ 9,671 H&H Leasing $ 8,160 $1,632 August $ 3,038 Total Lease- Purchase Commitments $25,873 The following is a schedule of annual requirements to amortize lease obligations at August 31, 2010: Years Ending August 31, Principal Interest Total 2011 $14,501 $1,310 $15, $11,372 $ 436 $11,808 Total $25,873 $1,746 $27,619 Note 8 - Debt Long-Term Debt Bonds payable at August 31, 2010, are comprised of the following individual issues: Issue Name Amount Authorized Annual Installments Final Maturity Interest Rate(s) Amount Outstanding General Obligation Bonds June 1, 2000 $13,900, /1/ % $1,855,000 March 12, 2009 $ 8,075, /1/ % $7,895,000 May 18, 2010 $51,000, /1/ % $51,000,000 Total General Obligation Bonds $60,750,000 The following is a summary of general obligation long-term debt transactions of the District for the fiscal year ended August 31, 2010: The following is a schedule of annual requirements to amortize long-term debt at August 31, 2010: Years Ending August 31, Principal Interest Total 2011 $1,955,000 $2,687, $4,642, $5,365,000 $2,472, $7,837, $2,210,000 $2,357, $4,567, $2,325,000 $2,278, $4,603, $2,090,000 $2,188, $4,278, $2,405,000 $2,108, $4,513, $2,720,000 $2,031, $4,715, $2,095,000 $1,954, $4,049, $2,115,000 $1,877, $3,992, $3,060,000 $1,779, $4,839, $2,120,000 $1,667,50 $3,787, $2,370,000 $1,555,25 $3,925, $2,630,000 $1,430,25 $4,060, $2,915,000 $1,291, $4,206, $3,230,000 $1,138,00 $4,368, $3,550,000 $ 968,50 $4,518, $3,910,000 $ 782,00 $4,692, $4,290,000 $ 577,00 $4,867, $9,395,000 $ 234, $9,629, Total $60,750,000 $31,382,371.1 $92,132, At August 31, 2010, the district had $5,469, available in the Debt Service Fund to service the general obligation bonds. Bonds Authorized But Unissued In February 2009, voters approved the issuance of $79,000,000 in bonds to fund the construction of new schools. On May 18, 2010, the district issued $51,000,000 to begin to replace the existing middle school, build a second middle school, and build a fifth elementary school to address growing student enrollment. As of August 31, 2010, $28,000,000 in bonds remain authorized but unissued. Note 9 - Inter-fund Loans There were no inter-fund loans during the school year. Note 10 - Summary of Significant Contingencies Litigation The Cheney School District has no known legal obligations, which would materially impact the financial position of the district. Long-Term Debt Payable at 9/1/09 $11,645,000 New Issues $51,000,000 Debt Retired $ 1,895,000 Long-Term Debt Payable at 8/31/10 $60,750,000 Washington State Auditor's Office 25 Washington State Auditor's Office 26

88 Note 11 - Other Disclosures The district is a member of the King County Directors' Association (KCDA). KCDA is a purchasing cooperative designed to pool the member districts' purchasing power. The board authorized joining the Association by signing a membership agreement on August 14, 1987, and has remained in the joint venture ever since. The district's current equity of $19, is the accumulation of the annual assignment of KCDA's operating surplus based upon the percentage derived from KCDA's total sales to the district compared to all districts applied against paid administrative fees. The district may withdraw from the joint venture and will receive its equity in 10 annual allocations of merchandise or 15 annual payments. The prior year correction of $25,555 in the general fund was made because prior year accounts payable were overstated. Note 12 - Subsequent Events On November 1, 2010, the district issued $17,500,000 in taxable Qualified School Construction Bonds. The interest cost is reimbursed up to 100% of the published credit rate (5.31% as of 7/6/2010) in conformance with the American Recovery and Reinvestment Act. This is the second issue under the district s February, 2010 bond authorization for the $79,000,000 building construction bond. There were no other events after the balance sheet date that would have a material impact on the next or future years. [This page intentionally left blank] A-52 Washington State Auditor's Office 27

89 Schedule of Long-Term Debt Washington State Auditor's Office 28 For the Year Ended August 31, 2010 Beginning Ending Outstanding Debt Amount Amount Outstanding Debt Description September 1, 2009 Issued/Increased Redeemed/Decreased August 31, 2010 Total Voted Bonds 11,645,00 51,000,00 1,895,00 60,750,00 Total Non-Voted Notes/Bonds Qualified Zone Academy Bonds (QZAB) Qualified School Construction Bonds(QSCB) Other Long-Term Debt: Capital Leases 48, , , Contracts Payable (GL 603) NonCancellable Operating Leases Claims & Judgments Compensated Absences 275, , , , Other Long-Term Debt Total Other Long-Term Debt 323, , , , TOTAL LONG-TERM DEBT 11,968, ,546, ,942, ,572, [This page intentionally left blank] A-53

90 CHENEY SCHOOL DISTRICT #360 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For the Year Ending August 31, 2010 A-54 Federal Grantor Pass Through Agency Program Title CFDA Number Expenditures Other Identification Number Direct Pass Through Total Note U.S. Department of Agriculture OSPI School Breakfast Program $175, $175, OSPI National School Lunch Program $654, $654, OSPI Non-Cash Assistance (Commodities) $71, $71, USDA Subtotal $901, $901, U.S. Department of Homeland Security FEMA Emergency Storm Damage Grant N/A 5, $5, Department of Homeland Security Subtotal 5, $5, U.S. Department of Health and Human Services DSHS Medicaid Admin Match N/A 182, $182, Department of Health and Human Services Subtotal 182, $182, U.S. Department of Interior Payment in Lieu of Taxes N/A $7, $7, Department of Interior Subtotal $7, $7, U.S. Department of Education OSPI Grants to Local Educational Agencies (Title I Part A) $707, $707, , 7 OSPI Special Education - IDEA Grants to State Agencies $715,54 $715,54 2,7 Impact Aid S014B $18, $18, Impact Aid S014B $2, $2, Total Impact Aid (84.041) $21, , OSPI Vocational Education - Basic Grants to State Agencies $27, $27, OSPI Special Education - Preschool Early Inclusion $3, $3, OSPI Special Education - Preschool Grants $27, $27, ,7 Total Special Education - Preschool Grants $30, $30, OSPI ARRA- Education for Homeless $ $ ,7,8 OSPI ESEA 21st Century Learning (Title II - Part B) $102, $102, OSPI ARRA- E2T2 (Title II) $2,45 $2,45 7,8 OSPI ARRA- Peer Coaching E2T2CG (Title II) $8, $8, ,8 OSPI Education Technology State Grants (Title II Part D) $3, $3, ESD 101 Math and Science Grant (Title II Part B) $ $ Total Education Technology Grants (84.318) $14, $14, CHENEY SCHOOL DISTRICT NO. 360 NOTES TO THE SCHEDULE OF EXPENENDITURES OF FEDERAL AWARDS NOTE 1 BASIS OF ACCOUNTING The Schedule of Expenditures of Federal Awards is prepared on the same basis of accounting as the District s financial statements. The Cheney School District uses the modified accrual basis of accounting. Expenditures shown represent only the federally funded portions of the program. District records should be consulted to amounts expended or matched from non-federal sources. NOTE 2 PROGRAM COSTS/MATCHING CONTRIBUTIONS The amounts shown as current year expenses represent only the federal grant portion of the program costs. The entire program costs, including the District s total local matching share, are more than shown. NOTE 3 NON-CASH AWARDS The amount of food commodities reported on the schedule is the market value of commodities distributed by the Cheney School District during the current year. The USDA determines the value. NOTE 4 SCHOOLWIDE PROGRAMS The district operates a schoolwide program in one elementary building (Sunset Elementary). Using federal funding, schoolwide programs are designed to upgrade an entire educational program within a school for all students, rather than limit services to certain targeted students. The following federal program amount was expended by the District in its schoolwide program: Title I (84.010) $226, NOTE 7 FEDERAL INDIRECT RATE The Cheney School District claimed indirect costs under this program using its federal restricted rate of 4.54%. NOTE 8 AMERICAN RECOVERY AND REINVESTMENT ACT (ARRA) The funding for this program was provided by the American Recovery and Reinvestment Act (ARRA) of Of the amount shown, $0 was paid to subrecipients. OSPI Limited English Proficiency (Title III) $11, $11, ,7 OSPI Improving Teacher Quality State Grants (Title II Part A) $214, $214, ,7 OSPI ARRA- Education Through Technology (Title II Part D) $14, $14, ,8 OSPI ARRA- Education Through Technology TL 21 (Title II Part D) $7, $7, ,8 OSPI ARRA- Peer Coaching $12, $12, ,8 OSPI ARRA- Peer Coaching (Title II) $4, $4, ,8 Total ARRA - Education Technology Grants (84.318) $39, $39, OSPI ARRA- Basic (Title I Part A) $178, $178, ,8 OSPI ARRA- Special Education IDEA-B $417, $417, ,8 OSPI ARRA- Special Education Preschool $14, $14, ,8 OSPI ARRA- State Fiscal Stabilization Fund $1,222, $1,222, Department of Education Subtotal $21, $3,697, $3,718, Total $34, $4,781, $4,816, The Accompanying Notes to the Schedule of Expenditures of Federal Awards are an Integral Part of this Schedule. Washington State Auditor's Office 29 Washington State Auditor's Office 30

91 ABOUT THE STATE AUDITOR'S OFFICE The State Auditor's Office is established in the state's Constitution and is part of the executive branch of state government. The State Auditor is elected by the citizens of Washington and serves four-year terms. Our mission is to work in cooperation with our audit clients and citizens as an advocate for government accountability. As an elected agency, the State Auditor's Office has the independence necessary to objectively perform audits and investigations. Our audits are designed to comply with professional standards as well as to satisfy the requirements of federal, state, and local laws. The State Auditor's Office employees are located around the state to deliver our services effectively and efficiently. A-55 Our audits look at financial information and compliance with state, federal and local laws on the part of all local governments, including schools, and all state agencies, including institutions of higher education. In addition, we conduct performance audits of state agencies and local governments and fraud, whistleblower and citizen hotline investigations. The results of our work are widely distributed through a variety of reports, which are available on our Web site and through our free, electronic subscription service. We continue to refine our reporting efforts to ensure the results of our audits are useful and understandable. [This page intentionally left blank] We take our role as partners in accountability seriously. We provide training and technical assistance to governments and have an extensive quality assurance program. State Auditor Brian Sonntag, CGFM Chief of Staff Ted Rutt Deputy Chief of Staff Doug Cochran Chief Policy Advisor Jerry Pugnetti Director of Audit Chuck Pfeil, CPA Director of Special Investigations Jim Brittain, CPA Director for Legal Affairs Jan Jutte, CPA, CGFM Director of Quality Assurance Ivan Dansereau Local Government Liaison Mike Murphy Communications Director Mindy Chambers Public Records Officer Mary Leider Main number (360) Toll-free Citizen Hotline (866) Website Subscription Service (SAO FACTS.DOC - Rev. 06/09)

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93 APPENDIX B: FORMS OF OPINIONS OF BOND COUNSEL [Remainder of this page intentionally left blank]

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95 [Letterhead of Koegen Edwards LLP] [Date of Issuance] The Honorable President and Members of the Board of Directors th Street Cheney, Washington Re: ; Spokane and Whitman Counties, Washington; Unlimited Tax General Obligation Bonds, Series 2012A; Principal Amount of $9,330,000; Dated, 2012 Honorable President and Members of the Board of Directors: We have acted as bond counsel in connection with the issuance by, Spokane and Whitman Counties, Washington (the District ), of $9,330,000 aggregate principal amount of the above-captioned bonds (the 2012A Bonds ). The 2012A Bonds are authorized pursuant to chapters 28A.530, and RCW and Resolution No , adopted by the Board of Directors of the District (the Board ) on March 21, 2012, (the Resolution ), and also pursuant to the legal authorization of a special election duly noticed, held and conducted within the District on February 9, In such connection, we have examined the record of proceedings submitted to us relative to the issuance of the 2012A Bonds including the Resolution, the arbitrage and tax regulatory certificate of the District in connection with the 2012A Bonds, dated the date of this opinion letter (the Tax Certificate ), other certifications of the District and such other documents and matters deemed necessary by us to render the opinions set forth herein. In doing so, we have not undertaken to verify independently the accuracy of the factual matters represented, warranted or certified therein; and we have assumed the genuineness of all signatures thereto. The opinions expressed herein are based upon an analysis and interpretation of existing laws, regulations, rulings and court decisions. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have neither undertaken to determine nor to inform any person whether any such actions are taken or omitted or events do occur. Furthermore, we have assumed compliance with the agreements and covenants contained in the Resolution and the Tax Certificate, including (without limitation) agreements and covenants with which compliance is necessary to ensure that future actions, omissions or events will not cause interest on the 2012A Bonds to be included in gross income for federal income tax purposes retroactive to their date of issuance. We call attention to the fact that the rights and obligations under the 2012A 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 contained in the constitution and the laws of the state of Washington (the State ) regarding legal remedies against the District. Based on and subject to the foregoing and in reliance thereon, as of the date hereof, we are of the following opinions: 1. The District has lawful authority for the issuance of the 2012A Bonds; and the 2012A Bonds constitute legal, valid and binding unlimited tax general obligations of the District payable from ad valorem taxes levied and to be levied upon all taxable property within the District, together with other legally available money, without limitation as to rate or amount. The full faith, credit and resources of the District have been irrevocably pledged to the punctual and full payment of the principal of, premium, if any, and interest on the 2012A Bonds. 2. Interest on the 2012A Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended (the Code ). Interest on the 2012A Bonds is not a tax preference item for purposes of calculating the federal individual or corporate alternative minimum tax. B-1

96 We express no opinion on whether any portion of the interest on the 2012A Bonds is excluded from adjusted current earnings when calculating corporate alternative minimum taxable income. The District has designated the 2012A Bonds as qualified tax-exempt obligations within the meaning of Section 265(b) of the Code. We are members of the bar of the state of Washington. The foregoing opinion is limited to matters involving laws of the State and federal laws of the United States (subject to current interpretations, if any, of the Supreme Court of the United States and the United States Court of Appeals for the Ninth Circuit), and we do not express any opinion as to the laws of any other jurisdictions. This opinion letter is given as of the date hereof. We assume no obligation to update, revise or supplement this opinion letter to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that may hereafter occur. As bond counsel, we are passing upon only those matters set forth in this opinion letter and not upon the accuracy or completeness of any statements made in connection with any sale of the 2012A Bonds or upon any federal tax consequences arising from the receipt or accrual of interest on or the ownership of the 2012A Bonds except those specifically addressed above. Respectfully submitted, KOEGEN EDWARDS LLP B-2

97 [Letterhead of Koegen Edwards LLP] [Date of Issuance] The Honorable President and Members of the Board of Directors th Street Cheney, Washington Re: ; Spokane and Whitman Counties, Washington; Unlimited Tax General Obligation Bonds, Series 2012B (Taxable); Principal Amount of $610,000; Dated, 2012 Honorable President and Members of the Board of Directors: We have acted as bond counsel in connection with the issuance by, Spokane and Whitman Counties, Washington (the District ), of $610,000 aggregate principal amount of the above-captioned bonds (the 2012B Bonds ). The 2012B Bonds are authorized pursuant to chapters 28A.530, and RCW and Resolution No , adopted by the Board of Directors of the District (the Board ) on March 21, 2012, (the Resolution ), and also pursuant to the legal authorization of a special election duly noticed, held and conducted within the District on February 9, In such connection, we have examined the record of proceedings submitted to us relative to the issuance of the 2012B Bonds including the Resolution, other certifications of the District and such other documents and matters deemed necessary by us to render the opinions set forth herein. In doing so, we have not undertaken to verify independently the accuracy of the factual matters represented, warranted or certified therein; and we have assumed the genuineness of all signatures thereto. The opinions expressed herein are based upon an analysis and interpretation of existing laws, regulations, rulings and court decisions. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have neither undertaken to determine nor to inform any person whether any such actions are taken or omitted or events do occur. Furthermore, we have assumed compliance with the agreements and covenants contained in the Resolution. We call attention to the fact that the rights and obligations under the 2012B Bonds, the Resolution 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 contained in the constitution and the laws of the state of Washington (the State ) regarding legal remedies against the District. Based on and subject to the foregoing and in reliance thereon, as of the date hereof, we are of the following opinions: 1. The District has lawful authority for the issuance of the 2012B Bonds; and the 2012B Bonds constitute legal, valid and binding unlimited tax general obligations of the District payable from ad valorem taxes levied and to be levied upon all taxable property within the District, together with other legally available money, without limitation as to rate or amount. The full faith, credit and resources of the District have been irrevocably pledged to the punctual and full payment of the principal of, premium, if any, and interest on the 2012B Bonds. 2. Interest on the 2012B Bonds is NOT excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended. We are members of the bar of the state of Washington. The foregoing opinion is limited to matters involving laws of the State and federal laws of the United States (subject to current interpretations, if any, of the Supreme Court of the United States and the United States Court of Appeals for the Ninth Circuit), and we do not express any opinion as to the laws of any other jurisdictions. B-3

98 This opinion letter is given as of the date hereof. We assume no obligation to update, revise or supplement this opinion letter to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that may hereafter occur. As bond counsel, we are passing upon only those matters set forth in this opinion letter and not upon the accuracy or completeness of any statements made in connection with any sale of the 2012B Bonds. Respectfully submitted, KOEGEN EDWARDS LLP B-4

99 APPENDIX C: BOOK-ENTRY SYSTEM [Remainder of this page intentionally left blank]

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101 Sample Offering Document Language Describing DTC and Book-Entry-Only Issuance C-1

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103 C-3

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105 APPENDIX D: WASHINGTON STATE SCHOOL DISTRICT CREDIT ENHANCEMENT PROGRAM [Remainder of this page intentionally left blank]

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107 WASHINGTON STATE SCHOOL DISTRICT CREDIT ENHANCEMENT PROGRAM The following information has been furnished by the State of Washington for use in this Official Statement. The issuer of the bonds offered pursuant to this Official Statement (the Offered Bonds ) makes no representation as to the accuracy or the completeness of such information or as to the absence of material adverse changes in such information subsequent to the date hereof. Definitions Act means the Washington State School District Credit Enhancement Program Act, chapter Revised Code of Washington. Program means the Washington State School District Credit Enhancement Program established by the Act. Program Bond means any voted general obligation bond issued by a school district, holding a certificate issued pursuant to the Act for such a bond. State means the State of Washington. Program Provisions Article VIII, section 1(e) of the Constitution of the State and the Act allow the State to guarantee any voted general obligation bonds issued by a school district. Payment of the principal of and interest on Program Bonds when due is guaranteed by the full faith, credit and taxing power of the State under the provisions of the Act. The Act provides as follows: The full faith, credit, and taxing power of the State is pledged to guarantee full and timely payment of the principal of and interest on Program Bonds as such payments become due. However, in the event of any acceleration of the due date of the principal by reason of mandatory redemption or acceleration resulting from default, the payments guaranteed shall be made in the amounts and at the times as payments of principal would have been due had there not been any acceleration. The State guarantee does not extend to the payment of any redemption premium. The Act further provides that the State pledges to and agrees with the owners of any Program Bonds that the State will not alter, impair, or limit the rights vested by the Program with respect to the Program Bonds until the Program Bonds, together with applicable interest, are fully paid and discharged. However, an alteration, impairment, or limitation of such rights is not precluded if full provision is made by law for the payment of the Program Bonds. Program Procedures In accordance with applicable law, the County Assessor for each school district with outstanding, unpaid Program Bonds is required to levy property taxes approved by the voters for repayment of the Program Bonds. In accordance with applicable law, the County Treasurer for each school district with outstanding, unpaid Program Bonds is required to collect property taxes approved by the voters for repayment of the Program Bonds. The County Treasurer is required to transfer money sufficient for each scheduled debt service payment to the paying agent on or before any principal or interest payment date for the Program Bonds. A County Treasurer who is unable to transfer to the paying agent funds required to make any scheduled debt service payments on the Program Bonds on or prior to the payment date, due to the lack of adequate funds, is required to immediately provide notice to the State Treasurer and to the paying agent. If sufficient funds are not transferred to the paying agent at the time required to make a scheduled debt service payment on the Program Bonds, the paying agent is required to immediately notify the State Treasurer. Pursuant to the Act, the State legislature is required to appropriate, in each and every biennial appropriations act, such amount as may be required to make timely payment on the Program Bonds. If sufficient money to make any scheduled debt service payment on the Program Bonds has not been transferred to the paying agent in a timely manner, the paying agent is required to make such scheduled debt service payment and the State Treasurer is required to transfer sufficient money to the paying agent for such payment. D-1

108 Each school district is responsible for paying in full the principal of and interest on its Program Bonds. The State Treasurer is required to recover from the school district any funds paid by the State on behalf of that school district under the Program. The State Treasurer will charge interest in connection with the recovery of funds under the Act. In addition to charging interest, the State Treasurer may impose a penalty on a school district for which the State made a payment under the Program, which penalty may not be more than five percent of the amount paid by the State pursuant to its guarantee for each instance in which a payment by the State is made. A payment by the State Treasurer discharges the obligation of the school district to its Program Bond owners for the payment, but does not retire any Program Bond that has matured. The terms of that Program Bond remain in effect until the State is repaid. Any such payment by the State transfers the rights represented by the general obligation of the school district from the Program Bond owners to the State. If the State has made all or part of a debt service payment on behalf of a school district that has issued Program Bonds, the State Treasurer may (a) direct the school district and the County Treasurer to restructure and revise, to the extent permitted by law, the collection of excess levy taxes for the payment of Program Bonds on which the State Treasurer has made payments under the Act to the extent necessary to obtain repayment to the State Treasurer; and (b) require, to the extent permitted by law, that the proceeds of such taxes be applied to the school district s obligations to the State if all outstanding obligations of the school district payable from such taxes are fully paid or their payment is fully provided for. Outstanding Certificates of Eligibility and Outstanding Program Bonds As of March 1, 2012, the State has guaranteed the following under the Act (not including the Offered Bonds): Number of school districts with Certificates of Eligibility: 184 Number of Program Bond issues guaranteed: 475 Aggregate total principal amount outstanding of Program Bonds guaranteed: $8,197,699, Program Contact Person Requests for information regarding the Program may be directed to: Office of the State Treasurer Attn: Deputy Treasurer Debt Management Division Legislative Office Building 2nd Floor P.O. Box Olympia, WA Phone: (360) Fax: (360) State of Washington - Financial and Operating Information The State s most recent audited financial statements and the financial and operating information relating to the State included in the most recent official statement for the State s general obligation debt are on file with the Municipal Securities Rulemaking Board (the MSRB ), in an electronic format as prescribed by the MSRB, and are incorporated by this reference in this official statement. State of Washington - Continuing Disclosure The State has undertaken (the Undertaking ) to provide (1) not later than seven months after the end of each fiscal year in each fiscal year that the Offered Bonds are outstanding, either directly or through a designated agent, to the MSRB, in an electronic format as prescribed by the MSRB, accompanied by identifying information as prescribed by the MSRB, (a) audited financial statements of the State for such fiscal year prepared (except as noted therein) in accordance with generally accepted accounting principles as promulgated by the Governmental Accounting Standards Board, as such principles may be changed from time to time, except that if the audited financial statements are not available by such date, unaudited financial statements in a format similar to the audited financial statements most recently prepared for the State shall be provided, and the State s audited financial statements shall be provided when and if they become available; and (b) the historical financial and operating information relating to the State included in the most recent D-2

109 official statement for the State s general obligation debt; and (2) to the MSRB, in a timely manner, notice of its failure to provide the foregoing information on or prior to the date set forth in (1). The Undertaking is subject to amendment or termination under the circumstances and in the manner permitted by SEC Rule 15c2-12. The right to enforce the provisions of the Undertaking shall be limited to a right to obtain specific performance of the State s obligations thereunder, and any failure by the State to comply with the provisions of the Undertaking shall not be a default with respect to the Offered Bonds. The Undertaking inures to the benefit of the State and the issuer, any underwriter and any holder of the Offered Bonds, and does not inure to the benefit of or create any rights in any other person. D-3

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