BAKER SCHOOL DISTRICT 5J BAKER CITY, OREGON INDEPENDENT AUDITOR S REPORT, BASIC FINANCIAL STATEMENTS and SINGLE AUDIT For the Year Ended June 30,

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1 BAKER CITY, OREGON INDEPENDENT AUDITOR S REPORT, BASIC FINANCIAL STATEMENTS and SINGLE AUDIT For the Year Ended

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3 BOARD OF DIRECTORS AND OFFICIALS BOARD OF DIRECTORS Name Position Position Chris Hawkins 1 Director Andrew Bryan 2 Director Kevin Cassidy 3 Chairperson Autumn Harrell 4 Director Melissa Irvine 5 Vice-Chairperson ADMINISTRATIVE STAFF Mark Witty District Office Superintendent Doug Dalton District Office CFO/Business Manager Beth Bigelow Keating Elementary Principal Gundula O Neal Brooklyn Primary Principal Beth Bigelow Haines Elementary Principal Betty Palmer South Baker Intermediate Principal Mindi Vaughan Baker Middle School Principal Benjamin Merrill Baker High School Principal Jerry Peacock Eagle Cap Innovative High School Principal Jerry Peacock Baker Technical Institute Director

4 TABLE OF CONTENTS CONTENTS PAGE Independent Auditor s Report Management s Discussion and Analysis BASIC FINANCIAL STATEMENTS Government-wide Financial Statements Statement of Net Position Statement of Activities Fund Financial Statements Balance Sheet - Governmental Funds Reconciliation of Governmental Funds Balance Sheet to Statement of Net Position Statement of Revenues, Expenditures and Changes in Fund Balance Governmental Funds Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balance of Governmental Funds to the Statement of Activities Statement of Fiduciary Net Position Statement of Changes in Net Position Fiduciary Funds Notes to Basic Financial Statements REQUIRED SUPPLEMENTARY INFORMATION Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual General Fund Special Revenues Fund Capital Projects Fund Notes to Required Supplementary Information Schedule of Proportionate Share of Net Pension Liability Schedule of District Contributions Other Post-Employment Benefits SUPPLEMENTAL INFORMATION Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Debt Service Fund Combining Schedule of Fiduciary Net Position... 60

5 Schedules of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Trust Funds Agency Funds OTHER SCHEDULES Schedule of Revenues by Fund Type Schedule of Expenditures, Budget and Actual, General Fund Schedule of Expenditures, Budget and Actual, Special Revenues Fund Schedule of Expenditures, Budget and Actual, Debt Service Fund Schedule of Expenditures, Budget and Actual, Capital Projects Fund Schedule of Expenditures, Budget and Actual, Trust Funds Schedule of Expenditures, Budget and Actual, Agency Funds Continuing Disclosure Requirements for Bonded Debt COMMENTS AND DISCLOSURES REQUIRED BY STATE OF OREGON Independent Auditor s Report Required by Oregon State Regulations Summary of Revenues and Expenditures Oregon Secretary of State OREGON DEPARTMENT OF EDUCATION REQUIRED INFORMATION Oregon Department of Education Required Information SINGLE AUDIT Table of Contents Single Audit

6 Professional Group Certified Public Accountants, LLP Robert M. Armstrong, CPA Jessica A. Knowles, CPA Mitch T. Saul, CPA Amy K. Walker, CPA Anna K. Bass George W. Wilber, CrFA, CPA Kari J. Ott, CPA Cara R. Wilber, CPA Arlie W. Oster, CPA ( ) Board of Directors Baker School District 5J th Street Baker City, OR Report on the Financial Statements INDEPENDENT AUDITOR S REPORT We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Baker School District 5J, Baker City, Oregon (the district), as of and for the year ended, and the related notes to the financial statements, which collectively comprise the district s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 101 NE First Avenue, John Day, Oregon Phone (541) FAX (541) Toll free OPGCPA 1

7 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the district as of, and the respective changes in financial position thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matters Effect of Adopting New Accounting Standards As described in Note 1 to the financial statements, the district adopted the provisions of GASB Statement No. 72, Fair Value Measurement and Application and GASB Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. The opinion is not modified with the implementation of these GASB Statements. Other Matters Report on Summarized Comparative Information We have previously audited the district s 2015 financial statements of the governmental activities, each major fund, and the aggregate remaining fund information and we expressed an unmodified audit opinion on those audited financial statements in our report dated November 24, In our opinion, the summarized comparative information presented herein as of and for the year ended June 30, 2015 is consistent, in all material respects, with the audited financial statements from which it has been derived. Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the management s discussion and analysis in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. The schedules of PERS proportionate share of net pension liability and PERS contributions and the budgetary comparison information for the General Fund and major special revenue funds, as listed in the table of contents, is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. 2

8 Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the district s basic financial statements. The accompanying budgetary comparison schedules, the supplemental schedules as listed in the table of contents, and the Schedule of Expenditures of Federal Awards, as required by Title 2 U.S. Code of Federal Regulation (CFR) Part 200, Uniform Administrative Requirements, Cost Principals, and Audit Requirements for Federal Awards (Uniform Guidance) are presented for purposes of additional analysis and are not a required part of the basic financial statements. The accompanying budgetary comparison schedules, the supplemental schedules as listed in the table of contents, and the Schedule of Expenditures of Federal Awards is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplemental information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. Other Reporting Required by Government Auditing Standards Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued a report dated December 22, 2016, on our consideration of the district's internal control over financial reporting and 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 in considering the district s internal control over financial reporting and compliance. Other Reporting Required by Oregon Minimum Standards In accordance with Minimum Standards for Audits of Oregon Municipal Corporations, we have also issued our report dated December 22, 2016, on our consideration of the district's compliance with certain provisions of laws and regulations, including the provisions of Oregon Revised Statutes as specified in Oregon Administrative Rules. The purpose of that report is to describe the scope of our testing of compliance and the results of that testing and not to provide an opinion on compliance. Oster Professional Group, CPA s, LLP OPGCPA, PC By John Day, Oregon December 22,

9 MANAGEMENT S DISCUSSION AND ANALYSIS For the Year Ended As management of Baker School District 5J (the district), we offer readers of the district s financial statements this narrative overview and analysis of the financial activities for the fiscal year ended June 30, FINANCIAL HIGHLIGHTS In the government-wide statements, the assets and deferred outflows of resources of the district exceeded its liabilities and deferred inflows of resources at by $876 thousand. The district s governmental funds report reflects a combined ending fund balance of $5.0 million at. The General Fund ending fund balance per the Balance Sheet Governmental Funds is $3.0 million, which is net of an $88 thousand inventory adjustment required by GAAP. The Schedule of Revenue, Expenditures, and Changes in Fund Balance reflects this reconciliation and the budget basis ending fund balance of $3.0 million, which is 7.6% of total expenditures and an increase of $966 thousand over the prior year. The district s local student enrollment, as measured for remained virtually unchanged, while the enrollment in the charter schools sponsored by the district increased from student demand for the program statewide. Student count is the primary factor in determining state school funding levels. A declining local enrollment that started in the late 1990 s has slowed and is projected to be modest over the next few years. Student counts in the charter schools however is expected to continue to growth steadily for the next few years, causing the District total ADM count to increase slightly in total as discussed in the Economic Factors for Next Year s Budget section of this analysis. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the district s basic financial statements, which consist of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to basic financial statements. This report also contains other supplementary information in addition to the basic financial statements. Government-wide financial statements: The government-wide financial statements are designed to provide readers with a broad overview of the district s finances, in a manner similar to a privatesector business. These statements include: The Statement of Net Position: The Statement of Net Position presents information on all of the assets, deferred outflows of resources, and liabilities of the district as of the date on the statement. Net position is what remains after the liabilities have been paid off or otherwise satisfied. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the district is improving or deteriorating. The Statement of Activities: The Statement of Activities presents information showing how the net position of the district changed over the most recent fiscal year by tracking revenues, expenses and other transactions that increase or reduce net position. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of the related 4

10 MANAGEMENT S DISCUSSION AND ANALYSIS For the Year Ended cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes). In the government-wide financial statements, the district s activities are shown as governmental activities. All basic district functions are shown here, such as regular and special education, child nutrition services, transportation, administration, and facilities acquisition and construction. These activities are primarily financed through property taxes, Oregon s State School Fund and other intergovernmental revenues. The government-wide financial statements are found on pages 14 through 16 of this report. Fund financial statements: The fund financial statements provide more detailed information about the district s funds, focusing on its most significant or major funds not the district as a whole. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The district, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the district fit into two categories: governmental funds and fiduciary funds. Governmental funds: The governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the district s near-term financing decisions. Both the governmental funds Balance Sheet and the governmental funds Statement of Revenues, Expenditures and Changes in Fund Balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The district maintains four major funds (General Fund, Special Revenue Fund, Debt Service Fund, and Capital Projects Fund). Information is presented separately in the governmental fund Balance Sheet and the governmental fund Statement of Revenues, Expenditures and Changes in Fund Balances for all of these major funds. The basic governmental fund financial statements can be found on pages 17 through 23 of this report. Fiduciary funds: Fiduciary funds account for resources held for the benefit of parties outside the governmental entity. Fiduciary funds are not in the government-wide financial statements because the district cannot use these funds to finance its operation. The fiduciary fund financial statements can be found on pages 24 through 25 of this report. Notes to Basic Financial Statements: The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to basic financial statements are on pages 26 through 46 of this report. 5

11 MANAGEMENT S DISCUSSION AND ANALYSIS For the Year Ended Other information: In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information related to Schedules of Revenues, Expenditures and Changes in Fund Balance-Budget and Actual for the General Fund and Special Revenues Fund. Required supplementary information appears on pages 49 through 54 of this report. Other supplementary information is found on pages 57 through 60, including budgetary comparisons for other major funds and the combining statements for fiduciary funds. GOVERNMENT-WIDE FINANCIAL ANALYSIS Condensed Statement of Net Position For the years ended and 2015 Governmental Activities Increase (Decrease) Current and other assets $ 5,656,793 $ 4,858,367 $ 798,426 Capital assets, net of accumulated depreciation 8,009,350 7,488, ,239 Net pension asset - 1,907,869 (1,907,869) Total assets 13,666,143 14,254,347 (588,204) Deferred outflows of resources Deferred outflows related to pensions 1,107,826 1,018,350 89,476 Total deferred outflows of resources 1,107,826 1,018,350 89,476 Current liabilities 475, ,472 (102,729) Long-term debt 7,452,663 7,543,091 (90,428) Less current portion (205,640) (208,124) 2,484 Net pension liability 5,061,838-5,061,838 Total liabilities 12,784,604 7,913,439 4,871,165 Deferred intflows of resources Deferred inflows related to pensions 1,113,079 3,738,145 (2,625,066) Total deferred inflows of resources 1,113,079 3,738,145 (2,625,066) Net position: Net investment in capital assets 7,930,010 7,488, ,899 Restricted for inventory 107,405 95,084 12,321 Restricted for debt service 117, ,077 1,547 Restricted for special programs 410, ,210 (39,070) Unrestricted (7,688,893) (4,527,369) (3,161,524) Total net position $ 876,286 $ 3,621,113 $ (2,744,827) Statement of Net Position: As noted earlier, net position may serve over time as a useful indicator of the district s financial position. In the case of the district, assets exceeded liabilities by $876 thousand as of 6

12 MANAGEMENT S DISCUSSION AND ANALYSIS For the Year Ended versus $3.6 million as of June 30, The decrease in net position of $2.7 million is largely attributable to an increase in PERS expense of $4.3 million related to GASB 68 and the district s proportionate share of the overall PERS net pension liability. Capital assets, which consist of the district s land, buildings, building improvements, vehicles, and equipment, represent about 59% of total assets. The remaining assets consist of cash, investments, inventories, and receivables and represent 41% of the total assets. The district s largest liability is for the repayment of long-term obligations, of which 52.9% is for the pension obligation bond. The district s net pension liability represents 39.6% of liabilities. The remaining 7.5% of the district s total liabilities consists entirely of accounts payable and accrued interest. Condensed Statement of Activities For the years ended and 2015 Governmental Activities Increase (Decrease) Revenues Program revenues Charges for services $ 1,277,984 $ 1,207,259 $ 70,725 Operating grants and contributions 2,156,973 1,985, ,203 Capital grants and contributions 48,000 48,000 - General revenues Property taxes 4,523,089 4,336, ,423 State school fund 17,254,792 15,302,749 1,952,043 Other unrestricted revenues 1,459,839 1,284, ,498 Interest on investments 39,100 28,218 10,882 Other 268, ,769 (7,388) Total revenues 27,028,158 24,468,772 2,559,386 Expenditures Instruction 19,658,376 13,324,174 6,334,202 Support services 8,871,550 6,107,102 2,764,448 Enterprise and community services 726, , ,365 Interest on long-term debt 516, ,676 30,266 Total expenses 29,772,985 20,481,704 9,291,281 Decrease in net position (2,744,827) 3,987,068 (6,731,895) Beginning net position 3,621,113 (365,955) 3,987,068 Ending net position $ 876,286 $ 3,621,113 $ (2,744,827) Statement of Activities: The total revenues for the district increased by 10% for the fiscal year along with a 45% increase in expenditures. 7

13 MANAGEMENT S DISCUSSION AND ANALYSIS For the Year Ended Revenues: Whereas the core objective of a public school district is to provide a free and appropriate public education for those students living within its boundaries, districts do not charge for their core services. As a result, the largely tax-based general revenue sources of property taxes, state school fund, and other local and state sources provide 80% of the total support. The remaining revenue sources consist of 8% from grants and contributions, 4% from charges for services (the majority of which is for food services) and the balance of 8% from earnings on investments and miscellaneous sources. The increase in revenues was primarily impacted by an increase in state school fund revenue, due to an increase in enrollment at the charter schools combined with an increase in amounts paid per student from the state. The school support for the charter schools sponsored by the district is passed through the district to the charters for the ADM derived by each charter, based upon state requirements and the charter agreements in place with each charter school. Expenditures: Total expenditures for the district increased by $9.3 million, or 45% over the prior fiscal year total. The increase in expenditures is related to several factors including a net increase in expenditures related to the district s proportionate share of the system pension expense (See Note 7) of $6.8 million, an increase in charter school payments due to student growth of $1.4 million, and miscellaneous other operating expenses including payroll related increases such as payroll step advancements incurred by contract. Total assets: Declining enrollment since the late 1990 s and the resulting funding has greatly limited the district s ability to invest in capital assets such as land, buildings, vehicles and equipment. The district has remained focused on maintaining and providing a quality education to their students while caring for the existing infrastructure. However, recent success in grant funding for career and technical education has allowed the district to invest in remodeling a welding facility and continue to invest in remediation costs with regard to removing hazardous materials on property owned by the district for resale, as part of an environmental science course offered for students to participate in and learn career skills in brownfield issues. In addition, the district has made capital improvements in the form of finalizing a modular building expansion to allow for all-day kindergarten and replaced heating equipment at the high school. 8

14 MANAGEMENT S DISCUSSION AND ANALYSIS For the Year Ended Revenues by Source - Governmental Activities Other Federal, State and Local Sources 15% Other 3% Charges for Services 13% Grants and Contributions 22% Property Taxes 47% Investment Earnings 0% Financial Analysis of the District s Funds As noted earlier, the district uses fund accounting to ensure and demonstrate compliance with financerelated legal requirements. The focus of the district s governmental funds is to provide information on relatively short-term cash flow and funding for future basic services. Such information is useful in assessing the district s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government s net resources available for spending at the end of a fiscal year. At the end of, the district s governmental funds reported combined ending fund balances of $5.0 million. General Fund: The General Fund is the primary operating fund of the district. As of, available fund balance was $2.98 million, which is an increase of $.97 million over the prior year end available fund balance of $2.01 million. The available budget basis fund balance of the General Fund was $2.89 million, which is an increase of $.97 million over the prior period year end available budget basis fund balance of $1.92 million. The current available budget basis fund balance represents 13.2% of the fund s total expenditures, as compared to 9.7% at the end of the prior fiscal year. Special Revenue Fund: The district has a special revenue fund to account for revenue and expenditures of grants restricted for specific purposes. The current fiscal year end available fund balance for this fund was $1.07 million. Debt Service Fund: The district has one debt service fund for PERS bonded debt (Debt Service Fund - 300). The current fiscal year end available fund balance for this fund was $118 thousand, which is restricted for future debt service. 9

15 MANAGEMENT S DISCUSSION AND ANALYSIS For the Year Ended Capital Projects Fund: The district has a capital projects fund for accumulating resources for building construction and improvements. The current fiscal year end available fund balance for this fund was $859 thousand, which is assigned for capital improvements. General Fund Budgetary Highlights Total General Fund revenues of $23.2 million were $203 thousand more than budgeted, mainly due to increased property tax collections for the year, increased flow-through funds from the ESD, and an increase in tuition paid by adults for expanded education programs. During the year total fund expenditures of $21.9 million were $620 thousand less than the final budget. All General Fund expenditures were within budget as shown in the following chart: Actual Expenditures vs. Final Budget - General Fund $18,000,000 $16,000,000 $14,000,000 $12,000,000 $10,000,000 $14,988,802 $15,554,368 $8,000,000 $6,000,000 $6,868,808 $6,923,766 $4,000,000 $2,000,000 $- $4,870 $5,034 Instruction Support Services Enterprise and Community Services $405,293 $450,000 Other Uses Actual $- $1,389,386 Contingency Final Budget CAPITAL ASSET AND DEBT ADMINISTRATION Capital assets: The district s investment in capital assets includes land, buildings and improvements, and vehicles and equipment. As of, the district has invested over $8.0 million in capital assets, net of depreciation, as shown in the following table: 10

16 MANAGEMENT S DISCUSSION AND ANALYSIS For the Year Ended Capital Assets (Net of Accumulated Depreciation) For the years ended and 2015 Governmental Activities Increase (Decrease) Land, CIP $ 626,626 $ 394,669 $ 231,957 Buildings and Improvements 6,963,385 6,734, ,015 Vehicles and Equipment 419, ,072 60,267 Total $ 8,009,350 $ 7,488,111 $ 521,239 During fiscal year , the district s investment in net capital assets increased by $521 thousand largely due to investments in remodeling a welding facility and remediation costs with regard to removing hazardous materials on property owned by the district for resale. In addition, the district has made capital improvements in the form of finalizing a modular building expansion to allow for all-day kindergarten and replaced heating equipment at the high school. Refer to the Notes to Basic Financial Statements, Note 3 on pages 33 and 34 for more information on capital assets and depreciation costs. Long-term debt: At the end of the current fiscal year, the district had total long-term debt outstanding of $6.8 million versus $7.05 million in $206 thousand of this amount is due within one year and is classified as current liabilities. The entire amount is for PERS pension bonds which are serviced through a self-imposed district assessment on wage payments to all active PERS members. During the fiscal year, total long-term debt decreased by $129 thousand. Refer to the Notes to Basic Financial Statements, Notes 5 and 6 on pages 34 through 36 for more detailed information on long-term debt. ECONOMIC FACTORS AND NEXT YEAR S BUDGET The most significant economic factors for the district is the State of Oregon s state school fund. For the year ended, the state school fund-general support provided 75% of the district s General Fund general resources. Potential for increased state funding could come from legislation changes and/or general reallocations of the state s budget that increases the portion of the budget that is dedicated to education for the next biennium. Additionally, the entire state budget could increase due to an increase in state revenues. A portion of which would be allocated to education. However, with legislation such as increased taxes being unpredictable, and reallocations within the budget to allow for education to receive more not likely, any increases in funding may be based primarily on state revenues. Based upon recent economic updates, the state s revenue forecast is showing signs of stability and slow growth as the economy recovers, which should result in moderate increases to the state school fund for the next biennium starting with the school year. Salaries and benefits costs will change in , based on several factors. Primarily, a cost of living increase was implemented for employees combined with annual contractual obligations that will provide for pay advancements based upon years of service will increase costs. PERS costs are expected 11

17 MANAGEMENT S DISCUSSION AND ANALYSIS For the Year Ended to increase for the next biennium, further increasing payroll costs starting with the school year. Continued growth at the district s charter schools will also result in an increased expense in charter school payments that reflect the state school fund being passed to the charter schools based upon the district s sponsor contract. The fall 2016 student count for the school year is expected to show a slight increase over the end of the school year based upon a larger than expected elementary student enrollment. The district does project to continue to lose students during the school year, but at a much slower pace than in previous years. The local student count is expected to continue to be somewhat stable, only declining slowly for the next few upcoming years before leveling out. Student count in the charter schools is projected to increase over the next five years. REQUESTS FOR INFORMATION This financial report is designed to present the user (citizens, taxpayers, investors, and creditors) with a general overview of the district s finances and to demonstrate our accountability. Questions concerning any of the information provided in this report or requests for additional information should be addressed to the CFO/Business Manager, Baker School District 5J, th Street, Baker City, Oregon

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21 STATEMENT OF NET POSITION (With Comparative Totals for 2015) Governmental Activities June 30, June 30, ASSETS Cash and investments $ 4,239,211 $ 3,309,057 Inventories 107,405 95,084 Receivables Property taxes 364, ,599 Other 945,123 1,054,300 Prepaid expenses ,327 Net pension asset - 1,907,869 Capital assets, net of accumulated depreciation Land 626, ,669 Buildings and improvements 6,963,385 6,734,370 Vehicles and equipment 419, ,072 Total capital assets 8,009,350 7,488,111 Total assets 13,666,143 14,254,347 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows related to pensions 1,107,826 1,018,350 LIABILITIES Accounts payable 269, ,815 Accrued interest payable 1, Current portion of long term debt 205, ,124 Accrued compensated absences payable 86,007 83,614 Net OPEB Obligation 529, ,126 Net pension liability 5,061,838 - Other notes payable, less current portion 39,670 - Pension obligation bonds payable, less current portion 6,592,257 6,758,227 Total liabilities 12,784,604 7,913,439 DEFERRED INFLOWS OF RESOURCES Deferred inflows related to pensions 1,113,079 3,738,145 Total deferred inflows of resources 1,113,079 3,738,145 NET POSITION Net investment in capital assets 7,930,010 7,488,111 Restricted for: Inventory 107,405 95,084 Debt service 117, ,077 Special programs 410, ,210 Unrestricted (7,688,893) (4,527,369) Total net position $ 876,286 $ 3,621,113 The Notes to Basic Financial Statements are an integral part of these statements. 16

22 STATEMENT OF ACTIVITIES For the Year Ended (With Comparative Totals for 2015) Program Revenues Operating Capital Charges for Grants and Grants and Functions/Programs Expenses Services Contributions Contributions Governmental activities Instruction Regular programs $ 10,110,302 $ 490,288 $ 246,133 $ - Special programs 9,480, ,520 - Adult/continuing education programs 48, Summer school programs 18, Supporting services Students 1,628,721-98,370 - Instructional staff 1,119, ,692 - General administration 554, School administration 1,523, ,480 - Business services 518, Plant operations 1,934, Student transportation services 727,018-4,221 48,000 Internal services 275, Central support services 590, Enterprise and community services Food services 721, , ,557 - Community services 4, Services provided by others - 677, Interest paid on long-term debt 516, Total governmental activities $ 29,772,985 $ 1,277,984 $ 2,156,973 $ 48,000 General revenues Property taxes, levied for general purposes State school fund Common school fund Other unrestricted funds Federal forest fees Unrestricted investment earnings Miscellaneous Total general revenues Changes in net position Net position - beginning Net position - ending The Notes to Basic Financial Statements are an integral part of these statements. 17

23 Net (Expense) Revenue and Changes in Net Position Governmental Activities June 30, June 30, $ (9,373,881) $ (5,578,477) (8,683,474) (6,471,359) (48,942) - (18,138) (7,201) (1,530,351) (997,763) (807,438) (538,848) (554,276) (338,295) (1,369,032) (450,811) (518,128) (319,527) (1,934,852) (1,434,790) (674,797) (523,641) (275,389) (210,763) (590,524) (575,522) (66,230) 52,693 (4,672) (1,738) 677, ,043 (516,942) (486,676) (26,290,028) (17,240,675) 4,523,089 4,336,666 17,254,792 15,302, , ,411 1,067, , , ,334 39,100 28, , ,769 23,545,201 21,227,743 (2,744,827) 3,987,068 3,621,113 (365,955) $ 876,286 $ 3,621,113 18

24 BALANCE SHEET - GOVERNMENTAL FUNDS (With Comparative Totals for 2015) General Special Revenues Capital Projects Nonmajor Fund Fund Fund Fund ASSETS Cash and investments $ 2,940,181 $ 322,351 $ 859,055 $ 117,624 Inventories 88,062 19, Receivables Property taxes 364, Other 132, , Prepaid expenses Total assets $ 3,526,079 $ 1,154,035 $ 859,055 $ 117,624 LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCE Liabilities Accounts payable $ 183,428 $ 85,660 $ - $ - Total liabilities 183,428 85, Deferred inflow of resources Unavailable property tax revenue 364, Total deferred inflows of resources 364, Fund balances Nonspendable 88,062 19, Restricted - 410, ,624 Committed - 428, Assigned - 210, ,055 - Unassigned 2,890, Total fund balance 2,978,062 1,068, , ,624 Total liabilities, deferred inflows of resources and fund balance $ 3,526,079 $ 1,154,035 $ 859,055 $ 117,624 The Notes to Basic Financial Statements are an integral part of these statements. 19

25 Total June 30, June 30, $ 4,239,211 $ 3,309, ,405 95, , , ,123 1,054, ,327 $ 5,656,793 $ 4,858,367 $ 269,088 $ 369, , , , , , , ,405 95, , , , ,201 1,069,668 1,040,241 2,890,000 1,923,140 5,023,116 4,106,953 $ 5,656,793 $ 4,858,367 20

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27 RECONCILIATION OF GOVERNMENTAL FUNDS BALANCE SHEET TO STATEMENT OF NET POSITION Total Fund Balances $ 5,023,116 Capital assets are not financial resources and therefore are not reported in the governmental funds: Cost $ 21,660,462 Accumulated depreciation (13,651,112) 8,009,350 A portion of the district's property taxes are collected after year-end but are not available soon enough to pay for the current year's operations, and therefore are not reported as revenue in the governmental funds. 364,589 Net pension liability is not due and payable in the current period, therefore it is not recorded in the governmental funds. (5,061,838) Deferred outflows of resources related to pensions is not due and payable in the current period, therefore it is not recorded in the governmental funds. 1,107,826 Deferred inflows of resources related to pensions is not current financial resources, therefore it is not recorded in the governmental funds. (1,113,079) Long-term liabilities not payable in the current year are not reported as governmental fund liabilities. Interest in long-term debt is not accrued in the governmental funds, but rather is recognized as an expenditure when due. These liabilities consist of: Accrued compensated absences (86,007) Net OPEB obligation (529,089) Bonds payable (6,837,567) (7,453,678) Total Net Position $ 876,286 The Notes to Basic Financial Statements are an integral part of these statements. 22

28 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS For the Year Ended (With Comparative Totals for 2015) General Special Revenues Capital Projects Nonmajor Revenues Fund Fund Fund Fund Taxes $ 4,540,099 $ - $ - $ - Intergovernmental 18,548,926 2,363, Charges for services 52, , ,038 Miscellaneous 94, ,495 3,962 2,994 Total revenues 23,235,275 3,129,252 3, ,032 Expenditures Current Instruction 15,000,205 1,754, Support services 6,629, , Enterprise and community services 4, , Facilities acquisition and construction 228, , ,677 - Debt service Principal - 84, ,009 Interest - 1, ,476 Total expenditures 21,863,927 3,348, , ,485 Excess of revenues over (under) expenditures 1,371,348 (219,017) (237,715) 1,547 Other financing sources (uses) Transfer in - 5, ,000 - Transfer out (405,293) Total other financing sources (uses) (405,293) 5, ,000 0 Net change in fund balance 966,055 (213,724) 162,285 1,547 Available fund balance, July 1 2,012,007 1,282, , ,077 Available fund balance, June 30 - by classification Nonspendable 88,062 19, Restricted - 410, ,624 Committed - 428, Assigned - 210, ,055 - Unassigned 2,890, Available fund balance, June 30 - Total $ 2,978,062 $ 1,068,375 $ 859,055 $ 117,624 2,978,062 1,068, , ,624 The Notes to Basic Financial Statements are an integral part of these statements. 23

29 Total June 30, June 30, $ 4,540,099 $ 4,305,600 20,912,579 18,590,136 1,295,379 1,267, , ,952 27,048,521 24,406,982 16,754,404 14,947,435 7,255,027 6,852, , , , , , , , ,197 26,132,358 23,500, , , , ,015 (405,293) (449,015) , ,628 4,106,953 3,200, ,405 95, , , , ,201 1,069,668 1,040,241 2,890,000 1,923,140 $ 5,023,116 $ 4,106,953 24

30 RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES For the Year Ended Net Change in Fund Balance $ 916,163 Amounts reported for governmental activities in the Statement of Activities are different because: Governmental funds report capital outlay as expenditures. However, in the Statement of Activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which capital outlays exceeded depreciation in the current year. Expenditures for capital assets 907,302 Less current year depreciation (386,063) Current year PERS contributions are deferred outflows of resources that will be recognized expense in the subsequent period. 728,904 Changes in net pension liability, the related changes in deferred outflows and deferred inflows of resources are not recognized as expenses in the government funds. (4,984,069) In the Statement of Activities, the contributions to the Post-Employment Health Benefits plan in excess of the actuarially determined contribution amount increases the net OPEB asset. In the governmental funds the entire contribution is recognized as an expenditure. This is the amount by which the net OPEB asset is increased: Net OPEB cost (35,963) Long-term debt proceeds are reported as other financing sources in governmental funds. In the Statement of Net Positon, however, issuing long-term debt increases liabilities. Similarly, repayment of principal is an expenditure in the governmental funds but reduces the liability in the Statement of Net Position. This is the amount by which proceeds exceeded repayments: PERS UAL bond principal payment 163,008 Bus capital lease payment 84,785 Bus capital lease proceeds (119,009) In the Statement of Activities interest is accrued on long-term debt, whereas in the governmental funds it is recorded as an interest expense when due. (482) Property taxes that do not meet the measurable and available criteria are not recognized as revenue in the current year in the governmental funds. In the Statement of Activities property taxes are recognized as revenue when levied. (17,010) Compensated absences are recognized as an expenditure in the governmental funds when they are paid. In the Statement of Activities compensated absences are recognized as an expenditure when earned. (2,393) Change in Net Position $ (2,744,827) The Notes to Basic Financial Statements are an integral part of these statements. 25

31 STATEMENT OF FIDUCIARY NET POSITION TRUST AND AGENCY FUNDS (With Comparative Totals for 2015) Trust Agency June 30, 2015 ASSETS Cash and investments $ 571,670 $ 586,637 Receivables Other 2,703 6,799 Total assets 574, ,436 LIABILITIES Due to student groups and others 73,066 94,621 Accounts payable 5,731 2,297 Interfund payable 64,599 64,599 Total liabilities 143, ,517 NET POSITION Reserved for scholarships 430, ,919 Total net position $ 430,977 $ 431,919 The Notes to Basic Financial Statements are an integral part of these statements. 26

32 STATEMENT OF CHANGES IN FIDUCIARY NET POSITION TRUST AND AGENCY FUNDS For the Year Ended (With Comparative Totals for 2015) June 30, 2015 Additions Local sources $ 28,558 $ 133,594 Total additions 28, ,594 Deductions Scholarships 29,500 57,500 Total deductions 29,500 57,500 Change in net position (942) 76,094 Net position, July 1 431, ,825 Net position, June 30 $ 430,977 $ 431,919 The Notes to Basic Financial Statements are an integral part of these statements. 27

33 NOTES TO BASIC FINANCIAL STATEMENTS Note 1. Summary of Significant Accounting Policies Baker School District 5J (the district) was organized under the provisions of Oregon Statutes pursuant to ORS Chapter 332 for the purpose of operating elementary and secondary schools. The district is governed by a separately elected five-member board that approves the administrative officials. The daily functioning of the district is under the supervision of the superintendent. The accounting policies of the district conform to accounting principles generally accepted in the United States of America, as applicable to governmental units. Beginning in fiscal year 2016, the district implemented the following statements issued by GASB: GASB Statement No. 72, Fair Value Measurement and Application (GASB 72) addresses accounting and financial reporting issues related to fair value measurements. The definition of fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. GASB 72 provides guidance for determining a fair value measurement for financial reporting purposes. This Statement also provides guidance for applying fair value to certain investments and disclosures related to all fair value measurements. In June 2015, the GASB issued Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments (GASB 76). The objective of this Statement is to identify in the context of the current governmental financial reporting environment the hierarchy of generally accepted accounting principles (GAAP). The GAAP hierarchy consists of the sources of accounting principles used to prepare financial statements of state and local governmental entities in conformity with GAAP and the framework for selecting those principles. This Statement reduces the GAAP hierarchy to two categories of authoritative GAAP and addresses the use of authoritative and nonauthoritative literature in the event that the accounting treatment for a transaction or other event is not specified within a source of authoritative GAAP. The following is a summary of significant accounting policies utilized by the district in the preparation of the accompanying financial statements. A. Reporting Entity A five-member board of directors exercises governance responsibilities over all entities related to public elementary and secondary school education within the jurisdiction of the district as set by the state of Oregon. The board receives funding from local, state, and federal sources. However, the district is not included in any other governmental reporting entity as defined in Section 2100, Codification of Governmental Accounting and Financial Reporting Standards. Board members are elected by the public and have decision-making authority, the power to designate management, the responsibility to significantly influence operations, and primary accountability for fiscal matters. In evaluating how to define the district for financial reporting purposes, management has considered all potential component units. The decision to include a potential component unit in the reporting entity was made by applying the criteria set forth in accounting principles generally accepted in the United States of America. The basic, but not the only, criterion for including a potential component unit within the reporting entity is the primary government s 28

34 NOTES TO BASIC FINANCIAL STATEMENTS financial accountability. The criteria used to determine financial accountability include whether the primary government appoints a voting majority, the primary government can impose its will on the component unit, whether there is financial benefit or burden on the primary government, and if the component unit has a fiscal dependency on the primary government. The other criterion used to evaluate potential component units for inclusion or exclusion from the reporting entity is the existence of special financing relationships, regardless of whether the district is financially accountable. No other entities met requirements for inclusion in the district. B. Basis of Presentation Government-wide Financial Statements The Statement of Net Position and the Statement of Activities display information about the district. These statements include the governmental financial activities of the overall district, except fiduciary activities. Eliminations have been made to minimize the double counting of internal activities. Governmental activities are financed primarily through property taxes, intergovernmental revenues, and charges for services. The Statement of Activities presents a comparison between direct expenses and program revenues for each of its functions/programs. Direct expenses are those that are specifically associated with a function and, therefore, are clearly identifiable to that function. Eliminations have been made to minimize the double counting of internal activities in the Statement of Activities. Program revenues include: (1) charges to students or others for tuition, fees, rentals, material, supplies or services provided and (2) operating grants and contributions. Revenues that are not classified as program revenues, including property taxes and state support, are presented as general revenues. Separate financial statements are provided for governmental funds and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Net position is reported as restricted when constraints placed on net position use are either externally restricted, imposed by creditors (such as through grantors, contributors or laws) or through constitutional provisions or enabling resolutions. Fund Financial Statements The fund financial statements provide information about the district s funds including those of a fiduciary nature. Separate statements for each fund category governmental and fiduciary are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. All remaining governmental funds are aggregated and reported as other governmental funds. The district has elected to report the following governmental funds as major: General Fund The General Fund is the primary operating fund of the district. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. 29