Independent School District No. 622 (North St. Paul-Maplewood-Oakdale), MN Annual Report

Transcription

1 Independent School District No. 622 (North St. Paul-Maplewood-Oakdale), MN 2011 Annual Report For the Fiscal Year Ended June 30, 2011) CUSIP #: , , Issuer Contact Information: Name: Dale Sundstrom Springsted Incorporated 380 Jackson Street, Suite 300 Title: Director of Business Services Saint Paul, MN Employer: ISD No (North St. Paul-Maplewood-Oakdale) Tel: Address: 2520 East 12th Avenue Fax: City, State, Zip: North Saint Paul, MN Telephone: Address: Issuer Website Address: Client #:

2 DISTRICT PROPERTY VALUES 2011/12 Indicated Market Value of Taxable Property: $6,430,982,917* * Indicated market value is calculated by dividing the District s combined taxable market value of $6,437,413,900 (consists of $3,417,733,400 and $3,019,680,500 for Ramsey and Washington Counties, respectively) by the 2010 sales ratio of 100.1% for the District as determined by the State Department of Revenue. (2011 sales ratio is not yet available.) 2011/12 Net Tax Capacity: $82,735,384 Ramsey Washington County County Total Real Estate $43,292,322 $38,426,664 $81,718,986 Personal Property 567, ,982 1,016,398 Total $43,859,738 $38,875,646 $82,735, /12 Taxable Net Tax Capacity: $79,916, /12 Net Tax Capacity $ 82,735,384 Less: Contribution to Fiscal Disparities (13,682,390) Captured Tax Increment Tax Capacity (1,171,893) Plus: Distribution from Fiscal Disparities 12,035, /12 Taxable Net Tax Capacity $ 79,916, /12 Taxable Net Tax Capacity by Class of Property Real Estate: Residential Homestead $37,806, % Commercial/Industrial, Public Utility, and Railroad* 32,575, Non-Homestead Residential 8,268, Agricultural and Seasonal/Recreational 249, Personal Property 1,016, Total $79,916, % * Reflects adjustments for fiscal disparities and captured tax increment tax capacity value.

3 Trend of Values Indicated Taxable Taxable Net Market Value * Market Value Tax Capacity 2011/12 $6,430,982,917 $6,437,413,900 $79,916, /11 7,149,461,738 7,156,611,200 87,718, /10 7,964,246,050 7,661,604,700 93,283, /09 8,442,864,854 8,071,378,800 98,660, /08 8,595,096,716 8,113,771,300 96,694,693 * Indicated market values are calculated by dividing the District s combined taxable market value for Ramsey and Washington Counties by the sales ratio determined for the District each year by the State Department of Revenue. District Taxable Net Tax Capacity by Municipality 2011/12 Taxable Net % of Taxable Net Tax Capacity Tax Capacity City Within the District of District Landfall $ 693, % Lake Elmo 3,037, Maplewood 33,951, North St. Paul 8,964, Oakdale 25,285, Pine Springs 15, White Bear Lake 10, Woodbury 7,958, Total Taxable Net Tax Capacity $79,916, % Ten of the Largest Taxpayers in the District 2010/11 Net Taxpayer Type of Business Tax Capacity 3M Corporation Corporate Headquarters/Research $ 4,333,525 Maplewood Mall Associates Shopping Center 1,582,260 Tamarack Village Shopping Shopping Center 1,345,972 Xcel Energy Utility 1,263,142 DBRA Red Woodbury LLC Commercial 978,690 Imation Corporation Commercial 937,684 State Farm Mutual Automobile Insurance 561,762 CW Birch Run LLC Commercial 522,420 I&G Oakdale LLC Commercial 505,700 Menard Inc. Retail 482,998 Total $12,514,153* * 3M Corporation represents 4.9% of the District s 2010/11 taxable net tax capacity. The remaining nine taxpayers represent 9.3% of the District s 2010/11 taxable net tax capacity. NOTE: The 2011/2012 largest taxpayers are not yet available from Ramsey County

4 DISTRICT INDEBTEDNESS Legal Debt Limit* Legal Debt Limit (15% of Taxable Market Value) $ 965,612,085 Less: Outstanding Debt Subject to Limit (117,120,000) Legal Net Debt Margin as of May 31, 2012 $ 848,492,085 * The legal debt margin is referred to statutorily as the Net Debt Limit and permits debt to be offset by debt service funds and current revenues which are applicable to the payment of debt in the current fiscal year. To conservatively state the legal debt margin, no such offset has been used to increase the margin as shown above. General Obligation Debt (a) Principal Date Original Final Outstanding of Issue Amount Purpose Maturity As of $ 6,435,000 School Building $ 570, ,385,000 Recreational Facility Refunding ,000 (b) ,755,000 Alternative Facilities , ,485,000 Alternative Facilities ,965, ,950,000 Refunding ,875, ,680,000 Refunding ,445, ,170,000 Alternative Facilities ,460, ,895,000 Alternative Facilities ,455, ,000,000 Taxable OPEB ,285,000 (c) ,390,000 Alternative Facilities ,720, ,795,000 Taxable Alternative Facilities (BABs) ,300, ,750,000 School Building Refunding ,750, ,720,000 Alternative Facilities ,350, ,955,000 Refunding ,955,000 Total $142,405,000 (a) These issues are subject to the legal debt limit, except as noted. (b) The debt service for this issue is paid from gross revenues of an indoor ice arena that the District maintains along with the Cities of Oakdale and Maplewood, per a Joint Powers Agreement entered into by the three entities. This issue is not subject to the legal debt limit. (c) This issue is not subject to the legal debt limit

5 Lease Obligations* Principal Date Original Final Outstanding of Issue Amount Purpose Maturity As of $1,830,000 Refunding Certificates of Participation $1,245, ,500,000 Certificates of Participation ,370, ,675,000 Refunding Certificates of Participation ,675,000 Total $7,290,000 * The rental payments for these issues are subject to annual appropriation. These issues are subject to the legal debt limit. The District entered into a Joint Powers Agreement with Independent School District No. 834 (Stillwater) and Independent School District No. 833 (South Washington County Schools) for Valley Crossing Elementary School (the Joint School ) located in the City of Woodbury, Minnesota. Intermediate District No. 916 (Northeast Metro) ( ISD 916 ) issued $18,000,000 Certificates of Participation, Series 1995 (the Series 1995 Bonds ), to fund the construction of the Joint School. The Series 1995 Bonds were refunded by ISD 916 s issuance of $12,170,000 Refunding Certificates of Participation, Series As part of the Joint Powers Agreement, ISD 916 calculates each participating member district s proportionate share of the required lease levy based on each district s number of pupils attending the Joint School each fiscal year. The District s share of the total debt service requirement on these bonds for the fiscal year 2011/12 is $223,007 out of a total commitment of $1,438,613 for the three participating districts. This issue is not subject to the District s legal debt limit. Annual Debt Service Payments General Obligation Debt Lease Obligations Principal Principal Y ear Principal & Interest Principal & Interest 2012 (at 5-31) $ 1,300,000 $ 4,477,448 (Paid) $ 118, ,805,000 14,967,229 $ 770, , ,140,000 14,869, , , ,325,000 14,605, , , ,670,000 14,557, , , ,130,000 14,601, , , ,305,000 14,340, , , ,730,000 14,321, , , ,735,000 13,869, , , ,350,000 13,028, , , ,005,000 12,235, , , ,795,000 11,581, , , ,315,000 10,668, , , ,410,000 8,340, , , ,130,000 5,751, ,385,000 5,743, ,125,000 2,301, ,355,000 1,452, , , , ,430 Total $142,405,000 (a) $193,160,090 $7,290,000 (b) $8,460,607 (a) 63.5% of this debt will be retired within ten years. (b) 91.4% if this debt will be retired within ten years

6 Short-Term Debt The District has outstanding $16,783,176 in Aid Anticipation Certificates dated December 15, The certificates carry an interest rate of 2.00% and will mature September 11, Operating Leases For information concerning the District s operating leases, please reference Note 11 Commitments and Contingencies-Operating Leases, of the District s Financial Report for fiscal year ended June 30, Indirect Debt Debt Applicable to 2011/12 Taxable G.O. Debt Tax Capacity in District Taxing Unit (a) Net Tax Capacity As of (b) Percent Amount Ramsey County $ 468,026,839 $148,800, % $ 13,644,960 Ramsey County Library 238,324,378 19,775, ,561,478 Washington County 274,192, ,210, ,453,929 Cities: Lake Elmo 11,555,676 4,810, ,264,549 Landfall 693, ,852 (c) ,852 Maplewood 39,582,567 64,982, ,735,316 North St. Paul 8,964,294 10,850, ,850,000 Oakdale 25,533,898 27,165, ,901,500 White Bear Lake 23,760,537 2,650, ,060 Woodbury 73,263,643 48,540, ,271,444 Metropolitan Council 3,088,480,725 79,795,000 (d) ,540 Metropolitan Transit 2,461,354, ,825, ,472,375 Total $140,336,003 (a) Only those taxing units which have debt outstanding are shown here. (b) Excludes general obligation debt supported by revenues and state-aid allotments, and tax, grant, and aid anticipation debt. (c) Represents debt as of December 31, 2011; most recent available. (d) Excludes general obligation debt supported by wastewater revenues, 911 user fees, and housing rental payments. Includes general obligation grant anticipation notes, and certificates of participation. Debt Ratios* G.O. G.O. Indirect & Direct Debt Direct Debt To 2011/12 Indicated Market Value ($6,430,982,917) 2.33% 4.51% Per Capita (81,000 - Current District Estimate) $1,848 $3,581 * Includes all lease obligations except the joint venture for Valley Crossing Elementary School. Excludes operating leases

7 DISTRICT TAX RATES, LEVIES AND COLLECTIONS Tax Capacity Rates 2011/12 For Maplewood 2007/ / / /11 Total Debt Only Ramsey County (a) % % % % % 4.797% City of Maplewood (b) ISD No. 622 (North St. Paul- Maplewood-Oakdale) (c) Special Districts (d) Total % % % % % % North St. Paul Ramsey County (a) % % % % % 4.797% City of North St. Paul (e) ISD No. 622 (North St. Paul -Maplewood-Oakdale) (c) Special Districts (d) Total % % % % % % Oakdale Washington County % % % % % 4.060% City of Oakdale ISD No. 622 (North St. Paul -Maplewood-Oakdale) (c) Special Districts (f) Total % % % % % % (a) Includes the Ramsey County Library. (b) The City of Maplewood also has a 2011/12 tax rate of % spread on the market value of property in support of debt service. (c) The District also has a 2011/12 tax rate of % spread on the market value of property in support of an excess operating levy. (d) Special districts include Metropolitan Council, Metropolitan Transit District, Metropolitan Mosquito Control, Light Rail Authority, and Valley Branch Watershed District. (e) The City of North St. Paul also has a 2011/12 tax rate of % spread on the market value of property in support of debt service. (f) Special districts include Metropolitan Council, Metropolitan Transit District, Metropolitan Mosquito Control, Light Rail Authority, Washington County Housing and Redevelopment Authority, and Ramsey-Washington Metropolitan Watershed. NOTE: Property taxes are determined by multiplying the net tax capacity by the tax capacity rate, plus multiplying the referendum market value by the market value rate. These tables do not include the market value based rates

8 District Tax Levies and Collections Collected During Collected and/or Net Collection Year Abated as of Levy/Collect Levy * Amount Percent Amount Percent 2011/12 $34,427,687 (In process of collection) 2010/11 35,406,163 $34,847, % $34,956, % 2009/10 35,424,358 34,712, ,277, /09 36,528,878 35,659, ,438, /08 31,434,974 30,624, ,377, * The net levy excludes state aid for property tax relief and fiscal disparities, if applicable. The net levy is the basis for computing tax capacity rates. AREA ECONOMY Major Employers Employment opportunities are available to District residents throughout the District and surrounding Minneapolis-St. Paul communities. Major employers located in or adjacent to the District include the following: Approximate Number Employer Product/Service of Employees 3M Corporation Headquarters/research 10,000 Health East Medical hospital 1,750 ISD No. 622 (North St. Paul-Maplewood- Oakdale) Public education 1,671 Imation Corporation Computer software/products 1,450 Maplewood Care Center Health care 270 Target Retail 267 Cub Foods Grocery stores (two locations) 265 Sears Retail 155 Macy s Retail 150 Minnesota Department of Transportation Material and research laboratory 139 Source: Telephone survey of individual employers, September

9 Enrollment and Employment The following table shows total enrollment for the past five years: School Grades Grades Year K Total 2011/12 5,040 5,724 10, /11 5,064 5,818 10, /10 5,086 5,895 10, /09 5,248 5,861 11, /08 5,026 5,984 11,010 The District currently employs a total of 1,671 employees, consisting of 732 certified and 939 non-certified employees. Employee Pension Plans For information regarding the liability of the District with respect to its employees, please reference Note 6, Defined Benefit Pension Plans State-Wide, of the District s Financial Report for fiscal year ended June 30, Other Post-employment Benefits For information concerning the District s OPEB obligations, please reference Note 7 Other Post-Employment Benefits Plan, of the District s Financial Report for fiscal year ended June 30,

10 INDEPENDENT SCHOOL DISTRICT NO. 622 NORTH ST. PAUL - MAPLEWOOD - OAKDALE, MINNESOTA Financial Report Year Ended June 30, 2011

11 INDEPENDENT SCHOOL DISTRICT NO. 622 Table ofcontents Page INTRODUCTORY SECTION SCHOOL BOARD AND ADMINISTRATION FINANCIAL SECTION INDEPENDENT AUDITOR'S REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS BASIC FINANCIAL STATEMENTS Government-Wide Financial Statements Statement ofnet Assets Statement ofactivities Fund Financial Statements Governmental Funds Balance Sheet Reconciliation ofthe Balance Sheet to the Statement ofnet Assets Statement ofrevenue, Expenditures, and Changes in Fund Balances Reconciliation ofthe Statement ofrevenue, Expenditures, and Changes in Fund Balances to the Statement ofactivities Statement ofrevenue, Expenditures, and Changes in Fund Balances Budget and Actual - General Fund Fiduciary Funds Statement offiduciary Net Assets Statement ofchanges in Fiduciary Net Assets Notes to Basic Financial Statements REQUIRED SUPPLEMENTARY INFORMATION Other Post-Employment Benefits Plan Schedule offunding Progress Schedule ofemployer Contributions Pension Benefits Plan Schedule offunding Progress COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES Nonmajor Governmental Funds Combining Balance Sheet Combining Statement ofrevenue, Expenditures, and Changes in Fund Balances General Fund Comparative Balance Sheet Schedule ofrevenue, Expenditures, and Changes in Fund Balances Budget and Actual

12 INDEPENDENT SCHOOL DISTRICT NO. 622 Table of Contents (continued) COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES (CONTINUED) Food Service Special Revenue Fund Comparative Balance Sheet Schedule ofrevenue, Expenditures, and Changes in Fund Balances Budget and Actual Community Service Special Revenue Fund Comparative Balance Sheet Schedule of Revenue, Expenditures, and Changes in Fund Balances Budget and Actual Capital Projects - Building Construction Fund Comparative Balance Sheet Schedule ofrevenue, Expenditures, and Changes in Fund Balances Budget and Actual Debt Service Fund Balance Sheet by Account Schedule ofrevenue, Expenditures, and Changes in Fund Balances by Account Budget and Actual Employee Benefit Trust Funds Combining Statement offiduciary Net Assets Combining Statement ofchanges in Fiduciary Net Assets Agency Fund Statement ofchanges in Assets and Liabilities Page SUPPLEMENTAL INFORMATION (UNAUDITED) Government-Wide Revenue by Type Government-Wide Expenses by Function General Fund Revenue by Source General Fund Expenditures by Program School Tax Levies and Tax Rates by Fund Tax Capacities and Market Values Property Tax Levies and Receivables Student Enrollment SINGLE AUDIT AND OTHER REQUIRED REPORTS Schedule ofexpenditures offederal Awards Independent Auditor's Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit offinancial Statements Performed in Accordance With Government Auditing Standards 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-B3 Independent Auditor's Report on Compliance With Minnesota State Laws and Regulations Schedule offindings and Questioned Costs Uniform Financial Accounting and Reporting Standards Compliance Table

13 INTRODUCTORY SECTION

14 INDEPENDENT SCHOOL DISTRICT NO. 622 School Board and Administration as of June 30, 2011 SCHOOL BOARD Position Mark Wheeler Theresa Auge AmyCobom Pam Cunningham Steve Hunt Nancy Livingston Michelle Yener Chairperson Vice Chairperson Treasurer Clerk Director Director Director ADMINISTRATION Patricia Phillips Dale Sundstrom John Mosiniak Superintendent of Schools Director ofbusiness Services Accounting Supervisor -1-

15 FINANCIAL SECTION

16 INDEPENDENT AUDITOR S REPORT To the School Board of Independent School District No. 622 North St. Paul Maplewood Oakdale, Minnesota We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Independent School District No. 622 (the District) as of and for the year ended June 30, 2011, which collectively comprise the District s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the District s management. Our responsibility is to express opinions on these financial statements based on our audit. The prior year partial comparative information has been derived from the District s financial statements as of and for the year ended June 30, 2010 and, in our report dated December 7, 2010, we expressed unqualified opinions on the respective financial statements of the governmental activities, each major fund, and the aggregate remaining fund information. 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 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the District s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 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 June 30, 2011, and the respective changes in financial position and the budgetary comparison for the General Fund for the year then ended, in conformity with accounting principles generally accepted in the United States of America. As described in Note 1 of the notes to basic financial statements, the District has implemented Governmental Accounting Standards Board (GASB) Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions during the year ended June 30, The financial statements include prior year partial comparative information, which does not include all of the information required in a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the District s financial statements for the year ended June 30, 2011, from which such information was derived (continued)

17 In accordance with Government Auditing Standards, we have also issued a report dated December 6, 2011 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, 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 ofan audit performed in accordance with Government Auditing Standards and should be considered in assessing the results ofour audit. Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis and the Schedules offunding Progress and Schedule ofemployer Contributions for the District's Other Post-Employment Benefits Plan and Pension Benefits Plan, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part ofthe basic financial statements, is required by GASB, who considers it to be an essential part offinancial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Our audit was conducted for the purpose offorming opinions on the financial statements that collectively comprise the District's basic financial statements. The introductory section, combining and individual fund statements and schedules, and supplemental information, as listed in the table of contents, are presented for purposes of additional analysis and are not required parts ofthe basic financial statements. The accompanying Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by the U.S. Office of Management and Budget Circular A-133, Audits ofstates, Local Governments, and Nonprofit Organizations, and is also not a required part of the basic financial statements ofthe District. The accompanying Uniform Financial Accounting and Reporting Standards (UFARS) Compliance Table is presented for purposes ofadditional analysis as required by the Minnesota Department ofeducation, and is also not a required partofthe basic financial statements ofthe District. The combining and individual fund statements and schedules and Schedule of Expenditures of Federal Awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. The 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 information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory section, supplemental information, and the UFARS Compliance Table have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. Mu.. \11:1 '1 ( 1"'1 () If\+--~"'Q- ( ~o...r.i"i()w5~:, ~Q..Jo.>~. <.N, ( ~ Co '/ t?,at. December 6,

18 INDEPENDENT SCHOOL DISTRICT NO. 622 Management s Discussion and Analysis Fiscal Year Ended June 30, 2011 This section of Independent School District No. 622 s (the District) annual financial report presents management s discussion and analysis of the District s financial performance during the fiscal year ended June 30, Please read it in conjunction with the other components of the District s annual financial report. FINANCIAL HIGHLIGHTS The District s total net assets of governmental activities increased by $3,267,675 resulting in total net assets of $3,561,063 as of June 30, District long-term bonds payable decreased by a net amount of $4,480,000. New bonded debt of $11.5 million was issued for alternative facility capital projects and refunding of previously outstanding bonds. Principal payments on existing and refunded bonded debt totaled $16 million. The District s General Fund unassigned fund balance increased from $14,624,505 to $14,929,483, thus maintaining the School Board s fund balance policy requiring a minimum unassigned balance of 10 percent of the annual budget. OVERVIEW OF THE FINANCIAL STATEMENTS The financial section of the annual report consists of the following parts: Independent Auditor s Report; Management s Discussion and Analysis; Basic financial statements, including the government-wide financial statements, fund financial statements, and the notes to basic financial statements; Required supplementary information; and Combining and individual fund statements and schedules. The following explains the two types of statements included in the basic financial statements: Government-Wide Statements The government-wide statements (Statement of Net Assets and Statement of Activities) report information about the District as a whole using accounting methods similar to those used by private sector companies. The Statement of Net Assets includes all of the District s assets and liabilities except for the fiduciary funds. All of the current year s revenues and expenses are accounted for in the Statement of Activities regardless of when cash is received or paid. -4-

19 The two government-wide statements report the District s net assets and how they have changed. Net assets the difference between the District s assets and liabilities is one way to measure the District s financial health or position. Over time, increases or decreases in the District s net assets are indicators of whether its financial position is improving or deteriorating, respectively. To assess the overall health of the District requires consideration of additional non-financial factors, such as changes in the District s property tax base and the condition of school buildings and other facilities. In the government-wide financial statements, the District s activities are all shown in one category titled governmental activities. These activities, including regular and special education, transportation, administration, food services, and community education, are primarily financed with state aids and property taxes. Fund Financial Statements The fund financial statements provide more detailed information about the District s funds, focusing on its most significant or major funds, rather than the District as a whole. Funds (Food Service and Community Service Special Revenue) that do not meet the threshold to be classified as major funds are called nonmajor funds. Detailed financial information for nonmajor funds can be found in the combining and individual fund statements and schedules section. Funds are accounting devices the District uses to keep track of specific sources of funding and spending on particular programs. Some funds are required by state law and by bond covenants. The District establishes other funds to control and manage money for particular purposes or to show that it is properly using certain revenues. The District maintains the following kinds of funds: Governmental Funds The District s basic services are included in governmental funds, which generally focus on: 1) how cash and other financial assets that can readily be converted to cash flow in and out, and 2) the balances left at year-end that are available for spending. Consequently, the governmental fund statements provide a detailed short-term view that helps to determine whether there are more or less financial resources that can be spent in the near future to finance the District s programs. Because this information does not encompass the additional long-term focus of the government-wide statements, we provide additional information (reconciliation schedules) immediately following the governmental fund statements that explain the relationship (or differences) between these two types of financial statement presentations. Fiduciary Funds The District is the trustee, or fiduciary, for assets that belong to others. We exclude these activities from the government-wide financial statements because the District cannot use these assets to finance its operations. All of the District s fiduciary activities are reported in a separate Statement of Fiduciary Net Assets and a Statement of Changes in Fiduciary Net Assets. The District is responsible for ensuring that the assets reported in these funds are used only for their intended purposes and by those to whom the assets belong. -5-

20 FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE Table 1 is a summarized view of the District s Statement of Net Assets: Table 1 Summary Statement of Net Assets as of June 30, 2011 and Assets Current and other assets $ 91,339,102 $ 101,920,625 Restricted assets 5,576,092 8,979,110 Capital assets, net of depreciation 111,877, ,120,678 Total assets $ 208,793,121 $ 215,020,413 Liabilities Current and other liabilities $ 36,747,578 $ 43,640,140 Long-term liabilities 168,484, ,086,885 Total liabilities $ 205,232,058 $ 214,727,025 Net assets Invested in capital assets, net of related debt $ (13,752,261) $ (19,386,152) Restricted 2,976,334 4,105,584 Unrestricted 14,336,990 15,573,956 Total net assets $ 3,561,063 $ 293,388 The District s financial position is the product of many factors. For example, the determination of the District s investment in capital assets, net of related debt involves many assumptions and estimates, such as current and accumulated depreciation amounts. A conservative versus liberal approach to depreciation estimates, as well as capitalization policies, will produce a significant difference in the calculated amounts. The other major factor in determining net assets as compared to fund balances is the liability for severance benefits, which is basically unfunded. This impacts the unrestricted portion of net assets. The financial position of the District is improving as measured by total net assets. For the year ended June 30, 2011, total net assets increased by $3,267,675 to a level of $3,561,063. Restricted net assets declined in the current year as net assets restricted for staff development declined about $1.0 million. The deficit balance in invested in capital assets, net of related debt lowered due to the District paying down its outstanding long-term liabilities at a faster rate than the related capital assets are being depreciated. -6-

21 Table 2 presents a condensed version of the Statement of Activities of the District: Table 2 Summary Statement of Activities for the Years Ended June 30, 2011 and Revenues Program revenues Charges for services $ 6,409,830 $ 6,481,090 Operating grants and contributions 22,364,002 23,034,902 Capital grants and contributions 717, ,804 General revenues Property taxes 42,465,843 36,010,780 General grants and aids 72,155,166 78,078,016 Other 1,349,205 2,049,621 Total revenues 145,461, ,388,213 Expenses Administration 5,390,352 5,387,109 District support services 3,290,211 3,105,906 Elementary and secondary regular instruction 56,608,582 55,744,097 Vocational education instruction 1,529,476 1,645,492 Special education instruction 22,371,541 21,870,189 Instructional support services 9,097,765 8,670,281 Pupil support services 10,011,663 8,904,244 Sites and buildings 8,305,688 9,353,992 Fiscal and other fixed cost programs 287, ,879 Food service 5,978,174 5,633,849 Community service 8,309,716 7,825,395 Depreciation not included in other functions 3,390,729 2,971,502 Interest and fiscal charges 7,622,134 7,665,447 Total expenses 142,193, ,042,382 Change in net assets 3,267,675 7,345,831 Net assets beginning 293,388 (7,052,443) Net assets ending $ 3,561,063 $ 293,388 This statement is presented on an accrual basis of accounting, and it includes all of the governmental activities of the District. This statement includes depreciation expense, but excludes capital asset purchase costs, debt proceeds, and the repayment of debt principal. General grants and aids and property taxes accounted for 78.8 percent of the total revenue for the year. Operating grants and contributions accounted for 15.4 percent of revenue. -7-

22 Figures A and B show further analysis of these revenue sources and expense functions: Figure A Sources of Revenues for Fiscal Years 2011 and Other 0.9% Charges for Services 4.4% Operating Grants and Contributions 15.4% General Grants and Aids 49.6% Capital Grants and Contributions 0.5% Property Taxes 29.2% 2010 Other 1.4% Charges for Services 4.4% Operating Grants and Contributions 15.7% General Grants and Aids 53.4% Capital Grants and Contributions 0.5% Property Taxes 24.6% The largest share of the District s revenue is received from the state, including the basic general education aid and most of the capital and operating grants. This significant reliance on the state for funding has placed tremendous pressures on local school districts as a result of unpredictable and inconsistent funding increases from the state. Property taxes are generally the next largest source of funding. The level of funding property tax sources provide is not only dependent on taxpayers of the District by way of operating and building referenda, but also by decisions made by the Legislature in the mix of state aid and local effort in a variety of funding formulas. The proportionate share of district revenue from these two sources changed significantly from fiscal 2010 to fiscal 2011, due to a large increase in the tax shift. The tax shift is an accounting tool used to balance the state budget, whereby districts recognize cash collections for the subsequent year s property tax levy as current year revenue, and the state reduces aid payments to districts by an equal amount. -8-

23 Figure B Expenses for Fiscal Years 2011 and Community Service 5.8% Depreciation Not Included in Other Functions 2.4% Interest and Fiscal Charges 5.4% Administration 3.8% Food Service 4.2% Fiscal and Other Fixed Cost Programs 0.2% Sites and Buildings 5.9% Pupil Support Services 7.0% Instructional Support Services 6.4% Special Education Instruction 15.7% Vocational Education Instruction 1.1% District Support Services 2.3% Elementary and Secondary Regular Instruction 39.8% 2010 Food Service 4.1% Sites and Buildings 6.7% Pupil Support Services 6.4% Community Service 5.6% Fiscal and Other Fixed Cost Programs 0.2% Instructional Support Services 6.2% Depreciation Not Included in Other Functions 2.1% Special Education Instruction 15.8% Interest and Fiscal Charges 5.5% Vocational Education Instruction 1.2% Administration 3.9% District Support Services 2.2% Elementary and Secondary Regular Instruction 40.1% The District s expenses are predominately related to educating students. Programs (or functions) such as elementary and secondary regular instruction, vocational education instruction, special education instruction, and instructional support services are directly related to classroom instruction, while the rest of the programs support instruction and other necessary costs to operate the District. -9-

24 FINANCIAL ANALYSIS OF THE DISTRICT S FUNDS The financial performance of the District as a whole is also reflected in its governmental funds. Table 3 shows the change in total fund balances of each of the District s governmental funds: Table 3 Governmental Fund Balances as of June 30, 2011 and 2010 Total Increase Percent (Decrease) Change Major funds General $ 23,243,871 $ 25,227,241 $ (1,983,370) (7.9%) Capital Projects Building Construction 7,069,037 6,832, , % Debt Service Regular 2,499,230 2,188, , % OPEB 226, , , % Refunding Bond 4,859,147 8,260,823 (3,401,676) (41.2%) Nonmajor funds Food Service Special Revenue 563, ,451 (128,729) (18.6%) Community Service Special Revenue 498, ,393 (332,445) (40.0%) Total governmental funds $ 38,960,782 $ 44,133,514 $ (5,172,732) (11.7%) The General Fund final budget called for a fund balance decrease of $5,102,777, with the actual decrease being $1,983,370. The variance resulted from greater final enrollment than budgeted by 38 students. Also, the District received more special education state aid revenue for 2010 as final amounts exceeded estimates projected in the fiscal 2010 financial report. The current year estimated amounts are also higher than budget. Additional revenue increases came from prior year levy abatements, tuition revenue from other school districts, and third party billing revenue. Expenditures varied from budget due to conservative usage of additional state aid revenue and higher carryforward of federal aid allocations into the next fiscal year compared to budget. -10-

25 Analysis of the General Fund Table 4 summarizes the amendments to the General Fund budget: Table 4 General Fund Budget Increase Original Budget Final Budget (Decrease) Percent Change Revenue $ 114,580,046 $ 115,282,691 $ 702, % Expenditures $ 119,629,504 $ 122,850,517 $ 3,221, % The District is required to adopt an operating budget prior to the beginning of its fiscal year, referred to above as the original budget. During the year, the District amends the budget for known changes in circumstances such as enrollment levels, legislative funding, and employee contract settlements. Table 5 summarizes the operating results of the General Fund: Table 5 General Fund Operating Results Over (Under) Final Budget Over (Under) Prior Year 2011 Actual Amount Percent Amount Percent Revenue $ 116,696,818 $ 1,414, % $ (1,109,207) (0.9%) Expenditures (121,188,987) $ (1,661,530) (1.4%) $ 5,824, % Other financing sources (uses) 2,508,799 $ 43, % $ 3,406, % Net change in fund balances $ (1,983,370) General Fund revenues of $116.7 million were $1.4 million greater than the final revised budget. State sources were over budget about $941,000, due to greater final enrollment than budgeted by 38 students, special education revenue from the final prior year state allocation being higher than estimated, and current year special education aid being higher than budget. Other revenue sources were over budget by about $519,000 due to increased tuition revenue from other school districts and increased third party billing revenue. -11-

26 Federal sources decreased approximately $7.7 million due to the fiscal year 2010 one-time federal fiscal stabilization funds. Property tax revenues increased about $5.7 million as a result of the tax shift in the current year. The change in the tax shift and federal stabilization funds were revenue neutral adjustments in school funding that are offset through state sources. General Fund expenditures of $121.2 million were $1.7 million under budget and $5.8 million higher than the 2010 fiscal year. The increase was due to the renovation of two buildings to relocate the transportation facility costing $3.2 million and general inflation increases in salaries, employee benefits, and professional services. The budget variance was from carryforwards of state aid revenue and federal aid allocations into the next fiscal year as compared to budget. Comments on Significant Activities in Other Funds The Capital Projects Building Construction Fund balance increased $236,597 due to the issuance of alternative facility bonds in the current year and the planned spend down of these proceeds. The Food Service Special Revenue Fund balance decreased to 9.9 percent of expenditures. This decrease is attributed to funding new cold storage equipment at the transportation facility warehouse and mediation of increased food prices. The Community Service Special Revenue Fund balance declined to 6.0 percent of expenditures due to an increase in charges for services by the General Fund and lower community participation in some programs. The Debt Service Fund balance decreased $3.0 million, which is the result of the District s payment on refunded debt of $8.1 million in the current year offset by the issuance of $4.8 million of refunding bonds. -12-

27 CAPITAL ASSETS AND LONG-TERM LIABILITIES Capital Assets Table 6 shows the District s capital assets, together with changes from the previous year. The table also shows the total depreciation expense for fiscal years ending June 30, 2011 and 2010: Table 6 Capital Assets Increase (Decrease) Land $ 19,577,877 $ 19,147,833 $ 430,044 Construction in progress 4,342,319 4,342,319 Land improvements 3,533,556 2,513,219 1,020,337 Buildings and improvements 132,631, ,776,715 4,855,219 Furniture and equipment 12,662,511 11,665, ,107 Less accumulated depreciation (60,870,270) (56,982,493) (3,887,777) Total $ 111,877,927 $ 104,120,678 $ 7,757,249 Depreciation expense $ 4,354,004 $ 3,808,934 $ 545,070 In fiscal 2011, the District acquired $12.2 million of new capital assets. Large items included ongoing deferred maintenance projects at several sites for replacement of building heating boilers, air handling unit, and parking lot replacement. Long-Term Liabilities Table 7 illustrates the components of the District s long-term liabilities, together with the change from the prior year: Table 7 Outstanding Long-Term Liabilities -13- Increase (Decrease) General obligation bonds payable $ 155,405,000 $ 159,885,000 $ (4,480,000) Certificates of participation payable 8,625,000 6,750,000 1,875,000 Premium (discount) on bonds payable and certificates of participation payable 1,173,352 1,027, ,814 Severance benefits payable 2,050,290 2,072,977 (22,687) Compensated absences payable 1,230,838 1,182,213 48,625 Net pension obligation 169,157 (169,157) Total $ 168,484,480 $ 171,086,885 $ (2,602,405)

28 New bond issues of $11.5 million and principal and refunding payments of $16.0 million caused bonded debt to decrease. The $1.9 million increase in the certificates of participation payable is due to the issuance of $2.5 million in certificates during fiscal year The state limits the amount of general obligation debt the District can issue to 15 percent of the market value of all taxable property within the District s corporate limits. (See Table 8) Table 8 Limitations on Debt District s market value $ 7,100,019,400 Limit rate 15.0% Legal debt limit $ 1,065,002,910 Additional details of the District s capital assets and long-term debt activity can be found in the notes to basic financial statements. FACTORS BEARING ON THE DISTRICT S FUTURE ECONOMIC AND BUDGETARY FACTORS Factors affecting the District s future financial condition include the following: Declining Enrollment As the population of school-age children residing in the District is expected to decline, the District s revenues decline, as most of the District s funding is based on the number of pupils served in the District. State Budget The current national and world-wide financial crisis is expected to have a significant, negative impact on future state revenue collections, which will have a direct impact on future state aid allocations to school districts. Since kindergarten through Grade 12 education makes up a significant percentage of the overall state budget and because state general education revenue accounts for over 59 percent of district revenues, the District will be impacted by future legislative action as the state deals with impending budget deficits. District costs continue to rise at an annual rate of at least 2 percent. This raises the possibility of continued budget reductions in future years as state revenues fail to keep pace with anticipated annual expenditure increases. Medical Insurance District medical insurance premiums rose 4 percent in and are capped at 7 percent and 8 percent for the next two years, respectively. While the increases are significantly lower than in recent years they are still higher than revenue increases expected from state and federal sources. Cost increases to the District are based on negotiated contribution limits for employees and are expected to mirror premium increases overall. -14-

29 Energy Costs The District is heavily involved in energy management and cost reduction efforts and has been recognized by the U.S. Department of Energy as a leader in school energy conservation. The District has realized significant annual savings in gas and electricity costs. While gas cost increases have been reasonable, electric rates suffer significant inflationary pressures. The District will need to continue conservation efforts to keep energy from consuming more of the budget. With the exception of the voter-approved operating referendum, the District is dependent on the state of Minnesota for its revenue authority. Recent experience demonstrates that legislated revenue increases have not been sufficient to meet instructional program needs and increased costs due to inflation. CONTACTING THE DISTRICT S FINANCIAL MANAGEMENT This financial report is designed to provide citizens, taxpayers, investors, and creditors with a general overview of the District s finances and to demonstrate the District s accountability for the resources it receives and utilizes. Should you have questions about this report, or need additional information, please contact Dale Sundstrom, Director of Business Services, Independent School District No. 622, 2520 East 12th Avenue, North St. Paul, Minnesota Dale Sundstrom may also be reached by telephone at (651)

30 BASIC FINANCIAL STATEMENTS

31 INDEPENDENT SCHOOL DISTRICT NO. 622 Statement ofnet Assets as ofjune 30, 2011 (With Partial Comparative information as ofjune 30, 2010) Governmental Activities Assets Cash and temporary investments $ 14,368,048 $ 26,497,257 Receivables Current taxes 21,350,384 21,385,183 Delinquent taxes 1,019,455 1,159,240 Accounts and interest receivable 389, ,166 Due from other governmental units 30,045,101 26,781,066 Due from fiduciary funds 52,402 Inventory 332, ,703 Prepaid items 120, ,429 Negative net other post-employment benefit obligations 23,650,942 25,310,581 Negative net pension obligation 10,761 Restricted assets - temporarily restricted Cash and investments for debt service 4,852,820 8,130,838 Cash and investments for capital asset acquisition 713, ,589 Interest receivable for debt service and capital asset acquisition 9, ,683 Total restricted assets - temporarily restricted 5,576,092 8,979,110 Capital assets Not depreciated 23,920,196 19,147,833 Depreciated, net ofaccumulated depreciation 87,957,731 84,972,845 Total capital assets, net ofaccumulated depreciation 111,877, ,120,678 Total assets $ 208,793,121 $ 215,020,413 Liabilities Salaries payable $ 551,875 $ 445,288 Accounts and contracts payable 3,959,932 3,642,756 Accrued interest payable 3,026,553 3,090,437 Due to other governmental units 2,214,660 2,411,410 Property taxes levied for subsequent year 26,360,239 33,546,920 Unearned revenue 634, ,329 Long-term liabilities Due within one year 15,414,974 17,907,075 Due in more than one year 153,069, ,179,810 Total long-term liabilities 168,484, ,086,885 Total liabilities 205,232, ,727,025 Net assets Invested in capital assets, net ofrelated debt (13,752,261) (19,386,152) Restricted for Capital asset acquisition 1,348, ,009 Food service 563, ,451 Community service 519, ,668 Other purposes (state funding restrictions) 544,365 1,678,456 Unrestricted 14,336,990 15,573,956 Total net assets 3,561, ,388 Total liabilities and net assets $ 208,793,121 $ 215,020,413 See notes to basic financial statements -16-

32 INDEPENDENT SCHOOL DISTRICT NO. 622 Statement ofactivities Year Ended June 30,201 I (With Partial Comparative Information for the Year Ended June 30, 2010) FunctionslPrograms 20II Program Revenues Operating Capital Charges for Grants and Grants and Expenses Services Contributions Contributions Net (Expense) Revenue and Changes in Net Assets Governmental Activities 2010 Net (Expense) Revenue and Changes in Net Assets Governmental Activities Governmental activities Administration District support services Elementary and secondary regular instruction Vocational education instruction Special education instruction Instructional support services Pupil support services Sites and buildings Fiscal and other fixed cost programs Food service Community service Depreciation not included in other functions Interest and fiscal charges $ 5,390,352 $ 16,716 $ $ 3,290,2II 56,608, ,163 2,6II,986 1,529,476 41,554 22,371,541 51,508 12,874,356 9,097, ,011, ,077 8,305,688 28, , ,433 5,978,174 2,728,733 2,862,357 8,309,716 2,865,304 3,712,672 3,390,729 7,622,134 $ (5,373,636) $ (5,376,216) (3,290,2 I I) (3,105,906) (53,277,433) (52, I74,942) (1,487,922) (1,597,301) (9,445,677) (8,374,125) (9,097,750) (8,670,281 ) (9,750,586) (8,458,999) (7,560,204) (8,620,188) (287,433) (264,879) (387,084) (55,316) (1,731,740) (1,457,484) (3,390,729) (2,971,502) (7,622,134) (7,665,447) Total governmental activities $ 142,193,464 $ 6,409,830 $ 22,364,002 $ 717,093 General revenue Taxes Property taxes, levied for general purposes Property taxes, levied for community service Property taxes, levied for debt service General grants and aids Other general revenues Investment earnings Total general revenue Change in net assets Net assets - beginning Net assets - ending (112,702,539) (108,792,586) 26,085,727 20,541,413 2,109,875 1,159,641 14,270,241 14,309,726 72,155,166 78,078,016 1,094,118 1,423, , , ,970, ,138,417 3,267,675 7,345,83 I 293,388 (7,052,443) $ 3,561,063 $ 293,388 See notes to basic financial statements -17-

33 INDEPENDENT SCHOOL DISTRICT NO. 622 Balance Sheet Governmental Funds as of June 30, 2011 (With Partial Comparative Information as of June 30, 2010) Capital Projects Building Debt Total Governmental Funds General Fund Construction Fund Service Fund Nonmajor Funds Assets Cash and temporary investments $ $ 8,661,685 $ 5,706,363 $ $ 14,368,048 $ 26,497,257 Cash and investments held by trustee 713,630 2,863 4,849,957 5,566,450 8,843,427 Receivables Current taxes 11,191,557 9,267, ,568 21,350,384 21,385,183 Delinquent taxes 584, ,915 37,085 1,019,455 1,159,240 Accounts and interest 239,545 8,152 9, , , ,849 Due from other governmental units 29,087, , ,593 30,045,101 26,781,066 Due from fiduciary funds 52,402 52,402 Due from other funds 3,338, ,342 3,986,318 Inventory 45, , , ,703 Prepaid items 94,614 26, , ,429 Total assets $ 42,009,605 $ 8,672,700 $ 23,763,226 $ 2,794,278 $ 77,239,809 $ 85,589,154 Liabilities and Fund Balances Liabilities Salaries payable $ 460,775 $ $ $ 91,100 $ 551,875 $ 445,288 Accounts and contracts payable 2,077,012 1,603,663 2, ,006 3,959,932 3,642,756 Due to other governmental units 1,894,792 22, ,200 2,214,660 2,411,410 Due to other funds 3,986,318 3,986,318 Property taxes levied for subsequent year 9,634,082 15,938, ,135 26,360,239 33,546,920 Unearned revenue 376, , , ,329 Deferred revenue delinquent taxes 336, ,081 20, , ,937 Total liabilities 18,765,734 1,603,663 16,178,022 1,731,608 38,279,027 41,455,640 Fund balances Nonspendable 140, , , ,132 Restricted 2,606,956 7,069,037 7,585, ,737 18,010,934 21,872,578 Committed 850, ,000 Assigned 4,717,358 4,717,358 7,073,299 Unassigned 14,929,483 14,929,483 14,624,505 Total fund balances 23,243,871 7,069,037 7,585,204 1,062,670 38,960,782 44,133,514 Total liabilities and fund balances $ 42,009,605 $ 8,672,700 $ 23,763,226 $ 2,794,278 $ 77,239,809 $ 85,589,154 See notes to basic financial statements 18 and 19

34 INDEPENDENT SCHOOL DISTRICT NO. 622 Reconciliation ofthe Balance Sheet to the Statement ofnet Assets Governmental Funds as ofjune 30, 2011 (With Partial Comparative Information as ofjune 30, 2010) Total fund balances - governmental funds $ 38,960,782 $ 44,133,514 Amounts reported for governmental activities in the Statement of Net Assets are different because: Capital assets are included in net assets, but are excluded from fund balances because they do not represent fmancial resources. Cost ofcapital assets 172,748, ,103,171 Accumulated depreciation (60,870,270) (56,982,493) Long-term liabilities are included in net assets, but are excluded from fund balances until due and payable. General obligation bonds payable (155,405,000) (159,885,000) Certificates ofparticipation payable (8,625,000) (6,750,000) Premiums and discounts on debt (1,173,352) (1,027,538) Severance benefits payable (2,050,290) (2,072,977) Compensated absences payable (1,230,838) (1,182,213) Net pension obligation payable (169,157) Net other post-employment benefit obligations reported in the Statement of Net Assets do not require the use of current financial resources and are not reported as assets (liabilities) in governmental funds until actually due. 23,650,942 25,310,581 Net pension obligations reported in the Statement ofnet Assets do not require the use ofcurrent fmancial resources and are not reported as assets (liabilities) in governmental funds until actually due. 10,761 Accrued interest payable is included in net assets, but is excluded from fund balances until due and payable. (3,026,553) (3,090,437) Certain revenues (including delinquent property taxes) are included in net assets, but are excluded from fund balances until they are available to liquidate liabilities ofthe current period. 571, ,937 Total net assets - governmental activities $ 3,561,063 $ 293,388 See notes to basic financial statements -20-

35 INDEPENDENT SCHOOL DISTRICT NO. 622 Statement of Revenue, Expenditures, and Changes in Fund Balances Governmental Funds Year Ended June 30, 2011 (With Partial Comparative Information for the Year Ended June 30, 2010) Capital Projects Building Debt Total Governmental Funds General Fund Construction Fund Service Fund Nonmajor Funds Revenue Local sources Property taxes $ 26,288,166 $ $ 14,392,118 $ 2,119,812 $ 42,800,096 $ 36,001,224 Investment earnings 20,003 3, ,306 10, , ,965 Other 1,728,149 29, ,261 5,594,036 7,503,948 7,904,746 State sources 82,031, ,215 2,981,162 85,657,465 84,828,148 Federal sources 6,629, ,719 2,848,665 9,578,796 17,018,574 Total revenue 116,696,818 32,554 15,511,619 13,554, ,795, ,378,657 Expenditures Current Administration 5,305,595 5,305,595 5,277,573 District support services 4,002,664 4,002,664 3,015,817 Elementary and secondary regular instruction 55,465,285 55,465,285 54,530,676 Vocational education instruction 1,529,476 1,529,476 1,645,492 Special education instruction 22,357,187 22,357,187 21,950,307 Instructional support services 9,072,127 9,072,127 8,645,005 Pupil support services 10,097,762 10,097,762 9,685,448 Sites and buildings 12,173,859 12,173,859 9,243,624 Fiscal and other fixed cost programs 287, , ,879 Food service 5,570,270 5,570,270 5,394,517 Community service 8,208,257 8,208,257 7,760,605 Capital outlay 6,515, ,048 6,753,005 8,362,426 Debt service Principal 625,000 7,840,000 8,465,000 8,040,000 Interest and fiscal charges 272,599 7,508,562 7,781,161 7,781,260 Total expenditures 121,188,987 6,515,957 15,348,562 14,015, ,069, ,597,629 Excess (deficiency) of revenue over expenditures (4,492,169) (6,483,403) 163,057 (461,174) (11,273,689) (5,218,972) Other financing sources (uses) Debt issued 2,500,000 6,720,000 4,750,000 13,970,000 6,795,000 (Discount) on debt issued (67,950) Premium on debt issued 8, , ,957 Payment on refunded debt (8,110,000) (8,110,000) (1,610,000) Transfers in 712,589 Transfers (out) (712,589) Total other financing sources (uses) 2,508,799 6,720,000 (3,127,842) 6,100,957 5,117,050 Net change in fund balances (1,983,370) 236,597 (2,964,785) (461,174) (5,172,732) (101,922) Fund balances Beginning of year 25,227,241 6,832,440 10,549,989 1,523,844 44,133,514 44,235,436 End of year $ 23,243,871 $ 7,069,037 $ 7,585,204 $ 1,062,670 $ 38,960,782 $ 44,133,514 See notes to basic financial statements 21 and 22

36 INDEPENDENT SCHOOL DISTRICT NO. 622 Reconciliation ofthe Statement of Revenue, Expenditures, and Changes in Fund Balances to the Statement ofactivities Governmental Funds Year Ended June 30, 2011 (With Partial Comparative Information for the Year Ended June 30, 2010) Total net change in fund balances - governmental funds $ (5,172,732) $ (101,922) Amounts reported for governmental activities in the Statement of Activities are different because: Capital outlays are recorded as net assets and the cost is allocated over their estimated useful lives as depreciation expense. However, fund balances are reduced for the full cost of capital outlays at the time of purchase. Capital outlays 12,235,707 9,809,393 Depreciation expense (4,354,004) (3,808,934) A gain or loss on the disposal ofcapital assets, including the difference between the carrying value and any related sale proceeds, is included in the change in net assets. However, only the sale proceeds are included in the change in fund balances. (124,454) The amount of debt issued is reported in the governmental funds as a source of financing. Debt obligations are not revenues in the Statement ofactivities, but rather constitute long-term liabilities. (13,970,000) (6,795,000) Repayment of long-term debt does not affect the change in net assets. balances. However, it reduces fund General obligation bonds payable 15,950,000 7,330,000 Certificates ofparticipation payable 625,000 2,320,000 Interest on long-term debt is included in the change in net assets as it accrues, regardless of when payment is due. However, it is included in the change in fund balances when due. 63,884 43,158 Debt issuance premiums, discounts, and issuance costs are included in the change in net assets as they are amortized over the life of the debt. However, they are included in the change in fund balances upon issuance as other financing sources and uses. (145,814) 140,605 The change in net other post-employment benefit obligations do not require the use ofcurrent financial resources and are not reported until actually due in the governmental funds. (1,659,639) (1,690,521) The change in net pension obligations do not require the use ofcurrent financial resources and are not included in the change in fund balances until due. 179,918 29,236 Certain expenses are included in the change in net assets, but do not require the use of current funds, and are not included in the change in fund balances. Compensated absences payable (48,625) (89,693) Severance benefits payable 22, ,953 Certain revenues (including delinquent property taxes) are included in the change in net assets, but are excluded from the change in fund balances until they are available to liquidate liabilities of the current period. (334,253) 9,556 Change in net assets - governmental activities $ 3,267,675 $ 7,345,831 See notes to basic financial statements -23-

37 INDEPENDENT SCHOOL DISTRICT NO. 622 Statement ofrevenue, Expenditures, and Changes in Fund Balances Budget and Actual General Fund Year Ended June 30, 2011 Budgeted Amounts Over (Under) Original Final Actual Final Budget Revenue Local sources Property taxes $ 26,547,646 $ 25,808,651 $ 26,288,166 $ 479,515 Investment earnings 150, ,000 20,003 (129,997) Other 1,483,335 1,209,139 1,728, ,010 State sources 80,396,139 81,090,474 82,031, ,614 Federal sources 6,002,926 7,024,427 6,629,412 (395,015) Total revenue 114,580, ,282, ,696,818 1,414,127 Expenditures Current Administration 4,822,820 4,869,948 5,305, ,647 District support services 3,782,149 3,881,384 4,002, ,280 Elementary and secondary regular instruction 57,419,224 57,088,090 55,465,285 (1,622,805) Vocational education instruction 609,564 1,048,720 1,529, ,756 Special education instruction 21,931,227 22,979,017 22,357,187 (621,830) Instructional support services 9,963,499 9,833,288 9,072,127 (761,161) Pupil support services 11,320,237 10,071,868 10,097,762 25,894 Sites and buildings 9,530,784 11,921,783 12,173, ,076 Fiscal and other fixed cost programs 250, , ,433 28,613 Debt service Principal 625, ,000 Interest and fiscal charges 272, ,599 Total expenditures 119,629, ,850, ,188,987 (1,661,530) Excess (deficiency) ofrevenue over expenditures (5,049,458) (7,567,826) (4,492,169) 3,075,657 Other fmancing sources Debt issued 2,465,049 2,500,000 34,951 Premium on debt issued 8,799 8,799 Total other financing sources 2,465,049 2,508,799 43,750 Net change in fund balances $ (5,049,458) $ (5,102,777) (1,983,370) $ 3,119,407 Fund balances Beginning ofyear 25,227,241 End ofyear $ 23,243,871 See notes to basic fmancial statements -24-

38 INDEPENDENT SCHOOL DISTRICT NO. 622 Statement offiduciary Net Assets as ofjune 30, 2011 Private-Purpose Employee Benefit Trust Fund Trust Funds Agency Fund Assets Cash and temporary investments $ 707,727 $ 4,234,962 $ Investments, at fair value Local government obligations 12,459,754 Corporate obligations 2,569,250 Negotiable certificates ofdeposit 2,131,343 MNTrust Investment Shares Portfolio 924,943 Guaranteed investment contract 190,728 Receivables Accounts and interest 17,830 1,151,766 Due from other governmental units 9,629 90,000 Prepaid items 409 Total assets 735,595 23,662,746 $ 90,000 Liabilities Salaries and compensated absences payable $ 15,200 Accounts and contracts payable 56,862 8,095 22,398 Due to governmental funds 52,402 Total liabilities 56,862 8,095 $ 90,000 Net assets Held in trust for scholarships, OPEB, and other purposes $ 678,733 $ 23,654,651 Statement ofchanges in Fiduciary Net Assets Year Ended June 30, 2011 Private-Purpose Trust Fund Employee Benefit Trust Funds Additions Contributions Private donations $ 1,220,441 $ Employee 1,349,943 Total contributions 1,220,441 1,349,943 Investment earnings Interest 56 1,189,688 Net increase in fair value of investments 138,437 Total investment earnings 56 1,328,125 Less investment expenses 229 Net investment earnings 56 1,327,896 Total additions 1,220,497 2,677,839 Deductions Benefits 4,465,215 Scholarships and other deductions 1,144,705 Total deductions 1,144,705 4,465,215 Change in net assets 75,792 (1,787,376) Net assets Beginning ofyear 602,941 25,442,027 End ofyear $ 678,733 $ 23,654,651 See notes to basic financial statements -25-

39 INDEPENDENT SCHOOL DISTRICT NO. 622 Notes to Basic Financial Statements June 30, 2011 NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Organization Independent School District No. 622 (the District) was formed and operates pursuant to applicable Minnesota laws and statutes. The District is governed by a School Board elected by voters ofthe District. The District's financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. B. Reporting Entity The accompanying financial statements include all funds, departments, agencies, boards, commissions, and other organizations that comprise the District, along with any component units. Component units are legally separate entities for which the District (the primary government) is financially accountable, or for which the exclusion of the component unit would render the financial statements of the primary government misleading. The criteria used to determine if the primary government is financially accountable for a component unit includes whether or not the primary government appoints the voting majority of the potential component unit's governing body, is able to impose its will on the potential component unit, is in a relationship offinancial benefit or burden with the potential component unit, or is fiscally depended upon by the potential component unit. Based on these criteria, there are no organizations considered to be component units ofthe District. Extracurricular student activities are determined primarily by student participants under the guidance of an adult and are generally conducted outside ofschool hours. In accordance with Minnesota Statutes, the District's School Board can elect to either control or not control extracurricular student activities. The District's School Board has elected not to control or be otherwise financially accountable with respect to the underlying extracurricular activities. Accordingly, the extracurricular student activity accounts are not included in these financial statements. C. Government-Wide Financial Statement Presentation The government-wide financial statements (Statement of Net Assets and Statement of Activities) display information about the reporting government as a whole. These statements include all the financial activities of the District, except for the fiduciary funds. The fiduciary funds are only reported in the Statement offiduciary Net Assets at the fund financial statement level. Generally, the effect ofmaterial interfund activity has been removed from the government-wide financial statements. The Statement of Activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment, and grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other internally directed revenues are reported instead as general revenues. -26-

40 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis ofaccounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are generally recognized as revenues in the fiscal year for which they are levied, except for amounts advance recognized in accordance with a statutory "tax shift" described later in these notes. Grants and similar items are recognized when all eligibility requirements imposed by the provider have been met. The District applies restricted resources first when an expense is incurred for which both restricted and unrestricted resources are available. For capital assets that can be specifically identified with or allocated to functional areas, depreciation expense is included as a direct expense in the functional areas that utilize the related capital assets. For capital assets that essentially serve all functional areas, depreciation expense is reported as "depreciation not allocated to other functions." Interest on debt is considered an indirect expense and is reported separately on the Statement ofactivities. D. Fund Financial Statement Presentation Separate fund financial statements are provided for governmental and fiduciary funds. Major individual governmental funds are reported as separate columns in the fund financial statements. Aggregated information for the remaining nonmajor governmental funds is reported in a single column in the fund financial statements. Fiduciary funds are presented in the fiduciary fund financial statements by type: pension (or other benefit) trust, private-purpose trust, and agency. Since, by definition, fiduciary fund assets are being held for the benefit ofa third party and cannot be used for activities or obligations ofthe District, these funds are excluded from the government-wide statements. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this basis of accounting transactions are recorded in the following manner: 1. Revenue Recognition - Revenue is recognized when it becomes measurable and available. "Measurable" means the amount of the transaction can be determined and "available" means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. Revenues are generally considered as available if collected within 60 days after year-end. Grants and similar items are recognized when all eligibility requirements imposed by the provider have been met. State revenue is recognized in the year to which it applies according to funding formulas established by Minnesota Statutes. Proceeds of long-term debt and acquisitions under capital leases are reported as other financing sources. 2. Recording of Expenditures - Expenditures are generally recorded when a liability is incurred, except for principal and interest on long-term debt and other long-term liabilities, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. In the General Fund, capital outlay expenditures are included within the applicable functional areas. Trust fund financial statements are reported using the economic resources measurement focus. fiduciary funds use the accrual basis ofaccounting as described earlier in these notes. All -27-

41 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Description offunds The existence of the various district funds has been established by the Minnesota Department of Education. Each fund is accounted for as an independent entity. A description of the funds included in this report is as follows: Major Governmental Funds General Fund - The General Fund is used to account for all financial resources except those required to be accounted for in another fund. Capital Projects - Building Construction Fund - The Capital Projects - Building Construction Fund is used to account for financial resources used for the acquisition or construction of major capital facilities authorized by bond issue or under the alternative facilities program. Debt Service Fund - The Debt Service Fund is used to account for the accumulation of resources for, and payment of general obligation debt principal, interest, and related costs. The regular debt service account is used for all general obligation debt service except for the financial activities of the other post-employment benefits (OPEB) debt service account. The OPEB debt service account is used to pay principal, interest, and related costs on the 2009A taxable OPEB bond issue. Nonmajor Governmental Funds Food Service Special Revenue Fund - The Food Service Special Revenue Fund is used primarily to record financial activities ofthe District's child nutrition program. Community Service Special Revenue Fund - The Community Service Special Revenue Fund is used to account for services provided to residents in the areas ofrecreation, civic activities, nonpublic pupils, adult or early childhood programs, or other similar services. Fiduciary Funds Private-Purpose Trust Fund - The Private-Purpose Trust Fund is used to account for resources held in trust to be used by various other third parties to award scholarships to former students and for other purposes for which the resources are being held. Community Service Employee Benefits Trust Fund - The Community Service Employee Benefits Trust Fund is used to administer resources received and held by the District as the trustee for others, which accounts for money set aside to fund future severance payments for retiring and retired Community Service Special Revenue Fund employees. Post-Employment Benefits Trust Fund - The Post-Employment Benefits Trust Fund is used to administer resources received and held by the District as the trustee for others. The Post-Employment Benefits Trust Fund includes assets held in an irrevocable trust to fund post-employment insurance benefits ofeligible employees. Agency Fund - The Agency Fund is established to account for cash and other assets held by the District as the agent for others. This fund is used to account for a local collaborative integration program. -28-

42 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E. Budgetary Information The budget for each fund is prepared on the same basis of accounting as the financial statements. Legal budgetary control is at the fund level. Each June, the School Board adopts an annual budget for the following fiscal year for all governmental funds. Under accounting principles generally accepted in the United States of America, presentation of a budget to actual comparison is only required for the General Fund and major special revenue funds. Budgeted expenditure appropriations lapse at year-end. Actual Food Service Special Revenue Fund and Debt Service Fund expenditures exceeded final budgeted appropriations by $232,444 and $425,324, respectively, for the year ended June 30, F. Cash and Temporary Investments Cash and temporary investments include balances from all funds that are combined and invested to the extent available in various securities as authorized by state law. Earnings from the pooled investments are allocated to the respective funds on the basis ofapplicable cash balance participation by each fund. Earnings from the investments of the Capital Projects - Building Construction Fund are allocated specifically to that fund. Cash and investments held by trustee include balances held in segregated accounts that are established for specific purposes. In the General Fund, Capital Projects - Building Construction Fund, and Debt Service Fund, escrow accounts are established for cash and investments held for building construction and debt service related to the issuance of refunding bonds. Interest earned in these trust accounts is allocated directly to the fund for which it applies. In the Post-Employment Benefits Trust Fund and Employee Benefit Trust Fund, cash and cash equivalents and investments at fair value are deposited by the District in an irrevocable trust account, the use of which is restricted to paying post-employment insurance benefits as specified in the trust agreement. Interest earned in these trust accounts is allocated directly to these funds. Investments are generally stated at fair value, except for investments in 2a7-like external investment pools, which are stated at amortized cost. Short-term, highly liquid debt instruments (including commercial paper, bankers' acceptance, and U.S. treasury and agency obligations) purchased with a remaining maturity ofone year or less are also reported at amortized cost. Investment income is accrued at the balance sheet date. G. Receivables When necessary, the District utilizes an allowance for uncollectible accounts to value its receivables. However, the District considers all of its current receivables to be collectible. The only receivables not expected to be fully collected within one year are property taxes receivable. H. Inventories Inventories are recorded using the consumption method of accounting and consist of purchased food, supplies, and surplus commodities received from the federal government. Purchased food and supplies are recorded at cost on a first-in, first-out basis. Surplus commodities are stated at standardized costs, as determined by the U.S. Department ofagriculture. I. Prepaid Items Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items. Prepaid items are recognized at the time of consumption. -29-

43 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) J. Property Taxes The majority of district revenue is determined annually by statutory funding formulas. The total revenue allowed by these formulas is allocated between property taxes and state aids by the Legislature based on education funding priorities. Generally, property taxes are recognized as revenue by the District in the fiscal year that begins midway through the calendar year in which the tax levy is collectible. To help balance the state budget, the Minnesota Legislature utilizes a tool referred to as the "tax shift," which periodically changes the District's recognition of property tax revenue. The tax shift advance recognizes cash collected for the subsequent year's levy as current year revenue, allowing the state to reduce the amount of aid paid to the District. Currently, the mandated tax shift recognizes $10,213,062 ofthe property tax levy collectible in 2011 as revenue to the District in fiscal year The remaining portion ofthe taxes collectible in 2011 is recorded as unearned revenue (property taxes levied for subsequent year). Property tax levies are certified to the County Auditor in December of each year for collection from taxpayers in May and October of the following calendar year. In Minnesota, counties act as collection agents for all property taxes. The county spreads all levies over taxable property. Such taxes become a lien on property on the following January 1. The county generally remits taxes to the District at periodic intervals as they are collected. A portion of property taxes levied is paid by the state of Minnesota through various tax credits, which are included in revenue from state sources in the financial statements. Taxes which remain unpaid are classified as delinquent taxes receivable. Revenue from these delinquent property taxes that is not collected within 60 days of year-end is deferred in the fund-based financial statements because it is not known to be available to finance the operations of the District in the current year. No allowance for uncollectible taxes is considered necessary. K. Capital Assets Capital assets are capitalized at historical cost, or estimated historical cost if purchased or constructed. Donated capital assets are recorded at their estimated fair market value at the date of donation. The District defines capital assets as those with an initial, individual cost of $5,000 or more, which benefit more than one fiscal year. The cost of normal maintenance and repairs that do not add to the value ofthe asset or materially extend asset lives is not capitalized. Capital assets are recorded in the government-wide financial statements, but are not reported in the fund financial statements. Capital assets are depreciated using the straight-line method over their estimated useful lives. Since assets are generally sold for an immaterial amount or scrapped when declared as no longer fit or needed for public school purposes by the District, no salvage value is taken into consideration for depreciation purposes. Useful lives vary, ranging from 20 to 50 years for land improvements and buildings and improvements, and 5 to 20 years for furniture and equipment. Capital assets that are not depreciated include land and construction in progress. The District does not possess any material amounts of infrastructure capital assets, such as sidewalks or parking lots. Such items are considered to be part ofthe cost of buildings or other improvable property. L. Long-Term Obligations In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities. If material, bond premiums, discounts, and issuance costs are deferred and amortized over the life ofthe bonds using the straight-line method. -30-

44 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums or discounts on debt issuances are reported as other financing sources or uses, respectively. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. M. Compensated Absences Payable 1. Vacation Pay - Under the terms ofunion contracts, certain employees accrue vacation at varying rates, portions of which may be carried over to future years. Employees are reimbursed for any unused, accrued vacation and related benefits upon termination. Vacation pay is accrued when incurred in the government-wide financial statements. Unused vacation pay is accrued in governmental fund financial statements only when it has matured due to employee termination or similar circumstances. 2. Sick Pay - Substantially all district employees are entitled to sick leave at various rates. Unused sick leave enters into the calculation ofseverance benefits for some employees upon termination. N. Severance Benefits The District provides lump sum severance benefits to eligible employees in accordance with provisions in certain collectively bargained contracts. Eligibility for these benefits is based on years ofservice and/or minimum age requirements. The amount of the severance or retirement benefit is calculated by converting a portion of unused accumulated sick leave. No individual can receive severance benefits in excess of one year's salary. Members of certain employee groups may also elect to receive district matching contributions paid into tax-deferred matching contribution plans. The amount of any severance or retirement benefit due to an individual is reduced by the total contributions made to such a plan over the course of that individual's employment. Severance or retirement benefits are required to be paid out within 30 days following the effective date of retirement. Retirement benefits for eligible teachers are paid into a post-employment healthcare savings plan, administered by the Minnesota State Retirement System. For all other employees, severance benefits are paid out directly to the employee. The amount ofseverance is recorded as a liability in the government-wide statements as it is earned and it becomes probable that it will vest at some point in the future. Severance or retirement pay is accrued in the governmental fund financial statements only when it becomes due and payable. O. Risk Management The District is exposed to various risks of loss related to torts: theft of, damage to, and destruction of assets; errors and omissions; natural disasters; and workers' compensation for which it carries commercial insurance. Settled claims have not exceeded this commercial coverage in any of the past three fiscal years. There were no significant reductions in the District's insurance coverage in fiscal year

45 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) P. Net Assets In the government-wide financial statements, net assets represent the difference between assets and liabilities. Net assets are displayed in three components: Invested in Capital Assets, Net ofrelated Debt - Consists ofcapital assets, net ofaccumulated depreciation reduced by any outstanding debt attributable to acquire capital assets. Restricted Net Assets - Consists of net assets restricted when there are limitations imposed on their use through external restrictions imposed by creditors, grantors, or laws or regulations of other governments. Unrestricted Net Assets - All other net assets that do not meet the definition of "restricted" or "invested in capital assets, net ofrelated debt." Q. Fund Balance Classifications In the fund financial statements, governmental funds report fund balance in classifications that disclose constraints for which amounts in those funds can be spent. These classifications are as follows: Nonspendable - Consists of amounts that are not in spendable form, such as prepaid items, inventory, and other long-term assets. Restricted - Consists of amounts related to externally imposed constraints established by creditors, grantors, or contributors; or constraints imposed by state statutory provisions. Committed - Consists of internally imposed constraints that are established by resolution of the School Board. Those committed amounts cannot be used for any other purpose unless the School Board removes or changes the specified use by taking the same type of action it employed to previously commit those amounts. Assigned - Consists of internally imposed constraints. These constraints consist of amounts intended to be used by the District for specific purposes but do not meet the criteria to be classified as restricted or committed. In governmental funds, assigned amounts represent intended uses established by the governing body itself or by an official to which the governing body delegates the authority. Pursuant to School Board resolution, the District's Director of Business Services is authorized to establish assignments offund balance. Unassigned - The residual classification for the General Fund which also reflects negative residual amounts in other funds. When both restricted and unrestricted resources are available for use, it is the District's policy to first use restricted resources, then unrestricted resources as they are needed. When committed, assigned, or unassigned resources are available for use, it is the District's policy to use resources in the following order: 1) committed, 2) assigned, and 3) unassigned. -32-

46 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) R. Restricted Assets Restricted assets are cash and cash equivalents and interest accrued thereon whose use is limited by legal requirements such as a bond indenture. Restricted assets are reported only in the government-wide financial statements. In the fund financial statements these assets have been reported as "cash and investments held by trustee" and the interest receivable is included within accounts and interest receivable. S. Use of Estimates The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenditures/expenses during the reporting period. Actual results could differ from those estimates. T. Change in Accounting Principle For the year ended June 30, 2011, the District has implemented GASB Statement No. 54, "Fund Balance Reporting and Governmental Fund Type Definitions." The objective of this statement is to enhance the usefulness of fund balance information by providing clearer fund balance classifications that can be more consistently applied and by clarifying the existing governmental fund type definitions. This statement establishes fund balance classifications that comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources reported in governmental funds. The District is implementing this standard retroactively, meaning prior year fund balance classifications have been restated. More information on these fund balance classifications is included elsewhere in these notes. U. Prior Period Comparative Financial InformationlReclassification The basic financial statements include certain prior year partial comparative information in total but not at the level of detail required for a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the District's financial statements for the year ended June 30, 2010, from which the summarized information was derived. Also, certain amounts presented in the prior year data have been reclassified in order to be consistent with the current year's presentation. NOTE 2 - DEPOSITS AND INVESTMENTS A. Components of Cash and Investments Cash and investments at year-end consist ofthe following: Deposits Investments Total $ $ 5,590,798 37,562,407 43,153,

47 NOTE 2 - DEPOSITS AND INVESTMENTS (CONTINUED) Cash and investments are presented in the financial statements as follows: Statement ofnet Assets Cash and temporary investments Restricted assets - temporarily restricted Cash and investments for debt service Cash and investments for capital asset acquisition Statement offiduciary Net Assets Cash and temporary investments Private-Purpose Trust Fund Employee Benefit Trust Funds Investments Employee Benefit Trust Funds Total $ 14,368,048 4,852, , ,727 4,234,962 18,276,018 $ 43,153,205 B. Deposits In accordance with applicable Minnesota Statutes, the District maintains deposits at depository banks authorized by the District's School Board. The following is considered the most significant risk associated with deposits: Custodial Credit Risk - In the case ofdeposits, this is the risk that in the event ofa bank failure, the District's deposits may be lost. Minnesota Statutes require that all deposits be protected by federal deposit insurance, corporate surety bond, or collateral. The market value ofcollateral pledged must equal 110 percent ofthe deposits not covered by federal deposit insurance or corporate surety bonds. Authorized collateral includes treasury bills, notes, and bonds; issues ofu.s. government agencies; general obligations rated "A" or better; revenue obligations rated "AA" or better; irrevocable standard letters ofcredit issued by the Federal Home Loan Bank; and certificates of deposit. Minnesota Statutes require that securities pledged as collateral be held in safekeeping in a restricted account at the Federal Reserve Bank or in an account at a trust department ofa commercial bank or other financial institution that is not owned or controlled by the financial institution furnishing the collateral. The District's deposit policy does not further limit depository choices. At year-end, the carrying amount ofthe District's deposits was $5,590,798, while the balance on the bank records was $6,759,936. At June 30, 2011, all deposits were fully covered by federal depository insurance, surety bonds, or by collateral held by the District's agent in the District's name. -34-

48 NOTE 2 - DEPOSITS AND INVESTMENTS (CONTINUED) C. Investments The District has the following investments at year-end: U.S. treasury securities Local government obligations Local government obligations Local government obligations Local government obligations Investment Type Guaranteed investment contract Corporate obligations Negotiable certificates ofdeposit Investment pools/mutual funds Minnesota School District Liquid Asset Fund MNTrust Investment Shares Portfolio First American Prime Obligations Fund - Class Y First American Government Obligations Fund - Class D Total Credit Risk Credit Rating Interest Risk - Maturity Duration in Years Rating Agency Less Than I I to 5 5 to 10 Total N/A N/A $ 4,849,956 $ $ $ 4,849,956 AAA S&P $ $ 6,609,808 $ 2,384,098 8,993,906 AA+ S&P $ 1,058,756 $ $ 1,058,756 AA S&P $ $ 257,245 $ 257,245 Aa2 Moody's $ $ 1,440,177 $ 709,670 2,149,847 N/R N/A $ 190,728 $ $ 190,728 AAA S&P $ 2,569,250 $ $ 2,569,250 N/R N/A $ 1,381,254 $ 750,089 $ 2,131,343 AAAm S&P N/A N/A N/A 1,110,607 AAA S&P N/A N/A N/A 13,534,500 AAAm S&P N/A N/A N/A 713,406 AAAm S&P N/A N/A N/A 2,863 $ 37,562,407 N/A - Not Applicable N/R - Not Rated The Minnesota School District Liquid Asset Fund and the MNTrust Investment Shares Portfolio are regulated by Minnesota Statutes and are external investment pools not registered with the Securities Exchange Commission (SEC) that follow the same regulatory rules of the SEC under rule 2a7. The District's investments in the MSDLAF and MNTrust Investment Shares Portfolio are measured at the net asset value per share provided by the pools, which are based on an amortized cost method that approximates fair value. Investments are subject to various risks, the following ofwhich are considered the most significant: Custodial Credit Risk - For investments, this is the risk that in the event of a failure of the counterparty to an investment transaction (typically a broker-dealer) the District would not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. Although the District's investment policies do not directly address custodial credit risk, it typically limits its exposure by purchasing insured or registered investments, or by the control ofwho holds the securities. -35-

49 NOTE 2 - DEPOSITS AND INVESTMENTS (CONTINUED) Credit Risk - This is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. Minnesota Statutes limit the District's investments to direct obligations or obligations guaranteed by the United States or its agencies; shares of investment companies registered under the Federal Investment Company Act of 1940 that receive the highest credit rating, are rated in one ofthe two highest rating categories by a statistical rating agency, and all of the investments have a final maturity of 13 months or less; general obligations rated "A" or better; revenue obligations rated "AA" or better; general obligations ofthe Minnesota Housing Finance Agency rated "A" or better; bankers' acceptances of United States banks eligible for purchase by the Federal Reserve System; commercial paper issued by United States corporations or their Canadian subsidiaries, rated of the highest quality category by at least two nationally recognized rating agencies, and maturing in 270 days or less; Guaranteed Investment Contracts guaranteed by a United States commercial bank, domestic branch of a foreign bank, or a United States insurance company, and with a credit quality in one ofthe top two highest categories; repurchase or reverse purchase agreements and securities lending agreements with financial institutions qualified as a "depository" by the government entity, with banks that are members of the Federal Reserve System with capitalization exceeding $10,000,000; that are a primary reporting dealer in U.S. government securities to the Federal Reserve Bank ofnew York; or certain Minnesota securities broker-dealers. For assets held in the Post-Employment Benefits Trust Fund, the investment options available to the District are expanded to include the investment types specified in Minnesota Statute 356A.06, Subd. 7. The District's investment policies do not further restrict investing in specific financial instruments. Concentration Risk - This is the risk associated with investing a significant portion of the District's investments (considered 5 percent or more) in the securities of a single issuer, excluding U.S. guaranteed investments (such as treasuries), investment pools, and mutual funds. The District's investment policies do not address concentration risk. At June 30, 2011, the District's investment portfolio includes the following percentages ofspecific issuers: Local government obligations Independent School District No. 152, Moorhead 7.1 % Interest Rate Risk - This is the risk ofpotential variability in the fair value offixed rate investments resulting from changes in interest rates (the longer the period for which an interest rate is fixed, the greater the risk). The District's investment policies do not limit the maturities of investments; however, when purchasing investments the District considers such things as interest rates and cash flow needs. -36-

50 NOTE 3 - CAPITAL ASSETS Capital assets activity for the year ended June 30, 2011 is as follows: Balance - Beginning Completed Balance - of Year Additions Deletions Construction End ofyear Capital assets, not depreciated Land $ 19,147,833 $ 430,044 $ $ $ 19,577,877 Construction in progress 9,533,984 (5,191,665) 4,342,319 Total capital assets, not depreciated 19,147,833 9,964,028 (5,191,665) 23,920,196 Capital assets, depreciated Land improvements 2,513, ,126 (37,828) 892,039 3,533,556 Buildings and improvements 127,776,715 1,158,156 (468,517) 4,165, ,631,934 Furniture and equipment 11,665, ,397 (84,336) 134,046 12,662,511 Total capital assets, depreciated 141,955,338 2,271,679 (590,681) 5,191, ,828,001 Less accumulated depreciation for Land improvements (1,460,649) (142,778) 30,210 (1,573,217) Buildings and improvements (47,848,508) (3,310,518) 366,365 (50,792,661) Furniture and equipment (7,673,336) (900,708) 69,652 (8,504,392) Total accumulated depreciation (56,982,493) (4,354,004) 466,227 (60,870,270) Net capital assets, depreciated 84,972,845 (2,082,325) (124,454) 5,191,665 87,957,731 Total capital assets, net $ 104,120,678 $ (1,652,281) $ (124,454) $ 5,191,665 $ 111,877,927 Depreciation expense for the year ended June 30, 2011 was charged to the following governmental functions: Administration $ 478 Elementary and secondary regular instruction 107,776 Special education 12,453 Pupil support services 680,620 Food service 98,309 Sites and buildings 63,639 Depreciation not allocated to other functions 3,390,729 Total depreciation expense $ 4,354,

51 NOTE 4 - LONG-TERM LIABILITIES A. General Obligation Bonds Payable The District currently has the following general obligation bonds payable outstanding: Final Principal Issue Issue Date Interest Rate Original Issue Maturity Outstanding General obligation bonds payable 2003B School Building Bonds 05/l6/ % $ 6,840,000 02/ $ 4,970, B School Building Bonds 04/ % $ 6,435,000 02/ ,945, D Recreational Facility Refunding Bonds 10/ % $ 1,385,000 05/ , Alternative Facility Bonds 01125/ % $ 6,755,000 02/ ,495, Alternative Facility Bonds 02/ % $ 13,485,000 02/ ,500, B Refunding Bonds % $ 51,950,000 02/ ,350, C Refunding Bonds % $ 21,680,000 02/ ,960, A Alternative Facility Bonds 03/ % $ 4,170,000 02/ ,625, A Alternative Facility Bonds 02/ % $ 10,895,000 02/ ,875, A Taxable OPEB Bonds 02/ % $ 30,000,000 02/ ,900, B Alternative Facility Bonds 02/ % $ 6,390,000 02/ ,950, A Alternative Facility Bonds 02/l1l % $ 6,795,000 02/ ,550, C Crossover Refunding Bonds 10128/ % $ 4,750,000 02/ ,750, A Alternative Facility Bonds 04/l4/ % $ 6,720,000 02/ ,720,000 Total general obligation bonds payable $ 155,405,000 These bonds were issued to finance acquisition and/or construction ofcapital facilities, to finance (refund) prior bond issues, or to finance OPEB. Assets ofthe Debt Service Fund, together with scheduled future ad valorem tax levies, are dedicated for the retirement of these bonds. The annual future debt service levies authorized are equal to 105 percent ofthe principal and interest due each year. These levies are subject to reduction iffund balance amounts exceed limitations imposed by Minnesota law. The general obligation recreational facility refunding bonds were issued to finance acquisition and construction of an ice arena. Revenue from the operation ofthe arena will be used to retire principal and interest payments on the bonds. The District has levy authority to utilize if these revenues are not sufficient to retire principal and interest payments. A Joint Powers Board was created to provide for the operation, use, maintenance, and repair ofthe ice arena. The joint powers agreement is described further in Note 12 - Joint Ventures ofthese notes to basic financial statements. In November 2006, the District issued $21,680,000 General Obligation Refunding Bonds, Series 2006C. The proceeds of this issue were used to refund, in advance of their stated maturities, the 2012 through 2021 maturities of the 2000B School Building Bonds totaling $4,605,000 and the 2012 through 2022 maturities ofthe 2001A School Building Bonds totaling $3,505,000. The proceeds ofthe 2006C issue were placed in an escrow account pending the various call dates of the refunded issues. Until the call dates, the District made all debt service payments on the various outstanding issues, while interest payments on the 2006C issue were paid from proceeds of the escrow account. On February 1,2011, the escrow account was used to call the remaining principal of the 2000B and 2001A issues and the District assumed the remaining principal and interest payments on the 2006C issue. As a result of the advance refunding, the District achieved a debt service savings of approximately $1,235,783, with a present value ofapproximately $876,608, using the yield ofthe bonds as the discount factor. -38-

52 NOTE 4 - LONG-TERM LIABILITIES (CONTINUED) In October 2010, the District issued $4,750,000 General Obligation Refunding Bonds, Series 2010e. The proceeds ofthis issue will be used to refund, in advance oftheir stated maturities, the 2013 through 2024 maturities ofthe 2003B School Building Bonds totaling $4,675,000. The proceeds ofthe 2010e issue were placed in an escrow account pending the call date of the refunded issue. Until the call date, the District will make all debt service payments on the outstanding issue, while interest payments on the 2010e issue will be paid from proceeds ofthe escrow account. On February 1,2012, the escrow account will be used to call the remaining principal ofthe 2003B issue and the District will assume the remaining principal and interest payments on the 201 oe issue. As a result of the advance refunding, the District achieved a debt service savings of approximately $301,115, with a present value of approximately $251,209, using the yield ofthe bonds as the discount factor. The District's 2010A Alternative Facility Bonds were issued as Build America Bonds - Direct Pay, for which the District will receive a federal tax credit equal to 35 percent of the interest payment on this debt issue. B. Certificates ofparticipation Payable Final Principal Issue Issue Date Interest Rate Original Issue Maturity Outstanding Certificates ofparticipation payable 2004A Certificates ofparticipation 04/ % $ 8,055,000 02/01/2019 $ 4,750, D Refunding Certificates of Participation % $ 1,830,000 02/ ,375, B Certificates ofparticipation 09/30/ % $ 2,500,000 02/ ,500,000 Total certificates ofparticipation payable $ 8,625,000 The District sold certificates of participation under Minnesota Statute 123B.51 to finance additions and improvements to existing school facilities or to refund prior certificates of participation issued. Scheduled future ad valorem lease obligation tax levies will be made to finance the retirement ofprincipal and interest payments on the certificates. These certificates of participation are being paid by the General Fund. C. Other Long-Term Liabilities The District offers a number of benefits to its employees, including severance benefits, OPEB, pension benefits, and compensated absences. The details of these various benefit liabilities are discussed elsewhere in these notes. Such benefits are paid primarily from the General Fund. -39-

53 NOTE 4 - LONG-TERM LIABILITIES (CONTINUED) D. Minimum Debt Payments Minimum annual principal and interest payments to maturity for general obligation bonds and certificates ofparticipation are as follows: Year Ending General Obligation Bonds Certificates ofparticipation June 30, Principal Interest Principal Interest 2012 $ 13,210,000 $ 6,834,595 $ 780,000 $ 344, ,755,000 6,325, , , ,090,000 5,997, , , ,130,000 5,630, , , ,525,000 5,232, , , ,605,000 19,606,498 3,535, , ,830,000 8,148, ,000 70, ,260, ,613 $ 155,405,000 $ 58,706,869 $ 8,625,000 $ 1,871,645 E. Changes in Long-Term Liabilities Balance - Balance- Due Within June 30, 2010 Additions Retirements June 30, 2011 One Year General obligation bonds payable $ 159,885,000 $ 11,470,000 $ 15,950,000 $ 155,405,000 $ 13,210,000 Certificates ofparticipation payable 6,750,000 2,500, ,000 8,625, ,000 Plus premium (discount) 1,027, ,862 29,048 1,173,352 Total bonds and certificates ofparticipation payable 167,662,538 14,144,862 16,604, ,203,352 13,990,000 Severance benefits payable 2,072,977 41,460 64,147 2,050, ,136 Compensated absences payable 1,182,213 1,124,454 1,075,829 1,230,838 1,230,838 Net pension obligation (see Note 8) 169, , ,163 * $ 171,086,885 $ 15,582,782 $ 18,185,187 $ 168,484,480 $ 15,414,974 * As of June 30, 2011, cumulative pension contributions exceeded the pension costs amortized to date, creating a "negative net pension obligation," which is reported as an asset in the government-wide financial statements. -40-

54 NOTE 5 - FUND BALANCES During fiscal 2011, the District retroactively implemented the requirements of a new accounting pronouncement, GASB Statement No. 54, "Fund Balance Reporting and Governmental Fund Type Definitions." The following is a breakdown of equity components of governmental funds which are defined earlier in the report. A. Classifications At June 30,2011, a summary ofthe District's governmental fund balance classifications are as follows: General Fund Capital Projects Building Construction Fund Debt Service Fund Nonmajor Funds Total Nonspendable Inventory Prepaid items Total nonspendable $ 45,460 94, ,074 $ $ $ 286,915 26, ,933 $ 332, , ,007 Restricted Health and safety Operating capital Learning and development Gifted and talented Safe schools Alternative facilities Bond refunding Debt service Food service Community education programs Early childhood family education programs School readiness Adult basic education Total restricted 802,215 1,260, ,164 69, ,225 2,606,956 7,069,037 7,069,037 4,859,147 2,726,057 7,585, , ,944 94,153 25, , , ,215 1,260, ,164 69, ,225 7,069,037 4,859,147 2,726, , ,944 94,153 25, ,809 18,010,934 Committed Phone system 850, ,000 Assigned Subsequent year's budget Integration Severance Total assigned 3,190, ,117 1,200,000 4,717,358 3,190, ,117 1,200,000 4,717,358 Unassigned 14,929,483 14,929,483 Total $ 23,243,871 $ 7,069,037 $ 7,585,204 $ 1,062,670 $ 38,960,782 B. Minimum Unassigned Fund Balance Policy The School Board has formally adopted a fund balance policy regarding the minimum unassigned fund balance for the General Fund. The policy establishes that the District will strive to maintain a minimum unassigned General Fund balance of 10 percent of the annual budget. At June 30, 2011, the unassigned fund balance ofthe General Fund was 12.3 percent ofcurrent year expenditures. -41-

55 NOTE 6 - DEFINED BENEFIT PENSION PLANS - STATE-WIDE Substantially all employees of the District are required by state law to belong to defined benefit, multi-employer, cost-sharing pension plans administered by the Teachers' Retirement Association (TRA) or Public Employees' Retirement Association (PERA), all of which are administered on a state-wide basis. Disclosures relating to these plans are as follows: Teachers' Retirement Association (TRA) A. Plan Description All teachers employed by the District are covered by defined benefit plans administered by TRA. TRA members belong to either the Coordinated or Basic Plan. Coordinated Plan members are covered by Social Security and Basic Plan members are not. All new members must participate in the Coordinated Plan. These plans are established and administered in accordance with Minnesota Statutes, Chapters 354 and 356. TRA provides retirement benefits as well as disability benefits to members, and benefits to survivors upon death of eligible members. Benefits are established by Minnesota Statute and vest after three years ofservice credit. The defined retirement benefits are based on a member's highest average salary for any five consecutive years of allowable service, age, and a formula multiplier based on years of credit at termination ofservice. Two methods are used to compute benefits for TRA's Coordinated and Basic Plan members. Members first employed before July 1, 1989 receive the greater ofthe Tier I or Tier II as described below: Tier I Step Rate Formula Percentage per Year Basic Plan First 10 years All years after 2.2 percent 2.7 percent Coordinated Plan First 10 years ifservice years are prior to July 1,2006 First 10 years ifservice years are July 1, 2006 or after All other years ofservice ifservice years are prior to July 1, 2006 All other years ofservice ifservice years are July 1,2006 or after 1.2 percent 1.4 percent 1.7 percent 1.9 percent With these provisions: Normal retirement age is 65 with less than 30 years of allowable service and age 62 with 30 or more years of allowable service. Three percent per year early retirement reduction factors for all years under normal retirement age. Unreduced benefits for early retirement under a Rule-of-90 (age plus allowable service equals 90 or more). -42-

56 NOTE 6 - DEFINED BENEFIT PENSION PLANS - STATE-WIDE (CONTINUED) Tier II For years ofservice prior to July I, 2006, a level formula of 1.7 percent per year for Coordinated Plan members and 2.7 percent per year for Basic Plan members. For years of service July 1, 2006 and after, a level formula of 1.9 percent per year for Coordinated Plan members and 2.7 percent for Basic Plan members applies. Actuarially equivalent early retirement reduction factors with augmentation are used for early retirement before the normal age of 65. These reduction factors average approximately percent per year. Members first employed after June 30, 1989 receive only the Tier II calculation with a normal retirement age that is their retirement age for full Social Security retirement benefits, but not to exceed age 66. Six different types of annuities are available to members upon retirement. The No Refund Life Plan is a lifetime annuity that ceases upon the death of the retiree-no survivor annuity is payable. A retiring member may also choose to provide survivor benefits to a designated beneficiary(ies) by selecting one of the five plans which have survivorship features. Vested members may also leave their contributions in the TRA Fund upon termination of service in order to qualify for a deferred annuity at retirement age. Any member terminating service is eligible for a refund oftheir employee contributions plus interest. The benefit provisions stated apply to active plan participants. Vested, terminated employees who are entitled to benefits but not receiving them are bound by the provisions in effect at the time they last terminated their public service. TRA publicly issues a Comprehensive Annual Financial Report (CAFR) presenting financial statements, supplemental information on funding levels, investment performance, and further information on benefits provisions. The report may be accessed at the TRA website at tra.state.mn.us. Alternatively, a copy of the report may be obtained by writing TRA at Teachers' Retirement Association, 60 Empire Drive, Suite 400, St. Paul, Minnesota or by calling (651) or (800) B. Funding Policy Minnesota Statutes, Chapter 354 sets the rates for employee and employer contributions. These statutes are established and amended by the State Legislature. Coordinated and Basic Plan members are required to contribute 5.5 percent and 9.0 percent, respectively, of their annual covered salary as employee contributions. The TRA employer contribution rates are 5.5 percent for Coordinated Plan members and 9.5 percent for Basic Plan members. Total covered payroll salaries for all TRA members state-wide during the fiscal years June 30, 2010, 2009, and 2008 were approximately $3.79 billion, $3.76 billion, and $3.65 billion, respectively. The District's contributions for the years ended June 30, 2011, 2010, and 2009 were $2,755,590, $2,701,501, and $2,657,631, respectively, equal to the contractually required contributions for each year as set by state statutes. The 2010 Legislature approved employee and employer contribution rate increases to be phased-in over a four-year period beginning July 1,2011. Employee and employer contribution rates will rise 0.5 percent each year of the four-year period. Beginning July 1, 2014, TRA Coordinated Plan employee and employer contribution rates will each be 7.5 percent. -43-

57 NOTE 6 - DEFINED BENEFIT PENSION PLANS - STATE-WIDE (CONTINUED) Public Employees' Retirement Association (PERA) A. Plan Description All non-teacher full-time and certain part-time employees of the District are covered by defined benefit plans administered by PERA. PERA administers the General Employees Retirement Fund (GERF), which is a cost-sharing, multi-employer retirement plan. This plan is established and administered in accordance with Minnesota Statutes, Chapters 353 and 356. GERF members belong to either the Coordinated Plan or the Basic Plan. Coordinated Plan members are covered by Social Security and Basic Plan members are not. All new members must participate in the Coordinated Plan. PERA provides retirement benefits as well as disability benefits to members, and benefits to survivors upon death of eligible members. Benefits are established by state statute, and vest after three years of credited service. The defined retirement benefits are based on a member's highest average salary for any five successive years ofallowable service, age, and years ofcredit at termination ofservice. Two methods are used to compute benefits for PERA's Coordinated and Basic Plan members. The retiring member receives the higher of a step-rate benefit accrual formula (Method 1) or a level accrual formula (Method 2). Under Method 1, the annuity accrual rate for a Basic Plan member is 2.2 percent of average salary for each of the first 10 years of service and 2.7 percent for each remaining year. The annuity accrual rate for a Coordinated Plan member is 1.2 percent of average salary for each of the first 10 years and 1.7 percent for each remaining year. Under Method 2, the annuity accrual rate is 2.7 percent of average salary for Basic Plan members and 1.7 percent for Coordinated Plan members for each year of service. For all GERF members hired prior to July 1, 1989 whose annuity is calculated using Method 1, a full annuity is available when age plus years of service equal 90. Normal retirement age is 65 for Basic and Coordinated Plan members hired prior to July 1, Normal retirement age is the age for unreduced Social Security benefits capped at 66 for Coordinated Plan members hired on or after July 1, A reduced retirement annuity is also available to eligible members seeking early retirement. There are different types of annuities available to members upon retirement. A single-life annuity is a lifetime annuity that ceases upon the death of the retiree-no survivor annuity is payable. There are also various types of joint and survivor annuity options available which will be payable over joint lives. Members may also leave their contributions in the fund upon termination of public service in order to qualify for a deferred annuity at retirement age. Refunds of contributions are available at any time to members who leave public service, but before retirement benefits begin. The benefit provisions stated in the previous paragraphs ofthis section are current provisions and apply to active plan participants. Vested, terminated employees who are entitled to benefits, but are not receiving them yet are bound by the provisions in effect at the time they last terminated their public service. PERA issues a publicly available financial report that includes financial statements and required supplementary information for GERF. That report may be obtained on the web at mnpera.org; by writing to PERA at 60 Empire Drive, Suite 200, St. Paul, Minnesota ; or by calling (651) or (800)

58 NOTE 6 - DEFINED BENEFIT PENSION PLANS - STATE-WIDE (CONTINUED) B. Funding Policy Minnesota Statutes, Chapter 353 sets the rates for employer and employee contributions. These statutes are established and amended by the State Legislature. The District makes annual contributions to the pension plans equal to the amount required by state statutes. GERF Basic and Coordinated Plan members were required to contribute 9.1 percent and 6.0 percent, respectively, of their annual covered salary in The contribution rate for Coordinated Plan members increased to 6.25 percent effective January 1, The District was required to contribute the following percentages of annual covered payroll: percent for Basic Plan members and 7.00 percent for Coordinated Plan members. Employer contribution rates for the Coordinated Plan increased to 7.25 percent effective January 1,2011. The District's contributions to GERF for the years ended June 30, 2011, 2010, and 2009 were $1,532,712, $1,352,729, and $1,311,096, respectively, equal to the contractually required contributions for each year as set by state statutes. NOTE 7 - OTHER POST-EMPLOYMENT BENEFITS PLAN A. Plan Description The District provides post-employment insurance benefits to certain eligible employees through the District's OPEB Plan, a single-employer defined benefit plan administered by the District. The plan does not issue a publicly available financial report. The District is phasing out post-employment medical and dental insurance to all district employees, in accordance with their respective master employment agreements. These contractual agreements do not include any specific contribution or funding requirements. The eligibility for, amount of, duration of, and the District's contribution to the cost of the benefits provided varies by contract, hire dates, and date of retirement. All retirees ofthe District have the option under state law to continue their medical insurance coverage at their cost through the District from the time of retirement until the employee reaches the age ofeligibility for Medicare. For members ofcertain employee groups, the District pays the eligible retiree's premiums for medical and dental for some period after retirement. Benefits paid by the District differ by bargaining unit and date of hire, with some contracts specifying a certain dollar amount per month, and some covering premium costs as defined within each collective bargaining agreement. Retirees not eligible for these district-paid premium benefits must pay the full district premium rate for their coverage. The District is legally required to include any retirees for whom it provides health insurance coverage in the same insurance pool as its active employees, whether the premiums are paid by the District or the retiree. Consequently, participating retirees are considered to receive a secondary benefit known as an "implicit rate subsidy." This benefit relates to the assumption that the retiree is receiving a more favorable premium rate than they would otherwise be able to obtain if purchasing insurance on their own, due to being included in the same pool with the District's younger and statistically healthier active employees. B. Funding Policy The required contribution is based on projected pay-as-you-go financing requirements, with additional amounts to pre-fund benefits as determined annually by the District. There are invested plan assets accumulated for payment offuture benefits which are held in the Post-Employment Benefits Trust Fund. -45-

59 NOTE 7 - OTHER POST-EMPLOYMENT BENEFITS PLAN (CONTINUED) C. Annual OPEB Cost and Net OPEB Obligation The District's annual OPEB cost (expense) is calculated based on annual required contributions (ARC) of the District, an amount determined on an actuarially determined basis in accordance with the parameters of GASB Statement No. 45. The ARC represents a level funding that, if paid on an ongoing basis, is projected to cover normal costs each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years. The following table shows the components ofthe District's annual OPEB cost for the year, the amount actually contributed to the plan, and the changes in the District's net OPEB obligation to the plan: Annual required contribution Interest on net OPEB obligation Adjustment to annual required contribution Annual OPEB cost (expense) Contributions made Increase in net OPEB obligation Negative net OPEB obligation - beginning ofyear Negative net OPEB obligation - end ofyear $ 1,801,103 (1,138,976) 1,579,750 2,241, ,238 1,659,639 (25,310,581) $ (23,650,942) The District's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the (negative) net OPEB obligation for the past three years are as follows: Percentage of (Negative) Fiscal Annual Employer AnnualOPEB NetOPEB Year Ended OPEB Cost Contribution Cost Contributed Obligation June 30, 2009 $ 3,582,797 $ 30,583, % $ (27,001,102) June 30, 2010 $ 2,207,609 $ 517, % $ (25,310,581) June 30,2011 $ 2,241,877 $ 582, % $ (23,650,942) D. Funded Status and Funding Progress As of July 1, 2009, the most recent actuarial valuation date, the plan was 70.2 percent fundcd. Thc actuarial accrued liability for benefits was $38,598,519, and the actuarial value ofassets was $27,079,530, resulting in an unfunded actuarial accrued liability (VAAL) of$11,518,989. The covered payroll (annual payroll of active employees covered by the plan) was $57,824,601, and the ratio of the VAAL to the covered payroll was 19.9 percent. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability occurrence ofevents far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the ARC of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The Schedule of Funding Progress immediately following the notes to basic financial statements presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. -46-

60 NOTE 7 - OTHER POST-EMPLOYMENT BENEFITS PLAN (CONTINUED) E. Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective ofthe calculations. In the July 1, 2009 actuarial valuation, the projected unit credit actuarial cost method was used. The actuarial assumptions included: a 4.5 percent investment rate of return (net of administrative expenses) based on the District's own investments; a 3.0 percent rate of projected salary increases; an annual healthcare cost trend rate of9.0 percent initially, reduced by decrements to an ultimate rate of 5.0 percent for medical insurance; and an annual healthcare trend rate of3.0 percent for dental insurance. The UAAL is being amortized on a level dollar basis over a closed period. The remaining amortization period at July 1,2009 for the various amortization layers ranged from 28 to 30 years. F. Post-Employment Benefits Trust Fund The District administers a defined benefit OPEB Plan. The assets ofthe plan are reported in the District's financial report in the Post-Employment Benefits Trust Fund. The plan assets may be used only for the payment of benefits ofthe plan, in accordance with the terms ofthe plan. The Post-Employment Benefits Trust Fund is reported using the accrual basis of accounting. Employer contributions to the plan are recognized when due and the employer has made a formal commitment to provide the contributions. Benefits are recognized when due and payable in accordance with the terms of the plan. G. Membership Membership in the plan consisted ofthe following as ofthe latest actuarial valuation: Retirees and beneficiaries receiving benefits Active plan members Total members 725 1,294 2,019 NOTE 8 - PENSION BENEFITS PLAN A. Plan Description The District provides pension benefits to certain eligible employees through the District's Pension Benefits Plan, a single-employer defined benefit plan administered by the District. All pension benefits are based on contractual agreements with employee groups. As of July 1,2009, the plan had 108 active participants and 4 retiree participants receiving payments. Eligibility for these benefits is based on years of service and/or minimum age requirements. These contractual agreements do not include any specific contribution or funding requirements. The plan does not issue a publicly available financial report. These benefits are summarized as follows: The District maintains various early retirement incentive payment plans for its employee groups. Each employee group plan contains benefit formulas based on years of service and/or minimum age requirements. No employee can receive severance or retirement benefits in excess ofone year's salary. -47-

61 NOTE 8 - PENSION BENEFITS PLAN (CONTINUED) B. Funding Policy The required contribution is based on projected pay-as-you-go financing requirements, with additional amounts to pre-fund benefits as determined annually by the District. There are no invested plan assets accumulated for payment offuture benefits. C. Annual Pension Cost and Net Pension Obligation The District's annual pension cost (expense) is calculated based on ARC of the District, an amount determined on an actuarially determined basis in accordance with the parameters of GASB Statement Nos. 25, 27, and 50. The ARC represents a level funding that, ifpaid on an ongoing basis, is projected to cover normal costs each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years. The following table shows the components of the District's annual pension cost for the year, the amount actually contributed to the plan, and the changes in the District's net pension obligation to the plan: Annual required contribution Interest on net pension obligation Adjustment to annual required contribution Annual pension cost (expense) Contributions made Decrease in net pension obligation Net pension obligation - beginning ofyear Negative net pension obligation - end ofyear $ 274,952 7,612 (10,558) 272, ,924 (179,918) 169,157 $ (10,761) The District's annual pension cost, the percentage ofannual pension cost contributed to the plan, and the (negative) net pension obligation for the past three years are as follows: Percentage of (Negative) Fiscal Annual Employer Annual Pension Net Pension Year Ended Pension Cost Contribution Cost Contributed Obligation June 30, 2009 $ 308,884 $ 110, % $ 198,393 June 30, 20 I0 $ 269,911 $ 299, % $ 169,157 June 30, 2011 $ 272,006 $ 451, % $ (10,761) D. Funded Status and Funding Progress As of July 1, 2009, the most recent actuarial valuation date, the plan was zero percent funded. The actuarial accrued liability for benefits was $1,755,328, and the actuarial value of assets was $0, resulting in a VAAL of$i,755,328. The covered payroll (annual payroll of active employees covered by the plan) was $4,774,607, and the ratio ofthe VAAL to the covered payroll was 36.8 percent. -48-

62 NOTE 8 - PENSION BENEFITS PLAN (CONTINUED) Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability occurrence ofevents far into the future. Examples include assumptions about future employment and mortality. Amounts determined regarding the funded status ofthe plan and the ARC of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The Schedule of Funding Progress immediately following the notes to basic financial statements presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. E. Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective ofthe calculations. In the July 1, 2009 actuarial valuation, the projected unit credit actuarial cost method was used. The actuarial assumptions included: a 4.5 percent investment rate of return (net of administrative expenses) based on the District's own investments; a 3.0 percent rate of projected salary increase for all members. The VAAL is being amortized on a level dollar basis over a closed period. The remaining amortization period at July 1, 2009 for the various amortization layers ranged from 8 to 10 years. NOTE 9 - FLEXIBLE BENEFIT PLAN The District has a flexible benefit plan, which is classified as a "cafeteria plan" (the Plan) under 125 of the Internal Revenue Code. All employee groups ofthe District are eligible if and when the collective bargaining agreement or contract with their group allows eligibility. Eligible employees can elect to participate by contributing pre-tax dollars withheld from payroll checks to the Plan for healthcare and dependant care benefits. Before the beginning of the Plan year, which is from January 1 to December 31, each participant designates a total amount of pre-tax dollars to be contributed to the Plan during the year. At June 30, the District is contingently liable for claims against the total amount of participants' annual contributions to the Plan, whether or not such contributions have been made. Payments of insurance premiums (health, dental, life, and disability) are made by the District directly to the designated insurance companies. These payments are made on a monthly basis and are accounted for in the General Fund and special revenue funds. Amounts withheld for medical reimbursement and dependant care are paid by the District to a trust account maintained by an outside administrator on a monthly basis. Payments are made by the outside administrator to participating employees upon submitting a request for reimbursement of eligible expenses incurred by the employee. The medical reimbursement and dependant care activity is included in the financial statements in the General Fund and special revenue funds. All property of the Plan and income attributable to that property is solely the property of the District, subject to the claims of the District's general creditors. Participants' rights under the Plan are equal to those of general creditors in an amount equal to the eligible healthcare and dependant care expenses incurred by the participants. The District believes that it is unlikely that it will use the assets to satisfy the claims ofgeneral creditors in the future. -49-

63 NOTE 10 - INTERFUND BALANCES At June 30, 2011, the District's General Fund had payables due to the Debt Service Fund, Community Service Special Revenue Fund, and Food Service Special Revenue Fund of $3,338,976, $120,241, and $527,101, respectively, to eliminate the year-end cash deficit. The District's General Fund had a receivable of $52,402 due from the Agency Fund to eliminate the year-end cash deficit. Interfund balances have been eliminated in the government-wide financial statements. NOTE 11 - COMMITMENTS AND CONTINGENCIES A. Federal and State Receivables Amounts received or receivable from federal and state agencies are subject to agency audit and adjustment. Any disallowed claims, including amounts already collected, may constitute a liability ofthe applicable funds. The amount, if any, of funds which may be disallowed by the agencies cannot be determined at this time, although the District expects such amounts, ifany, to be immaterial. B. Construction Contracts The District is committed to various contracts awarded for construction and maintenance projects. The District's commitment for uncompleted work on these contracts at June 30, 2011 was approximately $4,000,000. C. Legal Claims The District is a defendant in various lawsuits. Although the outcomes ofthese lawsuits are not presently determinable, the District believes that the resolution of these matters will not have a material adverse effect on its financial position. D. Operating Leases The District leases buildings and equipment under operating leases that expire through June 30, Total costs for such leases were $218,328 for the year ended June 30, The future minimum lease payments for these leases are as follows: Year Ending June 30, Amount 2012 $ 209, ,200 $ 409,

64 NOTE 12 - JOINT VENTURES A. Valley Crossing Elementary The District participates in a joint venture to govern the administration, financing, and operation of a joint elementary school known as Valley Crossing Community School (the Joint School). The Joint School was established through a joint powers agreement entered into on October 18, 1994 and amended in July 1995 with the District; Independent School District No. 834, and Independent School District No. 833 (the Independent Districts); and Northeast Metropolitan Intermediate School District No. 916 (the Intermediate District) pursuant to applicable Minnesota Statutes. The Independent Districts establish policies and take steps to ensure that a sufficient number ofpupils from each ofthe Independent Districts and the Intermediate District will be enrolled in the Joint School and will also provide advice and assistance to the Intermediate District (which is responsible for the operations ofthe Joint School). As part of the joint powers agreement covering the construction and operation of the Joint School, the District is committed to levy its proportionate share of lease costs necessary to repay $18,000,000 of bonds issued during fiscal to fund construction of the Joint School. A calculation is performed to determine each participating member district's proportionate share ofthe required lease levy based on each district's number ofpupils attending the Joint School. The District's share ofthe total debt service requirement on these bonds for fiscal is $225,798, out ofa total commitment ofabout $1,426,402 for three participating school districts. B. Joint Ice Arena The District is a party to a joint powers agreement, together with the cities of Oakdale and Maplewood, which establishes a Joint Powers Board. The Joint Powers Board was created in 1996 to provide for the construction, operation, use, maintenance, and repair ofa joint ice arena (Tartan Arena). Each member is entitled to appoint two members to the Joint Powers Board. The District issued bonds in the amount of $1,950,000 to partially finance the construction of Tartan Arena. The District pledged its full faith and credit to the performance ofthese bonds. Scheduled bond payments are funded from Tartan Arena revenue prior to coverage ofoperating expenses. The District also pledged the allocation of funds to pay one-third of any projected shortfalls in annual revenues available for the operation and maintenance ofthe facility. For the year ended June 30, 2011, operating revenues for the facility, after scheduled bond payments, were $431,492 and operating expenditures were $420,795. All property acquired under this agreement is one-third owned by each member ofthe joint powers agreement. The District's share ofthe financial activity oftartan Arena is included within the District's Community Service Special Revenue Fund. NOTE 13-SUBSEQUENTEVENTS In November 2011, the District issued $3,675,000 of Refunding Certificates of Participation, Series 2011B. The certificates bear interest rates ranging from percent and mature in February On December 1, 2011, the District accepted a proposal to issue $16,783,176 of General Obligation Aid Anticipation Certificates of Indebtedness. The obligations will be issued December 15, 2011, mature September 11,2012, and bear an interest rate of2.0 percent. -51-

65 REQUIRED SUPPLEMENTARY INFORMATION

66 INDEPENDENT SCHOOL DISTRICT NO. 622 Schedules of Funding Progress and Schedule ofemployer Contributions June 30, 2011 Other Post-Employment Benefits Plan Schedule offunding Progress Unfunded Unfunded Actuarial Actuarial Actuarial Actuarial Liability as a Valuation Accrued Value of Accrued Funded Covered Percentage of Date Liability Plan Assets Liability Ratio Payroll Payroll July 1,2007 $ 41,042,526 $ $ 41,042,526 -% $ 55,256, % July 1,2009 $ 38,598,519 $ 27,079,530 $ 11,518, % $ 57,824, % Other Post-Employment Benefits Plan Schedule of Employer Contributions (Negative) Year Ended Annual Percentage NetOPEB June 30, OPEB Cost Contributed Obligation 2009 $3,582, % $(27,001,102) 2010 $2,207, % $(25,310,581) 2011 $2,241, % $(23,650,942) Pension Benefits Plan Schedule of Funding Progress Unfunded Actuarial Actuarial Actuarial Actuarial Valuation Accrued Value of Accrued Date Liability Plan Assets Liability Funded Ratio Covered Payroll Unfunded Liability as a Percentage of Payroll July 1,2007 $ 2,011,699 $ $ 2,011,699 July 1,2009 $ 1,755,328 $ $ 1,755,328 -% -% $ 5,846,210 $ 4,774, % 36.8 % -52-

67 COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES

68 INDEPENDENT SCHOOL DISTRICT NO. 622 Nonmajor Governmental Funds Combining Balance Sheet as ofjune 30, 2011 Special Revenue Funds Community Food Service Service Total Assets Receivables Current taxes $ $ 891,568 $ 891,568 Delinquent taxes 37,085 37,085 Accounts and interest 2, , ,757 Due from other governmental units , ,593 Due from other funds 527, , ,342 Inventory 286, ,915 Prepaid items 5,113 20,905 26,018 Total assets $ 822,255 $ 1,972,023 $ 2,794,278 Liabilities and Fund Balances Liabilities Salaries payable $ 4,805 $ 86,295 $ 91,100 Accounts and contracts payable 144, , ,006 Due to other governmental units 297, ,200 Property taxes levied for subsequent year 788, ,135 Unearned revenue 109, , ,829 Deferred revenue 20,338 20,338 Total liabilities 258,533 1,473,075 1,731,608 Fund balances Nonspendable for inventory 286, ,915 Nonspendable for prepaid items 5,113 20,905 26,018 Restricted 271, , ,737 Total fund balances 563, ,948 1,062,670 Total liabilities and fund balances $ 822,255 $ 1,972,023 $ 2,794,

69 INDEPENDENT SCHOOL DISTRICT NO. 622 Nonmajor Governmental Funds Combining Statement ofrevenue, Expenditures, and Changes in Fund Balances Year Ended June 30, 2011 Special Revenue Funds Community Food Service Service Total Revenue Local sources Property taxes $ $ 2,119,812 $ 2,119,812 Investment earnings 2,844 7,882 10,726 Other 2,728,733 2,865,303 5,594,036 State sources 222,347 2,758,815 2,981,162 Federal sources 2,640, ,655 2,848,665 Total revenue 5,593,934 7,960,467 13,554,401 Expenditures Current Food service 5,570,270 5,570,270 Community service 8,208,257 8,208,257 Capital outlay 152,393 84, ,048 Total expenditures 5,722,663 8,292,912 14,015,575 Net change in fund balances (128,729) (332,445) (461,174) Fund balances Beginning ofyear 692, ,393 1,523,844 End ofyear $ 563,722 $ 498,948 $ 1,062,

70 INDEPENDENT SCHOOL DISTRICT NO. 622 General Fund Comparative Balance Sheet as ofjune 30, 2011 and 2010 Assets Cash and temporary investments $ $ 8,480,214 Cash and investments held by trustee 713, ,589 Receivables Current taxes 11,191,557 11,592,217 Delinquent taxes 584, ,396 Accounts and interest 239, ,506 Due from other governmental units 29,087,942 25,985,441 Due from fiduciary funds 52,402 Inventory 45,460 42,928 Prepaid items 94, ,455 Total assets $ 42,009,605 $ 47,838,746 Liabilities and Fund Balances Liabilities Salaries payable $ 460,775 $ 346,293 Accounts and contracts payable 2,077,012 2,159,956 Due to other governmental units 1,894,792 2,282,893 Due to other funds 3,986,318 Property taxes levied for subsequent year 9,634,082 17,027,477 Unearned revenue 376, ,182 Deferred revenue - delinquent taxes 336, ,704 Total liabilities 18,765,734 22,611,505 Fund balances Nonspendable for inventory 45,460 42,928 Nonspendable for prepaid items 94, ,455 Restricted for staffdevelopment 1,021,360 Restricted for health and safety 802, ,997 Restricted for operating capital 1,260, ,601 Restricted for learning and development 122,164 Restricted for gifted and talented 69, ,273 Restricted for safe schools 352, ,823 Committed for phone system 850,000 Assigned for subsequent year's budget 3,190,241 5,049,458 Assigned for integration 327,1l7 823,841 Assigned for severance 1,200,000 1,200,000 Unassigned 14,929,483 14,624,505 Total fund balances 23,243,871 25,227,241 Total liabilities and fund balances $ 42,009,605 $ 47,838,

71 INDEPENDENT SCHOOL DISTRICT NO. 622 General Fund Schedule ofrevenue, Expenditures, and Changes in Fund Balances Budget and Actual Year Ended June 30,2011 (With Comparative Actual Amounts for the Year Ended June 30, 2010) Over (Under) Budget Actual Budget Actual Revenue Local sources Property taxes $ 25,808,651 $ 26,288,166 $ 479,515 $ 20,588,351 Investment earnings 150,000 20,003 (129,997) 177,133 Other 1,209,139 1,728, ,010 2,061,973 State sources 81,090,474 82,031, ,614 80,649,148 Federal sources 7,024,427 6,629,412 (395,015) 14,329,420 Total revenue 115,282, ,696,818 1,414, ,806,025 Expenditures Current Administration Salaries 3,244,652 3,464, ,006 3,258,306 Employee benefits 1,070,382 1,267, ,437 1,027,890 Purchased services 418, ,604 (141,358) 206,562 Supplies and materials 34, , ,543 92,777 Capital expenditures 14,080 18,546 4, ,945 Other expenditures 87,568 66,121 (21,447) 66,093 Total administration 4,869,948 5,305, ,647 5,277,573 District support services Salaries 1,191,346 1,209,183 17,837 1,128,546 Employee benefits 630, ,227 (137,110) 446,590 Purchased services 611, ,146 59, ,003 Supplies and materials 74, ,579 94, ,568 Capital expenditures 1,297,156 1,374,760 77, ,929 Other expenditures 77,080 86,769 9,689 69,181 Total district support services 3,881,384 4,002, ,280 3,015,817 Elementary and secondary regular instruction Salaries 36,353,495 33,960,709 (2,392,786) 33,344,950 Employee benefits 13,984,261 13,241,842 (742,419) 12,892,027 Purchased services 5,309,591 6,765,305 1,455,714 6,177,568 Supplies and materials 1,123,274 1,160,302 37,028 1,446,125 Capital expenditures 279, ,040 (20,929) 588,609 Other expenditures 37,500 78,087 40,587 81,397 Total elementary and secondary regular instruction 57,088,090 55,465,285 (1,622,805) 54,530, (continued)

72 INDEPENDENT SCHOOL DISTRICT NO. 622 General Fund Schedule ofrevenue, Expenditures, and Changes in Fund Balances Budget and Actual (continued) Year Ended June 30, 2011 (With Comparative Actual Amounts for the Year Ended June 30, 2010) Over (Under) Budget Actual Budget Actual Expenditures (continued) Current (continued) Vocational education instruction Salaries 302, , ,792 1,012,862 Employee benefits 97,738 82,573 (15,165) 97,398 Purchased services 451, ,364 (95,700) 378,236 Supplies and materials 73,426 41,486 (31,940) 36,949 Capital expenditures 10,000 (10,000) 9,975 Other expenditures 113, ,661 14, ,072 Total vocational education instruction 1,048,720 1,529, ,756 1,645,492 Special education instruction Salaries 13,331,654 14,119, ,135 13,623,427 Employee benefits 5,229,913 5,097,967 (131,946) 5,099,082 Purchased services 3,324,703 2,495,726 (828,977) 2,675,478 Supplies and materials 634, ,537 (333,373) 235,110 Capital expenditures 421, ,155 (221,957) 224,848 Other expenditures 36, , ,288 92,362 Total special education instruction 22,979,017 22,357,187 (621,830) 21,950,307 Instructional support services Salaries 6,366,744 5,846,328 (520,416) 5,501,683 Employee benefits 1,537,489 1,468,012 (69,477) 1,433,477 Purchased services 672, ,443 (174,835) 469,777 Supplies and materials 777, ,556 (30,606) 741,803 Capital expenditures 431, ,143 46, ,463 Other expenditures 48,450 35,645 (12,805) 45,802 Total instructional support services 9,833,288 9,072,127 (761,161) 8,645,005 Pupil support services Salaries 4,694,951 4,706,844 11,893 4,718,899 Employee benefits 1,643,701 1,535,826 (107,875) 1,574,363 Purchased services 2,351,856 2,264,516 (87,340) 2,156,707 Supplies and materials 671, , , ,740 Capital expenditures 708, ,907 32, ,544 Other expenditures (305) 195 Total pupil support services 10,071,868 10,097,762 25,894 9,685, (continued)

73 INDEPENDENT SCHOOL DISTRICT NO. 622 General Fund Schedule ofrevenue, Expenditures, and Changes in Fund Balances Budget and Actual (continued) Year Ended June 30, 2011 (With Comparative Actual Amounts for the Year Ended June 30, 2010) Over (Under) Budget Actual Budget Actual Expenditures (continued) Current (continued) Sites and buildings Salaries 2,930,596 3,170, ,256 3,030,720 Employee benefits 1,447,230 1,436,075 (11,155) 1,360,393 Purchased services 1,981,088 2,001,853 20,765 1,822,792 Supplies and materials 860, ,868 7, ,187 Capital expenditures 4,492,102 4,478,536 (13,566) 1,840,167 Other expenditures 210, ,675 8, ,365 Total sites and buildings 11,921,783 12,173, ,076 9,243,624 Fiscal and other fixed cost programs Purchased services 258, ,433 28, ,879 Debt service Principal 625, , ,000 Interest and fiscal charges 272, , ,486 Total debt service 897, ,599 1,105,486 Total expenditures 122,850, ,188,987 (1,661,530) 115,364,307 Excess (deficiency) ofrevenue over expenditures (7,567,826) (4,492,169) 3,075,657 2,441,718 Other financing sources (uses) Debt issued 2,465,049 2,500,000 34,951 Premium on debt issued 8,799 8,799 Payment on refunded debt (1,610,000) Transfers in 712,589 Total other financing sources (uses) 2,465,049 2,508,799 43,750 (897,411) Net change in fund balances $ (5,102,777) (1,983,370) $ 3,119,407 1,544,307 Fund balances Beginning ofyear 25,227,241 23,682,934 End ofyear $ 23,243,871 $ 25,227,

74 INDEPENDENT SCHOOL DISTRICT NO. 622 Food Service Special Revenue Fund Comparative Balance Sheet as ofjune 30, 2011 and Assets Cash and temporary investments $ $ 602,336 Receivables Accounts and interest 2,991 3,028 Due from other governmental units 135 Due from other funds 527,101 Inventory 286, ,775 Prepaid items 5, 113 3,525 Total assets $ 822,255 $ 889,664 Liabilities and Fund Balances Liabilities Salaries payable $ 4,805 $ 17,831 Accounts and contracts payable 144,406 82,027 Unearned revenue 109,322 97,355 Total liabilities 258, ,213 Fund balances Nonspendable for inventory 286, ,775 Nonspendable for prepaid items 5,113 3,525 Restricted for food service 271, ,151 Total fund balances 563, ,451 Total liabilities and fund balances $ 822,255 $ 889,

75 INDEPENDENT SCHOOL DISTRICT NO. 622 Food Service Special Revenue Fund Schedule ofrevenue, Expenditures, and Changes in Fund Balances Budget and Actual Year Ended June 30, 2011 (With Comparative Actual Amounts for the Year Ended June 30, 2010) Over (Under) Budget Actual Budget Actual Revenue Local sources Investment earnings $ 20,000 $ 2,844 $ (17,156) $ 8,963 Other - primarily meal sales 2,835,000 2,728,733 (106,267) 2,828,416 State sources 223, ,347 (653) 219,719 Federal sources 2,475,000 2,640, ,010 2,530,398 Total revenue 5,553,000 5,593,934 40,934 5,587,496 Expenditures Current Salaries 1,490,969 1,553,886 62,917 1,485,333 Employee benefits 524, ,748 8, ,796 Purchased services 191, ,241 29, ,064 Supplies and materials 3,147,500 3,250, ,077 3,180,140 Other expenditures 10,000 10, ,184 Capital outlay 125, ,393 27, ,383 Total expenditures 5,490,219 5,722, ,444 5,561,900 Net change in fund balances $ 62,781 (128,729) $ (191,510) 25,596 Fund balances Beginning ofyear 692, ,855 End ofyear $ 563,722 $ 692,

76 INDEPENDENT SCHOOL DISTRICT NO. 622 Community Service Special Revenue Fund Comparative Balance Sheet as ofjune 30, 2011 and Assets Cash and temporary investments $ $ 1,091,378 Receivables Current taxes 891, ,597 Delinquent taxes 37,085 39,662 Accounts and interest 138,766 98,632 Due from other governmental units 763, ,907 Due from other funds 120,241 Prepaid items 20,905 13,449 Total assets $ 1,972,023 $ 2,694,625 Liabilities and Fund Balances Liabilities Salaries payable $ 86,295 $ 78,553 Accounts and contracts payable 132,600 90,079 Due to other governmental units 297, ,517 Property taxes levied for subsequent year 788,135 1,386,016 Unearned revenue 148, ,792 Deferred revenue - delinquent taxes 20,338 30,275 Total liabilities 1,473,075 1,863,232 Fund balances Nonspendable for prepaid items 20,905 13,449 Restricted for community education programs 152, ,929 Restricted for early childhood family education programs 94, ,089 Restricted for school readiness 25,137 9,019 Restricted for adult basic education 205, ,907 Total fund balances 498, ,393 Total liabilities and fund balances $ 1,972,023 $ 2,694,

77 INDEPENDENT SCHOOL DISTRICT NO. 622 Community Service Special Revenue Fund Schedule of Revenue, Expenditures, and Changes in Fund Balances Budget and Actual Year Ended June 30, 2011 (With Comparative Actual Amounts for the Year Ended June 30, 2010) Over (Under) Budget Actual Budget Actual Revenue Local sources Property taxes $ 2,187,301 $ 2,119,812 $ (67,489) $ 1,162,053 Investment earnings 64,000 7,882 (56,118) 26,347 Other - primarily tuition and fees 3,088,837 2,865,303 (223,534) 2,863,647 State sources 2,990,907 2,758,815 (232,092) 3,345,508 Federal sources 260, ,655 (52,000) 158,756 Total revenue 8,591,700 7,960,467 (631,233) 7,556,311 Expenditures Current Salaries 3,679,231 3,565,228 (114,003) 3,502,382 Employee benefits 1,265,876 1,221,333 (44,543) 1,150,498 Purchased services 2,978,970 2,796,877 (182,093) 2,499,845 Supplies and materials 639, ,608 (62,780) 571,264 Other expenditures 33,941 48,211 14,270 36,616 Capital outlay 62,743 84,655 21,912 56,904 Total expenditures 8,660,149 8,292,912 (367,237) 7,817,509 Net change in fund balances $ (68,449) (332,445) $ (263,996) (261,198) Fund balances Beginning ofyear 831,393 1,092,591 End ofyear $ 498,948 $ 831,

78 INDEPENDENT SCHOOL DISTRICT NO. 622 Capital Projects - Building Construction Fund Comparative Balance Sheet as ofjune 30, 2011 and Assets Cash and temporary investments $ 8,661,685 $ 8,133,508 Cash and investments held by trustee 2,863 5,438 Receivables Accounts and interest 8, Total assets $ 8,672,700 $ 8,139,206 Liabilities and Fund Balances Liabilities Salaries payable $ $ 2,611 Accounts and contracts payable 1,603,663 1,304,155 Total liabilities 1,603,663 1,306,766 Fund balances Restricted for alternative facilities program 7,069,037 6,832,440 Total liabilities and fund balances $ 8,672,700 $ 8,139,

79 INDEPENDENT SCHOOL DISTRICT NO. 622 Capital Projects - Building Construction Fund Schedule ofrevenue, Expenditures, and Changes in Fund Balances Budget and Actual Year Ended June 30, 2011 (With Comparative Actual Amounts for the Year Ended June 30, 2010) Over (Under) Budget Actual Budget Actual Revenue Local sources Investment earnings $ 40,000 $ 3,052 $ (36,948) $ 23,492 Other 29,502 29,502 Total revenue 40,000 32,554 (7,446) 23,492 Expenditures Capital outlay Salaries 176, , ,735 Employee benefits 66,519 66,519 61,246 Capital expenditures 6,680,000 6,273,209 (406,791) 7,914,158 Total expenditures 6,680,000 6,515,957 (164,043) 8,138,139 Excess (deficiency) ofrevenue over expenditures (6,640,000) (6,483,403) 156,597 (8,114,647) Other financing sources (uses) Debt issued 6,651,100 6,720,000 68,900 6,689,258 Transfers (out) (712,589) Total other financing sources (uses) 6,651,100 6,720,000 68,900 5,976,669 Net change in fund balances $ 11, ,597 $ 225,497 (2,137,978) Fund balances Beginning ofyear 6,832,440 8,970,418 End ofyear $ 7,069,037 $ 6,832,

80 INDEPENDENT SCHOOL DISTRICT NO. 622 Debt Service Fund Balance Sheet by Account as ofjune 30, 2011 (With Comparative Totals for the Year Ended June 30, 2010) Regular OPEB Debt Service Debt Service Totals Account Account Assets Cash and temporary investments $ 4,247,159 $ 1,459,204 $ 5,706,363 $ 8,189,821 Cash and investments held by trustee 4,849,957 4,849,957 8,125,400 Receivables Current taxes 7,447,191 1,820,068 9,267,259 8,971,369 Delinquent taxes 327,884 70, , ,182 Accounts and interest 9,190 9, ,423 Due from other governmental units 153,585 39, , ,718 Due from other funds 3,338,976 3,338,976 Total assets $ 20,373,942 $ 3,389,284 $ 23,763,226 $ 26,026,913 Liabilities and Fund Balances Liabilities Accounts and contracts payable $ 2,251 $ $ 2,251 $ 6,539 Due to other governmental units 22,668 22,668 Property taxes levied for subsequent year 12,807,832 3,130,190 15,938,022 15,133,427 Deferred revenue - delinquent taxes 182,814 32, , ,958 Total liabilities 13,015,565 3,162,457 16,178,022 15,476,924 Fund balances Restricted for bond refunding 4,859,147 4,859,147 8,260,823 Restricted for debt service 2,499, ,827 2,726,057 2,289,166 Total fund balances 7,358, ,827 7,585,204 10,549,989 Total liabilities and fund balances $ 20,373,942 $ 3,389,284 $ 23,763,226 $ 26,026,

81 INDEPENDENT SCHOOL DISTRICT NO. 622 Debt Service Fund Schedule of Revenue, Expenditures, and Changes in Fund Balances by Account Budget and Actual Year Ended June 30, 2011 (With Comparative Actual Amounts for the Year Ended June 30, 2010) Actual Regular OPEB Debt Service Debt Service Over (Under) Budget Account Account Total Budget Actual Revenue Local sources Property taxes $ 15,133,428 $ 11,425,361 $ 2,966,757 $ 14,392,118 $ (741,310) $ 14,250,820 Investment earnings 85, ,700 3, , , ,030 Other 152, , , ,710 State sources 511, , , , ,773 Federal sources 100, , ,719 Total revenue 15,218,428 12,407,987 3,103,632 15,511, ,191 15,405,333 Expenditures Debt service Principal 7,840,000 6,270,000 1,570,000 7,840,000 7,330,000 Interest 6,794,964 5,731,354 1,406,953 7,138, ,343 7,121,599 Fiscal charges and other 288, , ,255 81, ,175 Total expenditures 14,923,238 12,371,380 2,977,182 15,348, ,324 14,715,774 Excess (deficiency) of revenue over expenditures 295,190 36, , ,057 (132,133) 689,559 Other financing sources (uses) Debt issued 4,750,000 4,750,000 4,750, ,742 (Discount) on debt issued (67,950) Premium on debt issued 232, , ,158 Payment on refunded debt (8,110,000) (8,110,000) (8,110,000) Total other financing sources (uses) (3,127,842) (3,127,842) (3,127,842) 37,792 Net change in fund balances $ 295,190 (3,091,235) 126,450 (2,964,785) $ (3,259,975) 727,351 Fund balances Beginning of year 10,449, ,377 10,549,989 9,822,638 End of year $ 7,358,377 $ 226,827 $ 7,585,204 $ 10,549, and 67

82 INDEPENDENT SCHOOL DISTRICT NO. 622 Employee Benefit Trust Funds Combining Statement offiduciary Net Assets as ofjune 30, 2011 Community Service Employee Post-Employment Benefits Benefits Totals Assets Cash and temporary investments $ $ 4,234,962 $ 4,234,962 Investments at fair value Local government obligations 12,459,754 12,459,754 Corporate obligations 2,569,250 2,569,250 Negotiable certificates of deposit 2,131,343 2,131,343 MNTrust Investment Shares Portfolio 924, ,943 Guaranteed investment contract 190, ,728 Receivables Accounts and interest 1,151,766 1,151,766 Total assets 190,728 23,472,018 23,662,746 Liabilities Accounts payable 8,095 8,095 Net assets Held in trust for OPEB and employee benefits $ 190,728 $ 23,463,923 $ 23,654,651 Employee Benefit Trust Funds Combining Statement ofchanges in Fiduciary Net Assets Year Ended June 30,2011 Community Service Employee Post-Employment Benefits Benefits Totals Additions Contributions Employee $ $ 1,349,943 $ 1,349,943 Investment earnings Interest 5,786 1,183,902 1,189,688 Net increase in fair value of investments 138, ,437 Total investment earnings 5,786 1,322,339 1,328,125 Less investment expenses Net investment earnings 5,786 1,322,1l0 1,327,896 Total additions 5,786 2,672,053 2,677,839 Deductions Benefits paid to plan members 4,465,215 4,465,215 Change in net assets 5,786 (1,793,162) (1,787,376) Net assets Beginning ofyear 184,942 25,257,085 25,442,027 End ofyear $ 190,728 $ 23,463,923 $ 23,654,

83 INDEPENDENT SCHOOL DISTRICT NO. 622 Agency Fund Statement ofchanges in Assets and Liabilities Year Ended June 30,2011 Balance - Beginning Balance - ofyear Additions Deletions End ofyear Integration program Assets Cash and cash equivalents $ 62,330 $ $ 62,330 $ Due from other governmental units 90,000 90,000 Total assets $ 62,330 $ 90,000 $ 62,330 $ 90,000 Liabilities Salaries and compensated absences payable $ $ 15,200 $ $ 15,200 Accounts and contracts payable 62,330 22,398 62,330 22,398 Due to governmental funds 52,402 52,402 Total liabilities $ 62,330 $ 90,000 $ 62,330 $ 90,

84 SUPPLEMENTAL INFORMATION (UNAUDITED)

85 INDEPENDENT SCHOOL DISTRICT NO. 622 Government-Wide Revenue by Type Last Nine Fiscal Years Program Revenues General Revenues Year Operating Capital Investment Ended Charges for Grants and Grants and General Grants Earnings June 30, Services Contributions Contributions Property Taxes and Aids and Other Total 2003 $ 7,381,143 $ 26,635,439 $ 2,744,274 $ 10,673,019 $ 56,341,595 $ 1,556,237 $105,331,707 7% 25% 3% 10% 53% 2% 100% ,747,326 25,970,960 2,771,990 30,086,882 52,686, , ,193,333 6% 22% 2% 25% 44% 1% 100% ,419,476 28,979,592 2,051,233 25,159,273 57,573,361 1,844, ,027,897 6% 24% 2% 20% 47% 1% 100% ,650,084 18,459,216 2,027,582 26,798,058 68,859,055 3,593, ,387,614 5% 15% 2% 21% 54% 3% 100% ,302,894 17,592,291 1,142,124 28,378,947 76,116,394 3,987, ,520,122 5% 13% 1% 21% 57% 3% 100% ,544,923 16,778, ,564 29,131,756 77,936,235 3,353, ,665,696 6% 12% 1% 21% 58% 2% 100% ,034,610 19,414,384 1,496,046 31,822,972 78,841,366 2,165, ,774,604 5% 14% 1% 23% 56% 1% 100% ,481,090 23,034, ,804 36,010,780 78,078,016 2,049, ,388,213 4% 16% 1% 25% 53% 1% 100% ,409,830 22,364, ,093 42,465,843 72,155,166 1,349, ,461,139 4% 15% 1% 29% 50% 1% 100% Note: The District implemented GASB Statement No. 34 in fiscal year This information is not available for previous fiscal years. -70-

86 INDEPENDENT SCHOOL DISTRICT NO. 622 Government-Wide Expenses by Function Last Nine Fiscal Years Year Ended June 30, Elementary District and Secondary Vocational Special Instructional Pupil Fiscal and Depreciation Support Regular Education Education Support Support Sites and Other Fixed Community Not Allocated to Interest and Administration Services Instruction Instruction Instruction Services Services Buildings Cost Programs Food Service Service Other Functions Fiscal Charges Total $ 3,803,553 $ 1,989,917 $ 40,286,976 $ 1,579,449 $ 17,676,529 $ 5,380,306 $ 8,250,018 $ 9,336,065 $ 304,947 $ 4,284,540 $ 6,397,165 $ 4,794,734 $ 5,300,444 $ 109,384,643 3% 2% 37% 1% 16% 5% 8% 9% 4% 6% 4% 5% 100% 3,228,972 2,108,007 43,084,407 1,774,000 18,993,273 5,672,591 9,529,829 9,609, ,282 4,724,180 5,962,836 5,188,983 5,675, ,899,942 3% 2% 37% 1% 16% 5% 8% 9% 4% 5% 5% 5% 100% 3,772,327 2,011,877 45,655,585 1,757,325 20,922,748 6,627,720 8,541,604 16,667, ,148 4,669,067 7,091,577 5,321,525 6,065, ,532,874 3% 2% 35% 1% 16% 5% 7% 13% 4% 5% 4% 5% 100% 4,129,436 2,012,595 46,502, ,122 20,615,233 6,227,536 8,604,690 10,449, ,441 4,815,752 7,344,278 5,264,043 7,141, ,263,386 3% 2% 37% 1% 17% 5% 7% 8% 4% 6% 4% 6% 100% 4,219,865 2,159,345 48,078, ,128 21,056,040 7,938,470 8,678,705 9,007, ,472 5,026,298 6,972,111 5,812,156 7,924, ,979,550 3% 2% 38% 1% 16% 6% 7% 7% 4% 5% 5% 6% 100% 4,363,832 2,398,387 51,734, ,055 17,958,216 7,778,043 9,115,068 9,053, ,192 5,436,900 7,581,156 6,227,807 7,377, ,163,432 3% 2% 39% 1% 14% 6% 7% 7% 4% 6% 5% 6% 100% 4,716,192 2,855,986 55,686, ,972 21,616,906 9,372,172 9,548,763 10,235, ,788 5,502,331 7,968,297 6,594,941 7,423, ,670,675 3% 2% 39% 1% 15% 7% 7% 7% 4% 6% 4% 5% 100% 5,387,109 3,105,906 55,744,097 1,645,492 21,870,189 8,670,281 8,904,244 9,353, ,879 5,633,849 7,825,395 2,971,502 7,665, ,042,382 4% 2% 39% 1% 16% 6% 7% 7% 4% 6% 2% 6% 100% 5,390,352 3,290,211 56,608,582 1,529,476 22,371,541 9,097,765 10,011,663 8,305, ,433 5,978,174 8,309,716 3,390,729 7,622, ,193,464 4% 2% 40% 1% 17% 6% 7% 6% 4% 6% 2% 5% 100% Note: The District implemented GASB Statement No. 34 in fiscal year This information is not available for previous fiscal years. 71 and 72

87 INDEPENDENT SCHOOL DISTRICT NO. 622 General Fund Revenue by Source Last Ten Fiscal Years Year Ended Local Property Other Local and June 30, Tax Revenue State Revenue Federal Revenue Miscellaneous Total 2002 $ 25,968,472 $ 57,438,950 $ 2,837,087 $ 1,787,395 $ 88,031,904 30% 65% 3% 2% 100% ,057,135 78,553,542 3,441,333 2,055,988 87,107,998 4% 90% 4% 2% 100% ,991,578 74,774,513 3,377,640 1,901, ,045,262 20% 75% 3% 2% 100% ,506,253 79,703,007 3,924,896 1,896, ,030,224 16% 78% 4% 2% 100% ,123,685 85,606,440 3,804,008 2,743, ,277,345 11% 83% 4% 2% 100% ,497,690 85,061,668 4,283,802 2,970, ,814,060 17% 77% 4% 2% 100% ,918,484 85,477,461 4,279,772 2,564, ,239,763 16% 78% 4% 2% 100% ,226,830 88,959,966 4,324,109 2,006, ,517,278 18% 76% 4% 2% 100% ,588,351 80,649,148 14,329,420 2,239, ,806,025 17% 69% 12% 2% 100% ,288,166 82,031,088 6,629,412 1,748, ,696,818 23% 70% 6% 1% 100% Note: Beginning in fiscal year 2003 a shift in funding from local property tax revenue to state revenue occurred, increasing the District's reliance on the state for funding. This change in revenue source is largely the result ofthe state's effort to finance general education entirely with state aid funding. -73-

88 INDEPENDENT SCHOOL DISTRICT NO. 622 General Fund Expenditures by Program Last Ten Fiscal Years Year Ended June 30, Elementary and Secondary Vocational Special District Regular Education Education Instructional Pupil Sites Administration Support Services Instruction Instruction Instruction Support Services Support Services and Buildings Other Programs Total 2002 $ 4,596,149 $ 2,218,311 $ 41,646,802 $ 1,538,971 $ 15,800,877 $ 5,047,428 $ 7,856,068 $ 8,401,228 $ 457,464 $ 87,563,298 5% 2% 48% 2% 18% 6% 9% 10% 100% ,917,568 2,136,171 41,902,182 1,586,866 17,805,144 5,597,981 8,022,749 8,226, ,027 89,771,467 4% 3% 47% 2% 20% 6% 9% 9% 100% ,564,845 2,226,126 47,642,936 1,792,653 19,175,653 5,755,185 9,406,446 8,903, ,313 99,227,911 4% 2% 48% 2% 19% 6% 10% 9% 100% ,976,564 2,084,059 48,350,197 1,768,576 21,031,510 6,677,475 8,808,485 9,925,150 1,665, ,287,092 4% 2% 46% 2% 20% 6% 8% 10% 2% 100% ,129,436 2,012,595 47,178, ,122 20,615,233 6,227,536 8,589,068 8,738,704 1,528,557 99,859,745 4% 2% 47% 1% 21% 6% 9% 9% 1% 100% ,219,865 2,159,345 49,933, ,128 21,056,040 7,938,470 8,610,190 7,926,099 1,627, ,253,934 4% 2% 48% 1% 20% 7% 8% 8% 2% 100% ,374,043 2,435,187 53,130, ,676 18,082,623 7,801,655 9,113,629 8,185,039 1,686, ,607,472 4% 2% 50% 1% 17% 7% 9% 8% 2% 100% ,529,415 4,327,200 75,134, ,972 21,609,424 9,330,700 9,552,635 13,103,881 1,389, ,872,350 5% 3% 52% 1% 15% 7% 7% 9% 1% 100% ,277,573 3,015,817 54,530,676 1,645,492 21,950,307 8,645,005 9,685,448 9,243,624 1,370, ,364,307 5% 3% 47% 2% 19% 7% 8% 8% 1% 100% ,305,595 4,002,664 55,465,285 1,529,476 22,357,187 9,072,127 10,097,762 12,173,859 1,185, ,188,987 4% 3% 47% 1% 19% 7% 8% 10% 1% 100% Note: In fiscal 2009, the expenditures included $30,583,899 of employer contributions to the Post-Employment Benefits Trust Fund related to OPEB debt issuance. 74 and 75

89 INDEPENDENT SCHOOL DISTRICT NO. 622 School Tax Levies and Tax Rates by Fund Last Ten Fiscal Years Community Capital Projects - Tax Year Service Special Building Debt Collectible General Fund Revenue Fund Construction Fund Service Fund Total All Funds Levies 2002 $ 3,162,659 $ 1,232,860 $ $ 7,177,658 $ 11,573, ,218,281 1,346,791 8,945,247 25,510, ,926,821 1,301,463 8,005,553 26,233, ,083,633 1,296, ,000 9,134,839 27,274, ,484,313 1,309, ,087 9,258,916 28,908, ,179,602 1,316,834 10,424,015 29,920, ,435,219 1,077,510 9,814,559 32,327, ,195,701 1,231,953 15,133,934 37,561, ,956,942 1,386,016 15,133,427 36,476, ,101,942 1,533,337 15,938,022 36,573,301 Tax capacity rates Market value rates Note: A tax rate based on market value is primarily used for a portion ofthe District's referendum levy. Source: State ofminnesota School Tax Report -76-

90 INDEPENDENT SCHOOL DISTRICT NO. 622 Tax Capacities and Market Values Last Ten Fiscal Years For Taxes Collectible Net Tax Capacities Fiscal Disparities Agricultural Non-Agricultural Contribution Distribution Tax Increment Total Taxable Market Value $ 104,935 $ 58,226,195 $ (7,968,926) $ 6,358,253 $ (2,390,861) $ 54,329,596 $ 4,558,125, ,372 64,337,999 (8,025,415) 7,053,289 (2,719,865) 60,785,380 5,118,684, ,031 71,365,838 (8,871,716) 7,890,938 (2,597,208) 68,031,883 5,724,711, ,707 78,567,355 (9,662,711) 8,188,419 (2,225,927) 75,053,843 6,398,502, ,558 86,093,074 (10,034,162) 8,506,245 (2,099,830) 82,623,885 7,051,020, ,689 96,485,075 (11,122,360) 9,188,580 (1,797,206) 92,925,778 7,804,697, , ,602,510 (13,282,622) 10,675,266 (1,474,788) 96,694,693 8,066,751, , ,526,122 (14,020,569) 12,361,168 (1,383,776) 98,660,960 8,021,014, ,067 96,899,141 (15,237,979) 12,741,373 (1,317,352) 93,283,250 7,607,252, ,756 90,381,843 (14,370,959) 12,667,198 (1,172,302) 87,718,536 7,100,019,400 Note: Market value is used primarily for extension of the District s referendum levy. Source: State of Minnesota School Tax Report 77 and 78

91 INDEPENDENT SCHOOL DISTRICT NO. 622 Property Tax Levies and Receivables Last Ten Fiscal Years For Taxes Collectible Original Levy Uncollected Taxes Receivable as of June 30, 2011 Property Delinquent Current Local Spread Fiscal Disparities Tax Credits Total Spread Amount Percent Amount Percent $ 8,313,851 $ 2,303,121 $ 956,205 $ 11,573,177 $ % $ % 22,998,522 1,357,968 1,153,829 25,510,319 21,691,997 3,533,405 1,008,435 26,233,837 23,232,138 3,080, ,808 27,274,922 14, ,954,593 3,068, ,882 28,908,765 12,010 25,986,738 3,201, ,135 29,920,451 49, ,100,466 3,397, ,310 32,327, , ,448,397 4,145, ,379 37,561, , ,548,650 4,920,463 1,007,272 36,476, , ,539,758 4,951,226 1,082,317 36,573,301 21,350, $ 1,019,455 $ 21,350,384 Note 1: Note 2: Note 3: A portion of the total spread levy is paid through various property tax credits which are Beginning with the levy collectible in 2002 the general education levy was eliminated Delinquent taxes receivable are written off after seven years. The amount of collections has been adjusted to reflect the write-off of delinquent taxes receivable. Source: State of Minnesota School Tax Report 79 and 80

92 INDEPENDENT SCHOOL DISTRICT NO. 622 Student Enrollment Last Ten Fiscal Years Average Daily Membership (ADM) (for Students Served and Tuition Paid) Year Ended Handicapped and Total June 30, Pre-Kindergarten Kindergarten Elementary Secondary Total Pupil Units ,407 5,835 12,072 13, ,299 6,095 12,166 14, ,041 6,041 11,872 13, ,947 6,106 11,770 13, ,787 6,151 11,661 13, ,710 6,234 11,727 13, ,588 6,077 11,448 13, ,508 6,032 11,365 13, ,388 5,895 11,072 13, ,390 5,818 10,971 12,890 Note 1: Student enrollment numbers are estimated for the most recent year presented. Note 2: Beginning in fiscal 2004 ADM is limited to 1.0 ADM per student. Note 3: ADM is weighted as follows in computing pupil units: Handicapped Elementary Elementary Pre-Kindergarten Kindergarten Kindergarten Secondary Fiscal 2002 through Fiscal 2008 through Source: Minnesota Department ofeducation student reporting system -81-

93 SINGLE AUDIT AND OTHER REQUIRED REPORTS

94 INDEPENDENT SCHOOL DISTRICT NO. 622 Schedule ofexpenditures offederal Awards Year Ended June 30,2011 Federal Federal Federal Grantor/Pass-Through Grantor/Program Title CFDANo. Expenditures u.s. Department of Agriculture Passed through Minnesota Department ofeducation Child nutrition cluster School Breakfast Program $ 456,516 National School Lunch Program ,183,495 Total child nutrition cluster 2,640,011 U.S. Department of Education Passed through Minnesota Department ofeducation Special education cluster Special Education - Grants to States ,039,009 ARRA - Special Education - Grants to States ,080 Special Education - Preschool Grants ,157 ARRA - Special Education - Preschool Grants ,500 Total special education cluster 3,022,746 Title I, Part A cluster Title I Grants to Local Educational Agencies ,406,569 ARRA - Title I Grants to Local Educational Agencies ,495 Total Title I, Part A cluster 1,493,064 Education for Homeless Children and Youth cluster Education for Homeless Children and Youth ,571 ARRA - Education for Homeless Children and Youth ,662 Total Education for Homeless Children and Youth cluster 37,233 Education Jobs Fund ,837 Safe and Drug-Free Schools and Communities - State Grants ,390 Improving Teacher Quality State Grants ,996 English Language Acquisition Grants ,037 Adult Education - Basic Grants to States ,055 Passed through Northeast Metropolitan Intermediate School District No. 916 Career and Technical Education - Basic Grants to States ,554 Passed through Independent School District No. 623 Safe and Drug-Free Schools and Communities - National Programs ,412 Direct Safe and Drug-Free Schools and Communities - National Programs , ,165 (continued) -82-

95 INDEPENDENT SCHOOL DISTRICT NO. 622 Schedule ofexpenditures offederal Awards (continued) Year Ended June 30,2011 Federal Grantor/Pass-Through Grantor/Program Title Federal CFDANo. Federal Expenditures U.S. Department of Education (continued) Passed through Minnesota Department ofeducation Early intervention services cluster ARRA - Special Education - Grants for Infants and Families Passed through Independent School District No. 831 Special Education - Grants for Infants and Families Total early intervention services cluster ,745 4,708 73,453 U.S. Department of Health and Human Services Passed through Minnesota Department ofeducation Refugee and Entrant Assistance - State Administered Programs ,600 Total federal awards $ 9,383,141 Note 1: Note 2: Note 3: Note 4: This Schedule of Expenditures of Federal Awards is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with OMB Circular A-133, Audits ofstates, Local Governments, and Nonprofit Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the District's basic financial statements. Non-monetary assistance of $101,142 is reported in this schedule at the fair market value of commodities received and disbursed for the U.S. Department of Agriculture National School Lunch Program (CFDA No ). All pass-through entities listed above use the same CFDA numbers as the federal grantors to identify these grants, and have not assigned any additional identifying numbers. The District provided federal awards to subrecipients as follows: Program Title Federal CFDANo. Amount Provided Title I Grants to Local Educational Agencies Improving Teacher Quality State Grants $ $ 25,277 8,

96 INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the School Board of Independent School District No. 622 North St. Paul Maplewood Oakdale, Minnesota We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Independent School District No. 622 (the District) as of and for the year ended June 30, 2011, which collectively comprise the District s basic financial statements, and have issued our report thereon dated December 6, 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. Internal Control Over Financial Reporting Management of the District is responsible for establishing and maintaining effective internal control over financial reporting. 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 opinions 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. Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control over financial reporting that might be significant deficiencies or material weaknesses and, therefore, there can be no assurance that all deficiencies, significant deficiencies, or material weaknesses have been identified. However, as described in the accompanying Schedule of Findings and Questioned Costs, we identified a deficiency in internal control over financial reporting that we consider to be a material weakness (continued)

97 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 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. We consider the deficiency described in the accompanying Schedule offindings and Questioned Costs as item to be a material weakness. 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 its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. The District's responses to the findings identified in our audit are described in the accompanying Schedule of Findings and Questioned Costs. We did not audit the District's responses and, accordingly, we express no opinion on them. This report is intended solely for the information and use ofmanagement, the School Board, others within the District, federal awarding agencies, and pass-through entities and is not intended to be, and should not be, used by anyone other than these specified parties. ;vl~ Il~"f, December 6, 20 II ;vici\-r~.,e./ -85-

98 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 To the School Board of Independent School District No. 622 North St. Paul Maplewood Oakdale, Minnesota Compliance We have audited Independent School District No. 622 s (the District) compliance 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 the District s major federal programs for the year ended June 30, The District s major federal programs are identified in the summary of auditor s results section of the accompanying Schedule of Findings and Questioned Costs. 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 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 Nonprofit 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. As described in item in the accompanying Schedule of Findings and Questioned Costs, the District did not comply with requirements regarding reporting that are applicable to Education Jobs Fund; special education cluster; and Title I, Part A cluster. Compliance with such requirements is necessary, in our opinion, for the District to comply with the requirements applicable to those programs. As described in item in the accompanying Schedule of Findings and Questioned Costs, the District did not comply with requirements regarding allowable costs and cost principles that are applicable to the Title I, Part A cluster. Compliance with such requirements is necessary, in our opinion, for the District to comply with the requirements applicable to these programs (continued)

99 As described in item in the accompanying Schedule of Findings and Questioned Costs, the District did not comply with requirements regarding eligibility that are applicable to the Title I, Part A cluster. Compliance with such requirements is necessary, in our opinion, for the District to comply with the requirements applicable to these programs. In our opinion, except for the noncompliance described in the preceding paragraphs, 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 June 30, Internal Control Over Compliance 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 to determine the 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. Our consideration of internal control over compliance was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control over compliance that might be significant deficiencies or material weaknesses and, therefore, there can be no assurance that all deficiencies, significant deficiencies, or material weaknesses have been identified. However, as discussed below, we identified certain deficiencies in internal control over compliance that we consider to be material weaknesses. 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. We consider the deficiencies in internal control over compliance described in the accompanying Schedule of Findings and Questioned Costs as items , , , and to be material weaknesses. The District's responses to the findings identified in our audit are described in the accompanying Schedule of Findings and Questioned Costs. We did not audit the District's responses and, accordingly, we express no opinion on them. This report is intended solely for the information and use ofmanagement, the School Board, others within the District, federal awarding agencies, and pass-through entities and is not intended to be, and should not be, used by anyone other than these specified parties. ;'//0..110'1, /lijo.f)..,...-~~ltl {<C\.AI'\owsIc.. 1 r December 6, 2011 (?D..JlJ.$CA/"d.,~ f G"r?